Tony Faure

Tony Faure

Monday, 15 October 2012 13:15

Should I trade equity for a financial leg-up from a friend?

An investor has offered to be the “co-founder” for my business idea.


The financial leg-up this will give me is attractive, but I’m a bit concerned about handing over some control before I’ve even started.


Should I go it alone and struggle for a bit before I look for investment or do I need to bite the hand off anyone offering me money?


It's always tempting to take a bundle of money, especially when raising it is so difficult, and it always is difficult in start-ups.


But in this case you really want to separate the two issues. The more important decision is whether you need a co-founder – and, if you do, whether the person with the money is the right one.


There's no definitive answer as to whether co-founded start-ups are more successful than solo efforts, but experience suggests that they are.


It's very tough to start anything (as you know) – and very stressful. Having a co-founder helps you make better, more considered decisions and (assuming you pick the right one) helps you absorb some of the blows and share the wins.


So my default position would be to say 'yes' in general to the concept.


This only applies, however, if you choose the right one! And selecting a co-founder is a lot like deciding who you want to marry – you'll probably spend more time with them than you will with anyone else for a few years.


You should be looking for someone who is good at the things you aren't: A detailed, execution-focused doer if you are good at selling the big picture but not at the follow-up; a business developer if you are a product guru, etc.


Ideally they will also balance you somewhat in temperament – risk averse if you are inclined to 'go for it'; patient if you are impetuous.


Balance is the key. Having two of you should make a more rounded team at the heart of your company.


Like marriages, the chemistry here matters – and how you make up your mind will vary hugely from person to person.


All I'd say is that in my experience this is a decision best not rushed. It's very difficult to know whether you will work together well, so see if you can figure out a 'trial' period in which neither side is obliged to go further, but put a firm end date on it.


That is why my answer to your original question would be that you're better to detach the two issues.


Normally the right co-founder should see the business logic in this approach, and welcome it. Then, if you're really confident that you and your investor will make a great team, then go for it. But don't take the money and end up in an unhappy marriage.

Tony Faure was the first MD of Yahoo! Australia and NZ and CEO of both ninemsn and HomeScreen. He has also held board roles at Seek, i-select, the Internet Industry Association and others. In 2008 he launched his own company, t-4, which advises and invests in digital businesses. 


Ask Tony or any other StartupSmart mentor a question here.

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