Every new company requires a founder. A business can’t come to fruition without someone’s idea and initiative to turn a dream into reality.
But in the early stages of a company, there can be confusion around what “founder,” “co-founder,” “CEO,” and “founding member” mean. Beyond that, these terms can also equate to different equity amounts or types, and the number of startup co-founders can even have influence over funding opportunities.
Startup Founder vs. Co-founder vs. CEO
What Is a Startup Founder?
A startup founder is simply a person who starts a business. This person has an idea that they believe could be profitable, so they build a company from the ground up to make that idea a reality.
What Is a Startup Co-Founder?
If there is more than one person collaborating to turn an idea into a business venture, then there are multiple co-founders. This title can also be given to people who are brought into the company in the early stages, even if they weren’t there from the very beginning.
Founder vs. CEO
The title of founder is permanent. Once a person helps build a company, they are now part of that company’s history, even if they leave later on to pursue other ventures or retire. A founder or co-founder will hold that title indefinitely.
The title of CEO is less permanent. According to M&A Executive Search, CEOs usually hold their position for about 6.9 years. Similarly, PwC found that the median tenure of CEOs is about 5 years, while just 19% of the CEOs in the study held their role for over a decade. Once a CEO leaves, they lose that title.
For startups, someone often holds both titles as a founder and a CEO. Later down the line, the founder may decide to step back, hiring someone else to take over the CEO duties when the company reaches a stage that requires a more seasoned and experienced executive.
(In this clip from "Spiraling Up," G2 co-founder and CEO Godard shares the story of how he first started the company.)
Co-Founder vs. Founding Member
Some people who join a startup in its early stages may receive the title of co-founder, but others may instead be described as a founding member. Co-founders take on more responsibility and are usually involved with turning the idea into a business venture. They help get the business up and running.
Founding members will help out in the early stages to boost brand awareness, develop products, or make sales. But they didn’t help start the business by providing an idea or setting up the LLC. Founding members are employees who join the company in its early stages.
Aside from the titles, co-founders and founding members often receive different types of financial benefits. Founders or co-founders will receive founder’s equity — common stock issued when the company is created — in exchange for their long-term commitment to the business.
Founding members may receive different types of employee stocks. Early-stage employees in executive roles may receive restricted stock units, while other founding members who are not in executive roles could receive stock options.
How the Number of Co-Founders Impacts Funding
When a person or team of people decide to pursue creating a startup, they need to consider how many co-founders they need. While companies with one founder can still find funding opportunities, investors usually prefer to support startups with two to four co-founders.
Startups with multiple co-founders can show that they have a range of skills and people to tackle the responsibilities of starting and running a new business.
On the other hand, a high number of co-founders can raise concerns that there are too many cooks in the kitchen. With more than four co-founders, it can be challenging to move quickly if people have different ideas of how the company should operate.
If a startup is looking to reward early-stage employees with a founding role, they may consider granting the title of founding member rather than co-founder.
Equity for Founders and Co-Founders
Many early employees, co-founders or otherwise, receive some type of equity in the company. The startup equity is first entirely held by the founder or co-founders (until investors get involved).
For multiple co-founders, the team will need to decide how to distribute ownership. Two co-founders who started together may split the ownership 50% and 50%, while two co-founders and a third co-founder who came in a little later may decide a 40%, 40%, and 20% split is fair.
Once outside investors get involved, the company ownership will change. Each investor will take a certain percentage of equity in exchange for their investment.
Founders and co-founders need to weigh the pros and cons of giving up more equity in exchange for investment. It comes down to the age-old premise that it may be better to own a smaller slice of a bigger pie, than most or all of a smaller pie.
How To Choose the Right Co-Founders
Finding the right co-founder can be a challenge. Building a business is a long-term commitment, and there are going to be obstacles along the way.
Co-founders should balance each other out, not just in their skill sets, but also in their temperaments. They should have similar ideas and goals for the business and be able to communicate clearly and work through hard times together.
Below are a few tips to finding the best co-founders for your business.
Look for Generalists
When finding co-founders or even some of the first employees at a startup, it’s helpful to consider jack-of-all-trades types who tend to know a little bit about many different facets of business.
Someone who has marketing, social media, SEO, and content-writing skills can be invaluable when you’re just getting started and don’t have the funding to build out full teams of people for each business function.
HubSpot co-founder Dharmesh Shah says that the HubSpot team focused on hiring generalists when finding its first employees. Finding people who are open to learning as they go and getting their hands on any tasks that need to be done are also crucial for a growing startup.
Consider Skill Sets
While looking for generalists is helpful for startups who need employees that can handle a wide variety of tasks, balancing skill sets is still important to keep in mind when matching co-founders.
If one startup co-founder has excellent computer skills, it can be helpful to find other co-founders who have skills in design, finances, or sales.
Check Your Network
The best startup co-founders are those who are like-minded and have similar goals. Your network is likely full of potential co-founders, whether it’s a friend or a former colleague.
If no one in your network is available, you can also network further to expand your circle. Attend networking events, whether it be a conference, an accelerator group, or an industry-specific meetup.
HubSpot for Startups has multiple networking events throughout the year where you can meet like minded founders. Here's a shot from the SXSW 2023 event (which was the talk of the town).
Try Online Platforms
You can also find potential co-workers using online platforms designed to match co-founders. Some popular online tools for connecting startup founders include CoFoundersLab, Y Combinator’s co-founding platform, Founder Institute’s virtual co-founder networking events, and Wellfound (formerly AngelList).
Keep Temperament in Mind
Just as you’ll need to balance the skill sets of co-founders, you’ll also need temperaments that complement one another. If all the co-founders are reserved and shy, attending pitch meetings or demonstrating products at trade shows may not be as successful as if you have an extroverted, charismatic co-founder on the team.
Find Self-Sufficient Teammates
In the early stages of a company, a startup founder may not have the capacity to guide other co-founders or employees through all of their tasks. Team members will need to be able to work autonomously, not being afraid to make decisions and learn new skills rather than checking in constantly for assistance.
Ultimately, the key to any good partnership is transparency. Co-founders should be open communicators, honest and transparent about anything going on in the company.
From successes to challenges to concerns, startup founders should look for partners who are willing to communicate and work together to move the business forward.
A startup founder leaves a legacy. Their name will be associated with the business forever, even if they leave the company in the future. Taking care to select the right one now will help set your company up for long-term success.