Why 3 founders convert to 9 risks?

Why 3 founders convert to 9 risks?

Accelerators and investors are betting on startups, mostly on founders. Those founders make difference earlier than the product itself. Therefore my first impression about the startup comes from knowing the founders better. It is not my know-how, but the industry standard for early-stage investments and accelerations. Everyone looking for the right talents for the right solution.

Today I want to write about the relationship between founders and how it can be a predictor of success or failure. People are driven by motivations. Those can be in many forms, such as money, visibility, access to luxury items, etc. Some want to be rewarded first by public awareness (like being under the spotlight all the time), for some money is first and only, others value emotional connection first.

Now lets imagine many founders per startup and the mix of different lines of relationships between each of them. Not only, but, also there is a relationship of one-to-all, meaning the founder's approach to the team as a whole. We have to keep in mind that since relationships are perception-based therefore they are not bi-directional. (If someone likes another it does not mean that it is the same in the opposite direction)

With 2 founders (A,B) then there are 2 relationships ( A-B, B-A)

Just increase an additional one and with 3 founders (A,B,C) then there are 9! relationships ( A-B, A-C, A-BC, B-A, B-C, B-AC, C-A, C-B, C-AB). Here one-to-many type of relationship defines the approach of an individual to the startup as a whole with the other founders.

So here is why investors are very careful when they see 3+ founders in the team. Just imagine the count of relationships for each increased count of founders. The risk of startup failure increases dramatically.

Then how to solve the situation when there are already 3 or more founders and things haven't yet gone bad? Here are some different potential directions to find right solution for startup's individual case :

  1. Rightly built term-sheet of possible situations and way of clearance between founders at the start of startup. Once rules are well described, including all major potential cases (like if someone wants to leave startup for university degree in another country) it can save startup from unforeseen risks.
  2. Agreeing on stepping down as founder. (Some might want less responsibility, and better life balance)
  3. Agreement between founders on priority exit (dilution). This is not common but still possible. It should be well explained while going for next rounds of investments.
  4. Culture of transparency and clear communication. Defining rules from start and consistently obeying them is very hard, but not impossible. This way relationship cracks can be spot from early-on and can be addressed with ease.

Those upper mentioned directions are some from many possible. Please share with me any other solutions that worked for you and you can advice.

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