1. Building an entrepreneurial team in a new venture
Super-project.eu
Lecture 7

2. Contents 1 2 3 Team composition Managing expectations, equity sharing
Where to find co-founders? 3

3. Aim for the session By the end of the session, students will:
Understand the importance of a good entrepreneurial team
Know about criteria one should use when deciding on whether to start alone or with somebody
Know what criteria to use for the selection of a right co- founder
Know available options for reducing risks associated with co-ownership such as vesting

4. Co-founders: To have or not to have?

5. Alone or with someone?
Expected growth, the business has the potential for scaling
Required heterogeneity in skills and expertise required by the particular business (e.g. biotech vs. trade)
Are you really a team player?

6. Steve Blank: The Importance of Teams

7. Roles in entrepreneurial teams
Companies started by a team of founders are more likely to succeed due to the team’s ability to pool and share experience and expertise (Dobbs and Hamilton, 2006).
The roles (rarely people excel in all three) (Gerber, 1986):
the entrepreneur sees the opportunities, often with customer and sales skills,
the technician knows how to make or deliver the products or services, knows the technology
the manager is effective in management, administration, staff issues, cash flow

8. Optimal size at start-up
Too small a group may lack diversity. Too large a group may lead to greater conflict and difficulties in coordination.
It is very difficult to grow large without a team of two or more key contributors (Timmons and Spinelli, 2009).
It is helpful to start with enough people to cover the core roles - the entrepreneur, the technician and the manager.
Partners are sought which complement, rather than duplicate each other’s skills and abilities.

9. Complementarity of founders
Heterogenous teams have better performance in the long run (Steffens, Terjesen, Davidsson, 2012)
Co-owners should have their unique added value for the business
Professional knowledge
Knowledge of products, customers, procedures, legal issues, ICT, languages, …
Skills
Sales, marketing, negotiation, team, managerial, financial, …
Social capital
Access to customers, suppliers, investors, potential associates, accountants, lawyers, programmers, …

10. Steve Wozniak - the shy, childlike inventor who produced the first computer with a typewriter-like keyboard and the ability to connect to a regular TV as a screen
Steve Jobs - product-crazy businessman who recognised the brilliance of the invention, and sold his VW microbus to help fund its production …
Previous mutual experience, they shared love of technology and pranks, Woz helping Jobs with his previous work assignment for Atari

11. Compatibility of founders
Is there a core vision drawing the team together?
Motivation – Why are you starting a company? Why do you choose to be an entrepreneur? Do you share that motivation with your potential partners?
Ambition – What do you want to achieve with your company? Do you want to scale and sell or to manage a small company and pass it to your children? Do you share that view with your co- founders?
Time investment – Is it your full-time project or are you working on something else? What is the amount of time you are willing to invest in this project? Commitments should be made very clear.
Risk attitude – Is it ok for you to be in debt? How much?
Sympathy and trustworthiness

12. Managing expectations
Differences in co-owners' expectations naturally exist.
Be as explicit as possible in stating your expectations concerning future business functioning and your expected role in it – clarify the individual roles.
Rich communication helps to avoid future disappointment.
If the start-up is growth oriented, it usually pays off to get a lawyer involved early in the process.

13. Equity sharing
For growth-oriented businesses, equity is often exchanged for experience and money that drive your growth. You should plan equity distribution also for your future investors.
In order to attract talents and senior professionals, you offer them part of your equity as you do not have enough money to pay them high salaries.
But be aware of potential deadlocks (e.g., fifty percent share)
Don’t give away equity based on likeability of your co- founders. You need them to prove their skills first.

14. Vesting
Vesting scheme protects the business against some risks, such as a founder or a key employee simply walking away.
Vesting schedule defines when and how the shares of the company will be distributed.
For instance, the full ownership of shares may occur only after vesting scheme is completed, i.e. after working several years for the start-up. The longer individuals work for the business and help it succeed, the more they gain.
Vesting scheme is used not only for founders, but also for employees, consultants, and directors.
It is broadly used in the US or in the UK but it is more complicated in a continental Europe. Contact a lawyer regarding the specific details.

15. Where to find co-founders?
Friends – you like them and trust them, but their work behaviour may differ from your expectations.
Family – even more trust, you usually share a long-term vision, there is a challenge of being together 24 hours per day with your partner, otherwise same risks as with friends
Schoolmates – you know their capabilities from school projects, you may miss a diversity
Former colleagues and business partners – recommendable source of potential co-founders as you have the experience from previous cooperation
Experts in the field – well known professionals that help you to increase your credibility. Get in touch with them through your network, try to get more of them on board, potentially as advisors.

16. Summary Co-founding a business is like getting married – choose well 
Look for compatibility and complementarity with your co- founders, apply criteria for the selection of right co-founders
Clarify expectations
There are ways how to protect yourself, such as vesting schemes or legal advise
There are various types of potential co-founders – be aware of their pros and cons

17. Thank You !