Dilemma of a Founder Forced to Quit His Own Venture
Entrepreneur's New Year’s Guide
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
Can there be something more brutal than removing someone from a venture nurtured by that person, That’s equivalent of snatching an infant from a mother. There are founders who have given their heart and soul to a venture like our very own Steve Jobs and the way he was removed from apple was blasphemous. But that’s not the only example we have many more cases of corporate jugglery.
Often entrepreneurs come across situations when they need external funding to accelerate the operations. But the point of worry is that it comes with no strings attached. As much as an entrepreneur opens the doors of the company's stake, the risk of losing their own stake increases to infinite.
Those entrepreneurs who have past this stage, can relate their experience with the most-talked about character of TVF Pitcher's Naveen Bansal. When Naveen had to decide whether he wants to sell his venture to an investor, he took his time and followed his conscience.
The stage of raising external funds is certainly the most difficult stage for an entrepreneur. The dilemma of getting investors on board in exchange of company's stake has baffled many founders across the globe.
To resolve this biggest confusion of thousands of founders today, Entrepreneur India had a chat with a few founders, investors and experts.
Is a Founder Replaceable in a Company?
When we asked this question to a host of startups, around 85 per cent startups said, 'Yes'. "Founders are replaceable."
Commenting on this, one of the leading startups's CEO, Mathew Browne, the founder of The Kolkata Yoga Club said, "A VC would most definitely look out for what's best for business and replace the Founder (if not completely, at least from his/her CEO or COO role) with a more seasoned executive who would seem better positioned to help the business scale up."
From the leadership rights to building company's culture, external funding comes with all sorts of risks, which a founder might fear losing.
Approximately one or two Founders of venture Capitalist backed companies are replaced. That say it all, three out of five AREN'T! They aren't only because they not only are a Founder but also play an important role in the management of the business.
But what about those who would never want to lose their company? To this question, Browne replies, "Post investment, the Founder should definitely pay close attention to the VCs on how the funds are being used and delivering on promises made while asking for funds. Also, keeping the VC in loop on almost everything happening with the business is a must."
What do Experts Suggest?
Talking about why founders lose their plot, Assistant Director & Professor of Marketing and Entrepreneurship at ITM Business School, Dr. Veni Nair said, "Somehow founders lose their plot of taking it their vision ahead being at the company. Flipkart made a lot of revenues, but they didn’t make profits. Founders are more realistic and practical for their company. It’s not just their idea for the company, they can do much more."
Ace women investor, Apurva Damani, Managing Director – Artha India Ventures also talked about the dilemma that founders possess in their mind. Stating her views from a VC's perspective, she said,
“As a company goes through different life cycles, it requires different skill sets. Once your company has survived the Death Valley, and is ready to cruise ahead, you will need a strong senior team or second line of defence. As you cross certain milestones (raising a few million dollars or leading a team of more than 100-150 people), you need more professional management.
"At this stage, you’re no longer a start-up but a full-fledged company. Your stakeholders will ask more accountability of you, and you will need to set structures and processes in place. While the founder can ideate, someone else with more experience should helm or run the company," she added.
Citing examples of Facebook’s founder Mark Zuckerberg is balanced by COO, Sheryl Sandberg. Similarly, Google’s founders Larry Page and Sergey Brin Damani explained how the balance is important for a company. Founders need to be cognizant that their skills are a pre-requisite at the early stage, and that they need professional support in the later stages.”
Tips for founders:
1. Joint consent between both the parties.
2. Whenever you make a decision, always look at stakeholder's stake
How to be on the Driving Seat?
A pertinent question that hovers all of our mind is does a VC eat up a Founder stake in the company? Well Yes and No, does your percentage of ownership decrease? yes however you are also being funded.
Getting a VC on board not only gets you the funds you needed but also guidance, support and we all know that connections bring options. When you raise venture capital early, you start giving away a portion of the company in exchange for the capital you are given and that portion grows over time, as additional rounds of capital are raised. However, by the time you feel the need of another round of funding, you are at a better level of customer traction and somehow find yourself in the driver seat when it comes options of investors.