Founders vs. Investors- A Pendulum Swing in Calling the Shots

The conventional wisdom in the world of Silicon Valley start-ups has been that the founders call the shots and that the investors are cheerleaders — and sometimes enablers — of the entrepreneurs they backed.

“But on Tuesday, when investors pressured Travis Kalanick to step down as the chief executive of Uber, the start-up universe was abruptly reminded that investors can flex their muscles and that founders are not untouchable.”

Ms. Benner noted that, “The balance of power at young tech companies has long been a delicate issue. Silicon Valley’s start-up ecosystem relies on founders’ and investors’ getting along — the entrepreneurs come up with the ideas and need the financiers’ money while the financiers need the founders to help them strike it rich. Over time, who holds the upper hand has shifted back and forth.

In recent years, the pendulum has swung decidedly in the direction of entrepreneurs. As with most things in the Valley, the reason is money. In 2016, $333.5 billion was directed into the venture capital industry, compared with $213.7 billion in 2006, according to data from the National Venture Capital Association and Pitchbook.

That has allowed entrepreneurs to have their choice of investors. And they have been able to demand provisions that benefited them financially and cemented their control.”

The Times article added that, “Over the past few quarters, venture firms have gained a bit more of an advantage in negotiations as worries have increased that private valuations are too high and as the frenzy for start-ups has ebbed.

“‘There’s no question that founder power peaked in 2015 and we’ve been two years into normalizing,’ said Paul Martino, a partner at the venture firm Bullpen Capital. ‘We’re not in an investor-friendly environment, but we’ve certainly moved closer to the center.'”

This entry was posted in Start-up Company Law. Bookmark the permalink. Both comments and trackbacks are currently closed.