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A co-founder agreement is crucial for preparing founders for potential conflicts and ensuring amicable relationships if things do not work out. It functions similarly to a pre-nuptial agreement. Feijo, a startup lawyer, discusses the necessity of such agreements, key terms to consider, and their lifecycle. He emphasizes that disputes among co-founders are a primary reason startups fail and urges against allowing this to happen. The agreement is essentially a short form shareholders' agreement, especially relevant for startups that use fundraising models like YC SAFE, where shares are not distributed until a priced round takes place. Founders should understand these agreements to safeguard their business and partnerships.