Students in Copenhagen Science City are used to being the smartest kids in the room. They are training to become astrophysicists, brain surgeons, AI-developers. High concept trades for big brains. Even so: When they decide to start a business they are not qualified to shine in all the fields required in a tech start-up. They need co-founders. That was the central message at a breakfast talk in University of Copenhagen’s SCIENCE Innovation Hub.
First and most important investor
The breakfast meeting for student entrepreneurs featured Nicolaj Højer who is a serial entrepreneur and business angel. He has co-founded and invested in 13 companies. Primarily within Information technology. He has considerable experience in securing funding from multiple sources. To him, a company’s co-founder is the first and most important investor.
I don’t care how talented you are in your field. If you tell me, that you plan to start and grow a business all alone, I have one of two reactions: A. What is wrong with you? Or B. Seriously, what is wrong with you?” Nicolaj Højer, Serial entrepreneur and lecturer at Copenhagen Business School.
Two tasks are central to a start-up business
Starting a business based on new technology is the hardest type of start-up. On average eight out of ten fail and the time to market is usually seven to 10 years. Højer’s central message to the assembled SCIENCE students was simple. In order to be successful you need someone who is good at developing the technology and you need someone who is good at selling. Both tasks are full time jobs and very few people are qualified to do both.
“Of course it’s important to be able to build the tech, but building it cannot stand alone. Most tech companies are trying to fill a customer need that does not exist yet. The job of your sales or marketing co-founder is to be your company’s voice from the outside. Someone who talks to customers to discover their needs, to regulators so legislation is in place for your product, to possible future partners, investors and employees, so they are lining up as you need them”, says Højer.
Outsourcing is not an option
So; you need complementary skills to start a business. Especially in tech. Some would-be entrepreneurs believe they can outsource the tasks that they themselves are not qualified to do. This, according to Højer, is a basic fallacy.
First: Outsourcing is expensive, and very few start-ups can raise the kind of cash needed. Second: An outside company will never have the kind of dedication that a co-owner has. If you buy an outside company to do something mission critical, and then run out of money to pay their bills… That’s the end of your company”, explains Højer.
The simple math of teambuilding
Building a start-up team is simple. At least on paper. The ideal size is two to four people. As Jeff Bezos famously said: “You should be able to feed a start-up team on two pizzas”, the ideal skillset is complementary and the ideal way to share the company is equal.
“Sharing the company in equal parts is not just a question of what is fair. I don’t much believe in karma. What I do believe, is that unequal shares between co-founders will create problems down the line. Someone with a smaller share will feel entitled to a higher salary as the company becomes valuable. Someone with a smaller share will see their share unreasonably diluted as investors start taking equity. Someone with a smaller share will feel less dedicated when times become hard”, opines Højer.
Plan for a future of fair sharing
Højers final pieces of advice revolved around timelines. He feels that start-ups- especially founded by students- should start without any kind of agreements After playing around with the idea for six to eight months, it’s time to start a company. In Denmark, that means to raise the 50,000 kroner needed to open an APS (A private limited liability company) If any of the co-founders are not prepared to beg, steal or borrow their share of the capital adequacy requirement, they are probably not all that serious about the company, and should not become co-owners. Everyone else needs to hammer out a shareholders agreement.
Get a lawyer. You wouldn’t believe how many contingencies you need to plan for. What if a co-founder dies, drops out, gets a divorce, wants to sell his share, wants to sell the entire company or does not want to allow additional investors to dilute his share? You need to describe as many situations as possible in the shareholders agreement in order to prepare for them,” concludes Nicolaj Højer.