Questions

My company has a great working product, 2.5 yrs of revenue and traction, however I don't have a co-founder, or any employees. In fact, I have set it up so most of my business is outsourced: product fulfillment, customer service, etc. I am currently going through the Founder Institute program in San Diego, and I am looking to raise funding in order to bring on some actual in house employees, and increase my marketing spend. I am at the point where I am looking to begin meeting with investors, however I am just wondering if it would be in my best interest to find a co-founder before I begin these meetings, or just assemble a good team of advisers and then hire key employees after funding? Look forward to hearing back. For a detailed look at Founders and Cofounders Startups.com produced a great guide: https://www.startups.com/library/expert-advice/startup-founders-and-cofounders

I've coached a few startups through the strategic planning and fundraising process including both solo founders and co-founders. I also spent some time producing a livestream Internet TV show that interviewed startup founders and investors. This question exemplifies the situation where the answer an entrepreneur gives (or thinks she should give) is misaligned to the question the investor is asking.

Some investors are vocal that multiple founders mitigate risks:

http://blogs.wsj.com/accelerators/2013/07/25/ed-zimmerman-why-i-prefer-to-invest-in-startups-with-multiple-founders/

http://arshadchowdhury.com/1587-how-many-founders-a-startup-should-have/

According to these two authors, some reasons why investors consider solo founders risky include:

-burnout
-model exists for investing in more than one founder and investors like following existing models
-multiple founders might offer complementary skills while solo founders might bring specialized expertise while struggling with other areas of the business

Paul Graham is well-known for famously listing the solo founder as one of the biggest mistakes a startup can make.

http://www.paulgraham.com/startupmistakes.html

Jeff Miller refuted this idea in 2010.

http://talkfast.org/2010/07/06/solo-founders/

Other risks to solo founders include:

-the business will fail if the founder becomes incapacitated
-startups with co-founders may experience more successful exits
-lead investors may find it easier to attract partners if you have a co-founder

These risks are all considerations that are outside your control that investors don't always share with you.

Startups with co-founders face their own set of risks and plenty of examples of failed startups exist to prove that these risks are real:

-visions for the company may not be aligned
-decisions may take longer
-overlapping areas of responsibility may confuse customers, staff, and members of the board of directors

In any event, you need to keep these risks in the back of your mind. Investors certainly have them in the back of theirs.

My advice, all of which is immediately actionable:

1. Spend some time preparing an investor scorecard. Identify what you need in an investor to make your scaling process successful.

2. Research several investors and assign them a score based on your criteria.

3. Look at the portfolios of investors who scored within the 90th percentile of your evaluation process. Is their portfolio of companies comprised mostly of solo or co-founded entrepreneurs?

4. Set up a meeting with these investors right now and be completely transparent where you are.

If you're meeting with an investor who primarily invests in solo founders, let them bring up the topic of a co-founder.

If you're meeting with an investor who primarily invests in companies with co-founders, explain that you're weighing the pros and cons and that you'd like their advice. It's important, though, to make it clear that you don't want to bring on a co-founder for the sake of having one. Rather, you want one that meets the needs of your business.

5. Evaluate the needs of your business. Why is a co-founder critical to the success of your business post-funding? Consultants selling their services on here (including me) can help you out at this stage. You will end up with a needs assessment for your company's management strategy. You might want to move this task up in the process if you're not confident on your ability to be a solo founder post-funding.

6. Ask your target investors if they know anybody who fits the bill. This ask has three main benefits.

First, the best way investors can mitigate risk is by gaining control over key aspects of the operation: allowing them to recommend a co-founder or somebody to help you manage the business gives them more control over the company's destiny.

Second, if you take your prospective investor's recommendations, they label you as "coachable" and you gain their trust. "Coachable" is high on the entrepreneur scorecard for many investors and their trust is invaluable.

Third, they will often recommend somebody in the same space who has successfully managed a venture in the past and can immediately have a positive impact on your business. Research shows that past experience and talent go hand in hand with success.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=909615

In any event, listen to all of the ideas you get from answers to your question here. There are plenty of other viewpoints that fall outside the scope of my answer.

Let me know if you'd like to discuss in more detail. I'm happy to take a call via Clarity.fm and I offer complimentary reviews of business plans for startups in your situation. Feel free to reach out if you'd like some help.

Best of luck,
Sean


Answered 10 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2024 Startups.com LLC. All rights reserved.