The Co-Founder Mythology

Posted on May 9, 2011 | 209 comments


I spoke at Stanford last year about starting a tech company. They really cleverly chopped the video up into small bite-sized segments.

So for anybody who reads my “This Week in VC” transcripts but doesn’t watch the video – this one’s for you! It’s only 3 minutes, 44 seconds.

I covered what I call “the co-founder mythology.” So embedded is this conventional wisdom in Silicon Valley that it feels like heresy to even question it. It’s a sacred cow, for sure.

So emotional is the topic that people often want to debate me based on the title before they’ve even heard my point of view. If you’re interested in the topic please watch the video by clicking on the image above.

Here is a quick summary of my POV:

  • When you start a company a 50/50 partnership seems obvious. Either you’re not technical and you think you need a technical co-founder or vice-versa
  • Conventional wisdom says that you gain far more in working as a team than you lose by diluting by half before you start.
  • Conventional wisdom doesn’t account for all of the things that go wrong in partnerships over time; especially ones that are formed quickly and without a long gestation period.
  • It is increasingly popular to have “founder dating” or “startup weekend hackathons” of some variety or the other. We get cast together with a team of people we barely know and if we win we gleefully announce we’re going to do a company together. We don’t even know whether they snore.
  • You often have very limited perspective on whether this person will continue to be a great partner 2 years down the line, 4 years down the line, 8 years down the line
  • Even if you *think* you know them, people change. One person gets more risk averse, the other has more risk appetite. One person gets married or has kids and starts to de-prioritize the business. One person loses the passion for what you do. Or you have disagreements about strategy, recruiting, funding, etc.
  • 50/50 partnerships can be hugely unstable – even if you’ve been friends since high school.
  • And all of the hard work is ahead of you. You’re only going to find out whether they’re TRULY a great partner after you’ve put in years of money, blood, sweat & tears.
  • I think most people do 50/50 partnerships because they’re afraid to start alone. It’s scarier because if you fail it was only you and all your fault. Somehow it feels easier to leap together. I know. It’s what I did the first time.
  • I say, “go ahead & take the leap” if you want to start a company (many people don’t want to – that’s OK, too.). Hire your co-founder. Give them a large sum of equity. 20%. 30%. Even 40%. Vested over 4 years. If you ever fall out of love you have a pre-nuptial agreement. I talk about that in more detail here.
  • Truly treat them like a co-founder. Give them access to all confidential information. Involve them in fund raising, hiring, strategy, etc. Publicly call them a co-founder. Don’t rule like a dictator. But … if you have very big disagreements about funding, risk levels (e.g. like how much burn rate), whether to sell the company, etc. you won’t be backed into a corner or unable to make tough decisions.

Here’s the reality: most people don’t want to start a business. They don’t have an idea. They don’t want to come up with one from scratch. They don’t want the risk of the first 3-6 months with no salary and having to walk around with a tin-cup for funding. So most people join companies. That’s OK. It’s the more sane thing to do. Startups have high failure rates.

Most senior employees who join are given 2% if they join early. Maybe they get up to 10% if they joined REALLY early and were senior. Who gets 30%? Nobody. That’s who. So trust me when I tell you that you can hire incredibly talented people for 30% of your company. Or 20%. Let’s be honest – even 10%.

And here’s the thing – given that all of the hard work is IN FRONT of you (as in the next 8 years of your life) – why would you start out with an unstable position if you don’t have to?

I know many people reading this will violently disagree. And some of them will be from startups that are already very successful. If it’s working – no problem. I’m not saying it will never work. But many of the cases where it goes well are when the company hasn’t struggled. We’re all friends when things are moving up and to the right.

If you do decide to go down the 50/50 route, please at least consider:

  • Make sure you have founder vesting for both of you. It is not uncommon to see startup founders walk before raising capital and take large pieces of equity with no vesting. That means that the people who stay get to work their arses off to try and make money for the person that walked. Why risk it?
  • Make sure you have a very clearly established governance structure. None of this, “we’re co-founders, we just work well together. So we’re co-CEO’s” BS. Pick a leader. Have a clear path to resolving conflicts if they arise.
  • Discuss up front how you’re going to resolve any conflicts. Discuss topics such as funding, risk orientation, how long each of you wants to be doing this business, what happens when one partner wants to leave or one isn’t performing?
  • I wrote about many of the early-stage startup mistakes here.

OK. Now feel free to shoot the messenger.

Just please read one more message first: I promise you for as great as you feel about your current partnership agreement – I meet far more people who had problems with theirs than founders who didn’t have problems. People just don’t talk about it publicly or in blogs.

I meet far more second or third time entrepreneurs who wouldn’t do a 50/50 (or 33/33/33) partnership ever again than you would image.

I am one of them.

Update: Russell Fradin makes a great point. If you’re already “been to war with them” in a company and know their character I would consider it more. There are some people you trust like family. I have about 2 of those.

  • Anonymous

    The film industry offers a great example to support your logic. In essence, due to extreme competition for jobs, you are consistently surrounded by incredibly smart and talented people, however, because of the need to execute a vision in a timely and accountable manner, there can really only be one person who is “in charge.” Can you imagine how impossible it would be to spend $100+ million dollars on a blockbuster film in less than a year if you had to make all decisions by committee? Thus, the need for a “Director” is as much about vision and execution as it is about finances and scheduling. The same conclusion has been reached in military structures as well.

  • http://www.jonasbrandon.com Jonas

    So true. Great post on a topic no one talks about. Thank you Mark.

  • Daniel Bernal

    Good article, great advice. Having been through 2 bad business partnerships (business marriages) myself, I will never take on a 50/50 or 33/33/33 partner at startup again (with the exception of a Bill Gates..) Thanks for confirming what I was thinking myself Mark.

  • http://about.me/satyajit Satyajit Sahu

    If you’ve been a marriage counsellor, you know that getting married is one thing, and remaining married is another! If the union was such a bad thing, then everyone will remain single.

    It takes effort (norture for us married people) to maintain balance (power, equity, etc) within co-founders, and yet forge ahead at startup pace, but having co-founders is the biggest blessing a startup could have.

    From a VC’s perspective, you may be right avoiding unnecessary risks, but from a (co)founders perspective, I cannot be thankful enough for my cofounders. Its not because I cannot take decisions by myself, but its great to bounce ideas (tech, business or even design) at much higher level.

    There is a reason, why people like Aaron Patzer or Tony Hseih (single founder company) are rare occurrences in Silicon Valley.

  • Serandez

    @msuster:disqus Hey Mark, great piece again. I recently started reading your blog and have really bought into a lot of your tips for people trying to start up a company, particularly the need for bringing in top talent. – and I think the quote “Who gets 30%? Nobody. That’s who. So trust me when I tell you that you
    can hire incredibly talented people for 30% of your company. Or 20%.
    Let’s be honest – even 10%.” is spot on.

    Thanks.

  • http://twitter.com/dariusvasefi darius vasefi

    Agreed. Actually giving away too much would be a red flag too, right?

  • http://about.me/humphrey HumphreyPL

    What do you call NFL? As I have same problem in Australia. I can Soccer (Football) but here Football is Aussie Rules! :)

  • http://twitter.com/ThomasIlk Thomas Ilk

    I love you for writing this post ;-)

    I have projects with the co-founder model too, but not always.
    Sometimes the single founder and hired co-founder model and other alternatives are simply better.

  • http://www.alearningaday.com Rohan Rajiv

    Hahaha. I’m glad about Football. I hope you are a Man United fan though.. but even if you aren’t I’ve learnt that nobody is perfect.. haha!

    And interesting point of view on Google. That’s something that didn’t cross my mind..

  • http://bothsidesofthetable.com msuster

    Or hire your co-founders and when they ask tell them what they want to hear, “here are my two co-founders” … it will end the discussion. I promise you. Investors can be superficial.

  • http://bothsidesofthetable.com msuster

    You’ll become blood brothers with the people you work in the trenches with. Later in life they’ll become life-long friends. But don’t let them start that way.

  • http://bothsidesofthetable.com msuster

    not having co-founders is not the same as working alone, Willis, which I never advocate

  • http://www.ChrisNorstrom.com Chris Norström

    TechCrunch is mostly “Silicon Valley Lottery Stories” a.k.a. the things you WANT to hear, rather than the things you should hear. People like advice that makes them feel good, not advice that shows them reality. Why? Because reality isn’t the magical wonderful place everyone wishes it was. Reality sucks, nothing ever goes the way you want it to in the real world.

    TechCrunch, Mashable, and ReadWriteWeb cater to people who fantasize about becoming entrepreneurs while blogs like this exist for the purpose of sharing knowledge and reality with anyone willing to listen.

    I know this because I myself was a wanna-be entrepreneur who checked TC and Mashable religiously, fantasizing about success without working towards it.Don’t get me wrong, Techcrunch isn’t bad, but it does have to make money off of advertising, they needs lots of viewers, so they have to sugar coat everything and talk about success stories because good feelings and hope bring in more visitors. Blogs like this, however, don’t have that agenda, Mark talks about whatever the hell he wants to, for truth rather than money.What I learned is that you should start a company because you authentically want to, don’t ever do it for the fame. Your goal should be to learn and make something for the world, not roll around in riches and be famous. Success is an outcome, not a goal.

  • http://bothsidesofthetable.com msuster

    agreed. unfortunately. And unfortunately so far no VCs have weighed in on this issue (one way or the other)

  • http://bothsidesofthetable.com msuster

    I don’t want to discourage people. I just want people to understand that it’s not all glitz and glamor

  • http://bothsidesofthetable.com msuster


    matched my drive and passion for my company” – that’s the money quote. We all start equally passionate but over time interests and intensity levels can drift.

  • http://bothsidesofthetable.com msuster
  • Michael

    What a great quote and one I learned the hard way. I was a co-founder with a kindergarten friend who sure talked a good game. I had many right ideas (and plenty of bad ideas too) but could not force any decision. Great lessen and great experience. I am much better today for it.

  • http://bothsidesofthetable.com msuster

    It’s obviously not about being evil. It’s about control and ability to make tough decisions / execute. I’m fine with 40%. I’m also fine with 10% depending on the stage the co-founder(s) join and the value they provide. If a single founder took the first 1 year risk, built a product & raised money then 10-15% is totally appropriate. So it’s situation specific.

    That said, if a founder is giving up 10% I’d expect them to be generous on bringing other senior management on at 5-10% each, perhaps diluting 30% in total.

  • http://bothsidesofthetable.com msuster

    I now have somebody to run it so am working actively on it.

  • http://bothsidesofthetable.com msuster

    I thought I’d be flamed just because it seems it is such conventional wisdom.

  • http://bothsidesofthetable.com msuster

    Never with a spouse if possible.

  • http://bothsidesofthetable.com msuster

    Disagree. There is a huge pool of very talented people who would take 30%.

  • http://bothsidesofthetable.com msuster

    Well, it is clearly subjective rather than objective, but me thinks there is a “right” answer ;-) Maybe not 100% of the cases but if you’re just starting now I’d think hard about the issue

  • http://bothsidesofthetable.com msuster

    Glad to hear it’s timely. Good luck.

  • http://bothsidesofthetable.com msuster

    re: ”

    riskier to have a co-founder from scratch if you don’t know that person well rather than getting started alone.” exactly! I wish I had said that in the post.

    I have way more confidence in you, Net, than I did in any configuration of potential co-founders.

  • http://bothsidesofthetable.com msuster

    They are not rare, we just don’t tell the other stories. Marc Benioff, Larry Ellison, Marc Pincus, etc, etc.

    People to bounce ideas off of DOES NOT MEAN equal co-founders.

  • http://twitter.com/1ndus Indus Khaitan

    Pricing the talent right is very important. Err on the side of being generous with the equity even when hiring a co-founder.

    The corollary for the higher equity is when the person was hired for less equity (what he should get or you were able to negotiate a lower number because the incoming employee liked the opportunity) may lead to teams breaking up earlier. Even worse it may gnaw the person down as his overall importance in the executive team diminishes, as the company matures and other people come in.

  • http://www.eqentia.com William Mougayar

    You’ve made the right decision for now. The right partner may come along at a later stage, but don’t wait too long. You will need a strong technical founding partner eventually.

  • Mschick

    So what about the Bubba Gump Shrimp Company? Forrest Gump was faithful in keeping it 50/50, and it worked fine for him!

  • Asdfeqwofqek

    I am looking to hire a co-founder. already have some probable candidates within the firm. So agree!

  • http://twitter.com/jameshrh James Harradence

    Mark – I agree whole heartedly with your view. I would add one word to the discussion: confidence. Most people with an idea have not done the spade work to truly believe they are right. They tend to want to be right or hope they are right. They give away big parts of the company because they do not truly believe in the value of what they are trying to do.

    And they hope the co-founders will be there to make them feel better when it is proven to be a bad idea!

  • http://goteamspark.com chrispa

    Great post – I live in a pretty rural area (VT) and while I would have liked to have had a co-founder, I couldn’t find the right person. So I went in on my own and have never regretted it. There is a definite bias against single founders which is a shame – it just takes the right person.

  • http://www.participate.com Alan Warms

    Other thing that works, especially prior to outside funding, is shotgun deal. One person can offer to buy the other person out at a price, the other person can buy the offering person at that price. Always ensures you can get to one.

    My broader comment here is yes yes yes yes – this post is spot on.

  • Yavo

    This is a great article – I have been biting my tongue for a long time about this issue and the whole movement relating to “find a tech co-founder”. I think you’ve laid out plenty of reasons why it’s not so simple. If you’re a founder/CEO and you cannot find a good tech person to build your site (as an employee) you probably cannot be successful in the tech industry. It’s really hard to build something that’s worth tens or hundreds of millions of dollars. You have to do many things right. Hiring is at the top of the list.

  • Markyurik3

    @msuster your advice rings true, on the other hand, believe companies loose great talent by not offering a vesting percentage

  • http://www.victusspiritus.com/ Mark Essel

    Each startup is its own adventure, and is best served by a dynamic strategy. I see one primary founder as worth discussing/considering but not worth adopting without matching it to the company and it’s trajectory.

    At my first failed startup I negotiated the 60/40 split with my cofounder because I believed it would better position us for funding with a clear lead. It was foolish, we were full partners 50/50 and in hindsight based on the incredible work Tyler pulled off he should have had the lions’ share. But that failure was mine, I owned it and rode it all the way down into Ming’s palace.

  • Anonymous

    What if the opposite happens? In my first company, I accepted a minority share because I didn’t come up with the idea. I ended up adding most of the value (it’s not self praise, it was recognized by employees and investors). A year later we had a totally different product (first one didn’t work) and I had a co-founder that was not motivated and not adding value but had a majority stake. I agree with the 60/40 split when you’re already at an advanced stage of development but if all you have is an idea, that should be a 50/50. Ideas are worthless.

  • http://www.theasoe.com John Heinrich

    These are all good points, but I notice a couple of omissions:
    1. Work up a memo of understanding with co-founders about who does what;
    2. Everyone who’s a founder takes a psychological test, to find out if they’re suited to be a partner, and what their best working style is.
    John Heinrich
    President, Solutions Forum
    Chief Mentor, American School of Entrepreneurship
    http://www.thesolutionsforum.com
    http://www.theasoe.com

  • Robert Marsh

    Great perspective and advice. I tried (and encouraged portfolio CEOs) to make a conscious effort to think of the term founder “with a small ‘f'”. In other words, don’t create a special class of founding employees with “Founder” or “Co-Founder” titles and special employment terms. My objective was to allow as many early employees as possible consider themselves founders of the firm. Obviously, the crew that commits before there’s funding assumes greater risks but nearly all the early employees will feel like they took a significant risk to join a startup. Better to have as many as possible feeling like they helped found the company.

  • Dave W Baldwin

    Funny on my side, I’m equal on the idea end, yet accept the minority. It is a matter of being careful whom you’re joing with and the shared end run goal. Then it is a matter of who brings what to the table.

    MAIN THING! Look at what you’re doing down the road and have splintered out what you can accept overall in dilution via Seed and Series A.

    Ideas do matter… if they are good ones with time to play with ;)

  • http://www.bernardo.ws Hugo Bernardo

    Correction: Ideas matter but it’s what you do with them that will dictate your success. My point is that a 60/40 deal assumes imbalanced contribution and unless you really have made a lot of progress by the time you find a co-founder, that split should be 50/50. That co-founder can make a difference between failure and success. I don’t say 50/50 always works but I do think that unless the imbalance is obvious you should default to 50/50. BTW, I totally agree with the dilution comment.

  • http://technbiz.blogspot.com paramendra

    I agree. Bill Gates and Paul Allen were not cofounders. Larry Ellison and Bob Miner were not cofounders. Paul and Bob were minor players.

  • Dave W Baldwin

    Amen…

  • http://www.harvestcreative.com/blog Harvest Creative

    I can’t argue with the fact that many 50/50 partnerships end badly and are indeed a bad idea. However, I have enjoyed great success with a 50/50 partnership and feel that when it is a good match it can be enormously beneficial. My partner and I have been working together for seven years and I can guarantee I wouldn’t be enjoying a successful business without our partnership.

  • Leland

    Good advice.

  • Leland

    This just proves that when it comes to business, friendship cannot be relied upon vs a written agreement.

  • http://twitter.com/AliShaheen Ali Shaheen

    The tricky part is a lot of young entrepreneurs don’t really want to discuss the tough issue of “vesting”. Most partnerships work like equal partnerships because of high motivation level at the idea stage. It’s only later, that the dust settles down, different founders have different opportunities and personal issues when these issues come along.

    So, I believe for young first time entrepreneurs, this is a hard issue to resolve – they are better off with starting with whatever they are comfortable with and focusing on the product rather than partnership matters. For more experienced people, if they aren’t really thinking about these things, then they aren’t really good business people in the first place.

  • http://lmframework.com David Semeria

    Quick question Mark: whilst it makes perfect sense to impose vesting on the stake you’re “giving” to the first big hire, you seem to imply the founder should impose vesting on himself. This seems odd to me. Is this correct?

  • http://www.timedoctor.com Rob Rawson

    I think it depends on the type of company you are starting and what you are trying to achieve. For example if you need 15 software engineers, then a technical co-founder is not so necessary, you can have one founder who does the fundraising and everything else and then hire a technical team. If only need 2 people to get the product built then it makes more sense to have 2 co-founders both of whom are technical.

    I know of and have experienced several examples of both: Success with a co-founder or several co-founders, and also it ending up as a disaster.

    I do think that building a company by yourself is not quite as much fun as building it with someone else.