At the risk of sounding like a certain Quack Dr. on TV who just uses his first name (Dr.Phil) .... Perhaps the $90 is a stop gap measure to avoid discussing some concerns he may have about the working relationship terms & conditions moving forward -- happens all the time.
Dispensing with a Co-founder
21–28 of 28 posts
Re: Dispensing with a Co-founder
#22He doesn't have much perspective yet, but that's not too important. He isn't as completely bought into the plan as you are, but you have a head start so that's expected. If you can work well together, that's what counts.
Re: Dispensing with a Co-founder
#23I was on a similar position some time ago.
I do think your co-founder isn't ready for the startup ride. You can talk all you want with him, but at the end it will come back and bite you. If he isn't passionated about it now, he probably won't be in some months.
If you really need to start rolling, go ahead, talk with him and tell him (gently) you're going on your own.
As many others have said, trust your gut feeling! Generally, the first reaction is the most visceral and truthful one. So if he is reacting like this to the incorporating issue, don't fool yourself, he's not the right partner for this venture.
Good luck
Re: Dispensing with a Co-founder
#24For what it's worth, most serial entrepreneurs I've talked with tend to advise waiting a while before incorporating. If you're still in the kitchen table phase, which you say you are, then your co-founder may be right. Until you graduate and begin working full-time on the project and have a demo that are you pitching to investors, incorporating is really just a distraction. At best it doesn't really help anything and…
I wouldn't recommend incorporating until you need to. Unless you have money or legal documents that require a separate legal entity there is no reason to incorporate while you just have an idea. Incorporating is a bit more time consuming than filling in the check and mailing. Depending on the type of incorporation and the state you might find incorporating to be a serious distraction you can do without for now.
On the other hand if the reason your co-founder doesn't want to incorporate is because it would be a waste of $135 dollars than you seriously need to talk to him about his commitment to this.
Re: Dispensing with a Co-founder
#25Where can you get incorporated for 90$ ? I always thought it was several hundred at least
Yeah in my experience it's been at least $350+ for the year, once you factor in all the various fees.
If you want to do it all yourself you can probably shave half off of that.
Re: Dispensing with a Co-founder
#26He hasn't understood what a startup means. If he did, $135 would seem very tiny compared to the huge amount of work he was planning to do. He's not planning to do that work. Yet. Don't dump him immediately. People are complicated, and sometimes they grow into things very quickly, or there was only one little thing missing. And it's possible you misunderstood his reasons for hesitation, or there was some other kind of…
you bring up some good points in the psychological aspect of things. if they do incorporate now though, there may be future legal problems ahead. Someone can correct me, but I feel the main problem is that typical $135 dollar incorporation services don't include important terms like vesting, so if this other person decided to walk away after incorporation; he would still own x percentage of the company...
since I'm not a lawyer I don't know of any loopholes, but I have met people who had this happen to them (three person medical imaging startup. 3rd person quits and still owns a piece of the company no matter what happens...)
to incorporate the right way, I think it costs about 4-5k (in california and delaware that is)
Re: Dispensing with a Co-founder
#27My business partner and I incorporated, specifically with an LLC. There was never a question about that. On the other hand, we weren't exactly a startup and we were diving into making some money. Our plan had always been from the beginning to spin off other ideas, and incorporate those as the time was right.
When putting together the articles of organization and the operating agreement, I remember a big emotional wall. It wasn't just the fees. It was as if, by signing my name and registering the paperwork, I would come out as a different person.
We got registered with the IRS, the state (all three agencies), and the city. Looking back, it seems trivially easy. However, if you are not operating and taking in customers, it is a lot of overhead in terms of ongoing paperwork.
We're currently working on a (real) startup idea right now, but we don't have plans on spinning it off into its own entity until we at least get a prototype or some revenue going.
In working with my biz partner, I have noticed something similar to the dynamic with my girlfriend. All the issues that crop up early in any relationship -- whether professional or romantic -- always repeats itself down the road. It is possible, though exceedingly difficult, to change that dynamic. They usually involve at least one person in the dynamic to become at aware of an uncomfortable truth about himself. Your misgivings about your co-founder (and friend) may point to that. It can end up as a source of a disaster, and left unexamined, you end up with a totally different set of people repeating the same dynamic. It can also be a source of strength; likely, what you find annoying (the hesitation?) may very well also be what's needed to succeed.
One last note, according to "The Google Story", the Google founders didn't incorporate until their first angel wrote them a check made out to "Google, Inc." At that point, to cash the check, they had to incorporate. And so ...
Re: Dispensing with a Co-founder
#28> We've got excellent personal rapport Then why are you posting here instead of having a serious sit-down talk with him about it?
why not? The guy is young, and is asking about some advice in here (which is probably the right place). When you are friends with or get along with somebody, sometimes it is harder to tell them up front that what they are doing is not working out.
He posted here asking about "Dispensing with a Co-Founder", not "Talking to a Co-Founder about Risk."
Different people involved in a startup have different risk tolerance. The general solution is for someone with more money and more risk tolerance to risk more money and get equity. I would advise this guy to offer to pay the whole $90 in exchange for a higher equity stake in the corporation.
Another option would be to delay incorporating until you're getting seed funding, and get some incorporation advice from your funder. YC prefers startups not to have incorporated when they apply, for example.