What determines whether someone is a founder, a co-founder, an acqui-hire, or just an employee? Also, why should anyone care? In the latest episode of WAX ON, our Co-founder William E. Quigley breaks down what constitutes which title and why it’s important to make the distinction.
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Who is a founder?
We have a Providence problem in the tech industry and blockchain. A lot of people are confusing joining a startup with being a co-founder and I don't like that. People who start companies sacrifice a lot; the risk of failure is high. So they deserve special recognition for doing something that most people would not do. That is what the founder and co-founder titles are all about, calling out people who really made it happen.
So I want to share with you my view, as a venture capitalist and a sometimes co-founder, about who properly deserves that founder attribution, who is entitled to wear the cofounder badge and who isn't.
So first, what is the founder? Well, if we're going to get all fancy here with definitions, and I'd like to, I used the term founder for a solo job, meaning when a startup really just has one standout person who did all the initial heavy lifting. Like what?
Okay, here are the founder traits. It was your idea, you came up with the business concept alone, not a group effort or you successfully stole the concept from somebody else.
You formed the company, you were the only one on that original cap table and you self-funded the business.
Next you and you alone develop the business model and in the internet era, the business model is enormously important here.
And finally you recruited the team, you negotiated with them, you cajoled them, everybody you convinced to join your bandwagon. Basically you created something out of nothing. You've single-handedly identified the business opportunity. You set up the company, you brought everybody on board. You led the way. You're basically the Jeff Bezos of your business. That makes you the founder. And I don't think there's much controversy there.
But what if you didn't come up with the original idea? You didn't develop nor provide meaning and meaningful input to the business model. You were recruited to join the company by other people already there. In fact, you weren't even listed on the original cap table. Maybe you got added later or not at all. Hmmm. Are you an employee? Probably, but you might be a co-founder. Now some people say the line between co-founder and early employees is a blurry one, I really don't see it that way. I don't think it's that blurry.
Here are the questions I would ask. First, did you join the project or the company if it was already formed, before anything was figured out? I'm talking about all the important stuff like, are we going to build a product or a service? What should our business model be? We're talking away before MVP stage here. Was the team still searching for a business model? And if all those chaotic conditions existed, did you take on the responsibility to help solve those tough questions? We're talking here about the period of maximum doubt, maximum anxiety in the life of the startup, but you believe in this big but still vague idea that might turn into something real and you were willing to struggle through the difficult process of finding that winning product formula with the right business model. If you did those things, you're a co-founder.
So are there any disqualifiers to being a co-founder? Yes I think there are. You shouldn't call yourselves a co-founder if you didn't commit until the business was proven out. You know the person who says, “Hey, let me know how it's working out and I might join you later if it looks good.” That's sort of like what Steve Ballmer did with Bill Gates. No offense against Steve Ballmer, but you know, he waited to finish college and joined Microsoft years later.
Or, if your company was acquired by the company you are now working for, you're not a co-founder of that business. You're a like an acqui-hire. Or how about if you negotiated your co-founder title in your employment agreement? Seen that a few times. I'd call that an honorific title. It's like people who are awarded honorary doctorates for giving a commencement speech. They aren't real PhDs and they wouldn't put doctor on the resume. Same rule applies here with co-founders.
Now what if you were paid a salary to join the company? Okay. If you were paid to do the job, you're not a co-founder, you're a W2. And why does being paid disqualify you? Because you didn't have skin in the game. You didn't take the same risk as the real co-founders. You didn't wrestle with the doubt and the dread, the uncertainty of spending your savings, of it not working out. Co-founders are part of this original commune that shares the stress, the discomfort, the burden of searching for something you may never find, that winning business formula.
By the way, this is why people will develop new products and big companies aren't called co-founders. Now, they might be called creators, but they didn't take the same risk as the entrepreneurs working without any safety net. You know, the risk of not figuring it out and being unemployed.
So there is one exception to what I just said. You can be deemed a co-founder by the other co-founders. Yes, co-founder status can be conferred. I've seen it several times in unusual situations where somebody did something really important that made that business work.
So that's it, my definition of founder and co-founder. And why does this matter? I can tell you why matters to me. First I think we should be historically accurate. If you played a founding or co-founding role in something important, we should acknowledge that. But also as a VC, it's very helpful for me and others to identify the people who have proven they can weather through the startup air pocket when nothing is certain and they can come out the other side with something great. They show that they're battle-tested from that experience. We need people with these entrepreneurial traits to make things happen and those people deserve special recognition.
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