Is Your Potential Co-Founder Already in the Bonus Round?

By October 27, 2012Getting Started
bonus round ceo

For years I’ve helped friends and former business colleagues with their job search.  If I find out they are thinking about working for a startup or early stage company, I usually talk to them about the various attributes of a bonus round CEO in case they come across a company that has one.  What’s a bonus round CEO?  It’s simply a CEO that has already made their retirement money from a previous successful venture.  And the more they made the more into the bonus round they are.  Sometimes, but not always, bonus round CEOs are willing to take much more risk than other founders.  After all, if the venture doesn’t work out, they’re already set for retirement.

Bonus Round Co-Founders

So what about having a bonus round co-founder?  It could be great given the extra been-around-the-block experience.  But there’s more to consider than just that.  No two “bonus round” business professionals are alike.  So you’ll need to dig in a bit more to make sure the one you’re considering for a co-founder is a good fit.  Below are some things to explore:

  • Were they a founder for the gig that put them into the bonus round?  In other words, have they been around that part of the block to understand the issues at the very early stage?  If they made their money as a Fortune 500 executive and never spent time running a startup, they could be in the bonus round but without understanding what your world is like.
  • If they already have a fat retirement in the bag, why do they want to go through the drudgery of doing a startup gig?  Sometimes, bonus round types feel like they have to prove the first win wasn’t just luck.  Other times, they tried moving into a semi-retirement phase and realized they were made to build companies.  And sometimes they came into the winning venture after it was already established but always had a dream of doing a startup.  Whatever their reason, you’ll want to know more about their fundamental motivation.
  • Do they understand that they might be willing to put the company into more risky situations than if they hadn’t already made their money?  Do they realize that some aspect of this could be good but sometimes it’s either unnecessary or crosses the line for the amount of risk the other founder(s) or employees are willing to take?  Remember, if your venture crashes and burns, the bonus round co-founder is still set for retirement.

There’s almost certainly more good than bad from teaming with a bonus round co-founder.  Just add the questions above to your due diligence list before you make your final decision.

When They Become Your Investor

Bootstrapping is a common way for startups to start (see related article titled “How Long Should You Bootstrap?“).  But with a bonus round co-founder on the team, it’s possible they will invest some of their own money to help accelerate progress during this phase.  Fabulous, right?  Well, now your co-founder is wearing two hats: operator and investor.  Their investment will likely be made via some convertible security like a convertible note (see related article titled “Convertible Note Basics“) or a SAFE (see related article titled “Comparing the SAFE to Convertible Notes“).  That means that in the future they will end up with some Preferred equity versus the Common class equity held by other founders and employees.  Preferred shareholders get special rights, including some special voting rights.  Will your bonus round co-founder vote her shares with the Common shareholders’ interest in mind or the Preferred?  Very often their interests are aligned, but not always.

Summary

entrepreneur personas

There’s almost certainly more good than bad with having a bonus round co-founder.  Like many things related to the long journey that’s ahead of you, being able to have open and honest conversations with your co-founders is critical.

Also, with any addition to the team at the early stage (ie – first 20 employees), pay close attention to personas and personalities.  You don’t want too much concentration of the same persona type because diversity of thinking and approaches can be one of your company’s strongest superpowers.  For more on this, see my article titled “8 Personas of Successful Entrepreneurs“.

Also see my related article titled “Avoiding Co-Founder Conflict“.

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