Launching a startup is not easy. Keeping it running and even growing at a sustainable rate is even more difficult. According to Forbes, 90% of startups fail. In Nigeria, in particular, 80% of SMEs are said to fail within the first 5 years.
For Paul Graham, the founder of arguably the world’s most famous incubator, Y Combinator, when writing about the 18 mistakes that kill startups, he listed single founder, bad location, marginal niche (that is, building a product or offering a service to a very small, uncertain target market to avoid competition), derivative idea (that is, imitating existing ideas without any change) and obstinacy (or in simpler terms, inflexibility) as the first five. To him, having 2 or more cofounders is crucial to the success and survival of any business. He rightly points out how only a handful of successful companies have single founders.
Look at Nigerian businesses like Tizeti, Piggy Bank, Jobberman and Budgit, or their international counterparts like Apple, Uber, Microsoft and Google. Think of one thing they all have in common, and you would realize that before anything else, they have multiple co-founders.
TechCrunch, in an attempt to dispel this as a myth, conducted a research in 2017, utilizing Crunchbase’s API into this so-called successful companies, looking at two arbitrary measures of success. The first group being companies that raised more than $10 million in funding (7348 companies), and the second group is those that exited their businesses, either via an IPO or acquisition (6191 companies). From the data sets pulled from both categories, the average number of founders of “successful” startups was 1.79, which can be approximated to signify the need for 2 co-founders.
The question then becomes, why do you need a co-founder?
Except you are a rockstar like Jeff Bezos, you may not be skilled in either one of programming (assuming it is an IT-based firm), product development, sales, marketing, user experience, etc. Most businesses require a multidisciplinary team.
The world’s largest company, Apple, would not be in existence if the trio of Steve Jobs, Steve Wozniak and Ronald Wayne not complemented each other’s skills and worked together. Steve Wozniak, singlehandedly, designed and built the first computers, Apple I and Apple II, piece by piece, as well as the printer interfaces, serial interfaces and floppy disks. Steve Jobs, on the other hand, was the face of the company, and went out pitching to investors, making sales and analyzing the market. These two were able to create a giant, simply because they were able to team up and work with their strengths. Co-founders being able to complement each other’s skillset is essential to any business’s growth.
Increased funding prospects
The cost of running a business has become increasingly high, and as such, most founders stop bootstrapping (this is a business term that simply means launching your business without any external help) and seek for angel or venture capital funding, and even, loans. Funding opportunities in Nigeria are slim, and the general belief is that, the risk is mitigated when there are 2 or 3 co-founders on a team.
Ezra Olubi and Shola Akinlade were excellent coders with a fantastic product, but raising capital for Paystack was not easy till they were accepted into Y Combinator, just like Brian Chesky and Joe Gebbia of Airbnb. Afterwards, Paystack was able to close a $1.3m seed investment round and Airbnb raised $7.2m in venture funding. Most investors or business incubators like Y Combinator would not look at a tech startup twice if they do not have a co-founder. It is almost an unspoken rule in Silicon Valley and in other investor hotbeds like London. Though it is not impossible to raise funding as a solo startup founder, it is much easier to do so with a co-founder. Even the famous angel investor, Ed Zimmerman, who has invested in over 50 startups and 20 venture funds, said he “vastly prefers multiple founders”.
Businesses are not 9-5 jobs, they are 24-hour hustles. Starting one can be both risky and mentally tough. There will be no-sale days. There will be rejections from investors or partners. There will be times when the founder would want to wave the white flag. So, it is recommended to have a partner, a co-founder- someone who ideas can be bounced off of, someone who will understand the vision and empathize, and most especially, someone who will be willing to fight for the company.
In 1999, two Stanford PhD students, Larry Page and Sergey Brin, who had created a PageRank algorithm, 3 years earlier, tried selling the company, Backrub, (which would later become Google), to Excite, then number 2 search engine behind Yahoo, for $1m, to resume their studies at the university. They were turned down. Before then, Page and Brin had to beg professors for cash since they did not have the money to access all the computers, disk drives and computer memory they needed; with some investments as low as $40. These two, sometimes, had to travel across California looking for investors. If this was a one-man band, the sheer stress of running a PhD program in computer science and a new firm that was operating out of a garage would have been overly exhausting. However, they had each other for moral and emotional support.
Financial contribution for bootstrapped startups
Aside from founders having to undergo so much mental exertion when they want to launch a company, possessing the cash to begin such can be a huge setback. According to SMEDAN and National Bureau of Statistics Collaborative Survey: Selected Findings (2013), “The main challenges confronting the operations of MSMEs in Nigeria are access to finance and poor infrastructure”
This is why the most common means of raising such cash is savings. However, growth can be slow when starting out this way, especially given that the purchasing power of many prospective entrepreneurs is low. In fact, Opeyemi Awoyemi, co-founder of Jobberman, revealed that he started the business with his fellow Obafemi Awolowo University (OAU) colleagues and current co-founders, Ayodeji Adewunmi and Olalekan Olude, only after they were able to raise some money between themselves to get the website running. Co-founder(s) provided the firm with an opportunity to raise more money to begin, start early and build more effectively. When starting Def Jam from Rubin’s NYU dorm, Russell Simmons and Rick Rubin both contributed a few thousands of dollars to start the company which has managed superstars like Kanye West, Jay Z, Rihanna and LL Cool J.
Despite the reasons why a co-founder is needed when starting a business, it does not take away the fact that it is important to have legal considerations before going into such a partnership. Such agreements are not always as easy as how Paul Allen convinced his longtime friend, Bill Gates to quit his job so they could start a software company called Microsoft, or even how Travis Kalanick was onboarded by his pal, Garett Camp, to work on a ride-hailing service (Uber), Camp thought of after the Le Web conference in 2009. The objective truth is, things may not be rosy especially with cofounders with conflicting personalities.
So, what legal issues should be sorted out?
Equity - Each co-founder should know how much stake they have in the company. Some recommend a 50/50 split, whilst others recommend splitting based on perceived future company value and individual contributions. Sites like foundrs.com and the Startup calculator on gust.com can make this process easier. Regardless, a generally accepted system is the 4-year vesting approach, which generally implies that a cofounder will only get the complete stake allotted to them if they stay with the firm for 4 years. Leaving before the time would mean losing any shares that have not yet vested.
In simpler terms, if you were promised 20% of the company, which accounted for 2m out of 10m shares, what it means is that you will only get those 2m shares after 4 years. If you leave in 2 years, you will get 1m shares. If you leave or get kicked out after a year, you will leave with only 500,000 shares, or 5% of the company.
Accession procedure - This, simply, is the system of accepting who would join the startup. Which of the co-founders is handling the hiring process? Is it a joint decision? This supposedly easy process has led to a lot of internal disputes, so it is important to handle them before they spell trouble for the business.
Intellectual property (IP) assignment - Here, all co-founders have to agree that as they are developing the product, the IP would belong to the company. If not, there are cases where one founder could claim 100% ownership of the idea, thus destroying the startup or leading to lengthy court cases like the Zuckerberg-Winklevoss twins case.
Agreement between co-founders - It is essential to have a legal document to provide a clear direction of the roles and company direction. The story of Twitter and its muddled history of how Noah Glass was ousted from the company he “co-founded” with Jack Dorsey, Biz Stone and Evan Williams, still leaves a lot to be desired. There is no public knowledge of documentation that would help “set things clear” from the get-go for this former Odeo employees to prevent such from happening.
Following the current startup trends, it is evident that fintech has had the most investment in the past 3 years, but if you look closer, you would see firms like Flutterwave, PiggyBank and Paystack, which are heralded as emblems with innovation driving our current modern startup culture, having more than one founder. It is no coincidence. Entrepreneurship in Nigeria is not the easiest to venture into because of the peculiarities of the Nigerian business ecosystem and consumer market. Hence, it is important to reduce your chances of business failure by simply getting a co-founder who can complement your skills and is driven by the mission. Better to fight a battle with a partner by your corner than go in all alone.