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Devoxx 2014: The Founder's Dilemmas

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Devoxx Antwerp introduces a Startup Track: On Thursday November 13 (17:10 - 17:40), Bruno Lowagie will present a talk about the book "The Founder's Dilemmas" by Noam Wasserman.

Published in: Investor Relations
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Devoxx 2014: The Founder's Dilemmas

  1. 1. @bruno1970 @iText #DV14 #FoundersDilemmas The Founder’s Dilemmas Bruno Lowagie iTextGroup
  2. 2. @bruno1970 @iText #DV14 #FoundersDilemmas Who is Bruno Lowagie? •Original developer of iText®, an open source PDF library •Author of “iText in Action” books published by Manning •Founder / CEO of the iText Group •iText Group NV (Belgium) •iText Software BVBA (Belgium) •iText Software Corp (USA) •Awards •Deloitte’s Technology Fast 50 •2013: 3rd in Belgium, 53rdin EMEA •2014: Winner (Belgium) •BelChamEntrepreneurship Awards •Winner “Most Promising Company of the Year 2014”
  3. 3. @bruno1970 @iText #DV14 #FoundersDilemmas Control versus Wealth decisions
  4. 4. @bruno1970 @iText #DV14 #FoundersDilemmas IT’SUNFORTUNATEBUTTRUE: IFENTREPRENEURSHIPISABATTLE, most casualties stem from friendly fire or self-inflicted wounds.
  5. 5. @bruno1970 @iText #DV14 #FoundersDilemmas Entrepreneur = Wealth
  6. 6. @bruno1970 @iText #DV14 #FoundersDilemmas Entrepreneur = Wealth p15-18: If many founders really believe this, it appears they are largely wrong. Entrepreneurs earned 35% less over a 10 year period then they could have earned in a paid job (Hamilton, 2000). Entrepreneurs as a class make only as much money as they could have if they had been employees. In fact, entrepreneurs make less, if you account for the higher risk (American Economic Review, 2002).
  7. 7. @bruno1970 @iText #DV14 #FoundersDilemmas Entrepreneur = Control •Entrepreneur: •Power & Influence •Autonomy •Managing people •Employee: •Security •Recognition •Affiliation
  8. 8. @bruno1970 @iText #DV14 #FoundersDilemmas Entrepreneur = Control When I analyzed 212 American start-ups that sprang up in the late 1990s and early 2000s, I discovered that most founders surrendered management control long before their companies went public. By the time the ventures were three years old, 50% of founders were no longer the CEO.
  9. 9. @bruno1970 @iText #DV14 #FoundersDilemmas Scientific Approach Noam Wasserman: “In my experience, foundersoften make decisions that conflict with the wealth-maximization principle. I noticed that some options had the potential for generating higher financial gains but others, which founders often chose, conflicted with the desire for money.” RESEARCH NEEDED: 10,000 companies between 2000 and 2009
  10. 10. @bruno1970 @iText #DV14 #FoundersDilemmas Decisions •Cofounders (chapters 3-7) •Solo vs. Team •Relationships •Roles •Rewards •Hires (chapter 8) •Relationships •Roles •Rewards •Investors (chapter 9) •Self-fund vs. Outside capital •Sources of capital •Terms •Board of Directors •Successors (chapter 10) •Trigger of succession •Openess to succession •Desired role after succession •Other factors •Preferred rate of startup •Capital intensity •Core founder’s capitals
  11. 11. @bruno1970 @iText #DV14 #FoundersDilemmas Pick your Quadrant Complete control < $$$ Little control > $$$
  12. 12. @bruno1970 @iText #DV14 #FoundersDilemmas Control Decisions •Cofounders (chapters 3-7) •Solo (or weak cofounders) •From immediate circle •Be the CEO •Maintain most equity •Hires (chapter 8) •Close personal network •Keep control of key decisions •Hire less expensive juniors •Investors (chapter 9) •Self-fund; “bootstrap” •Friends, fools, family •Resist investor-friendly terms •Avoid official board •Successors (chapter 10) •Avoid until forced •Resist giving up CEO position •Prefer to leave •Other factors •Gradual to moderate growth •Low capital intensity •Can build startup without help Most likely outcome: •Maintain control •Build less value “KING”
  13. 13. @bruno1970 @iText #DV14 #FoundersDilemmas The “King” quadrant Complete control < $$$ Little control > $$$ KING
  14. 14. @bruno1970 @iText #DV14 #FoundersDilemmas Wealth Decisions •Cofounders (chapters 3-7) •Build team •Find the best founders •Delegate decision-making •Share equity •Hires (chapter 8) •Hire experienced employees •Delegate decision-making •Incent with cash or equity •Investors (chapter 9) •Take outside capital •Target angels or VCs •Be open to terms •Be open to losing control •Successors (chapter 10) •Initiate succession “in time” •Be open to giving up the CEO role •Remain executive (expertise) •Other factors •Fast to explosive growth •High capital intensity •Fill gaps by involving others Most likely outcome: •Build financial value •Imperil control “RICH”
  15. 15. @bruno1970 @iText #DV14 #FoundersDilemmas The “Rich” quadrant Complete control < $$$ Little control > $$$ KING RICH
  16. 16. @bruno1970 @iText #DV14 #FoundersDilemmas Chances at succes •If you go for being King: Maintain control: 80% x 80% x 80% = 51% probability Build fullest value: 20% x 20% x 20% = 1% probability •If you go for being Rich: Maintain control: 20% x 20% x 20% = 1% probability Build fullest value: 80% x 80% x 80% = 51% probability •If you go for something in-between: Maintain control: 80% x 80% x 20% = 13% probability Build fullest value: 20% x 20% x 80% = 3% probability
  17. 17. @bruno1970 @iText #DV14 #FoundersDilemmas The “Exception” quadrant Complete control < $$$ Little control > $$$ KING RICH EXCEPTION
  18. 18. @bruno1970 @iText #DV14 #FoundersDilemmas The “Failure” quadrant Complete control < $$$ Little control > $$$ KING RICH EXCEPTION FAILURE
  19. 19. @bruno1970 @iText #DV14 #FoundersDilemmas Pick your Quadrant!
  20. 20. @bruno1970 @iText #DV14 #FoundersDilemmas The pie seen from your side $1,000,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS
  21. 21. @bruno1970 @iText #DV14 #FoundersDilemmas The pie(s) seen from a VC’s side $1,000,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS $1,000,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS $1,000 YOU INVESTORS
  22. 22. @bruno1970 @iText #DV14 #FoundersDilemmas Q & A

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