How Not to Hire a Cofounder

Today we’re talking about how to not get screwed over by your cofounder.

Join forces with the right cofounder, and your company can grow tremendously.

But unfortunately, most founders make a huge mistake.

Because they ignore this fact:

It’s extremely easy to do a bad deal with a co-founder.

…and what’s worse, the mistakes compound into bigger issues.

Like this common arc I often see:

• Cofounder super excited to join!
• Cofounder comes on board, works hard for 3 months in exchange for big equity stake
• Cofounder needs to pay bills, reduces time spent on business
• Cofounder ghosts entirely

…and before you know it, you’ve got an absentee cofounder who owns 30% who you now gotta figure out how to buy back their shares…

…and you won’t be able to raise until you do.

Yikes.

Don’t worry. You’re not alone.

Once upon a time, I joined a company as a cofounder, and I made similar mistakes.

But you won’t.

Here’s what you do:

Step 1: Have an open conversation

It’s not easy, but you gotta do it.

Painfully honest.

Must-covers:

• Vision for the future of the company
• What happens when things go wrong
• Expectations & abilities surrounding role and time commitment
• Who’s best at what thing - and what skills you’d still be lacking on the team

…and a whole lot more.

Here’s what you can expect re: ownership…

If you sense issues at this stage, do NOT ignore them or sweep them under the rug.

Because the things you & your prospective cofounder don’t discuss early = the things that will destroy your relationship later.

Step 2: Get it in writing

Always negotiate the divorce before you get married.

Think of this part as a kind of pre-nuptial agreement.

So many founders get this wrong - myself included - because they assume they’re on good enough terms with their cofounder that it’d never be a problem later on.

To younger me (and you, today):

Stop deluding yourself.

Get a signature on paper, or any terms you’ve discussed are meaningless.

But a “back of the envelope agreement” here isn’t enough.

Step 3: Protect yourself - and the company

Time to lawyer up.

I’m not a lawyer, but here are some practical aspects you wanna spell out to keep yourself and the company protected:

• IP Ownership - All intellectual property created for the company is owned by the company
• Non-Compete / Non-Solicit - Protect the company from a cofounder leaving and starting a competing business / poaching employees
• Clawback - If a cofounder leaves the company in the lurch, the shares go back to the company
• Share Vesting Schedule - Don’t give all the shares upfront. Pay for performance, over time.
• Shareholder Agreement - Including things like drag-along / tag-along provisions, pro rata rights etc

Get a lawyer, because this isn’t an exhaustive list and Google / ChatGPT is NOT a good legal advisor.

Welcome to Clarity.

By the time you’re done, there should be no doubt as to “what happens when things go really, really bad.”

No misunderstandings.

No misinterpretations.

No BS.

Now you can just go and grow.