Not Ready to Take the Leap

I am not yet ready to leave my executive job to join my friend’s unfunded startup, especially since I am paying for two kids in college. Do I need to in order for us to raise money?

Most investors will not expect you to leave a secure job for a startup prior to the closing of some financing. That said, a number of investors will harshly judge you and some may even pass based upon some nebulous machismo definition of commitment measured by your unwillingness to upend you and your family’s economic security. “You are not committed.” “Only those who take the risk can be real entrepreneurs.” “You must not believe in the company if you are not all in.” And the list goes on. 

However, investors who invest only in independently wealthy founders or 19-years-olds in dorm rooms are limiting themselves, especially if the field is a highly specialized one that takes years of professional development to master. Many of the best entrepreneurs are highly successful in their current careers and have family and other actual adult obligations.

My fund tends to invest in substantial technologies with experienced entrepreneurs, most of whom are older with life obligations, so I have a lot of sympathy for your plight, but please consider a few points: 

First, you must certainly be willing to quit your current job once your startup receives funding. It is entirely reasonable for an investor to expect the management team members to devote their full business attention to the startup when the money goes in.

Second, you should also be realistic about what you can accomplish by devoting only part time. Your startup will maximize its chances of funding with more data, traction, customers, and product progress. If you can only contribute marginally in the beginning, you will not maximize your chances of success. Try to focus on what you can do to create and test MVPs and show promise for your company.

Third, in some cases you may have no choice but to quit in order to pursue your startup. If your new startup will develop technology very similar to or competitive with your current employer’s, it will be nearly impossible to moonlight without triggering intellectual property assignment and ownership disputes. Sometimes, developing uncontaminated intellectual property requires a clean break (and other steps, as outlined in the classes on intellectual property). 

Similarly, your startup may require full-time attention now given the demands of the market opportunity, the technology, or the state of competition. Delay may be perfectly rational for your personal security, but negate the window of opportunity.

Fourth, notwithstanding the reality of your personal financial situation, differential time commitment in the early stages will inevitably cause irritation with other founders who are devoting full time. They will often perceive themselves (correctly) as taking greater risks and contributing more to the company’s success. You should be sober about proper expectations of stock ownership and vesting based upon what you can contribute now. For example, you may own less stock than others, your stock may vest at a lower rate today and increase once you join full time, or you may forfeit all your stock if you do not join within a certain period. 

Fifth, given your current position, it is probable you will need more salary when your startup is actually funded than the other founders. That may cause heartburn both for your investors and for the other founders. Often founders make trades about less stock for more cash and vice versa, on the theory that stock rewards greater risk taking. 

You should set your expectations about what a VC will accept for your compensation for your position, as startup salaries are substantially lower than in established companies. When you sign up for a startup, you do not commit to living in penury, but you will not be seeing public company comp and benefits packages. Many entrepreneurs are just not prepared for the many years making only a startup salary, even with the promise of the future stock value. 

Older and more successful people often make better entrepreneurs, given their track record for achievement, decision making, and business judgment, but safety and risk, with the associated upside, are always real life tradeoffs.

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