How to Find the Right Co-founder

[Music] Hi, I'm Han Stagger, and I'm a partner at White Community. Today, I'm going to be talking about what I think are the most important parts of starting a company, which is finding the right co-founder.

So, let's start by talking about why you should have a co-founder at all. Well, I think there are three main reasons you really want a co-founder when you're starting a company. The first is productivity. You can get a lot more work done if you have someone to divide the work up with, and you can get much better work done if you have a co-founder who maybe has complementary skills, so they can do things that you can't. And there's someone you enjoy discussing ideas with, so you can brainstorm and come up with better ideas than you could alone. Or help have someone to talk you out of potentially bad ideas. So, you get a lot of uplift in just the amount and quality of work you can do with a co-founder.

The second reason is moral support. Startups are an incredibly intense and taxing journey, and it's great to have someone you can lean on for support during the tough times. What I've noticed about the best co-founder relationships is they have this dynamic where both co-founders kind of balance each other out. So if one founder is having a bad day, they're feeling a little down, despondent, and they've become a little pessimistic and feel like the startup's about to die, the other co-founder can just help bring them up a little bit and keep them going, keep them motivated. And vice versa. Sometimes you get too carried away; you signed a customer and you think you’re guaranteed to IPO. You could use someone to just ground you and bring it back to reality a little bit.

That's where I kind of find the best co-founding relationships can help even out some of the highs and lows of the emotional rollercoaster that is a startup. While you can get sort of productivity increased by hiring people or bringing on contractors, you don't get that same emotional support that you do from a co-founder. Because ultimately anyone who's working for you, you're the boss and they're not as invested in the success of the startup as you are. You can't really be as open or honest with them about the company as you can be with a peer, and that's what you get from a co-founder.

The final reason I'd say to have a co-founder is pattern matching to success. If you look at a list of the most successful startups in history, think of Apple, Facebook, Google, Microsoft—they all had co-founders when they started. Now, I think sometimes people forget this point because when you think of these great iconic companies, you associate them with a single person, usually the CEO, who's over time risen to become prominent, famous, and a bit of a celebrity. So, you know, when you think of Apple, you think of Steve Jobs. When you think of Microsoft, Bill Gates. And when we think of Facebook, Mark Zuckerberg.

I think it's completely true that over time, and we're talking decades because that's how long successful startups are around for, over that time period it's pretty common for one person to kind of really drive the company, become the figurehead for it, and stick out a company for a long period of time. That's why I remember those people. But we're talking about the earliest stages of starting a company, and in those days, all of these founders had co-founders that they leaned on for all the reasons I just mentioned. So, I think it's always important to remember that when you're starting a company and wondering whether you should have a co-founder or not.

Okay, so hopefully, I've convinced you that you really do want a co-founder when you're starting a company. But what if you're really keen to get started on a company right now, and you don't have a co-founder that's immediately available or someone that you can bring on board? Should you wait to get a great co-founder before you start a company, or should you just go ahead and get started?

Well, I think the default answer is that you should wait because of all the reasons I just mentioned—all the benefits that you get from having a co-founder. But Y Combinator has funded single founders, and we have done so successfully. So I've noticed that there are some exceptions to this rule, and they tend to follow a particular pattern. That pattern is that the single founder simultaneously running a company by themselves has two things that are true.

So, one is they have an idea that they have incredibly high conviction about, either because they're solving a personal problem for themselves, so they really know the solution is necessary, or they're a domain expert. They're working in a field where they know for sure the sort of technology that's missing and who the customers for it might be. So the result of that is they have such conviction in the idea that they don't need a co-founder to convince them that this is a good idea to get started on. They're ready to go.

The second condition is that those single founders are able to make progress on that idea without a co-founder in the short term, at least. That almost always means that they're technical or at least technical enough to be able to build the first version of the product so they can show it to potential investors or maybe even to potential co-founders who may want to join the company. That second point is something I've noticed that the best single founders are also able to do. Not only are they tremendously productive in building product and talking to users themselves, they're also able to run a great background search and keep their eyes open. If the opportunity arises, they can bring on a great co-founder.

I think the best example I can think of here would be Drew Houston with Dropbox. So, Drew applied to Y Combinator way, way back now in 2007. He had a really solid idea for building Dropbox because he'd already felt the pain of losing his own files, so he knew for sure there was a better solution to build. But he didn't have a co-founder, and so Paul Graham, the Y Combinator founder, messaged him back saying, "We love your application; you're great, the idea is great, but we really won't fund you without a co-founder, so come back to us when you have one."

Drew kind of went away, continued building the Dropbox prototype while also looking for co-founders, and found Arash, who would be later the Dropbox CTO and his co-founder, and he applied again, and Y Combinator funded him. And now Dropbox was obviously a tremendously successful company. So that's kind of what I'd ask you to bear in mind. If you're really going to stop right now but you don't have a co-founder, ask yourself: do you have absolute, high conviction in this idea? You know for sure that this is the idea that you want to work on; there's no other ideas that you'd be open to. And can you really make progress without having a co-founder? If those things are true, sure, go ahead and give it a shot. But if not, I'd really suggest you wait until you do have a co-founder to start a company.

So when you're thinking about bringing on a co-founder, what should you be looking for in them? Well, I actually think the single most important thing to know about someone before you start a company with them is: how do they handle stress? The second most important is: how well are they going to help you handle stress? The reason I say that is startups are an incredibly stressful, intense experience, as I mentioned before. A great co-founder should be able to support you through those and help you through those because if you're determined and motivated and enjoy working together, you'll keep working on this startup for a long period of time, and that's usually what it takes to build a really successful company.

So, you really don't want to start a company with someone that you don't know particularly well because even if you've spent time with them at social events or you've hung out together a little bit, you don't really have insight into how they're going to respond to pressure and stress. Are they someone that's going to stick around when things are tough? And are they someone that's going to help you want to stick around when things are tough? So, the best people to start companies with are always people that you've got some set of personal experiences where you kind of know the character and how they're going to respond to those tough situations.

That usually means there's someone like a close friend or someone that you've worked with under sort of stressful conditions. So I'd certainly recommend that you be on the lookout and think about that when you're considering co-founders.

The second thing I think you really want to look for is understanding the goals and values someone has for starting a company or wanting to do a startup. Honestly, I think when I was younger, I used to think of some goals and values as being these fuzzy terms that didn’t mean too much. But over time, I realized what they really mean is understanding the motivations someone has for doing what they do.

In this context, I think it's really important to talk with someone, even if you know them very well, about why they want to do a startup, what they're hoping for. The kinds of things that can come out are avoiding conflicting goals. Right? For example, let's say that you really want to build a high-growth, high-intensity, high-risk startup, and you want to push forward. You want to raise venture capital. You want to hire a bunch of people. You want to just really go for it, and your goal is to take the company public. You're okay taking lots of risks along the way to get there.

That's a totally fine set of motivations; it's a very common set of motivations for startup founders. But let's say your co-founder prefers to take kind of a slow and steady approach. Maybe they're more motivated by building great software for a small group of people, and they would be totally fine if you just made enough revenue to pay yourselves good salaries and screw a little bit every year. That's also a completely fine set of motivations for wanting to start a company. But the two motivations there aren't compatible with each other, and they'll lead to inevitable conflict.

So what I'd suggest is make sure that you have this conversation. It's not a perfect predictor because people's goals and ambitions for a startup change over time. I've seen people start companies because honestly they just wanted to get rich, and their hope was that they were able to sell the company in two to three years for a good amount to a bigger company. But they got two to three years into the company, and they loved it so much—they got so excited by the challenge—that they kept working on it, and they're still working on it a decade later.

So that's totally fine. I'm not saying that having this conversation means you're going to know for sure whether your goals and values are aligned over the next decade, which is again how long it usually takes if a startup is successful. But at least having the conversation gives you a better chance of finding a co-founder who you're aligned with around high-level important stuff.

Now, I think you're probably wondering—I'm talking about what you should look for in co-founders and I haven't mentioned the obvious thing, which is what skills do they have? So it’s obviously really important to have a co-founder who has the right sort of skills to help you grow the company, and usually, that means someone who's got a complementary set of skills to you. Right? So if you're really great at sales, talking to users, getting customers, ideally you'd have a co-founder who's really great at building product and writing code and building software because the two of you can divide and conquer and get a lot done.

Why do you think that's really important? I don't think it's one you should overly fixate on. More important than anything is just working with someone that you like working with and you trust. So if the person who best fits that description doesn't necessarily have the perfect set of complementary skills to yours, I think that's fine. You should still bring them on as a co-founder, and then you can start hiring people, assuming you can make enough progress in the company to get investment. You can hire people to fill in the skills gaps, and that's okay.

Another point I'd just make on this is when you are trying to say someone’s got complementary skills to you, don't go too much into the details of how well do their skills map onto the specific idea you're working on right now. So a common example of this we see sometimes is someone's considering bringing on a technical profile, and they want to build an iPhone app. But the co-founder, even though they know them, they trust them, they've worked with them before, that co-founder isn't necessarily an iPhone app developer. If they haven’t built iPhone apps in the past, that's not a reason to rule someone out as a co-founder.

What does matter is that they're willing to learn what they need to learn. So, if they're not an iPhone developer, they're willing to learn how to do that. Particularly, they're willing to learn things that maybe aren't glamorous—like startups are often just a grind of doing a lot of boring grunt work to get the thing going. So long as you have a co-founder who's okay with that, it's totally fine if they don't have the perfect set of skill sets.

So don't rule someone out who's potentially a great co-founder because they don't have this checklist of specific skills you're looking for. But do make sure you count them in if it's someone that you trust, you like working with, and you've got a good sense of how they're going to handle the stress and pressure of the startup journey.

So, where should you look to find co-founders? Well, the answer here is a little obvious: it's to start with the people you already know. So ideally your friends and colleagues. Kind of ironically, the best time to find a co-founder is when you're not actually necessarily looking for a co-founder to start a company with right now. And what I mean by that is if I were kind of giving myself advice 10, 15 years ago, what I would say is rather than sort of trying to pick a startup idea and go and find co-founders to work on with it, I would suggest that I just look for people to do projects with.

If you're in school, look around, see who's in your class, using school, and identify people that you think would be cool to work on a project with. This project doesn't have to be a take-over-the-world ideal company; it just has to be something you find interesting, like maybe you're into games and you want to build a cool game together. The thing that's awesome about projects is that it's much less scarier and asking for a far lower commitment if you ask someone to work on a project with you than it is to go straight into, “Hey, let's start a company together.”

So, you have sort of a higher chance of people saying yes if you ask them for this. The other thing that's great about projects is you can work on different projects with different people, and you can start developing a taste for who you work well with, what kinds of personalities, what kinds of skills are you actually good at as opposed to what you might think you're good at, and so what kind of complementary skills might you look for in a co-founder.

Again, being in school or college is a really ideal time for this because you're surrounded by lots of people who you know usually have a decent chunk of spare time, and so you can start getting together to work on things that you think are fun. Again, kind of ironically, although I’m suggesting you don’t try to start a startup, projects that you work on in your spare time often tend to be some of the greatest sources for actually finding great startup ideas and building huge companies. You know, Facebook's an obvious example—something that started out as a project while Mark Zuckerberg was an undergrad at Harvard, and now it's turned into one of the biggest companies in the world.

But that's not why I'm suggesting you do this. I'm suggesting you can look for people to work on projects with because that's a great way for you to get a sense of what kind of person you enjoy working with and what specific type of personality you work well with. This advice also applies if you're not in college or school. Maybe you're working at a company—look at your co-workers. Keep a list of people that you think are particularly smart, particularly capable, who impresses you, and start getting to know them better. Ask them if there aren't for working on things in the evenings or weekends.

Say that's the kind of personality that the kind of person is interested in working on evening and weekend projects. It’s the kind of person that's likely to make a great co-founder. I actually remember years ago at White Combinator's Startup School, when it was an in-person physical event, we had Phil Libin, the founder of Evernote, there. He kind of gave a somewhat extreme version of this advice, which was that he sort of years and years before he started a company knew that he wanted to start a company someday.

So he would only make friends with people that he thought could someday be a co-founder. Now, while I think that advice is maybe a little bit extreme if you don't just want to be around people who might be co-founders, there is truth to it. I think this is kind of the thing where if you make this sort of a conscious effort well before you start the company, it will probably be the best bet for finding a great co-founder.

But let's say you do know for sure that you want to start a company and you're kind of ready to go again right now. How do you start finding co-founders? Well, again, you start in the same place: you start with people that you know. What I've noticed is an issue people run into here is that they can be really reluctant to just ask people they know to start a company with them, and that kind of all kind of reasons there, like maybe you're worried about how your relationship will change. Maybe you don't sort of value the personal relationship more than the risks of working with someone, and those are fair concerns. But it's not the right optimization for starting a company; you have to make the ask.

So what I'd suggest is a pretty simple algorithm here for finding co-founders: make a list of the people that you know new closest to that you think would be great co-founders, and start from top to bottom. Ask every single person on there to go grab coffee and talk to them, and ask them if they'll start a company with you and be your co-founder. If they say no, that's totally fine. You understand. But like who would they start a company with? Make it very specific—ask them if you were starting a company, who would be sort of your top three or four co-founders that you want to try and convince to work with you? And ask them for an introduction to each of those people, so your list keeps growing.

Now you ask the people you know if they say no, you at least get some more ideas from names, and then you meet with those people, and you ask them, and you simply repeat the same algorithm. Ask them if they'd be interested in being your co-founder, and if they say no, ask them who they'd try and go to.

This way you start growing the tree of potential co-founders beyond those people you immediately know, but at least they're still connected by people that you do know, so they're not just sort of completely random strangers.

The final bit of advice I'd say for where to look is to go out and try and meet people that have similar interests to you. Right? So this kind of sounds a little bit just like how to have a social life, but this is essentially what finding co-founders reduces to. So if you're an engineer, attend developer meetups, work on open-source projects, go to hackathons. Do things where other engineers and builders are hanging out, and you'll likely find some leads. Even if you're not technical, if you're interested in those things, you should totally attend those kinds of events too. But maybe you also just attend or find people who are interested in the kinds of things you're interested in. Maybe you're interested in economics and finance, and that's the kind of pool of interests where you think you'll find a startup idea.

Well, make a real effort to go out and meet people who have similar interests. I mean, at the end—into these COVID times—there are lots of online groups and communities that you can join. But even in regular times, there are always ways to find people that have similar interests. If you're consciously on the lookout for people who might make co-founders, you'll have a higher chance of finding someone who could be a good fit.

So once you've found a potential co-founder, how do you test out and know for sure that you both want to start a company together before making the final commitment? Well, it's not a perfect process, and at some point, you just kind of have to make the leap and hope that it will work out. But one way to de-risk it is to allocate a chunk of time where you agree to work together and set yourself a deadline by which time you want to have ideally like an MVP or a prototype of something built, or you at least want to have gone out and tried pitching some customers and convincing them to pay you if you did build a particular product.

These are all the things you'd usually do when you're signing up with a new company or testing out a new idea anyhow, and do that together. Agree that at the sort of end of the time that you've set aside, that you'll both have an honest conversation. Decide: do we both enjoy working together on this? And if so, great! Let's go ahead and make the leap. If not, be honest and say, “Hey, let's go our own separate ways.”

So making that a little bit more tangible: if you both have no other commitment— which is pretty uncommon but sometimes happens—if, say, you both graduated college, and you didn't go and get a job because you want to start a company, then I'd say treat this like your full-time job. Right? Say, “Hey, we're going to set aside a month or three months, and let's just pick an idea we're excited about and get as much progress made as we can on building the first version of it and going out and signing customers.” Even if you can't do that full-time because you have other commitments, then do it on evenings or weekends. Right? But, you'll have to sacrifice some amount of time doing other things in order to actually spend time working together.

The more hours you can accumulate working together on the idea, the better sense you'll have for sure if you want to start a company or not. Once you've kind of done that, let's say you've decided that, “Hey, we do want to start the company, and we want to be co-founders.” Then I think there are two important points you want to make sure that you're in agreement on.

First is the equity split, right? Like who earns how much of the company. Now, I think the way to think about this is your default equity allocation should really be 50/50. That's where you want to start from, right? Because assuming that nothing's been built yet, you're at the earliest stages of the company. You're both going to make equal contributions. You both want to be equally motivated to work super hard on the company, and all the work is years and years ahead of you. So there's not really too much reason to deviate from a 50/50 equity split early on. However, we have seen different equity arrangements, and they have been successful.

So I kind of think the underlying thing that you're solving for here is making sure that both of you are happy with what the equity arrangement is and will be motivated to keep working on the company for a long period of time. Right? And so again, usually, that means 50/50. But let's just say that you have been working on the company for a little bit longer or you've de-risked it somehow by yourself and you're bringing on what you commonly call a later-stage co-founder, then sometimes deviating from 50/50 might make sense. But again, the thing I would really encourage you to do is not optimize the short term. Right?

Just because you made a little bit of progress on the idea by yourself, and you have a great co-founder, and you're sort of thinking, “Hey, maybe I should take seventy percent and just give them thirty percent,” like because you've made progress in the last six months, I would encourage you not to do that. Startups are a really long-term game, and you want to win by making the best decision in the long term. Right? If you have a great potential co-founder, and even though you made a little bit of progress on the company yourself, if you know that they won’t be all in and fully committed to the successful company unless they're a 50-50 partner, you should do that. You should make them a 50% equity partner so you can keep them as motivated and get as much out of them as possible.

The second thing I think you really want to decide is: who's the CEO? Now, this can sometimes be an uncomfortable conversation. To be honest, I think it's actually a bit of a red flag if it's an uncomfortable conversation. As far as the actual title itself goes, early on in the startup, when it's just two or three co-founders, in terms of how it impacts your day-to-day and how you divide up responsibilities, the title doesn't actually matter. Early on, you're all going to be doing a little bit of everything. There’s plenty of unglamorous grunt work to go around, and just because you have a CEO title doesn't mean you get to sort of abscond from that.

So practically, it doesn't matter. In terms of who does what, one exception to that might be if you need to be doing sales. It usually might be good if the CEO is a person, or whoever has the CEO title, is a person talking to customers and users and convincing them because they might feel a little bit more flattered if the CEO is pitching them. This kind of gets to the point of where really the only impact the CEO title has, and that is externally. I would say specifically for investors, so investors care about seeing that there is sort of a clear leader and a clear final decision maker or a tie breaker, and that person should be the CEO.

So when you're pitching investors, it's usually better for whoever is sort of most of the talking—whoever is going to be leading those conversations—that that person is the CEO. Where you run into problems, and a very, very common source of co-founder friction we see at Y Combinator, is where two people really want to be the CEO. Right?

And this can be seen in Y Combinator interviews, where you end up with two people who kind of talk over each other, they interrupt each other, they can look at each other with a little bit of contempt when the other person is answering. These are all really, really bad signs. Right? So be honest with yourselves. If you think it's really important to you to be the CEO, and you both feel that way, you're not good co-founders for each other. So just avoid all that pain and heartache and don't start a company together.

You ideally want to start a company with someone who doesn't care about that stuff if you do, or you're both indifferent to it, and you're fine picking whoever you feel is best suited to the role for now, even if that changes sometime in the future.

So let's kind of wrap up everything we talked about. Once you're sure you want a co-founder, which I hope I've convinced you to do, once you run the process to find some good candidates to be a co-founder, and you've identified someone that you really do want to start a company with because you've spent a little bit of time working on projects together and testing each other out, so to speak, then you have the conversations around what's the equity split and who's going to be the CEO. Now, you're ready to formalize things.

Formalizing really means the legal act of incorporating a company, setting up a vesting agreement. This is really important. Vesting means that the shares in the company, you don't all get them at once; they vest over a period of time. There are very standard templates and documents that you should really ensure that you have in place, and then you're pretty much good to go.

You know, when exactly should you sort of leap from, “Hey, we're hanging out working together,” to “Hey, okay, let’s like do some paperwork?” Not a perfect answer for that, but it's just kind of a gut feel. Once you've made the commitment to yourself and each other that we are going to make a real go of trying to build a company together, that’s kind of the trigger for when you start making things real by getting into the legal cooperation. People have done so.

That's all the advice I have for how to think about finding the right co-founder and how to make it happen. I hope that helps, and good luck!