Totally with David here on: "why the hell would you want to leave if this is
such a hot startup?".
The question I have is: "why would I want to 'perfect' my skill again and again
on taking a company from $0 - $1 million?"
If I can do it once and having to move on to learn how to take it from $1m -
$100m. Great! That is an exciting experience to have.
You can only learn that lesson once you're there. So, keep repeating myself
again and again on $0 - $1m level will not teach me that.
This is not school. I don't need to win 10 times. I just need to win once.
I think we also underestimate the level of passion involved here. When you
start a company, it's not 9 - 5 thing. It's constantly on your head. It's 24/7
and you actually enjoy it.
Remember Gates' said: "I was so well known of not getting married because I was
so obsessed with software?"
I am not convinced that passion can easily be instilled in new CEO. I
personally want to run my company and see where it goes, until it's proven I am
incompetent in taking it to the next level. Heck, it's probably not that hard
if you have solid-smart team around you. Gates did it. Zuckerberg so far did
it, Aaron Patzer did it.
Instead of wasting our time discussing the exit, I think the discussion on how
we can build a great startup ecosystem is much more important.
- How can we encourage more people to start a world-class company?
- Can we build an environment that make it easy for people to bounce off ideas
on each other or execute better? -- this need experiment: once a week,
group-working and hold each other accountable.
- Can we build an ecosystem that connect experienced people with startup as it
is growing -- VP of Sales, VP of marketing, COO etc?
- How can we build an ecosystem that it's easier to get financing? - although I
am not convinced this is easily solve, since it's goes back to the financier's
risk-taking profile and motivation.
Cheers,
Hendro
From: David Jones
Sent: Friday, October 02, 2009 12:31 PM
To: silicon-beach-australia@googlegroups.com
Subject: [SiliconBeach] Re: Everyone talks about solutions in our industry to
fix the "start" of a business - what about the exit?
In practice, Elias' proposal happens regularly but, its not always "warm and
fuzzy". There is a whole ecosystem of interim CEO's, Series B/C CEO's that are
not technologists but still love startups and play a valuable role. The
difference from Elias' proposal is that they enter before a liquidity event. So
why isn't it warm and fuzzy?
Sri nails a big part of the problem. The problem is that startup stocks are
illiquid for years and valuation is:
a) purely subjective
b) based on last round of investment
c) based on the value of common stock to preferred.
The founder can sell stock at various/any time (depending on the shareholder
agreement) but until the startup is mature (lets say cash-flow break-even) the
value may not be what the founder wants. So if you wish to cycle through
startups as if they were projects, you need to start knowing you either leave
with stock or you leave with a negotiation of the value of your stock. The
earlier your departure, the more speculative the value:
- investors and incoming execs are going to argue that its still high-risk
blah blah - and they are probably right
- you are arguing that the hard work has been done and its just a matter of
marketing dollars to make it fly
The elephant in the room is "why the hell would you want to leave if this is
such a hot startup?" Founders are usually competitive - hence getting to a
tangible metric of success is important - this might be: (i) exit, (ii)
profitability (I'm not talking about a consulting business here but a globally
relevent product/service), (iii) 1million active eyeballs. Each of these
support the founders argument of valuation.
The other elephant is that "founder" is more than a term. Investors and
employees acknowledge the value of the founder more than you probably realise.
You are parent, mentor, visionary and cornerstone of the companies culture -
ok, so you are not indispensable, but what is the impact to the business once
the founders go? Have you responsibly implemented succession plans? Does the
"soft" side of your leaving have an impact (eventually) on the value of your
own stock (assuming you still have some skin in the game).
So, its an interesting model and worth exploring but just consider staying
longer than expected.
Back to Elias' proposal: In an Australian context, swapping a founder for an OZ
based CEO/exec team will likely NOT mitigate many of the risks and so valuation
may seem unreasonably low (to founder). However, if you exit with your stock
only, then the problem looks after itself, any future dilutive events are out
of your hands and are really reflective of how valuable the company was under
your original guidance. This comes back to Sri's comments - if you give up the
reigns, you lose control of the decision making process and your personal
wealth is not of primary interest to the inheriting board/execs. Don't expect
any favours.
cheers
d.
On Sat, Sep 26, 2009 at 4:43 PM, Ryan Cross <ryanecr...@gmail.com> wrote:
Hi Sri,
I don't have the answers, which is why I was hoping to see more discussion
here. I think a lot of the issues could/would be addressed by the model (which
I am still unsure of the details).
In regards to your questions: My understanding is that the nature of the
group (the co-op portion of the idea) means that the VC/investors are also the
entrepreneurs, so I think there will be a significant alignment with the
interests of the startup and the investors. Another possible way of doing this
would be to have the handover be more of an official exit. For example, some
one who is really good at getting an idea off the ground quickly might take an
idea forward for ~6 months, and then exit out for something like 50k-250k -
which could the entrepreneur would probably re-invest in the next idea they
want to get off the ground. The next entrepreneur taking it foward might work
on it for another 12-24months making the company more stable and growing it,
then exit for a higher amount (hopefully) to another entreprenuer that would
move the company into a stage where it gets ready for an IPO or acquisition or
whatever. By having the entrepreneur exit at different stages (instead of at
the "end") then they don't really have the worry about whether the next guy is
doing a good job.
There could be other models that might involve using equity as part of the
exit instead of just cash. There could also be a collective mentality, where as
a group there is equity across many companies and returns when a company is
exited from the group are spread across the group and partially reinvested into
new companies.
I have no idea whether any of this would work, but I think its worth
exploring. Do you have any ideas for a model that might work?
-Ryan
On Thu, Sep 24, 2009 at 10:47 PM, Sri Panyam <sri.pan...@gmail.com> wrote:
Ryan,
As aprincipal that certainly makes sense and would most value to the
startup. (ie the practise of the founder handing over the reigns to a CEO
experienced the aspect that the startup requires - eg marketing sales etc). But
in practise how can the founder be sure that the moral hazards associated with
this stepping down are mitigated? Ie is the replacement really truly aligned
with the interests of the startup or of the VCs?
Cheers
S
Sent from my iPhone
Twitter - @panyam
Blog - http://panyam.wordpress.com
On 24/09/2009, at 11:35 AM, Ryan Cross <ryanecr...@gmail.com> wrote:
I think that the idea proposed could be seen as aligned with the same
sentiment there. By providing a structure to hand off a project/company once it
has reached a certain point (or taking one over that you are keen to move
forward), an entrepreneur would be free to repeat that process/step with a new
company and over time be in a good position to hone and specialize their
entrepreneurial skills. This would eliminate the worry of exit strategies, no?
On Tue, Sep 22, 2009 at 2:45 PM, Tim Bull <tbull...@googlemail.com> wrote:
It's in interesting question, I agree with some others here though,
what you do should be motivated by your product and company, not to
exit.
I'll defer to (and paraphrase) Guy Kawasaki on this one:
"Build a great organisation -- one aspect of which will be good
[market] positioning. Don't worry about exit strategies -- and
certainly don't worry about how exit strategies should or could affect
your positioning." (from Art of the Start, pg 43)
This is a message I've read again and again. You can't plan for an
exit, you shouldn't waste time on it - there is no exit that can't be
enhanced by a committed team building a great product.
On Sep 22, 11:29 am, Ryan Cross <ryanecr...@gmail.com> wrote:
> Going back to Elias idea...
>
> On Tue, Sep 15, 2009 at 5:09 AM, Elias Bizannes
<elias.bizan...@gmail.com>wrote:
>
>
>
>
>
> > We've talked about this before - the idea of a silicon beach VC
type fund.
> > But this is looking at it from the other end of the spectrum. You
buy and
> > sell shares in a company because it's a good investment that
returns cash
> > over time, grows way higher than any other segment of the economy,
and
> > allows you to access the executives to form partnerships. Of
course, it will
> > required thousands of people to pull this off - but with a few
richer
> > individuals, it's actually do able.
>
> > Then we can have people who specialise in the different stages of
the
> > business cycle. It's well known a startup CEO is a very different
> > personality from a growth CEO. Having people in a "startup" exiting
once it
> > hits the "growth stage" (ie, cash positive stage) and in turn
another
> > opportunity to exit when it reaches the "mature stage" (growth
moves in line
> > with inflation).
>
> > In effect, this will reduce the reliance on a big company
acquisition or
> > listing on the stockmarket - it instead creates a third alternative
> > somewhere way earlier than that.
>
> > Thoughts?
>
> I think this model deserves a bit more discussion and thought. I'm
not sure
> I fully understand it but the dual aim (allowing entrepreneurs to
> "specialize" and also faster/more frequent iteration) seems like it
has some
> real merit. It sounds somewhat like an entrepreneurial co-op and
somewhat
> like a multi-stage incubator system. I'm also quite enjoying the
potential
> for learning from "experts" in various stages/areas and the cross
> pollenating of ideas/people that this could provide.
>
> @Elias - do you have any more details about what you've envisioned?
>
> The other reason this interests me is the way it would seem to allow
for
> faster iteration of companies. I think this could really accelerate
the
> amount of innovation produced, and dramatically increase the amount of
> learning/experience for entrepreneurs. I came across this article
yesterdayhttp://onstartups.com/tabid/3339/bid/10561/12-Facts-About-Entrepreneu...
> see the full report/data being referenced) and one of the things that
> stood out was that for people that consider themselves "serial"
> entrepreneurs they only average 2.3 companies. I'm not sure about
everyone
> else, but it can often take me more than 2 or 3 tries to get something
> "right" and definitely doing something more than twice before I
consider
> myself "experienced" or an "expert" at it. Can you imagine a career
web
> developer only ever working on 2 websites? Or a human resource
manager only
> ever hiring 2 people? Perhaps this is why I am a big fan of the work
Bart et
> al (StartupCamp / BootUpCamp) is doing, and the mantra used "practice
for
> engineers".
>
> Can anyone suggest ways that this could work? or point out any
pitfalls that
> might prevent it from working? or similar efforts?
>
> Thanks,
> Ryan
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