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Business Rx: How do you select a co-working space?

Jason Shrensky is an angel in residence at the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He chatted with readers online last week. What follows are excerpts, edited for grammar and clarity.

In addition to investing in early-stage companies, Shrensky splits his time between two start-ups that he recently co-founded: UberOffices and ComplexInterests. UberOffices provides co-working office space in the D.C. area, predominantly for early-stage technology and media companies. At ComplexInterests, Shrensky is working on developing a software package targeted at accounting, law and financial services firms.

Co-working space explosion

Q. I’ve noticed there are a lot of new co-working spaces in D.C. How should I evaluate the different options for my start-up?

Jason Shrensky: Frankly, I think the first consideration is to choose a place that is convenient. If it’s not convenient, you won’t go, and then you won’t benefit from the interactions and serendipity that come from a co-working community. Second, many co-working spots offer services and education events. Depending on where you are with your business, events in your co-working space can range from super helpful to distracting/annoying. You’ll want to figure out what’s the best fit for you. Lastly, you’ll need to find a place that fits the growth stage of your business. Almost all the new co-working spots have “open desks.” These are great if you are solo. But some co-working spots (like the one I am involved in) also have enclosed offices that can support between two and 20 employees. The beauty of almost all the co-working spaces is that they run on month-to-month commitments — so it’s hard to make a long-term mistake. You can easily hop around until you find a place that fits your business.

Initial funding

Q. What are some resources for funding an early-stage start-up in the DMV region prior to the angel-funding stage?

Jason Shrensky: Prior to seeking angel funding, you’ll likely find funding in two places: one, the government and nonprofits, and two, your friends and family. Concerning the first, government/nonprofits have funds that they are willing to place as grants to businesses that somehow help the public good. Examples include businesses that advance science, medicine, education or the general welfare of the public. The great thing about this type of funding is that it’s non-dilutive. The downside is that there is likely a long application process to secure funds. If this first option isn’t available to you, then the only other place to find funding is among those who love and trust you. Hopefully, you don’t need too much help to find these people. Angel investors like to see that you have gone this route for funding prior to seeing angel dollars, because if those who love and trust you won’t invest in you, why should they?

Legislative priorities

Capital Business: Are there any particular policy or legislative issues on the horizon for 2014 that you think could have a major impact on entrepreneurs, either on a local or national scale?

Jason Shrensky: Many of us are familiar with the issues that are in the tech press a lot, such as patent reform, net neutrality and immigration reform. All are important. All have been beyond frustrating because the federal government seems unable to function efficiently. But underneath the topics that are in the news all the time are the business obstacles and inefficiencies created by local government. I am a co-founder of a relatively new start-up called UberOffices. We have locations in Arlington, Tysons, D.C. and (soon) Bethesda. What a pain it is to deal with all the local government regulation! Business franchise taxes, personal property taxes, occupancy permits, etc. I don’t mind paying the taxes. Figuring out how to file the forms and what to pay? Crazy. We waste days trying to figure out how to comply. And both my co-founder and I are attorneys. These local governments claim to want small businesses to open in their jurisdictions and have economic development departments to support this agenda, yet these same local governments make it next to impossible to efficiently comply with all of their silly rules. If local governments want to woo small businesses, they should make it easy for entrepreneurs to do business there. My advice for local governments: One form (that can be quickly completed online) and one tax (that can be quickly calculated and paid online).

Making a hobby pay

Capital Business: One question we hear most often from readers in this space is that they have a hobby they enjoy, and want to figure out whether it has legs as a business. What are some of the factors they should consider?

Jason Shrensky: I don’t think there is a worthwhile business unless there is a burning problem that needs to be solved or a real gap in the market. The problem with many hobbies is that they are enjoyable for the hobbyist but there are no time constraints for completion of the task. A business is typically successful where a task can be completed efficiently at scale. Rarely do I think of hobby and “efficient at scale” in the same sentence.

This doesn’t mean that a hobby can’t become a profession. If you tinker with computer programming as a hobby, for sure there are ways to make money with this skill. There are many employers that value the skill. But the skill itself is not a business.

Equity for co-founders

Q. I see you are a co-founder in two start-ups. How do you go about splitting up equity share when starting the company? Is there a formal agreement? Did you and your co-founders have any disagreements to overcome with regard to equity share before moving forward with the business idea?

Jason Shrensky: First, having two start-ups is like having two wives — it seems like a good idea ... I actually regret having two start-ups simultaneously. Because I split my time, I find that I don’t do either job to the best of my ability. I didn’t plan for it to happen, but the way the timing worked, I ended up in two businesses at once. And I love both.

You must have a formal agreement if splitting equity when starting a company. I strongly recommend that such agreement include a vesting schedule in the event that the co-founders’ primary contribution to the company will be sweat (time spent working). There have been many articles written about this, so I won’t reiterate the points made in them. But if you are looking for problems, start a business with a co-founder without a formal agreement with equity vesting structure.

Disagreements about equity splits prior to starting the business are natural, healthy and, in my opinion, essential. You and your co-founder are typically nice to each other during the pre-company stage. The first real friction will come when discussing the equity split. And that’s the moment you really find out who your co-founder is. The best thing that could happen is that this process gets really conflicted, you agree on a resolution, and then you move forward like nothing ever happened. Anything less, I’d recommend a different co-founder.

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