When validating a business idea, it is important for all collaborators to be on the same page. This example pre-incorporation founders’ agreement is intended to spur discussion between collaborators. Projects evolve rapidly. Whether the project becomes wildly successful or not, clearly communicating expectations beforehand will avoid surprise, hurt feelings, and conflict. Repeat this discussion frequently, but don’t spend too much time on it when your time could be better spent testing hypotheses and removing other unknowns about the business.
Note: I’m not a lawyer, and because projects change so quickly with new information, I wouldn’t actually ask my teammates to sign this as a legally binding document. I would however review it carefully with them to set expectations and make sure we’re all on the same page. Here is an example document.
Pre-incorporation Founders’ Agreement Example
Collaborators & Roles
- Person A – Marketing and Business Plan research
- Person B – Software Engineer
- Person C – Designer
We are starting a project to validate that the 10,000 people will download an app for viewing dog photos where AI is used to recommend. If the experiment is a success, we’ll incorporate a startup company, and the company will take ownership of the software, domain name, and other project artifacts.
The initial project will consist of: Feature 1, 2, and 3, and be considered a success if 10,000 people download the app.
- Person A will devote 2-10 hours / week for 3 months, and reach out to their industry contacts
- Person B will pay for software and hosting
- We will use our personal laptops for the time being
- Collaborator 3 will pay for the domain name
- Collaborator 2 will provide starter code from previous app and previous AI research
- All revenue will be held by Collaborator 1 and used to be paid for expenses.
- Collaborators won’t be paid based on revenue for the app until after incorporation.
- Most likely the revenue from the app won’t support our salaries for at least a year, so after launch and funding, we’ll begin paying ourselves salaries.
When we incorporate our Startup, we will divide the founder ownership (outside of the pools reserved for advisors, investors, and employees) in these percentages.
- Collaborator 1 will take 60% ownership and continue as CEO
- Collaborator 2 will take 20% ownership and continue as CTO
- Collaborator 2 will take 20% ownership and continue as CDO
We intend to seek investment for our startup and know that outside investment will dilute our ownership stakes, so the stakes above are before outside investment. Also, we are aware that ownership commonly vests over a 5 year period.
Person A _________________
Person B _________________
Person C _________________
If a participant has a full time job, they should weigh the risk of any non-compete or intellectual agreements they have with their employer.
What other topics do you think should be discussed before embarking on a startup validation project? Please drop them in the comments below.