Pre-incorporation founder’s agreements

startup founders

I’m currently working on a couple of speculative projects where a non-trivial (more than a weekend) amount of unpaid work is necessary up-front to prove out the business. It’s important – especially when you’re working with new people – to flesh out everyone’s expectations in the beginning (and way easier than down the road). However, too much discussion is a waste of time before you’ve created a product that’s worth something.

Here are a few key questions to be answered.

  1. How much time and money will be invested by each founder?
  2. What are the specific roles and responsibilities of each founder?
  3. What is the scope of the Version 1 product we’re working towards, or hypotheses we’re testing?
  4. What is the definition of success? What outcome would keep each team member working on this project at the same or greater level of effort?

From there, you can negotiate.

  1. The percentage ownership split. What percentage will each founder get if the project is sold?
  2. The percentage profit split. What percentage of earnings will each founder get?
  3. How will decisions be made? Is there one CEO, or is a majority vote sufficient? Can a majority of founders kick out another founder?
  4. What happens if the project fails, there is a disagreement, or interest fizzles out? Who keeps the IP (code) and branding (name) – subject to the others buying it from them?

After the Version 1 milestone is reached, if your project is a success – congrats (this is rare)! You should actually incorporate. Hopefully all founders will be on good terms based on the expectations set at the beginning (and reasonable with the most-likely changed requirements and direction of the business). If you haven’t hit it out of the park, re-evaluate, re-negotiate, and take another shot (or move on).

Here are a few templates for putting your pre-incorporation founder agreement in writing.

Please leave a comment below if I’ve forgotten anything, or if you have another resource I should add.

Aside: when researching this, I thought Startup Weekend surely must have a FAQ about this, and they do (in particular about IP and ownership). This is a great answer for a project where the initial investment is just a weekend.

Startup Weekend: How do teams address the issue of IP/ownership? While it doesn’t hurt to be clear about your individual expectations from the start, we’ve found that teams who don’t spend time addressing this issue until it actually matters (i.e., there is a tangible product to have ownership of) are much more productive and successful than those who do.

Related: Ideas are inevitable, why I don’t sign NDAs and laugh at stealth mode

 

 

 

Image courtesy of gettyimages.com

 

Pre-startup weekend idea list

Startup Weekend is rad. I skipped the first 10 or so of them we had in Seattle because I stupidly thought I was too cool for it. “Every weekend is a startup weekend for me,” I’d say. I finally went to my first one back in November, and recruited a killer team of 3 people (Jason Strutz, Hisun Kim, and Darrell Garbe) to work on SeeSaw (a mobile social app similar to Hashable).

It was an adrenaline rush to work in a competitive environment with great people. I now always recommend Startup Weekend to people looking for programmers or designers. Personally, I enjoyed having the chance to pitch an idea, get people’s responses, and do a basic implementation to get the idea out of my brain.

In preparation for the next event, as a follow up to my post on evaluating ideas, here are some of the ideas I’ve noodled-up the last 6 months or so. When evaluating these, I’m trying to place an emphasis on customer pain, clear business model, and the execution of the idea.

The spreadsheet ranks ideas based on the prospective market, virality, retention, monetization, and level of effort. I have a proclivity for social apps because they are more viral (and I just love them).

I’m eager for your feedback. Please leave a comment if one of these ideas catches your eye. Especially leave a comment if you think an idea is dumb (to save me time working on it).

Use this link to open full spreadsheet.

You should always share your ideas, by the way. In this day and age, if you find yourself saying “we’re in stealth mode,” or worse – just keeping an idea to yourself, you’re stupid. Remember, it’s the execution that matters anyway.