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Young Startup Edition: Building an Incredible Founding Team

Young Startup EditionFounder

Atish Davda   December 08, 2014

I recently wrote the below piece for Wharton Magazine Blog. Sharing it here since many of you have gone through, or are going through a similar search.

Building a business is hard because of all the known and unknown challenges that are sure to arise. It’s crucial for any business to have a solid foundation to meet these challenges – and it all begins with the right founding team.

Multiple Founders
Most successful companies have more than one founder, with an average of 2.4. According to Tom Tunguz’s Characteristics of Billion-Dollar Startup Founders, the median founding team in highly successful startups has two founders. This means, unless your crystal ball said you’re the next Jack Ma, sole founder of Alibaba, the most successful IPO in the world, you’re better off with finding co-founders.

When times get tough, it’s harder for two people to give up hope than it is any one individual. Since investors are aware of that fact, it’s harder for a solo founder to raise capital.

It’s a Marriage
You should, and will, look to your co-founders for inspiration, accountability, and compassion along with a thousand other things. If your venture is to be successful, you’ll be marrying this group for some time, so make sure you choose carefully. As with any marriage, ensure they feel the same way about you.

Not every marriage works out. In the direst of circumstances, read Venture Hack’s When to Fire Your Co-Founders, as it may serve a handy guide for warning signs.

What I Looked For (and You Should Too)

I co-founded EquityZen, a marketplace for trading equity in pre-IPO companies, with two hilarious and highly intelligent partners, Shri Bhashyam and Phil Haslett. Phil and I share close mutual friends, and Shri and I know each other from our school alumni network.

Admittedly, I don’t have experience with blind dating co-founders or using founder-matching services, such as FounderDating or CoFoundersLab. Truth be told, I’m biased against them. Several months before I began working on EquityZen, I challenged myself: if I couldn’t find one smart, driven individual within my network to quit their lucrative job and join me in starting the company, what does that say about the prospects of this business?

Fortunately, I found two, through trial and error, perseverance, and luck over several years.

500Startups’ founder, Dave McClure, suggests a holy trinity of “hacker, hustler, and designer” makes for the perfect formula.  My founding team does not fit that mold; still, we were invited to and graduated from 500Startups. EquityZen is building a technology business in the heavily regulated industry of finance. So, the goal was to cover three main bases of our business: finance, law, and technology. Find the formula that is right for you.

Below are factors I considered while building EquityZen’s founding team:
·      Determination: intelligence is table stakes. Determination is likely the single most important quality in a co-founder.
·      Commitment: will they stick by you through thick and thin for a certain amount of time?
·      Work Ethic: closely related to commitment. Will they pour in the hours, nights, and weekends?
·      Humility: are they willing to roll up their sleeves? How will they react when you do the same?
·      Conviction: how much do they believe in the vision?
·      Trust: can you trust them? Do they trust you?
·      Leap of faith: building startups requires taking leaps of faith. Do they have the stomach?
·      Dependability: can you rely on them to do something they said they would?
·      Personal compatibility: can you be friends? Do you share interests outside of the business?
·      Rational compatibility: given a nuanced problem, how do you reason through solutions together? How do you handle disagreements?
·      Technical compatibility: can you delegate work to each other, or will you have too many cooks in the kitchen?
·      Leadership: will they lead?
·      Willingness to learn: will they follow?
·      Principles: will they act in a legal, ethical, and moral manner? If you toe the line, will they stop you from crossing it?
·      Intelligence width: do they possess incredibly, ridiculously high-aptitude?
·      Intelligence depth: are they smarter than almost anyone else in a one particular subject?
·      Boldness: what Paul Graham calls “naughtiness.” Will they sometimes ask for forgiveness, rather than permission?
·      Resolve: when they make one or five mistakes, will they get back up, shrug it off, and get back to the grind? (Note: don’t forget to remind them why you chose them.)
·      Inspiration: when you make one or five mistakes, will they remind you why they chose you?
·      Respect: have you earned their respect? Have they earned yours?
·      Network: do you all have compatible personal and professional networks?
·      Passion: It can’t be taught. Are they passionate about things (including non-business related)?
·      Fun: do you have fun working together?
·      Invincibility: do you feel invincible working alongside them?

Take your time and be picky. Expect – and hope – that your co-founders are picky, too.

Whether you’re considering starting a venture, in the process of building your founding team, or are evaluating your current one, you may find these resources helpful: Ben Horowitz’s book The Hard Thing About Hard Things, Mark Suster’s How to Configure Your Startup Team, Inc.com’s How to Build an Insanely Great Founding Team, and Steve Blank’s Building Great Founding Teams.

If you’ve found a good team, congratulations! Read about how to split equity on Quora.

Read the full piece on the Wharton Magazine Blog, where it was first published.

Young Startup Edition: 8 Hacks for Better Email Management

Young Startup EditionEmail

Atish Davda   November 12, 2014

In continuation of our series, Young Startup Edition, I recently wrote a piece on email management on Inc.com. Below is an excerpt from that article (see full piece here)...

Your email inbox is like your desk at work: keep it clean.

If it’s excessively messy, people will notice and eventually it will take a toll on your career. No corporate professional today can excel, or even get by, at their job without proper email management.

Yet, so many people struggle with it. You’ll find 1,080,000,000 search results on Google if you search “I need help with email management.” The good news is you’re not alone in feeling overwhelmed at managing your inbox. The bad news is there are, apparently, a billion different ways to do it.

Below, you’ll find eight hacks to better email management along with real life examples of how to implement them. With 425 million users, Gmail makes for a good case study, but you may apply the same concepts to other email services.

I am the founder and CEO of a VC-backed technology upstart, EquityZen, which allows private investors access to proven pre-IPO investments. While I’d bet Elon Musk’s inbox gets hit harder than does mine, I work at the intersection of technology and finance, two sectors notorious for their dependence on email communication.

1) Choose the Right Tools

This one is crucial. No one tool is perfect, so use a combination of tools.

Much of your email is likely consumed over mobile or tablet devices. Pick an email client that can keep up. I use Mailbox (now owned by Dropbox). Recently, Mailbox came out with a desktop application for OS X, which syncs with your Mailbox across all devices where you use it.

When on the run, use Mailbox on your smartphone. If you live in a city with underground public transportation, you’ll likely appreciate the added benefit: Mailbox lets you chip away at your inbox even without Internet service and keeps track of your activity until you resurface and reconnect.

When at your desk, use Gmail.com; its search functionality is unparalleled. In addition, if you have a Mac, use Mailbox for OS X for email scheduling, in addition to using Gmail’s web client.

I tie in my work and personal email accounts with Mailbox, and can tick through them all at once, or one at a time depending on whether or not I’m working.

Read the rest at Inc.com: http://www.inc.com/atish-davda/8-hacks-for-better-email-management.html

Young Startup Edition: How Should You Split Equity Among Co-Founders?

Young Startup EditionFounderStartup Compensation

Atish Davda   September 29, 2014

Here at EquityZen, we focus on proven, mature startups. Some of our readers are entrepreneurs who are building the proven startups of tomorrow. For topics of particular interest to those readers, we have started adding pieces under a new column, Young Startup Edition.

Split the pie in a way you grow the pie.
So you're considering (or advising others on the subject of): how should founders split equity amongst themselves? This question gets especially hairy when various founders come to the table at different times, or with chips in different currencies.

In addition to everything below, don't forget to consider dilution from outside investors (if relevant to your business). We've purposely stayed away from numbers below as each situation is different, but numbers are what you want, bookmark this handy calculator to help you determine what each founder will own after accounting for dilution through Series A.

Here's what you need to remember...

Start-ups are as good as their execution. I am certainly not the first to say: building a successful business (i.e. making the equity worth anything greater than $0), is all about execution. So, while credit for the idea may go to one of you, where would the business go without the team?

Factors to Consider
There are tangibles and intangibles to consider. The list is not exhaustive, but captures the gist of the decision-making process:
* Relevant expertise: Does one of you bring vital credibility to the business?
* Relative expertise: What is marginal benefit of skills of person X assuming you already have ABC on board? Note: I admit the use of "skills" is rather crude, as below factors contribute to "skills."
* Expectations: For what tasks will everyone be accountable? Will everyone take the same salary, eat the same ramen, and work the same hours? See below for a nuanced set of expectations.
* Chemistry/Motivation: Why and for how long is everyone committed to the business? Is everyone aligned on the reason / time horizon?
* Sum of Parts: Is the team as a whole better off than any subset alone?

Bottom Line
To put it dryly, you're running an optimization process: at what level of equity, would you be better off having person X on the team, given the team is currently composed of ABC?

Communicate Expectations
Consider and communicate expectations. What will be expected of each? Who will keep the ship steering on course when someone falls short of expectations or steps into someone else's territory? Be sure to discuss this in context of each of these phases of the business cycle: steady state, good times, and (most importantly) bad times.

Seriously, Communicate Expectations
Communicate openly and frequently. It should come as no surprise, but if your co-founders are astute, they are running their own (similar) optimization process. Therefore, that everyone is aware of, and agrees on, the process is of paramount importance. Trying to "game theory" this decision or using negotiation tactics may end up costing all of you.
Dues aren't paid, past tense. Dues get paid each and every day.
I was exposed to this statement recently and it has stuck with me. I find it to be a good reminder to put things in perspective when times get tough, and you feel you have to "earn" your equity in the company. So, make sure everyone buys in to whatever equity breakdown upon which you all agree.

There is a lot of material on the subject, so if you're still in hungry for more, check out: Entrepreneur, Forbes, AlleyWatch,  and even this interesting calculator for helping you arrive at the split.

Have I missed other factors to consider? Let me know by commenting below.