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@bruno1970 @iText
#DV14 #FoundersDilemmas
The Founder’s Dilemmas
Bruno Lowagie
iTextGroup

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@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”

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@bruno1970 @iText
#DV14 #FoundersDilemmas
Control versus Wealth decisions

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@bruno1970 @iText
#DV14 #FoundersDilemmas
IT’SUNFORTUNATEBUTTRUE: IFENTREPRENEURSHIPISABATTLE, most casualties stem from friendly fire or self-inflicted wounds.

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@bruno1970 @iText
#DV14 #FoundersDilemmas
Entrepreneur = Wealth

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@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).

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@bruno1970 @iText
#DV14 #FoundersDilemmas
Entrepreneur = Control
•Entrepreneur:
•Power & Influence
•Autonomy
•Managing people
•Employee:
•Security
•Recognition
•Affiliation

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@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.

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@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

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@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

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@bruno1970 @iText
#DV14 #FoundersDilemmas
Pick your Quadrant
Complete control
< $$$
Little control
> $$$

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@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”

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@bruno1970 @iText
#DV14 #FoundersDilemmas
The “King” quadrant
Complete control
< $$$
Little control
> $$$
KING

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@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”

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@bruno1970 @iText
#DV14 #FoundersDilemmas
The “Rich” quadrant
Complete control
< $$$
Little control
> $$$
KING
RICH

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@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

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@bruno1970 @iText
#DV14 #FoundersDilemmas
The “Exception” quadrant
Complete control
< $$$
Little control
> $$$
KING
RICH
EXCEPTION

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@bruno1970 @iText
#DV14 #FoundersDilemmas
The “Failure” quadrant
Complete control
< $$$
Little control
> $$$
KING
RICH
EXCEPTION
FAILURE

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@bruno1970 @iText
#DV14 #FoundersDilemmas
Pick your Quadrant!

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@bruno1970 @iText
#DV14 #FoundersDilemmas
The pie seen from your side
$1,000,000,000
YOU
INVESTORS
$1,000,000
YOU
INVESTORS

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@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

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@bruno1970 @iText
#DV14 #FoundersDilemmas
Q & A