Invited Technical Co-Founder
The role you don’t want to be in.
How it Begins
A business guy approaches you with an ambitious idea. The idea requires careful implementation you have the skills for.
After talking together, it appears you can bring a lot to the table. The idea starts to feel like your own. Within a few hours it evolves and takes shape.
You both well understand what has to be implemented for the first product.
Given how early stage the venture is, you are being offered a role of a technical co-founder.
The prospect of being a co-founder and driving the technical side of the idea starts to drive you. Business person will take care of business, you will take care of implementation. You are getting passionate and are eager to start coding.
The idea will fly and you will share the success.
What is the Problem
Isn't it a perfect spot to be in?
No.
It is a rope you are hanging yourself on.
You are being offered a role of invited technical co-founder.
If you have not been in these shoes before, here’s a short briefing:
- Does technical execution imply business success: Not at all.
- How much of a role does business execution play: Huge.
- What your business partner is going to do: Less than you think.
- What would he be expecting from you: More than you think.
As a passionate invited technical co-founder you will realize the above when it’s too late. And the role will make you stuck in the venture.
How Bad is it
Short version: You can safely commit to making the idea live. Your prospective partner’s level of commitment is weaker by a few orders of magnitude. It will backfire. At you.
Long version.
Say you estimate the implementation will take three months and would like to involve two more people to have it done.
Let’s throw in a number to start from. Assume that the cost of a project, should you do it as a consultant, would be $100K.
How confident are you that the project will be completed within projected three months?
If you wrote the spec yourself, I would say, seventeen of twenty projects would easily succeed. Add yourself a time cushion of one month, and projected success rate would be in the order of 19/20.
95%. Ninety five percent.
How confident are you that your venture would be growing as projected on the business side?
Probably not even close to this ballpark.
Products, that have been well engineered, yet did not launch:
Too big and clumsy? How about:
Products fail because of bad product placement or bad business execution. I have yet to hear of a non-rocket-science product that did not succeed because of bad technical execution.
The ballpark of 95% success rate is really, really a very high expectation from the business side of the venture.
Reality Check
Things will go wrong in the world of business. Maybe another feature would have to be added to the project before it can fly. Or before money can be raised.
Ownership is an upside when you are a co-founder. The downside is responsibility.
When your business runs into trouble, your primary non-technical founder would naturally assume you will jump in and help.
And it would have to be you. To add more features. To prepare the presentation. To learn how to pitch and do it. To travel with, or even without your partner and showcase the product. To convince the investors that the idea is worth it. To tell them how passionate you are — because you are supposed to. To deal with legal issues. To pay for hosting when the bill is due.
There are more. You name it.
And the above is the expectation from a co-founder. It is not something you would be in position to ask more cash or equity for.
Your business partner would sincerely think that you have to do more work because he himself is doing more! And he indeed would be talking to more prospective partners and investors than he originally planned, and the product may indeed have to look differently in order to have the first sale.
You would see it as a planning failure and a call to do a lot more extra (unpaid) work. He would see it as natural growth of the project and be happy about it.
At the same time, how much of help can business co-founder possibly be on the engineering side? Recommend using Wix or NewRelic because he saw the billboards? Face it, in your world you will be on your own.
And if all you have is a co-founder title and equity, you will be stuck. Inevitably.
Hypothetical Proof
If you are finding above misalignment in responsibility hard to believe, here is an analytical way to think about it.
Imagine laying out an insurance for future success. How about:
“Pay me $10K now, and, if the engineering project is not delivered in four months, I will pay you back $100K from my own pocket.”
The odds are way better than 95%. Even after taking into account logarithmic money utility function, it’s a good deal.
As someone who has confidence in my work, I would gladly accept it.
At the same time, I am having hard time imagining a business person committing to some solid business goal — like “raise half a million dollars in half a year” — with the same degree of confidence.
Consider asking your prospective business partner for what premium, in absolute dollars, would he be willing to lay down a personal $100K insurance to you.
It should help sobering the expectations, even if you only do it hypothetically.
For bonus points, try extending the deadline some 3x, and “watch” the “premium” to not change significantly. This would prove that the period, for which you may get stuck, doesn't really have an upper bound.
Indeed, if the project is delayed because of engineering issues, it is still very predictable. Another two weeks maybe. Maybe a month.
While if the blocking issue is coming from the world of business — customers are not there, the media doesn't go viral, the round is not raised — it may well require a significant pivot. Or not happen ever.
This is why you are stepping into a land mine by accepting an invited co-founder role.
Better Options
If what you are looking for is a challenging project, good prospects and quality nighttime sleep, there are quite a few things you can do better than being an invited technical co-founder.
Be a technical founder, not co-founder.
Pick a project that is challenging from engineering standpoint and start building it. Get a business person involved once you have a prototype or shortly before it.
This way the project will be engineering-driven by nature until you decide otherwise.
Best would be to start with two technical co-founders. This way, when the business person is involved, the company is still engineer-centric with 2:1 weight and voting rights. And if you or your technical co-founder choose to try running the business side, the engineering one will be well covered.
Be an invited technical co-founder, but put yourself into a win-win situation.
Protect yourself from the situation when you are stuck.
Ensure you are paid early on, with the right to trade in your cash for equity at fixed date when the money is being raised. This way your downside at least has some cash on you.
If the company has no money, keep the IP and give the company an exclusive right to buy it within some 12 months. Ask for a bit more money: if you estimate the work at $100K, ask for $120K. Involve the lawyer and do the paperwork.
If everything goes well, you will amend this agreement and execute a gentleman’s one instead, where you get equity instead of most or all cash. This would be happening when you will be raising money. Equity would have some real value at that point and you will be getting a discount.
If the product takes off but you two choose not to work together, the company will buy the IP from you at a decent price: not too small for you, not too big for the company.
And if you are passionate about the product and your partner turns out to be unsuccessful in business, you can find another business partner to engage with, since the implementation you have built belongs to you.
Get into a startup that is not early stage.
Most of the issues are gone if you are joining an established company.
It doesn't have to be Microsoft or Google or Amazon. AirBnb or Quora or even Medium would do just well.
Your skills will be utilized to their fullest and you will be able to sleep comfortably knowing that funding is not a problem and you will be paid. Without the need to prepare investor presentations overnight.
Do consulting
Make it clear that you work with an hourly rate.
If you still prefer early stage, take part of your hourly rate in equity.
To protect yourself, you may want to ask for more equity and sign an agreement allowing the company to buy back the excess at reasonable price within some time window. Because you are taking risks, you should have the upside too — cash upside, since you are a consultant!
You would certainly not want to block the company from moving forward if the team is not meeting the deadlines they have set for themselves. But the presence of extra equity in the contract signed with you would be a good reason for you and the company to sit and talk. Now that’s a healthy win-win.
Conclusions
If you are a high-profile engineer / architect / team lead, who understands business but doesn't want to be involved, I have bad news for you.
Early stage ventures are not as sexy as they look like, if you are hoping to have the business part outsourced and own the engineering one.
Decent alternatives are:
- Be a technical founder, not co-founder.
- Be an invited technical co-founder, but put yourself into a win-win situation.
- Get into a small company that already is not early stage.
- Do consulting.
