Ask HN: What questions did you ask (or wish you asked) your cofounder? • Hacker News Board

Re: Ask HN: What questions did you ask (or wish you asked) your cofounder?

#41

Post by tylercubell » Wed, Jul 19, 2017, 4:43 PM UTC

Mistake #1 is rushing into the relationship. If you're excited or desperate, you'll overlook things that could bite you in the ass later.

Ask yourself a few questions first. Does your cofounder have a track record of execution or do they bounce from scheme to scheme without achieving anything? Are they sane and competent or do they have a criminal history and a troubling social media presence?

Do your due diligence. Run a background check (seriously). Don't be afraid to ask the hard and uncomfortable questions up front.

In my own experience, if I were to bring on a cofounder again I would write a honeymoon period clause into the Founders' Agreement. Something to the effect that if the relationship doesn't work out during an initial period of time, each party's risk is limited to only the money and time they put into it. I'd rather get an annulment than a divorce if possible.

Re: Ask HN: What questions did you ask (or wish you asked) your cofounder?

#42

Post by valuearb » Wed, Jul 19, 2017, 5:42 PM UTC

brianwawok wrote: post #40

valuearb wrote: post #38

Earlier quoted context omitted.

Well it would have been far easier to offer employees stock options, and far easier to raise financing. And faster and easier to codify a different split when his partner was amenable to it. Tech Investors hate LLCs cause they hate K1 forms.

Converting LLC to S/C corp is not hard though! Your entire chain of evidence was about two founders who had very different commitment levels, and had trouble converting. Of course they had trouble converting. They also would have had trouble diluting for investment if you did not dilute 50/50. There was an underlying problem there, and the corp conversion was the rip the bandaid off moment. It had to happen, and the…

I actually agree with most of what you wrote, an LLC is cheaper/easier especially when you have no money and need to focus on building product.

But when do you bring on employees? ie non-partners. I hugely recommend giving them equity options and now you have to convert, which is more costly than being a C corp from the start.

Also your 10% figure isn't close. investment comes from family, angels, and VCs. Probably over 50% get some type, and now your tax returns and theirs just got much more complex. As does future investment.

If you can afford to start as a C corp, it's often worthwhile.

Re: Ask HN: What questions did you ask (or wish you asked) your cofounder?

#43

Post by brianwawok » Thu, Jul 20, 2017, 2:07 PM UTC

valuearb wrote: post #42

brianwawok wrote: post #40

Earlier quoted context omitted.

Converting LLC to S/C corp is not hard though! Your entire chain of evidence was about two founders who had very different commitment levels, and had trouble converting. Of course they had trouble converting. They also would have had trouble diluting for investment if you did not dilute 50/50. There was an underlying problem there, and the corp conversion was the rip the bandaid off moment. It had to happen, and the…

I actually agree with most of what you wrote, an LLC is cheaper/easier especially when you have no money and need to focus on building product. But when do you bring on employees? ie non-partners. I hugely recommend giving them equity options and now you have to convert, which is more costly than being a C corp from the start. Also your 10% figure isn't close. investment comes from family, angels, and VCs. Probably o…

> But when do you bring on employees? ie non-partners. I hugely recommend giving them equity options and now you have to convert, which is more costly than being a C corp from the start.

I am not giving early employees equity, going market rate salary instead. But you can totally issue shares as an LLC though. In fact they are more flexible. You could add more rules or regulations around it.

Investments from family and angels do not need to be equity, it could also be various debt instruments. In these cases no tax magic to worry about, it stays very simple.

Perhaps my boat is different because from day 1 I was 90% not planning to get VC money. If your plan is 90% from day 1 to get VC money, then I guess you would want to optimize that path.

Re: Ask HN: What questions did you ask (or wish you asked) your cofounder?

#44

Post by valuearb » Thu, Jul 20, 2017, 9:25 PM UTC

brianwawok wrote: post #43

valuearb wrote: post #42

Earlier quoted context omitted.

I actually agree with most of what you wrote, an LLC is cheaper/easier especially when you have no money and need to focus on building product. But when do you bring on employees? ie non-partners. I hugely recommend giving them equity options and now you have to convert, which is more costly than being a C corp from the start. Also your 10% figure isn't close. investment comes from family, angels, and VCs. Probably o…

> But when do you bring on employees? ie non-partners. I hugely recommend giving them equity options and now you have to convert, which is more costly than being a C corp from the start. I am not giving early employees equity, going market rate salary instead. But you can totally issue shares as an LLC though. In fact they are more flexible. You could add more rules or regulations around it. Investments from family a…

I highly disagree with not giving early employees equity. I've always given them even to the receptionist and they have a substantial impact on building a better team environment. It becomes "their company" and you get more commitment, better efforts and even more honesty.

And issuing employees shares in an LLC is a mess. Giving straight participation is taxable. Giving appreciation rights is complicated to do and manage. Doing it in a C Corp is basically automated with all the tax issues clear and codified.

Complicating your deal with Angels is also a good way to get them to walk away. You can use convertible debt if you are on the verge of a VC round, but you have to be a C corp in that case. And you have to agree on convertible terms that will attract Angels but not scare off VCs. Angels typically want to be investors, even most family members, and an LLC makes that a mess.

If you don't want to get VC money that's fine, but you better be sure.