Joe Leech

Your startup: Founder led vs Venture led?

I coach founder CEOs, around ⅔ are start-up founders and they fit into two very distinct categories.

Last week Hatty Fawcet published a great article; Growing startups: Have we got it right? Before she published we talked it over I suggest some definitions:

Founder Led vs Venture Led
  1. Founder led Where the business has been built through the resources of the founders.
  2. Venture led That is they have taken Angel / VC investment to drive growth.

Both are very similar before investment and can be very different afterwards. They are seemingly trying to achieve the same goal but in reality their definitions of success can diverge considerably when the money is invested. Things change after investment.

Venture capital should come with a warning label. In our experience, VC kills more startups than slow customer adoption, technical debt and co-founder infighting — combined.

– Eric Paley managing partner at Founder Collective (From Toxic VC and the marginal-dollar problem – TechCrunch)

Eric’s point is that growth becomes the number one success metric. Investment brings pressure to perform. Grow fast. Investors expect a return, the expectation often is a x10 return so the business has to grow to transform that $1m in investment to $10m on a valuation of $100m The pressure comes to grow big, and grow quickly.

Don’t get me wrong, with founder led business that pressure is there but it’s different. Founder led does not necessarily mean a lifestyle businesses. I’m deliberately not using terms like organic growth, lifestyle business or the worst of all bootstrapped.

Mailchimp, Shutterstock, Mojang (Minecraft), Atlassion to name a few didn’t take investment and grew very successfully. All $1B+ companies. But that was growth on their terms. Not forced, or worse enforced growth. Spending money on capturing market share without any expectation of short term or even medium term return can be a fool’s errand.

Sustainability is the key. Founder led start-ups are far more likely to create sustainable businesses that generates money immediately, enough to keep that business going and growing. Does that mean less risk taking? That depends on the founder’s appetite for risk. Risk can equal reward, but not always, and risk is the not the opposite of sustainable.

NB in this context sustainable is the dictionary definition, not environmental sustainability.

Maciej Ceglowski, the founder of Pinboard talks about barely succeeding. It’s easier to create business that earns $1mil a year with a tiny team than a business that justifies a large investment that has to be earning x10s that.

How can you know which is the right approach for you? The one, well maybe two, well three questions I ask when talking to founders about this:

👉 1. Why are you creating this start-up?

The world needs this product, an idea that simply has to have a business created around it or if you are looking to break the status quo or take over a market then investment is your rocket fuel. If you are doing things for more personal reasons then there are other options.

Emphasis on is on ‘you’ in this question; why are you doing this? For freedom from the corporate world? To scratch an itch? It’s your needs that need to be a the fore as investors have their own very specific need. Your needs are what will keep you excited, motivated, healthy and happy and so you and the business thrive for the next 5 to 20 years. Which naturally leads to the next question.

🧭 2. What do you want your life to be like in 5 years time?

Taking investment brings obligation and sets you on a path towards exit or IPO. It’s not always understood by founders what that actual can mean to the direction of your life. Being founder led gives you more control over the next 5 – 10 – 20 years of your life.

If you want to be growing a team quickly, chasing growth, driving the business forward hard then investment is what you need so there is only one choice. If you want a different kind of life with less external pressures and expectations that doesn’t mean founder led is the only choice, it just means you need to go into an investor relationship knowing what you want you want from your life.

I bring personal experience of this, having founded a start-up, raised money and ultimately given that money back. So I bring my own unique perspective!

The third question is of course…

📈 3. Is the opportunity you are chasing compatible with a slower growth model?

And this one is the trick question! It’s almost impossible to answer. It’s also the anxiety inducing thought the one that could lead you taking money when perhaps you’re not sure.

There are, of course, other routes to investment like crowdfunding at the very least as a founder don’t think that VC investment is the only route to success. It brings amazing opportunities but also sets you on a path that may not be of your choosing.

Want to talk this through? I always love to talk to start-up founders, get in touch and let’s set an hour aside to talk.

(Typos are a feature, not a bug 🐛)

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2 replies on “Your startup: Founder led vs Venture led?”

Matt Exley says:

If you’re new to starting a tech firm, it’s easy to convince yourself that an idea + investment = success.

This article (and numerous studies) suggest that this combination is statistically more likely to lead a person to fail, even if their business limps on under the guidance of others.

OK, so starting a business and attracting investment is a form of success but you’re far from the finished article.

If you’re a serial business founder, you may have made have succeeded through the investment of others. But my guess is that your success has really come about through multiple business iterations that have fuelled your development as a leader. Your endurance has enabled learning and growth.

There are many paths to business success; some feature investment, others feature lots of happy customers but all paths are long and winding.

Stories of shortcuts to megabucks are rare but are repeated like urban myths.

Joe Leech says:

I wonder if the problem is the definition of success? Success does not necessarily mean a big valuation or exit. Success could mean a health, sustainable company that earns well for the founders.

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I'm mr Joe and I'm rocket fuel for CEOs and their businesses. I bring 15 years in tech, $20b in added revenue, experience with 30+ startups & FTSE / Fortune 100 giants. Together we can do great things. Working with me

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