“No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team.” — Reid Hoffman, Co-Founder of LinkedIn
Elon Musk is one of the richest men in the world, with a fortune of around $170 billio. During his professsional life, he has Co-founded companies such as Zip2 (1995), Paypal (1999), OpenAl (2015), Neuralink (2017) and independently founded SpaceX (2002) and The Boring Company (2016). Being a startup founder is a titanic task that involves many challenges and requires a lot of effort. Is there a difference between being a Co-founder and being an independent founder of a startup?
Most startups are founded by teams of 2, 3 or more people. In some cases, they are created by and independent founder. Venture Capital funds usually prefer startups to be founded by teams rather than individually to avoid leaving everything in the hands of one person and to have a wide range of experience, knowledge, and networks. Some of the difference between being and independent founder and being a team of founders are the following:
Founders undertake a venture in order to solve a problem, leave a legacy and have a significant economic return. Throughout the life of the startup, capital will be raised to fund growth. Dilution will be present in each round of capitalization, so the fewer founders there are, the more equity they will have and the less it will affect the raising of future rounds.
One of the main expenses for startups is paying the salary of the founding team. At the beginning of the startup’s life, the available capital is limited, so having a limited team also helps to preserve the company’s cash flow.
Next to financial compensation, the second most important element for entrepreneurs is control. This allows them to have the power to define the strategy and execution of the business. At the beginning, decision-making power may be divided equally between the founding teams; however, as the startup develops, one of the founders may be not perform the adequately, and the other Co-founders may decide to dismiss him or her from the company.
Sometimes, even if there in a team of Co-founders, control is in the hands of only one of them. A team without an exchange of ideas and different points of view leaves the opportunity for growth and destiny in the hands of one person’s mental and emotional intelligence. In this situation, its relevant for investor that there is robust corporate governance and efficient processes for monitoring and controlling the startups activities.
Being an independent founder is a major challenge; however, if executed in the right way, it can be an enriching experience with the opportunity and disadvantages of being an independent founder:
- Agility in decision making
- Ability to take on more risk with the peace of mind of being the sole responsible party
- Quick communication with the investors and ease of negotiation
- Execution of processes in your own way and at your own time
- Greater financial reward in case of a liquidity event
- Loss of the possibility of having complementary experiences, knowledge, and business networks with a team of Co-founders
- Lack of objectivity due to having a single vision, non-existent confrontation of ideas and limited recognition of mistakes
- Increased difficulty in raising capital due to the predisposition of Venture Capital funds for teams
- All critical tasks fall on one person, assuming the entire workload
- Inability to share the emotional and psychological burden, pushing the mind and the body to superhuman limits
- Obligation to be self-taught or to hire third parties to complement unavailable technical skills
Although being and independent founder is not ideal by Venture Capital industry standards, there have been some relevant success stories, such as: Jeff Bezos, founder of Amazon, Drew Houston (Dropbox), Eric Migicovsky (Pebble, acquired by Fitbit), David Karp (Tumblr, acquired by Yahoo), and Markus Frind (Plenty of Fish, acquired by Match.com).
Creating a startup is a challenge that will bring unique insights and experience. Whether you are an independent founder or a team of founders, take the challenge and go for it. The only failure is not trying.
“Whether you think you can, or think you can’t — you’re right.” — Henry Ford, Founder of Ford Motor Company
Note: please refer to the original publication at EL CEO: Ser emprendedor: ¿Solo o en equipo? (elceo.com)
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Gonzalo Soriano. VC Investor at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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