Should I wait to find a technical co-founder or get started with a free-lance resource? Do I need a technical co-founder before I go out to raise money for my start-up? I’ve been asked about this enough to merit a post. Not sure there is one right answer, but here’s what I know. While an entrepreneur isn’t required by any law of nature to get a technical co-founder before seeking funding, it is safe to say that for most companies in the tech space, it would be “very much preferred” by the typical investor.
After all, the ability to attract one or more co-founders to come work on their idea is every entrepreneur’s first “market test.” Not to mention that it is one fewer risky, time-consuming and potentially dilutive hurdles to be overcome after investment. And an investor would always prefer the chance to evaluate the co-founder and the team dynamic for fit, favored tools, past accomplishments and general competence. In fact, I will go out on a limb and say that, for the same basic reasons, investors universally prefer to invest in a team rather than a solo founder.
Another reason for this is that companies with in-house technical resources who can pay equity and ramen noodles for their technology tend to have better economics than companies which have to pay full retail to an outside consultant to do the work. For short-term projects like just getting a site up and running, it is no big deal, but if you are a company that is primarily all about technology and will rely on technology for defensibility and quickly innovating on technology for differentiation, then the outsourcing costs and inevitably increased cycle times will really start to drag you down pretty quickly. Keep in mind that your competitors with technical resources on the team can use those dollars to out market you. From an investor’s perspective you get worse “gas milage” with your equity in terms of things accomplished and traction generated per dollar invested. That translates into more dilution for investors which translates into lower valuations.
But it is not easy to find a great technical co-founder. And finding the right person to be your co-founder is really important. Finding one single “10X person” who is so good they are ten times as productive as normal technical people can make the difference between success and failure. It is definitely not something to be rushed. It’s a minefield. I am always amazed at how focused entrepreneurs are on the dilution associated with their pre-money valuation while over-looking a far bigger potential source of dilution: giving some huge chunk of your company to the wrong co-founder who turns into deadweight and needs to be managed out. Talk about locking the front door and leaving the back door swinging in the breeze….
So a lot of founders start out with free-lance technical help. Is this a real solution, or are you just replacing one problem with a bunch of others?
You certainly do introduce a host of problems. You can end up dependent on someone who will eventually move on, usually at an inconvenient moment. When they leave, you may not be able to unerstand their code. People will still wonder why you weren’t able to attract a co-founder to commit. The free-lancer you hire could be available for a reason: they may not be able to write good, scalable code using the most up-to-date tools. You rob yourself of that beneficial back & forth synergy that comes from really well-bonded co-founders arguing late into the night over pizza and beer. And perhaps most importantly, the code-for-hire approach usually consumes precious cash resources instead of equity.
Yikes, that sounds like a hairball. So should you just sit on your hands and wait? If you’ve got a really hot idea with a narrow window of opportunity, no, you shouldn’t. The world is an imperfect place. You have to make some compromises in life. So you probably shouldn’t hold up developing at least the bones of the product while you wait for the perfect co-founder level technical person. The sooner you get something to demo for customers to get feedback, the better. Given how tight the market is for technical talent, there is a good argument to be made for just getting going. All great entrepreneurs have that bias for action. They just want to get moving. And I dig that about them. (For more on that topic see any number of books, including Schlesinger’s Action Trumps Everything or Feld & Cohen’s Do More Faster.)
But in all your haste, please at least take a moment to put in place a proper set of terms that ensures you own all the IP created, binds them to some basic conduct standards, contains some quality guarantees (including the promise of all original non-infringing code or properly-licensed open source code), requires them to fully document the code they create, and guarantees some reasonable level of availability for consultation after they leave.
Then go make your idea happen. What are you waiting for?
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If you enjoyed this, you might enjoy: What I Look For In An Entrepreneur, Why Angels Chase Electrons, Are Entrepreneurs Wild Risk-Takers?, Pick Your Founder/Co-Investors Carefully & Reflections on the Nature of Entrepreneurs, Top 20 Dos & Don’ts with Angel Groups & Early Stage Financing, Delusional Economics, The Overture, That Vision Thing, The Power of An Advisory Board, Loch Ness, Unicorns & The First-Mover Advantage.
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