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Mentoring is NOT self-directed learning!

hyatt

Michael Hyatt has an blog post called HOW TO FIND A MENTOR TO HELP YOU GO FURTHER, FASTER with which I take very strong issue.

He writes: The truth is you can be mentored now if you understand the eight levels of mentoring:  Unfortunately he doesn’t understand the difference between mentoring, which is providing feedback, advice, and guidance to another person based on your own experience and self-directed learning, which is teaching yourself, for example by reading books. You can’t mentor yourself! (You can’t coach yourself either!)

The first four of is eight methods of “being mentored” actually are good suggestions for self-directed learning. And a membership site like LinkedIn has articles and groups that can help you learn.

  1. Blogs and podcasts
  2. Books
  3. Courses
  4. Conferences
  5. Masterminds – I have no idea what this is!
  6. Membership sites
  7. Coaches
  8. Mentors

As with many other people, Mr. Hyatt also seems confused about the difference between coaching, which is being trained by another highly trained person, and mentoring, which is being advised and guided by another highly experienced person. Mentors don’t tell you what to do, like a football or basketball coach does, they try to lead you to the right decision by asking the right questions, telling stories about their own experiences, proving feedback and guidance. He seems to think a coach is simply a paid mentor – not accurate. See my post Coaching vs. Mentoring.

If you are interested in finding a mentor, here’s a post that will help: 8 Austin tech leaders offer advice for finding a startup mentor.

Sorry, but I can’t help you find a coach, or a mastermind either for that matter!

Find a strong mentor: one of 5 tips for introverted entrepreneurs

 

enrepreneurBeing a confirmed introvert myself, the article Best 5 Tips for Introverted Entrepreneurs by Larry Alton on Small Business Trends caught my eye. But as I’m now a mentor to entrepreneurs, not an entrepreneur myself, tip number 3 really got my attention.

3. Find a Strong Mentor

If you’re struggling to make contacts through conventional forms of socializing, like networking events, or if you aren’t sure where to start, find yourself a strong mentor. Entrepreneurs who have already found success will have a wide network of contacts you can borrow as you start to make your own progress. Most introverts also find it easier to communicate with people they get to know well over time, so as you spend more time with your mentor, you’ll have an easier time communicating and learning.

There are two parts to the tip. Part one is using your mentor to find contacts. This is a common conception, but I (and the MIT Venture Mentoring Service) consider this a misconception. Your mentor may provide you with contacts, but assuming your mentor will will provide you with contacts will either greatly limit your choice of mentors or result in disappointment. Mentorship is about providing advice, feedback, and guidance based on experience. It is not about providing contacts per se, though I’m always glad if I can provide a mentor with a useful contact, as are other mentors I know. But expecting us to be “walking Rolodexes” open 24 x 7 to entrepreneurs is not a good idea.

The second part of the tip, Most introverts also find it easier to communicate with people they get to know well over time, so as you spend more time with your mentor, you’ll have an easier time communicating and learning. is certainly true in my experience. And helping founders better communicate and learn is a foundational aspect of mentorship. At the end of the day, mentoring is an educational endeavor, not a networking endeavor.  But if you are just looking for contacts, use LinkedIn, Facebook, et al and attend the dozens of networking events out there. Going to these events with a friend can be helpful if you are an introvert. But if you want to learn how to learn, improve your business communications, get feedback on your business concept, and get advice and guidance based on real world experience, then find a mentor.

But if you are an introverted entrepreneur it’s worth reading Larry Alton’s full article. As he points out:

…there are many examples of introverts who have become successful business owners. Mark Zuckerberg, creator of Facebook, is notoriously shy and introverted, yet is able to lead one of the biggest tech companies on the planet. Bill Gates, too, is open about overcoming the challenges of introversion on his path to becoming one of the richest men on the planet.

And it’s not just the tech world, either—consulting maverick Sam Ovens describes himself as an introvert, having overcome a fear of pitching his business to others at the start of his entrepreneurial journey.

And while I’m at it, trying to set your expectations for a mentor, don’t expect us to help you raise capital either. Again, if we know an investor who’s a fit for your venture, we will certainly be glad to make an introduction. But keep in mind, investors judge people like us who refer founders to them by the quality and readiness of the ventures we recommend, so you may well have more work to do before we would be comfortable making an introduction to an investor we know. As a mentor of mine once said when asked for an introduction to a prominent VC, “Keep in mind, I only have so many arrows in my quiver.”

I hope I haven’t discouraged you from finding a mentor, it’s a rare founder who can’t benefit from advice and guidance from a neutral third party. Advice from friends and family may be all well and good, but mentors aren’t either, so they will tell it to you straight. And that should be the way you want to hear it if you are serious about improving yourself as an entrepreneur and increasing the chances your venture will be successful.

 

The true test – when things go off the rails

 

19HUFFINGTON1-superJumboVirtually all startups are very exciting – at the start. But virtually all startups hit speed bumps, or worse yet, go totally off the rails.

A crisis is the true test of your investors and fellow founders. It’s very easy to be supportive and enthusiastic as the company moves from idea to prototype to product to actual paying customers. Everyone gets very caught up in the excitement of a fast growing company.

But what happens when things go wrong? That’s when you will find out what your Board and senior execs are made out of. At Course Technology we had a major problem with our printer, which meant our book/disk product would not ship in time for our customers. Our CEO accompanied a bunch to their plant to help the printer’s staff get the product out on time. No one panicked. I’m not even sure if the Board knew that we had run into a major problem that seriously jeopardized revenue and customer relationships or how it got solved.

There’s a great quote from Ariana Huffington, founder of The Huffington Post (and a Board member at Uber!) in The New York Times about crises:

“Knowing how to deal with crises without being overwhelmed — keeping one’s head while people all around are losing theirs — is the most important leadership quality. In times of crisis, people often overreact and move into very dark places where they have a hard time seeing their way out.”

So how will you know how your executive team and your investors will react when your company runs into trouble? One thing is to make sure every interview you conduct includes the question, “Tell me about a time when something went seriously wrong and you were responsible for fixing the problem.” The second thing to do is ask this question of your employees or investors references: “How did they react when the company had a major problem?”

I think the reason that sports and “adventure trips” are popular amongst founders is they are good proxies for business. How do  your employees react when their team loses, and loses badly? How do teammates react when one of them makes a bad error that might even result in a loss? Of if the team is off mountain climbing, how do they deal with an unexpected snowstorm?

Every startup will go off the rails at some point. Knowing your team has helped put another company back on track will provide you with the confidence that you can handle your problem too.

While I’m not sure that handling crises is the most important leadership quality – in my opinion it’s the ability to inspire the company and set direction – it’s certainly critical. So don’t wait until you have a crisis to find out what your team and investors are made of. Perform your due diligence before they join the company and consider what sort of activities can test your teams ability to handle problems. As the say goes, “When the going gets tough, the tough get going.”

 

Creating presentations – who’s your audience?

sundar pichaiAn issue I’ve been seeing lately is that founders have been trying to use a single presentation for multiple purposes.
The first problem common amongst founders is trying to use their PowerPoint or Keynote document both as a presentation and as either a leave-behind document or emailed document – usually to an investor.
The problem with this approach is while the audience might be the same in both cases – prospective investors – the use cases are wildly different.  Presenting in real time requires a presentation that complements the speaker’s words and body language – and doesn’t compete with them. That means very little text – forget those bullet points! – engaging graphics and relatively few slides, 10 is a good target number. However, if you plan to send the same presentation to an investor you aren’t sending yourself along with it – at least not until they days of sending holograms – so the presentation document must standalone. So the real time, in person presentation is meant to be seen, the email version or leave behind version is meant to be read.
The best approach is to create the leave behind version first – get in all the detail (but no more!) that an investor would need to know). Then you can edit that documents, cutting out lots of text, extraneous slides, and adding more visuals, like photos and diagrams.
While maintaining two separate documents takes extra effort, tailoring your documents not just to your audience but to their specific use case will pay off.
What about the audiences? Virtually all the pitch decks I see are for investors and there’s plenty of advice on this blog and all over the web on how to put together a pitch deck for investors. What’s less prevalent is how to customize your deck for customers, partners, and prospects.
Customers. First of all, I’m not a fan of presentations as the key element in a sales call. Ideally a sales call should be a conversation, between the prospective customer and the sales person, not a one-way presentation. See my post  Sales calls as a conversation, not a sales pitch. However, if there will be a lot of people on the customer side – and I find the bigger the company, the larger the meeting – a presentation may be the most effective way to at least start the conversation. You can use the list on my post as the outline for your presentation.  Keep in mind, by granting you the meeting your prospects are already engaged, so there is no need to try to wow them with fancy graphics. But you also don’t want to put them to sleep with the standard bullet pointed presentation either. Your visuals should be highly relevant to your audience, such as charts and graphics of competitive market share, diagrams of work flow, and photos of the product in use by your customers. Ideally, depending on what stage your company is at, you’ll want to start off with a demo. Or if you have a working prototype or fully baked product, put it in the hands of your prospects.  You may have to be careful with a prototype and issue some disclaimers up front. Have a video presentation of how the product works and is used as a backup just in case you have a problem with the prototype. And if time is tight you might want to substitute showing the video for a hands-on session.
Partners are a special case of customer. Obviously there are different types of partnerships, but broadly we can divide them between sales and marketing partnerships and product development partnerships. With sales and marketing partnerships, of which I’ve done several, the key question you need to ask yourself is: What’s in it for the partner? Because you should already know what’s in it for you! You can divide this into two types of benefits: financial and strategic. Many startups need channel partners – established companies with an installed customer base – who can resell their product for them. Back in my old days these were often called VARS (Value Added Resellers). Conversely many large established companies see partnering as a way to jumpstart innovation and to learn about a market that they see coming at them – like driverless cars – and they are not really interested in financials. Your contribution to their revenue would be a rounding error on their income statement and they much more interested in learning from you.
Sales and marketing
So know your audience! Is it a sales team looking to diversify their product line and add to their top line? Or are you meeting with marketing leaders or strategic planners who are focused on what they can learn and apply to their company, not incremental sales. If your partner is focused on sales you can modify your customer presentation by adding two new slides: What you will do for the partner, and when. And what you expect the partner to do for you (such as market your product to their installed base on a revenue share basis). The biggest concerns for most resellers or marketers is how will you support the product and how do they know you be around in years to come? As with any presentation, make sure you have a call to action, such as drafting an LOI.
Presentations for strategic partners are more like those for investors. But as with investors you need to be careful to protect your “secret sauce.” I just had a mentee who had his software copied by his partner because they felt he wasn’t moving fast enough on finalizing a partnership agreement! If the partner is the pupil and you are the teacher, make clear how you will help them learn what they need to know, without becoming a drag on your time. Set expectations very carefully, such as a creating a schedule for follow on meetings or Skype sessions, and make sure they are time-limited. Big companies have lots more time than startups – don’t let them suck you dry. On the other hand, realize that like investors, partners will be investing time and perhaps money in your venture. What will be their return? What will they learn? How will they learn it? Who will teach them? How can you define and measure strategic benefits?
Some partners, like large established companies, may be looking for both incremental revenue – financial benefits AND strategic benefits. In that case make sure you have the right people in the room and allow enough time to cover both sets of benefits.
You are definitely going to need that very detailed leave-behind version of your presentation for partners, as they will probably have to pass it around to either other decision makers or those responsible for making the partnership operate smoothly.
Product Development
By far the best type of product development partnership is joining the established developer program of a company like Apple. Rather than a presentation they’ll be giving you an application to fill out. The advantage of these programs is that they have proven successful over the years both for the startup and the established company running the developer program.
However, you might have the opportunity to develop your product with another company that doesn’t have an established developer program. The potential complexities of this type of product development are beyond the scope of this post. Obviously any presentations will be aimed at far more technical audiences than the others covered here. A technical staffer should leader this effort, though presentation and documentation may well need to be created with the assistance of staff with expertise in these areas. Undoubtedly these presentations will be the longest and most detailed, and also present the potential risk to your IP. I would recommend that any materials to be shared with a joint development partner be reviewed by your IP attorney, as you’ll involve your attorney in crafting the joint development agreement.
Last, but certainly not least, are prospective employees, Board members, and advisors. All are special cases of partners: what will they gain from joining your venture and what will be their obligations and responsibilities?
Even thought many, if not all of these audiences may be familiar with your company and your product, it’s best to start tabula rasa – start your presentation from square zero.  You want every one to be at the same starting point. Often the origin story is of great interest to these groups. However, you are going to need a very tailored presentation for employees, as they will have specific concerns about the organizational design, their roles, benefits, etc. This presentation should be tightly integrated with your recruiting strategy. You do have a recruiting strategy, right?
Keep in mind everyone’s time and attention is extremely limited, but prospective Board members and advisors are going to have a lot less time to spend with you than candidates for employment. So keep the presentation part short and again, make the interaction much more of a conversation than presentation. A product demo, or better yet, a hands-on test drive of your product is a must-have for these audiences. You may want to dispense with presentations entirely for these groups and just keep a list of key points and topics you want to cover in the conversation.
So know your audience. The more you know about them the more effectively you can tailor your presentation to their interests.  Being generic and abstract are the best ways to lose people’s attention. Be specific. Put the company’s name and logo into your partner presentation, for example.
And whatever you do – kill off the bullet point! As the CEO of Google, Sundar Pichai does, as highlighted in the article Google’s CEO Doesn’t Use Bullet Points and Neither Should You on Inc.com.

What the top ranked trait of effective managers at Google?

manager

At one time Google thought the top ranked trait of effective managers was technical expertise – after all the two founders were dropouts from Stanford’s Ph.D program in computer science and the person they chose for adult supervision, Eric Schmidt, actually had a Ph.D in computer science.

Google’s “people operations” team (HR) has applied the Google Way (data analytics) to management analysis and developed a manifesto entitled Eight Habits Of Highly Effective Google Managers.

According to the article 8 Habit of Highly Effective Google Managers by Henry Blodget on Business Insider “Have key technical skills, so you can help advise the team” came in dead last of the eight habits!

Number one? Be a good coach! 

  1. Provide specific, constructive feedback, balancing negative and positive
  2. Have regular one-on-ones, presenting solutions to problems tailored to the employee’s strengths

Anyone familiar with mentoring will recognize point one as the primary function of a mentor.  Point two is what distinguishes coaching – which is far more directive, from mentoring, which is oriented towards providing advice, guidance, and feedback.

The other difference is that coaching within a company is most often directed towards career development, whereas mentoring is most often case or problem-specific to the individual or team.

So obviously what is needed to be a successful manager is that combination of coaching and mentoring that helps your staff  to succeed and grow.

Read the full article for the other six habits of highly effective managers at Google.

So while your startup will lack Google’s wealth of data, not to speak of the data analytics tools to analyze how your team is performing, jumpstart your venture by emulating Google’s eight habits. As your company grows you may well change the list, but you’ll be off to a great start.

 

Your company’s guiding principles

 

compass

Google, Facebook, and Amazon all have sets of guiding principles. It is interesting both to compare them and to explore the idea that your startup should have its own set of guiding principles, or not. I’ve copied each list directly from the company’s web site.

Google

  1. Focus on the user and all else will follow.
  2. It’s best to do one thing really, really well.
  3. Fast is better than slow.
  4. Democracy on the web works.
  5. You don’t need to be at your desk to need an answer.
  6. You can make money without doing evil.
  7. There’s always more information out there.
  8. The need for information crosses all borders.
  9. You can be serious without a suit.
  10. Great just isn’t good enough.

Facebook

  1. Freedom to Share and Connect
    People should have the freedom to share whatever information they want, in any medium and any format, and have the right to connect online with anyone – any person, organization or service – as long as they both consent to the connection.
  2. Ownership and Control of Information
    People should own their information. They should have the freedom to share it with anyone they want and take it with them anywhere they want, including removing it from the Facebook Service. People should have the freedom to decide with whom they will share their information, and to set privacy controls to protect those choices. Those controls, however, are not capable of limiting how those who have received information may use it, particularly outside the Facebook Service.
  3. Free Flow of Information
    People should have the freedom to access all of the information made available to them by others. People should also have practical tools that make it easy, quick, and efficient to share and access this information.
  4. Fundamental Equality
    Every Person – whether individual, advertiser, developer, organization, or other entity – should have representation and access to distribution and information within the Facebook Service, regardless of the Person’s primary activity. There should be a single set of principles, rights, and responsibilities that should apply to all People using the Facebook Service.
  5. Social Value
    People should have the freedom to build trust and reputation through their identity and connections, and should not have their presence on the Facebook Service removed for reasons other than those described in Facebook’s Statement of Rights and Responsibilities.
  6. Open Platforms and Standards
    People should have programmatic interfaces for sharing and accessing the information available to them. The specifications for these interfaces should be published and made available and accessible to everyone.
  7. Fundamental Service
    People should be able to use Facebook for free to establish a presence, connect with others, and share information with them. Every Person should be able to use the Facebook Service regardless of his or her level of participation or contribution.
  8. Common Welfare
    The rights and responsibilities of Facebook and the People that use it should be described in a Statement of Rights and Responsibilities, which should not be inconsistent with these Principles.
  9. Transparent Process
    Facebook should publicly make available information about its purpose, plans, policies, and operations. Facebook should have a process of notice and comment to provide transparency and encourage input on amendments to these Principles or to the Rights and Responsibilities.
  10. One World
    The Facebook Service should transcend geographic and national boundaries and be available to everyone in the world.

Amazon

Customer Obsession

Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

Ownership

Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job”.

Invent and Simplify

Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here”. As we do new things, we accept that we may be misunderstood for long periods of time.

Are Right, A Lot

Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.

Learn and Be Curious

Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.

Hire and Develop the Best

Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.

Insist on the Highest Standards

Leaders have relentlessly high standards – many people may think these standards are unreasonably high. Leaders are continually raising the bar and driving their teams to deliver high quality products, services and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.

Think Big

Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.

Bias for Action

Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.

Frugality

Accomplish more with less. Constraints breed resourcefulness, self-sufficiency and invention. There are no extra points for growing headcount, budget size or fixed expense.

Earn Trust

Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best.

Dive Deep

Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdote differ. No task is beneath them.

Have Backbone; Disagree and Commit

Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

Deliver Results

Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.

The differences amongst these three giants of the Internet are stark. Google’s are brief and somewhat lightweight (You can be serious without a suit.). Facebook’s are focused almost entirely on information (ex Ownership and Control of Information) and are outward facing. Amazon’s are all focused on leaders. Does that imply that Jeff Bezos considers every employee at Amazon a leader? Or that everyone at Amazon should act like a leader? One of the dictums I was taught about startups early on was that “everyone should act like an owner.” And by issuing options to everyone in the company from the receptionist (yes we had those positions in days of yesteryear) to VPs and Directors everyone in my companies was an owner.
Interestingly enough though failure is extolled and failing fast is seen as a guiding principles of high tech companies, none of the big three incorporate this concept into their guiding principles. Should it be one of yours?
Obviously With Google and Facebook each having 10 guiding principles and Amazon eschewing numbers, but I count 14, I doubt the founders and leaders assume everyone in the company can recite them all at will. So what are the reasons to create a list of principles?
  1. Alignment. For a startup to be successful its founders must be aligned. I can think of no better exercise to generate alignment – or if necessary flush out founders who aren’t aligned – than developing a set of guiding principles.
  2. Employee orientation. One of my guiding principles and I believe one that’s been mentioned by Mark Zuckerberg lately, is that everyone wants to be and benefits from being part of something larger than themselves. For some it’s a religion. But for those in a startup it’s the company. I can think of no better way to orient new employees than to walk them through the company’s guiding principles.
  3. Decision making. As I’ve written elsewhere, startups are decision machines. At no time in your career will you ever make as many decisions as you will in a startup. And what distinguishes decisions in a startup from those in a mature company is that often those decisions have to be made with less than complete information. So when it comes down to making tough and even contentious decisions, there’s no better referee than the company’s guiding principles.

So my advice to entrepreneurs is two fold: one, study the guiding principles of the companies you admire – there is no shame in borrowing guiding principles from them. And two, as soon as you have a team, get them off site and develop your company’s own set of guiding principles.

If I had to choose amongst the three lists I would choose Amazon’s, as I see it’s guiding principles as focused inwards on the company and how everyone behaves towards customers, partners, and each other. Company culture is the invisible hand of management. While company culture has to be built over time by behavior, not words, I can’t think of a better way to start building your company culture and aligning your team than creating your own set of guiding principles. And I’d also suggest that you revisit this list at least yearly and make any necessary changes, as companies can and do change with the times.

So my first guiding principle is to have a set of guiding principles!

Founder equity for academic teams turning into companies

 

founder's dilemmas

I’ve written previously about the issue of academic teams turning into real companies and the issues that transformation generates. Amongst the thorniest issues for founders is how to divide up equity. Obviously the simplest case is when there are just two founders and they divide up the equity 50/50. And in some ways I believe that’s the ideal team makeup: a builder and a seller, as those are the two jobs in any startup. However, I’ve seen too many teams with CFOs, COOs and other CXOs – mind you these are teams, not companies! Be that as it may, there may be good reasons to have a team of more than two founders, so how do you go about determining a fair allocation of equity in company to be formed.

Shivang Dave, a fellow MIT Sandbox mentor, has been kind enough to allow me to publish this framework. Shivang attributes the framework to his team and mentors.

Here are the steps he recommends the team follow:
  1. Agree on “how close the academic project is to product-in-the-market”?
    1. Is it 5, 10, 25%?
    2. The team must agree to this number, which represents the value of the work performed in the academic setting.
    3. For this example, let’s say the academic project was 10% of the way to product-in-market.
  2. The team splits the academic setting equity, which in this case is 10%, and it vests before the company forms.
  3. The remaining 90% of the equity goes to the founders of the company, to an employee pool (typically 15% to 20%) for future hires, and perhaps 1% to 2% to be shared amongst advisors.

The benefit of this methodology is that members of the team who do not join the company, but contributed during the academic phase, feel that their contributions were rewarded. For example, if a team member contributed 30% to the team’s achievements, he or she would then be entitled to 3% equity in the company (30% of the 10% of the way to a product-in-market.)

It also makes clear how much equity those team members who are joining the company have to divide, in this case 90% of the equity, as the other 10% got allocated to the academic team.

The problem with allocating equity is that it should be aligned with contributions to the team and later to the company. The best way to do this is not by the amount of time a team member spent but on actual contribution to a specific milestone. Obviously it is far harder to define milestones and measure contributions to those milestones than to simply say “everyone who’s been on the team since founding gets to share in the team equity.” And while milestone-based equity vesting may be far fairer than time-based vesting, the latter method still seems to be the standard in the venture capital world.
Finally there are online equity calculators that can be used by entrepreneurs. One example Shivang has used with teams he has mentored is found at http://foundrs.com/.
Shivang listed several implications of non-standard equity splits on investments/investors:
  • When investors look at the Cap Table they focus on anyone who owns more than a few percentage of the overall equity. They usually ask for justification for why that person has the amount of equity and if its commensurate with their role and if they’re full-time or not.
  • I’ve come across a few cases wherein a founder leaves after a company is founded and invested in. In the cases where the founder had “double digit” equity, he/she was asked to give back equity to the company to the point where they were “single digits.” For instance, one founder (a friend of mine) was asked to give back his equity when he chose to leave. He originally had something like 22% and was asked to end with 7-9%.
  • There is something psychological for investors when they see someone having “double digit” equity and not being full time with the company.

Basically investors like “clean cap tables.” What that means is that only the active founders have equity, there aren’t “hangers-on” who have left the company but have vested stock. One way to avoid this is to have everyone on the academic team agree that if they leave the team or the Company, the Company has the right to buy back their shares at the fair market value – set by the Board of Directors.

 

As a team if you are planning on setting up a company and want to divide equity make sure you maintain a cap table from day one, including an allocation for future hires, and some simple guidelines on how to deal with team members who don’t become Company founders. Once you form a company you will have a lengthy Stock Agreement that governs your equity in great detail. Consulting with an attorney before your academic team carves up equity can be a good investment. If you can’t afford an attorney, at least invest in some books that address the issue like Noam Wasserman The Founder’s Dilemmas – Anticipating and Avoiding the Pitfalls that Can Sink A Startup.