Sharing The Business: Selecting and Repaying Cofounders

2 min read Many times, investors choose to take equity in return for their investment, earning them the title of cofounder in the startup. This can be a lucrative route for many startups, especially those in need of additional guidance and/or a hands-on deck. Choosing the correct cofounder for your startup and negotiating a fair deal is key to success. Continue reading below to learn more about what makes a good cofounder and what equity negotiation consists of.

What Makes a Good Cofounder?

You need a complete team, meaning you need somebody building it and somebody selling it. If you’re building it, then you need to find a co-founder who can sell it. If you are selling it then your cofounder needs to be able to build it. 

A good cofounder has valuable skills that match your needs. They need the skills to get your MVP out, get it built, and sell. This may be design skills, a solid network, marketing expertise, etc. based upon your unique situation and needs. 

Lastly, take the dynamic of your team into consideration. A cofounder should meld well with your current dynamic. They are going to be a strong player on the team; choose someone you will enjoy and value having around. 

The Equity Negotiation

In return for their investment, cofounders will expect a percentage of equity in the business. This allows them to profit when the startup begins pulling in revenue. How much equity you should offer to a cofounder depends on your startup’s valuation. The higher the valuation, the less equity you are giving away.

Pre-money valuation (what the business is worth before an investment is made) plus the investment amount gives you the post-money valuation amount. If your pre-money valuation is $4-million and you’re raising $1-million, the post-money valuation is $5-million. Equity is typically based on the post-money valuation, so as an entrepreneur you’re pushing the pre-money valuation up while the investor is pushing the pre-money value down. That’s the basis of your equity negotiation.

You can help sway this negotiation in your favor by showing a positive market rate. You need to show the going rate and convince the investor they are going to get a good deal.


Read more on the TEN Capital Network education: Click Here

Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email:

, , , ,
Previous Post
Best Practices for Startup Advisors
Next Post
Startups: Do You Need an Advisor?

Related Posts

Fundraising Basics

1 min read Fundraising can be an exciting venture, yet it can also be a bit nerve-wracking if you don’t feel secure in your campaign decisions. Learning the basics will help you to raise funds confidently and successfully. In this…

The Art of Pitching Q&A with CEO Hall Martin

2 min read Strong pitching skills are imperative when trying to communicate your idea and capabilities to an investor. The art of pitching goes beyond presenting the standard deck. It includes crafting a story through the intentional use of language,…

Tips For Using Your Financial Model

2 min read Financial models contain numerical data about the past, present, and future of your business. This information can be used to make business decisions, analyze the financial health of the company, and can also be presented to potential…