Solo or together?
Everyone thinks sole founders are less likely to succeed than co-founded business, however the actual stats are inconclusive.
It looks like the number one reason startups fail is due to founder conflict. While at the same time sole founders on average take longer to build bigger businesses.
For us it’s not really a questions of success or not, it’s about enjoyment and stress levels.
Typically it is less stressful and more enjoyable when you’re in it with someone else, plus it’s normally easier to raise money with co-founders.
Find a friend
Top Tip: We would always recommend you try and find a co-founder, even if you are a year into the business.
It will make it easier to scale as one of you can run the business, while the other leads the investment round.
We’ve experienced, especially in the early days, when sole founders raise investment they are not running the business and there is too much to manage.
If you have co-founders you spread the load and the business won’t go on pause when you are raising.
Two brains are almost always better at solving a problem. Two diverse brains are even better still!
Vesting is your friend.
Much like a prenup it protects you when things don’t go to plan. Vesting essentially means over time you get allocated more options to acquire shares in a company. You don’t get the whole lot in one go. It therefore protects the company and other shareholders if you leave early and something does not go to plan (this is life!).
The typical vesting model
Is a one year cliff and a further three years of vesting.
For example say you join a startup and you get allocated 4% vesting equity.
This means if you leave within one year of joining you get nothing.
On the day of your one year anniversary if you did leave you would have the option to acquire 1% (or what ever the equivalent number of shares were related to 1% when you joined - remember future rounds means your equity gets diluted).
For every month you work thereafter, you then receive a prorated a month of options, so if you left on year two you get 2%, year three 3% and so on.
Ideally you want to include an acceleration clause linked to a liquidity event (e.g. company get’s sold). This means if the business is acquired in year two, you get your whole options allocation (full 4% using the above example), without having to work another two years for the standard vesting period.
The final key thing to remember is that these are typically ‘options’ to buy shares, you don’t just get given them!
When you join and you are allocated the options a strike price will be set. This is the price you can buy the options in the future if they vest.
In the UK for full time PAYE employees (need to work 75% their time at the company), you can create an EMI Share Scheme. This is where HMRC will significantly discount the share price for employee options. On liquidation event they purchase the share options at this discount then pay 10% Entrepreneurs relief on their Capital Gains (the money they have made).
Top Tip: VC’s and more sophisticated investors will expect the founders to be on a vesting programme. It’s therefore worth starting this sooner rater than later and not waiting to insert founders vesting at series ‘A’.