Mo Koyfman interview: Startup teams

Moshe “Mo” Koyfman is a principal at venture capital firm Spark Capital, where he leads investments in Web services such as www.aviary.com. Prior to joining Spark, Mo spent six years at IAC, most recently as Chief Operating Officer of Connected Ventures, parent of CollegeHumor.com, Vimeo.com and BustedTees.com. Mo is a graduate of The Wharton School and The College of Arts & Sciences at The University of Pennsylvania.

UpStart: “What do you look for in a startup team?”

Mo Koyfman: “A great team is the first thing I look for in an investment opportunity. Successful businesses are built by extremely talented people and that’s where my investigation begins. I specifically like to see great co-founders, as there seems to be a unique chemistry that develops with the right mix of leadership at the helm. If technology is an integral part of the product, I also like to see at least one of the founders with a strong technical background. It’s certainly ideal if they’ve had prior success, but not a prerequisite. And it’s important that they’re still hungry, no matter how successful they’ve been previously. I also look for a balance between tenacity and passion on the one hand and a willingness to listen and learn on the other, as many mistakes will be made and the company will undoubtedly have to hear their users / customers and pivot over time.”

UpStart:  “What do you like to hear from a team when they present their business plan?”

Mo Koyfman: “First, I like a business plan to be clear, informative and brief. If your PowerPoint is more than 20 pages, you haven’t done a good enough job of crystallizing your plan. In the team section of the plan, I like to know how the team came up with the idea. I tend to prefer ideas hatched from real needs, as opposed to ideas developed in top-down brainstorm sessions. I also like to know how the team knows each other, to get a sense for their shared vision, and to understand how their skills are complementary. I also prefer when teams come with a built product rather than just a plan—particularly for Internet service companies, where it’s become easier and cheaper to build basic products right out of the gate. I like to see a team scrappy enough to have built a prototype themselves, with the least amount of money possible.”

5 tips for finding the right partner

Taking on the right partner can make or break a startup. Here are a few questions to ask yourself and your potential partner:

1. Goals and commitment levels. What do you each of you hope to get out of the business, financially and otherwise, over the short term and the long term? Do you need to get paid? How much, and when? Are you shooting for a big payout upon exit? What would make you happy? How much time are each of you willing to commit to the venture? What are your goals for work-life balance? How much travel are you willing to do? Are you prepared to make investments, or take on personal debt to finance the business?

2. Baggage. Have you been in partnerships before? If so, what worked out well for each of you? What failed? What baggage are you each bringing to the potential partnership as a result? What would previous partners say about you?

3. Strengths and weaknesses. What are each of your talents? Where are there gaps in your skill sets and experiences? Are there classic tradeoffs in your skills? For example, a product developer who is great at building, but poor at selling, or great at producing quality products but not so great at hitting tight deadlines? How about a sales-oriented person who is great at closing deals but not at delivering results for customers? Being aware of these differences can be helpful. Identifying deal-breakers before it’s too late: Priceless.

4. Workstyles. How do each of you like to lead and manage? Do you prefer doing or delegating? Would you rather work with large teams or small teams? What types of people do you like to work with? How do you handle conflict? Do you confront it directly, or let it fester until it blows up? Do you have issues that light your emotional fuses? Blind spots that get you in trouble from time to time? Have you taken the Myers-Briggs test, or an equivalent (e.g. humanmetrics.com), and compared your results?

5.Trial runs. Have you worked together in the past? If so, what went well and what didn’t? If not, can you find an opportunity to do a consulting project together? Can you work together on a temporary basis to see what it’s like before you commit for the long-term?

Got tips for finding the right partner(s)? Please share.

5 thoughts on whether to take on a partner

Deciding whether to take on a partner is one of the toughest choices a founder can make. Having recently gone through the process, I thought I’d share some tips (Note: I’ll get to how to find the right partner in an upcoming post):

1. Two beats one. Many founders choose to go it alone, at least at first (see below). Then again, adding a partner to your startup has many benefits. Two partners have more contacts, which can lead to more investors, employees, and customers. Likewise, two partners may have more cash, or at least more credit. Two founders working for free can get more work done, faster, with less cash outlay for employees or vendors. Lastly, don’t discount the softer side of partnerships. Startups are emotional roller-coasters, and having a partner can smooth out the loopdy-loops.

2. Consider a warm-up. Startups rarely find success with their initial strategies. More often, they switch to a “plan b” along the way. That means the ideal partner today may be dead-wood tomorrow. I’ve found it helpful to go solo for a few months. That gives me a bit of time to get feedback on my idea, tweak my strategy and approach, and then zero-in on what I really need from a partner.

3. Take stock. What are the major tasks that will be required to operate the business once it’s up and running (Note: Don’t make the mistake of choosing a partner to help with work you’ll only need to get started)? Are there logical groupings of those tasks, like one person selling and another executing? While two person teams tend to be easier to manage than three, you might find that there are three logical groupings of tasks, such as with an ad-supported website (One person gets people to the site, another generates content, and a third sells access to marketers).

4. Mind the gaps. Which of the logical task groupings are you best-suited to oversee? Once you carve those out, what gaps are left?

5. Profile your co-founders. The most common partnership mistake I see is when people choose their friends or relatives as partners, just because they are available. That leads to mismatches in skills/roles, goals, motivations, etc. Instead, follow the process above, and use it to develop a profile of your ideal founder, the way you would develop a job specification. Then go out and find the right person for the role.

Got tips of your own for founders deciding whether to take on partners? Please share.

Partner pre nups

I got burned by a partner once. He flaked out after just a few months, keeping a big chunk of equity while I did all the work.

So when I took on a partner for my latest venture (coming soon), I insisted on a partner pre nup. There are a lot of ways partnerships can go sour, and it’s tough to protect against all of them. Also, it’s a bit awkward to be talking divorce during your honeymoon. But better safe than sorry.

The core of our pre nup is a partner vesting mechanism. It works like this… Both partners start with slices of the equity pie. Let’s say we each get 50 shares out of 100 total, to keep things simple. Over the coming years, we’ll work hard to turn our respective equity stakes into something valuable. But we’ll have to earn our rights to that equity.

We’ll earn a bit more every quarter (three months), over a four year period. With four quarters per year over four years, there are a total of 16 vesting periods. So, we’ll each earn 50/16, or about three shares every quarter (we’ll make up for the rounding issue during the last period).  At the end of the first quarter, we’ll each earn three shares. At the end of the second quarter, each of us will have earned a total of six shares. And so on, until we reach 50 each.

If one of us leaves to do something else, or otherwise stops contributing in a positive way (e.g. gross negligence) we’ll only walk away with the equity we’ve earned so far.

Suppose we’ve been working on the startup for 13 months, and we’re struggling. At that point, one partner wants to stick it out, and another decides to pursue other opportunities. The partner who leaves keeps four quarters of equity, or 12 shares. The other partner gets the remaining 38 shares. So now the partner who leaves owns 12 over 100 shares, or 12%. The partner who sticks around gets the remainder, or 88%.

Flake factor be-gone.

Startup Diary: Entry 4. I think I’m gonna need a bigger boat.

About two months ago, the thought hit me like a frying pan over the head: I needed a partner to help me build and run my school for startups. At the time, I was managing six freelancers, each in a different state. I was bootstrapping, so I had taken a pass on the expensive project managers, and I was running everything myself.

But tasks were slipping through the cracks. There were just too many details, many of which were outside of my primary areas of expertise. What I needed was a Mr. / Mrs. Inside to my Mr. Outside. Someone to run product development and operations. Someone who had done it before, and done it well.

Deciding you need a partner is of course only part of the challenge. Next you have to find someone with the right stuff, make sure you are a good fit, negotiate a deal, and learn to work together well. Over the next few posts, I’ll explore each of those issues.

Got any tips or stories about partnering? Please chime in.

Beware bad partners bearing cash

I met with a successful consumer products entrepreneur today, and he told me how he spent the past few months unwinding a partnership–complete with legal costs, wasted time, and frustration.

Long story short, he took investment capital from a wealthy person with nothing to do and a desire to be involved in running the business. That person proved to be a lousy operator and awful partner. The story made me cringe, not only because I’ve heard it before, but because I made the same mistake many years ago.

I know, I know, you need capital now to start–or preferably to grow–your business. But be very careful about mixing investors and partners / employees. Think about whether you need to fill a specific role on your management team. Then profile the skills and experience of your dream candidate for that role. Before you even consider having an investor fill the role, be sure they are a great fit, and that they’re someone you know very well , trust, and want to work with every day.

Avoid partner pitfalls

There are some huge benefits to taking on partners at a startup. Partners may help you make better decisions, move faster, expand your resources, divvy up the workload, and prevent emotional meltdowns. But there are plenty of pitfalls to partnering, too.  Here are some things to consider.

How good is the fit over the long-term? It may be a great idea to partner with someone who provides a skill set you don’t have – and that will be critical to the business over the long term. Maybe one of you loves product development (e.g. design, creative, tech, editorial) and the other is more “business” oriented (e.g. operations, finance, marketing, sales). But taking on a partner to fill a short term need can come back to haunt you later. I’ve seen people take on partners just because they can help build a website for free, although technology was not a core element of their business. I’ve also seen people take on partners who bring startup capital to the table, but not much more. After the short-term value expires, things get messy. You might find yourself doing all the work, while your partner doesn’t pull their weight. Worse yet, your partner might insist on being involved day-to-day, despite being incompetent. If you’ve got short term needs, see if there are other ways to fill them. Maybe an advisor can help. Maybe you can hire a consultant or vendor, and tie their compensation to the specific value they’ll provide – and when they’ll provide it. That could even include equity, but if that’s the case, be sure to vest it (more on this another day).

Do you have the same goals? Talk through what you’d like to get out of the business, and when. Do you want to plow earnings back into the company with the goal of growing big, fast and selling the business? Do you want to pay yourselves as much as possible along the way? What exit scenarios are attractive, and which ones are not? Would you sell out for $2 million in a year if that option came up, or would you rather shoot for $20 million in 5 years, risk be damned. Are other goals important to one or more of the partners, like publicity, philanthropy, or developing expertise?

How will you work together? Think through the roles of each partner, and make sure they are a fit with the big picture, and with your personal strengths and experience levels. How much time will you commit? How much will you get paid? What will your titles be? What resources will each of you bring to the table? Will you make investments?

How well do you know each other? Have you worked together before, so you know you won’t end up at each other’s throats? Do you have close mutual friends or family members, so there’s accountability if one partner gets out of line? Are you familiar with each other’s work (and play) styles? Suggestion – have each partner take the Myers-Briggs test and discuss the results…

What if things get ugly? While it’s not fun to think about the prenup right before the wedding, you’re better off safe than sorry. What happens if a partner leaves the company – will they get to keep their equity while others do all the work? What if a partner dies or get sick – will you get stuck with their insane relatives as your new partners? Can a partner get “fired” under certain circumstances, such as for gross-negligence? What if the partners can’t agree on a critical issue? It’s tough to foresee all that could go wrong, but the more you try, the better off you’ll be. Wherever possible, agree on mechanisms for resolving these types of issues, like equity carve-backs, vesting schedules, odd-numbered decision-making bodies, and advisors you all trust to arbitrate disputes fairly.