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Tuesday, February 27, 2007

Follow on from previous post on Staff compensation

An Interesting post from the two guys at Pure VC ,it explains better than my thoughts were on culture etc...

How many founders do you need for a startup?
Brad has posted today about the topic of founders and how many are needed for a startup. Interestingly, there is a table showing some famous startups and the number of founders. Apparently, two founders seems about average. I personally don't believe there is a magic number. There must be enough of a core nucleus to sustain the vision if someone decides to bail. There must be few enough so that the founding group does not get bogged down by size. The reason I think the topic is interesting is not because there is a "good" number of founders, but more because it touches on the topic of founder ownership.
In working with entrepreneurs, I think there is an obsessive concern with dilution among founders of a startup. Too often I find that when people form a startup they are very weary of sharing the idea with others or bringing others on board. All they want is the funding - they fear that taking on additional founders or employees during the formative stages will dilute their equity.
My response is always that if you are worried about equity, then being greedy is going to be what prevents your equity from being worth anything. Do you want to own 100% of something worthless? or 25% of something extremely valuable?
Sometimes it is better to bring in more people to have more energy, enthusiasm, and ideas. If you are obsessed with equity and people jumping ship prematurely, then feel free to make clauses that allow buyback of founder's stock if they leave within a certain period of time. Feel free to have noncompete clauses. Do whatever you need to do to allay those fears that other people will dilute your ownership. Think of the founding group as being the core nucleus of the operation. You want a strong group with a similar vision. You want individuals that complement each other. You don't want people overextending themselves and doing too much. You don't want people who will clash. You want everyone bringing something to the table.
Let me once again say that the most valuable thing in a startup should be its equity - do whatever you can to increase this value, even if it means giving some away to bring in talent. By seeing this big picture your entrepreneurial experience will be more rewarding and you will be able to share this success with those early founders - these relationships will be something that you will cherish and that you will likely continue to enjoy as you start your next endeavor.

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