Should I Accept Cofounder Status in a Startup?

[A_Scanner_Darkly]

NOTE: Due to privacy concerns, I don't really want to share details beyond what I've posted here.

I'm not very business-savvy at all, and I need to figure out what to do.

Current boss offered me cofounder/equity status in her startup. I can choose that, or I can remain a contractor. So far I've just been blogging for her, but she wants me to do content marketing from here on out.

Don't really know what cofounder/equity status entails. Can anyone shed some light? I don't have any money to help bootstrap with, unfortunately, if that's what is implied. Lol.

Either way, looks like I'll be getting some marketing experience.

Also, she has a pretty solid track record in business. Her idea seems like a good one to me, and the other people involved so far seem very intelligent/competent. We are just starting out, product release is either this month or in the next few. Probably January.

 

[Pyropyro]

Part of my job is to guide budding inventor-entrepreneurs. I'm more on the Intellectual Property side but I guess I can help a bit.

Look at the contract for being a co-founder first and see where your responsibilities lie. The higher the position, the higher the risks and the rewards. I also believe that your hunch that you will be forced to either bootstrap or raise funds from external sources is right.

Have at least an idea how your business' financials are. If you're going to get a venture capitalist and a client to work with you, chances are they'll look at those first to see if you are worth their while.

 

[EditorOne]

Find out if you have liability for debts. If it goes belly-up, are you on the hook to creditors?

 

[EditorOne]

Added note: Many startups fail, through no fault of those involved in many cases. I'm not saying this one will, I'm just saying it is sensible to find out what startup failure means to you personally.

 

[Absurdity]

Added note: Many startups fail, through no fault of those involved in many cases. I'm not saying this one will, I'm just saying it is sensible to find out what startup failure means to you personally.

Most startups fail. The vast majority, in fact. Even the majority of ones backed by reputable VCs that get a ton of limelight. Of course failure comes in a few different flavors (I'd consider Zynga a failure, for instance).

To the OP: In general being a cofounder is not the same as having equity status. Most if not all early employees in startups get equity. Cofounders tend to get more shares, but they also tend to put in a lot more sweat equity (i.e. working for free at the beginning if not ponying up cash to get it off the ground).

Without knowing more than what you posted here it sounds very strange for her to be offering you cofounder status when you don't seem to have any marketing experience. It could just be code for, "Hey do you want a trivial amount of totally illiquid and likely worthless shares in exchange for free labor?" Depends on your situation but I think for most people the answer to that question is "No."

On the other hand, "Cofounder" looks really good on a resume and it could be an opportunity to learn a lot and then move on to something bigger and better. Again, depends on your situation. I personally find marketing extremely dull, but it is a valuable skill-set.

Things to think about/read about/ask your boss about:

• What's your stake in the company? What's the boss's? Are you getting restricted stock (you should) or options? What's the vesting schedule? Is your share subject to buybacks or any other trickery? Do some googling (this is pretty insightful), and give your contract to a lawyer if you're really serious.
• How will your role evolve if the business grows? Are you default CMO, or will someone more experienced come in later as your boss? If they're serious it should be the latter. Although, if they were serious they'd probably be launching this with more experienced founders...
• Is the founder's idea something they can actually execute? A lot of people have ideas for apps and services that rely on technical execution that they themselves are totally incapable of. This is a big red flag unless there is another cofounder who seems committed and has good technical skills/background (but this can be difficult to evaluate if you're not technical yourself).
• How is the business going to make money? Really basic question that a lot of startup folks stupidly gloss over. Read Paul Graham's essay on default dead vs. default alive and ask yourself which applies to this business.
• Who are your competitors? How does your company plan to compete against them? Is it a compelling point of differentiation? More broadly, what is the space you're in like and how could it change?

 

[QuickTwist]

I'm wondering if there is any info on whether its easier to get a band off the ground (and make a living doing it) as opposed to starting a business.

 

[A_Scanner_Darkly]

Great posts, people. Thanks very much!

Have a lot of reading to do for now...I'll post more information if I find it appropriate to do so.

ALSO:

@Absurdity

Nice albertar.

 

[EditorOne]

"I'm wondering if there is any info on whether its easier to get a band off the ground (and make a living doing it) as opposed to starting a business. "

A band is a business. If you don't treat it like that from the start, it will either fail or you'll be financially exploited like a lot of good bands were in the 1950s and 1960s.

 

[QuickTwist]

So you're saying a band should run their band like a corporate business? My point was more trying to see the difference between an artistic platform as a business rather than a corporate way to run one. Often times making top dollar is not the top priority of the artist and they would rather just make their art. They make money based on principle rather than the whole goal being to make money. I only make this distinction because, although many business owners are excited about the product they're selling, it is usually a means to an end to make money and I may be naive in this, but I don't think that is as often the case for artists.

 

[Jennywocky]

I think the issue is that unless you are self-funded (i.e., independently wealthy, supported by a patron, and/or simply doing music part-time while working part/full-time doing other things), you need to be considering your band as a business or you'll end up being unable to afford all the overhead associated with doing gigs and/or producing and distributing music.

This is the same as for writing or any other art. You are welcome to do it "totally for the art," but you still need money on which to live, and the time you waste earning money to live on is time you are spending away from your art. In some cases, this can really derail your artistic endeavors and drain artistic energy needlessly.

 

[A_Scanner_Darkly]

Often times making top dollar is not the top priority of the artist and they would rather just make their art. They make money based on principle rather than the whole goal being to make money.

you still need money on which to live, and the time you waste earning money to live on is time you are spending away from your art. In some cases, this can really derail your artistic endeavors and drain artistic energy needlessly.

That is why some of the best artists of all time have been people who were OK with forgoing the more cushy sort of life, either because they suffered from severe mental illness or just constitutionally didn't care. Van Gogh was hella poor all his life, never with stable housing, so malnourished his teeth were falling out and ribs poking out. Philip K. Dick led pretty much a parallel life. Kurt Cobain was just a basket case (note that I find him notable not for his music, but for his persona and how people responded to him -- a different kind of artistry than musicianship).

There are exceptions, of course. Members of Radiohead come from upper-middle class families, I think it was, all graduated from college save Jonny...plenty of others have day-jobs and pursue their passions by night. It's just that the suffering/starving variety of artist produces a very special kind of insight/beauty, IMO.

But common thread is that their art just meant more to them than anything else.

 

[Jennywocky]

That is why some of the best artists of all time have been people who were OK with forgoing the more cushy sort of life, either because they suffered from severe mental illness or just constitutionally didn't care. Van Gogh was hella poor all his life, never with stable housing, so malnourished his teeth were falling out and ribs poking out. Philip K. Dick led pretty much a parallel life. Kurt Cobain was just a basket case (note that I find him notable not for his music, but for his persona and how people responded to him -- a different kind of artistry than musicianship).

There are exceptions, of course. Members of Radiohead come from upper-middle class families, I think it was, all graduated from college save Jonny...plenty of others have day-jobs and pursue their passions by night. It's just that the suffering/starving variety of artist produces a very special kind of insight/beauty, IMO.

But common thread is that their art just meant more to them than anything else.

Sure, that's kind of understood.

The question of relevance to this thread is simply, which are you and what can/will you make work? What are your current financial obligations that aren't yet resolved, what's your level of willing deprival, based on your personal inclinations, and how many people (if any) are dependent on your financial resources?

And when you have a band, you have 4-5 people or more now to ask all those questions of, so the level of financial support you need to generate will be based on everyone's needs. If you can all sync up and agree, that's great. If not, either you hash it out or some people leave.

 

[A_Scanner_Darkly]

@Jennywocky -- I see! How redundant of me. >_<

Now...case in point:

Spoiler

that is really somethin'... can't imagine working without pay for over two years. that is some conviction.

EDIT: Also of interest, the more I read about Tim Westergren, the more he strikes me as a classic INJ---amazing ability to see his dreams to fruition.

 

[QuickTwist]

cripes.. Royalties paid.