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The Quick Handshake: A Valuation Penalty?

On May 26, 2010   /   co-founders, equity split, financing   /   17 Comments

When do co-founders split the equity equally, and does an equal split affect their venture’s later valuation?

We are currently conducting our annual CompStudy survey. (I’ll soon be posting details about how to participate.) Over the last two years, I have enhanced the Founding Team section of the survey, so we can get a deeper view of various founding issues.

The first issue I am revisiting is how founders split equity among themselves, an issue that I first surfaced in a series of posts over the last few years (e.g., Splitting the Pie: Founding Team Equity Splits, Equity-Split Results, …

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Salary Inequality Among Co-Founders: How Common?

On March 22, 2010   /   co-founders, compensation, investors   /   5 Comments

I have accumulated a backlog of interesting questions posed to me by founders and investors (and by my students!). For many of them, my quantitative CompStudy data should be able to provide some answers. In this post, I will tackle the first of those questions.

In my past analyses of entrepreneurial compensation, I have focused on founder vs. non-founder salary differences (e.g., the Founder Discount), on founders’ equity splits (the Idea Premium, how teams split, when they split equally, and the potential implications for team stability), and on related issues (e.g., vesting and golden handcuffs…

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“Founders’ Dilemmas” Course: “Building the (Founding) Team” Case Studies

On July 15, 2009   /   co-founders, equity split, MBA course content, roles   /   4 Comments

In prior posts about my “Founders’ Dilemmas” MBA course, I provided an overview of the course and details about its first three case studies (which include the Introductory case and the cases in the “When to Found” module).

This post covers the four founding-team cases in the “Building the Team” module. (Another case in the module covers non-founder hiring issues, and will be described in my next post.) Collectively, these cases cover wide variations in prior relationships, in role allocations, and in approaches to equity splits. For each case, this post provides the official case description, a …

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Introductory Case

On June 16, 2009   /   careers, co-founders, MBA course content   /   5 Comments

As promised, this post outlines the first three cases of my “Founders’ Dilemmas” MBA course (see my previous post for the course overview).

This post covers the Course Introduction case and the two cases from the “When to Found” module, and provides for each case the official case description, a list of the case’s core issues, and a link to the HBS Publishing entry for that case. As mentioned before, case studies are often invaluable for helping founders, employees, and investors understand the issues they are facing or will be facing in the future (or even help them gain …

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The Idea Premium: How Much (Equity) is Your Idea Worth?

On June 17, 2008   /   co-founders, equity split, idea people   /   16 Comments

How much more equity do you receive if you are the founder who came up with the original idea for your venture?

Last month I posted preliminary analyses (here and here) of how the initial titles/positions adopted by co-founders are affected by which founder had the original idea. In a long-ago post about equity splits, I also suggested that past contributions — including which co-founder(s) had been responsible for the Big Idea — should affect the founding team’s equity split. By how much does being the Idea Person actually affect the equity split?

Preliminary analyses of the …

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A Second Look at “Idea People” as CEOs: Should vs. Do

On May 6, 2008   /   co-founders, idea people, roles   /   15 Comments

In response to last week’s post showing raw data about the propensity of “idea people” to take the CEO position within their founding teams, Tadej commented:

I don’t think having the idea should generally affect your position in the company (that should be determined by your abilities and motivations) – some people say that having an idea is worth 20 bucks, the rest is implementation.

Tadej makes an excellent point about what teams “should” do. In practice, what do teams actually do?

To give us some deeper data regarding this, I ran a quick regression analysis to assess the …

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Idea People and Their Initial Roles Within Founding Teams

On May 1, 2008   /   co-founders, idea people, roles   /   9 Comments

Does being your venture’s “idea person” affect your initial role within the venture and the size of your equity stake?

Initial analyses of data from our 2007 Compensation Survey (the 2008 Survey is currently under way — see here to participate!) suggest that being the idea person can affect your role and the size of your equity stake. In this post, I delve into the impact on roles, and in the next post, I’ll delve into the equity-stake implications (IY”H).

Note: The analyses I present below are only descriptive and preliminary, and will be followed by more detailed/definitive

…

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Board problems: Even numbers? Multiple founders?

On April 1, 2007   /   board of directors, co-founders   /   4 Comments

Question #1: Is it good to have a split board?

Question #2: For the founder-CEO, is having another founder on the board a good thing or a big mistake?

In the Vermeer case with which we introduce the semester, the founding team of Vermeer is faced with a term sheet proposing an even-numbered, split board: 2 people from Vermeer and 2 VCs. Similarly, in my Ockham case that we did in class this week, the initial board was 2 founders and 2 VCs. From my past experiences, this situation seems to be a transitional one, wherein the even-numbered board …

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Neverland, or Dictatorship?

On November 25, 2005   /   co-founders, roles   /   16 Comments

As a start-up grows, can the founding team continue to make decisions collectively, or does someone have to rise above the others and become the final decision maker?

A couple of years ago at a panel discussion at HBS’s annual Entrepreneurship Conference, the 4 founders on the panel disagreed about almost every topic raised by the moderator. The one thing on which all 4 agreed was that “a start-up has to be a dictatorship.” Each of the founders had started a company with at least one co-founder, and had tried to make all decisions by “consensus.” However, in …

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Founding with Friends, Founding with Strangers?

On November 14, 2005   /   co-founders   /   44 Comments

Is it better to start a company with someone you know well (friends, classmates, family members) or with strangers?

In my next post, I’ll return to “Rich versus King” and show some data, results, and charts that shed light on the phenomenon. For this post, though, I want to take a brief detour to explore a different issue. (At the same time, the issue is related to scenario #1 in the “Rich versus King” post. Or maybe I’m just seeing R-vs.-K tradeoffs everywhere I look these days!)

On Wednesday night, I moderated a Founders panel for the Boston chapter of …

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