Devoxx 2014: The Founder's Dilemmas

@bruno1970 @iText#DV14 #FoundersDilemmas

The Founder’s DilemmasBruno Lowagie

iText Group


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, 53rd in EMEA

• 2014: Winner (Belgium)

• BelCham Entrepreneurship Awards

• Winner “Most Promising Company of the Year 2014”


Control versus

Wealth decisions


IT’S UNFORTUNATE BUT TRUE: IF ENTREPRENEURSHIP IS A

BATTLE, most casualties stem from friendly fire or self-inflicted wounds.


Entrepreneur = Wealth


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).


Entrepreneur = Control

• Entrepreneur:

• Power & Influence

• Autonomy

• Managing people

• Employee:

• Security

• Recognition

• Affiliation


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.


Scientific Approach

Noam Wasserman: “In my experience, founders often 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


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


Pick your Quadrant

Complete control

< $$$

Little control

> $$$


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”


The “King” quadrant

Complete control

< $$$

Little control

> $$$

KING


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”


The “Rich” quadrant

Complete control

< $$$

Little control

> $$$

KING

RICH


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:



• If you go for something in-between:




The “Exception” quadrant

Complete control

< $$$

Little control

> $$$

KING

RICH

EXCEPTION


The “Failure” quadrant

Complete control

< $$$

Little control

> $$$

KING

RICH

EXCEPTION

FAILURE


Pick your Quadrant!


The pie seen from your side$1,000,000,000

YOU INVESTORS

$1,000,000

YOU INVESTORS


The pie(s) seen from a VC’s side$1,000,000,000

YOU INVESTORS

$10,000,000

YOU INVESTORS

$10,000,000

YOU INVESTORS

$10,000,000

YOU INVESTORS

$10,000,000

YOU INVESTORS

$10,000,000

YOU INVESTORS

$10,000,000

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


Think before you decide:

Do you really need a VC?


Q & A

Investor Relations

Devoxx 2014: The Founder's Dilemmas