- The Cofounder Prenup and Why Your Startup Needs One - July 27, 2022
This excerpt is from “From Start-Up to Grown-Up” by Alisa Cohn ©2021 and is reproduced and adapted with permission from Kogan Page Ltd. Learn more.
The best way to ensure that you and your cofounder have a happy healthy life together is to consciously get on the same page initially. If cofounders are like spouses, a healthy relationship may not need a ring, but it does need a prenup.
There are two kinds of prenups: a legal agreement and an emotional agreement. I’m a coach, not a lawyer, so as you can imagine, I focus with my clients on the emotional agreement and let the lawyers handle the operating agreements. Those discussions should include division of equity, percentage of ownership, what happens if a cofounder leaves, and other legal topics.
But a discussion of values, directions, working styles are at least as important because it forces cofounders to talk about squishy or uncomfortable topics. It allows you to set expectations and ground rules. It also creates a baseline and precedent for future discussions. You will almost certainly need to reset expectations and ground rules more than once as your company grows. If you have seriously discussed them at the inception of your startup, each subsequent conversation will be more comfortable.
So, what should you talk about? I have a list of questions I give cofounders to structure needed conversations. You should talk about your goals in starting this company, your values, and your working style. It’s helpful for each of you to articulate why the other is a good partner for you. You absolutely want to address how you will handle normal conflict and decision rights. Do not shy away from tough topics like what you’ll do if one cofounder isn’t scaling or wants to leave.
I know that you think that won’t happen to you if you’re already good friends, but neither did Sean and Connor, the cofounders of an energy startup based in the UK. The two had met when they served together in the Royal Air Force. They had gone through boot camp together and become very good friends. They had already reached 150 employees, on their way to 200 by the end of the year. Sean, the CEO, wanted me to coach Connor, the CTO. (It’s common—but not a good sign—for one cofounder to address conflict by asking me to coach the other cofounder.) Sean grudgingly agreed to a few joint sessions so we could get a handle on their overall relationship. They were both imposing figures, even over video, and I wondered what it was like when they butted heads. It didn’t take long to find out. Just a few minutes in, our initial session erupted in anger, and it took quite a while to restore rational conversation. Starting a company together, it would seem, can be more stressful than RAF boot camp.
There’s never a bad time to revisit this list and never a bad time to talk about your relationship.
If you just started your company together, you can use the cofounder questions immediately. If you’ve been together 5 years, you can use these questions immediately. If you get into a conflict or issue you didn’t expect, you can pull out these questions to help you address it. Feel free to pull them out once or twice a year and review them together anyway. There’s never a bad time to revisit this list and never a bad time to talk about your relationship. These questions can provide structure and space to do that.
Prenup Checklist Questions
Each cofounder reflects on the questions personally, and then cofounders share their answers together
- Why do you want to create this startup?
- What are your most important values?
- Why is your cofounder the right partner for you? What do they bring to the table?
- What are three words that describe the culture you want to build?
- How will we divide up roles and make decisions?
- How will we decide important company topics when we strongly disagree?
- What will you do if something your cofounder is doing really bugs you?
- What if one of us isn’t scaling? How will we know and what will we do about it?
- What will happen if we get into a massive disagreement that we can’t resolve?
- What does success look like and how will we know?
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Originally published on Dec. 7, 2021.