To co-founder or not to co-founder. That is the question.
You've just sold your business for £5m.
You're rich, congratulations.
Now, what can you buy for £5m? Possibly any house you want, probably any car, and definitely any holiday you fancy.
One small issue. Your other two co-founders. And that 10% EMI pot that you set up a few years ago.
OK, but it's still pretty good. £1.5m each. Minus tax, which at todays rates would be 10% for the first £1m and 20% for the rest (please note, I'm not a tax expert).
So you end up with £1.3m, plus or minus some costs for lawyers, advisors etc from the transaction.
Still a life changing amount of money. But a long way from the £5m.
If you had one co-founder instead of two, that amount in your pocket would be £1.9m. And if you had started the business on your own, you'd have £3.7m in the bank.
Basically, there probably isn't anything you will buy after selling your business that's more expensive than your co-founders.
But of course the above only tells one side of the story. Many businesses that sell for big money only get there because of the co-founders. And many solo-founders may wish they had forfeited some of their deal proceeds in return for having support along the way.
In this blog I try to figure out the pro's and cons.
The two Steve's managed to still make a bit of cash each.
Fully in control of the business and the decision making.
Don't have to share proceeds from a company sale, or the monthly dividends along the way.
Possible to hire in the skills that you lack, but still be able to part ways if things don't work out.
Possible to incentivise the team to shoot for the same goal through EMI options, or bonus schemes.
It's lonely. No matter who you hire to join you on the journey, no one will have the same ups and downs as the founders.
You'll have to hire people in at market rate salaries, or maybe even above market rate in the early days.
You don't have anyone holding you accountable. It sounds like a pro not a con, but it's not if you want to grow your business and push yourself.
EMI options and bonuses are good, but no one will ever be as motivated as a founder.
Shared responsibility. Everything isn't all on your shoulders.
As long as you don't just pick a co-founder that's identical to you, then you get two skillsets from day one. For example, one focuses on product, the other on sales.
Likely that you can build up a higher level of initial revenue and stability before a first hire is needed.
You can hold each other accountable and push each other (as long as you are aligned in what you want to build, eg lifestyle vs growth business).
Likely you will have two of your senior team earning below market salary, helping with cash flow.
Half of your dividends and sale proceeds are gone.
It's complicated and/or expensive to get rid of a co-founder vs an employee.
Potential for differing goals once the business gets going. One may decide they actually want to push for growth but the other wants to stay as lifestyle.
If you have picked a co-founder that's similar to you (eg you're both developers), then you still need to make the expensive hires.
Who gets the final say in decisions? Potential for conflict along the way.
Three or more co-founders
The opportunity to cover off three senior positions from day one.
Likely to be able to grow the business to a decent size before needing to hire.
Founders cost a lot less than hires, helping cash flow.
Initial network of potential clients is likely much larger than one or two founders.
Slightly easier to split responsibilities with one person as the 'CEO' to make final decisions than if there's only two of you.
Massive impact on the money you can make at the end and along the way.
Chances of a dispute or breakdown of relationship is higher.
Low starting equity makes it difficult to swallow further dilution during fundraises.
Possible that by taking a below market rate salary during the journey, and having a greatly reduced exit payment at the end, you may have been better off just staying in a job.
I've tried not to take sides in my analysis of pros and cons for each option. Really because there is no right or wrong answer. But many people will not give any thought to the impact of co-founders at the start. You may want to work with your friends, or feel like the more of you there are the more chance of success. But it's worth imagining the things that could go wrong in advance and make sure that you're all aligned with the plan, goal and timescales.