Paths to $5M for a startup founder | Hacker News Reader

Paths to $5M for a startup founder

gabrielweinberg.com

104 pointsrevorad21 comments

So many successful startups began as two or three good friends kicking around some ideas at dinner or drinks, or relaying some spike of insight they had during a seemingly insignificant conversation. Whenever I think I have The Next Great Idea, I know my first thought is, "man, I could be on to something here, let me talk to Joe about this, I bet he'd love to work together with me to see if this would work!"

It is is definitely NOT, "oh well I'd better just go ahead and execute and get a product out and get customers all by myself, and then talk to Joe and cut him in for less equity, because I want to set myself up for needing only a $17MM acquisition to make $5MM."

Now none of me or Joe's Next Great Ideas have ever panned out, so maybe we're doing it wrong. But I still don't think trying to optimize for a payout when considering co-founders is doing it right, either.

I believe it depends on the personality of the entrepreneur. For some, working together with others is much more likely to produce success. Richard Branson seems to be in this category, and it sounds like you are too.

At the other extreme, some founders' personalities are such that they almost have no choice but to build it completely on their own - a "lone ranger", as a investor I once knew put it. My favorite example of this is Felix Dennis, founder of Dennis Publishing (which publishes Maxim, and many other magazines).

(That's not to say lone rangers build their company alone; if that's ever been done, I don't know about it! But the additional key people are employees, not founders, and may not even get equity.)

Aaron

(edit: grammar)

I think that the way to succeed is NOT to fuck over your co-founder. I know of places where that has happened, and it is not a happy situation. You don't really want to optimize for the present, but on building connections that you will keep for the rest of your life. It is super-easy to throw someone under the bus so that you do better now, and a lot harder to make sure that you all make a bit less but continue to work together in the future. Don't be short-sighted.

The only conclusion he draws in this article is not to take on a third founder immediately, everything else is just numbers and showing what happens in the typical acquisitions all the way out to the extremes.

He's not advocating single founder startups, stop the pointless arguments.

The most interesting part: "if you raise a third round (or even a fourth), that pushes the needed sale price up further. If you're at 10% founder share with two co-founders, you'd need a $100M exit to get your $5M."

Yikes.

Interesting, but just like Jason's criticism of the startup genome project, I'd say optimize for what is most likely to lead to success. Do you need a co-founder? Yes, if you find a great one who adds value.

It's all about creating value.

Interesting... this was posted a year ago and was also discussed on HN before too.

Anyhow, this combined with his post on the startup career path (http://www.gabrielweinberg.com/blog/2010/11/are-you-in-a-sta...) are two of the very best pieces of advice you're going to get IMO. @yegg is the man and his posts always deliver.

That many successful startups have multiple founders does not mean that multiple founders are required for success, or a recipe for it.

Previous discussion:

http://news.ycombinator.com/item?id=1408564

I think it's very useful to actually see, in numeric format, a continuum of possibilities. I think it’s wrong to create a blanket rule of, “every great startup shall have >1 founder” as some projects simply won’t need more than one. That said, it’s also smart not to dilute unnecessarily. If you actually need a larger team, I say get a larger team. If not, do it yourself. Either way, it’s a decision that should be made rationally, not because you read an article that said you’ll fail without a buddy.

I don't think the point is to be a single founder, but to think hard before bringing someone else onboard.

Personally, I'd prefer to have a co-founder, but only one.

pg's take: http://www.paulgraham.com/startupmistakes.html

1. Single Founder

Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.

What's wrong with having one founder? To start with, it's a vote of no confidence. It probably means the founder couldn't talk any of his friends into starting the company with him. That's pretty alarming, because his friends are the ones who know him best.

But even if the founder's friends were all wrong and the company is a good bet, he's still at a disadvantage. Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.

The last one might be the most important. The low points in a startup are so low that few could bear them alone. When you have multiple founders, esprit de corps binds them together in a way that seems to violate conservation laws. Each thinks "I can't let my friends down." This is one of the most powerful forces in human nature, and it's missing when there's just one founder.

Can anyone give some examples of big companies that were solo founders? I think Dropbox was.

SAS?

Drew found a cofounder before doing YC.

Can't think of any truly one man operations off the top of my head, although Zuckerberg was almost running the entire show at Facebook.

I want to say Oracle

Larry Ellison had two co-founders. I believe that both of them left the company in the early '90s.

How about Richard Branson, Felix Dennis, or Jeff Bezos?

Richard Branson had partners when we started Virgin Records. After Virgin Records, he had enough money to hire for all his other businesses right off the bat. Felix Dennis was solo, and strongly believes in holding on to as much equity as possible, but if you read his book, he'll tell you what a miserable time it was. (He often wished he was dead.)

I've bootstrapped a business to significant traction as a single founder. I don't recommend it. It's possible, but morally exhaustive.

As someone working on his own idea right now, I'm also afraid if I take on another 'co-founder', he/she will not work as hard as I will because it was originally my idea, and I work really really hard (sometimes to the point of being unhealthy). I highly doubt I can find someone as devoted to the idea as I am.. even if I gave him less than 50% equity, say 30%.. I still doubt I could find someone who could work half as hard as I. People have day jobs, families to take care of, etc... Somehow I feel BOTH founders need to reach the idea together for both of them to be 50/50 partners.

I think a way to do this fairly is to maintain a spreadsheet where each week everyone marks off how much effort they've put in and effectivley gets newly issued shares for this effort (diluting all existing shares in the process). Probably the best measure of effort is time spent, though that is not perfect. Maybe you can have bonuses for great work, or agreeing someone's time is more valuable and issuing shares at a higher rate. You adjust the [effort]:[shares issued] ratio from time to time based valuation (which to start with doesn't need to be explicitly known, it's all relative). I never see this method discussed. Am I missing some major downside to this approach? Of course you wouldn't issue real shares that frequently - it's just done on aspreadsheet. Good for early idea stage where you probably don't even have a company set up yet.

edit: minor edit for correctness.

Intuit, although very early on Scott Cook found a young hacker who a partial salary and some equity and essentially became a junior partner.

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