In Co-Founders we trust

September 13, 2017

by Chris Sykes, Legal Tech Evangelist @ Dragon Law

Friends will be friends

I spent a lot of time in the startup ‘ecosystem’ talking to people who are thinking about starting a business. More often than not there is more than one founder, and they are friends or at least colleagues.

It’s great to speak to people at the beginning of their startup journey. At the forefront of discussion topics are the basics like setting up a company, opening a bank account, recruitment, and developing some kind of MVP. At the same time dreams of fundraising and scaling up and talked about in more general terms.

At the heart of these relationships is the friendship and trust between co-founders. The idea of a fundamental disagreement or ‘walk out’ is just something that happens to other people. Employment contracts, shareholders agreements, and share vesting agreements are something that might be considered in the future.

Business is business

Your relationship of friendship will survive (or become stronger) as long as you accept that there is a business relationship, which should be treated as such.

I’m not suggesting that somehow you should become a ruthless business person of films. But minimal legal protections are a must have. The relationship is still one of trust, but should be backed with the ‘black and white’ protections of a written legal agreement or agreements.

Too much to not enough

At the other end of the spectrum (and often with more experienced people) are the founders who say openly ‘I don’t trust him/her so I want to make sure I can get rid of him/her when I want’. This is rarer, but I’ve encountered the use of share vesting, targets, and classes of shares that are not based on commercial reality, but on a fear of ‘that other guy’.

I’m fortunate with my co-founders, but I can’t imagine starting a business with people I didn’t trust.  

Somewhere in between

My advice to startup founders would be to go into business with people you trust who will work hard and add something to the business. Get your legal paperwork in place, but don’t sit around worrying that you’re going to feature in ‘The Social Network 2’.

Practicalities

What to do in terms of legal documentation? There are various ways you can create the documents you need. My company, Dragon Law, is available in some jurisdictions, or you can seek the services of law firm. Whatever you decide to do it’s certainly worth spending some time and money to set a strong foundation and protect your growing business. 

 

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