Our Startup FAQ section takes aim at answering the most frequently asked questions we receive. Have a question that isn’t answered here? Ask us, and we’ll get you an answer. Email us at firstname.lastname@example.org.
What type of incorporation should I use for my business?
There’s no one-size fits all answer here. It is important to understand all structures available, and choose the best structure for your business. When raising capital, investors will typically prefer a C-Corporation structure. You can read about the different types in our Startup Tools & Resources to make the right choice for your company.
How do I incorporate?
To form a legal entity, you would typically want to work with an experienced lawyer and then file with whatever state you plan to operate from. Other tools and websites are also available, and can be found in our Startup Tools & Resources.
How should my co-founders and I split up the company equity?
This is another question that needs to be answered on a case-by-case basis. While we cannot give you any hard and fast rules as to how your company should split equity, it is generally not advisable to make an even 50/50 split, as it can lead to a lack of control and motivation. Have an honest, open discussion and don’t be selfish.
This conversation needs to be held early, and put into writing. Once you’ve had this hard conversation, you can focus on the task at hand: starting a company. You can find an equity split calculator in our Startup Tools & Resources. We also recommend reading the following article:
How do you know when you’re ready to go full-time with your venture?
This is a tough question for any founder. Many startups are started on the side as a part-time project on nights and weekends. Inevitably, the time commitment will grow as you start to find success.
When determining whether to go full-time, it’s a personal decision that will involve a fair to high amount of risk. How confident are you in your business? How hard are you willing to work? How big of an appetite for risk do you have? What exactly is that risk? Do you have a family to support? If you start this business, how much runway do you have to start making revenue?
We strongly recommend considering all the above questions. In addition, take some time to create an honest assessment of your “worst-case scenario.” If things completely tank, where are you now? Is this worst-case that bad? Many founders will find that the pain of wondering, “What if?” is more severe than their potential worst-case scenario.
How do I protect my idea?
You can file for patents, trademarks, and copyrights. If you have something propriety about your company, you should consider filing for a patent to temporarily protect your business in its infancy to get it up and running.
Should I ask investors or others to sign NDAs before I share my idea with them?
No. Investors will have no interest in signing a non-disclosure agreement, and neither will most individuals. The reason being, if you ask someone to sign a contract agreeing not to speak about your idea, they will need to be consciously aware of that agreement for the length of the contract. That is often far more work than it is worth to hear your idea in most peoples’ minds. Click here to read our article, Why Investors Don’t Sign NDA’s.
In reality, people aren’t out to steal ideas. They are busy and have their own lives as well, and likely would not be willing or interested to drop everything and try to steal your idea. And even if they were interested in doing so, you should have a few steps on them by that time. Read ‘Why Investors Don’t Sign NDA’s‘ for more information.
What is the ideal team size?
Founding teams tend to be 2-3 people, ideally with at least one technical cofounder. Having many more founders will get distracting and slow things down.
Should I raise money?
Depends. If you know that you need capital to take your idea to the next level, then it may be time to consider raising money. If you are trying to raise capital to pay the founders or to hire on a sales guy, then probably not.
It’s good practice to keep expenses low and avoid raising money for as long as possible, but you will want to begin looking for capital when you are down to 12-18 months of runway. When you decide its time to begin raising money, you will want to start talking to investors early. The cycle of raising capital often takes longer than entrepreneurs think.
How do I know if my idea is good?
Talk to your customers. Are you making sales? Are those customers happy with the value you are providing? This ties back to Traction and Validation. If you have a validated concept and are building traction, odds are that your idea has some legs.
How do I find a co-founder?
It’s hard. Many founders are people who have been friends for some time, or went to school together. You can also look in common interest groups and meetups for a founder, or ask your friends for introductions. There is no “co-founder store” or place to go to just find a co-founder, but if you talk to people, put yourself and your idea out there and show passion, you will find someone.
How much should I pay myself?
As little as you can to get by. Your startups resources are precious and likely to be slim. You want to squeeze as much value out of them as possible, and that means taking a personal pay cut. Investors who have given you capital to work on your idea also don’t want to see you handle their money irresponsibly by taking an unreasonable share.
That said, investors also recognize that the best opportunity for the business to succeed and for them to make a return on investment, you need to be committed to the business. That means you do need to pay yourself enough money to survive and work on the business without taking on the distraction of other jobs and responsibilities.
What incubator should I apply to?
There are tons of incubators sprouting up around the world. We can’t tell you which incubator is best for you, because a huge part of the incubation process is mentoring. You should find the incubator that offers the best mentors for your startup’s industry and try to get in there. Location also plays a large part in the decision process.
For information on incubators, check out our list in our Startup Tools & Resources. It’s not exhaustive, but it’s close.