The Co-Founder Myth: Why You Might Not Need One, Especially in NYC
At a recent networking event aimed to help entrepreneurs find co-founders, a VC and an angel investor were on panel discussing why they usually avoid single founder companies. One common argument they brought up is that the burdens of building a startup are more easily shared between people. Venture Hacks famously proposes that startups with “the power of two” founders, preferably a “builder” and a “seller”, have the best shot at success. Another concern is that if you’re a single founder, it may be because you weren’t able to convince another person to join in on your idea. If you can’t convince a fellow entrepreneur to take a risk on you, why should any investors?
Providing a counterexample to these arguments was Michelle Madhok, the third panelist at the event and a single-founder entrepreneur who bucked the trend and started SheFinds.com, a curated shopping site that helps busy working women find affordable fashion. Prior to building SheFinds, Michelle had tried to start a company with a friend as her technical partner but the relationship went sour and her co-founder sabotaged the business by shutting down their website. Picking herself up out of the wreckage, Michelle started anew, this time alone. Without the burdens of a tenuous partnership, she was able to make more agile decisions and gain traction faster. She now has a well-rounded staff helping run her business and recently launched MomFinds to help the Mommy demographic find fashion and toys for their children.
Michelle’s experience is not unusual. According to NYC-based research firm CB Insights, while two-founder companies are the status quo in California, entrepreneurs in New York and Boston are increasing starting companies on their own. This is particularly true of venture-backed startups in the internet sector. Of the 2010 Seed and Series A deals done in this space, 20% in California involved single-founder companies. Compare that with 56% in Massachusetts and 40% in New York. Interestingly, single founders in New York raised significantly more money with a median of $4.0 million compared to 2 and 3 founder companies, which raised medians of $1.5m and $2.1m, respectively.
There are a number of good reasons why a single founder company may have a better chance of success than those with multiple founders. Talented entrepreneurs who can forge new, sustainable businesses are rare. The ones who love your idea and can provide complementary partnerships are even rarer. You’re often better off without a co-founder than with one who lacks the requisite skills and commitment. When starting Art.sy out of his college dorm room, Carter Cleveland didn’t want to give up 50% of equity unless he had an absolutely stellar co-founder, but the technical talent he was looking for had already been snapped up by the likes of Google and Apple. Instead, he took 100% equity and responsibility, did as much as possible on his own, and brought on top-notch team members later with 10-30% equity when the company had gotten substantial buzz from winning awards at business plan competitions and TechCrunch Disrupt. As required of potentially disruptive startups, Carter did plenty of pivoting in Art.sy’s early stages and at various points changed the company’s name, design, technology, target market, and team. Not having co-founders to quibble over these decisions with meant that Art.sy could rapidly adjust to changing market realities.
In Carter’s case, his technical background made it possible for him to build out Art.sy’s technology himself, a luxury that many entrepreneurs with business backgrounds don’t have. While there’s been quite a bit of debate about the technical prowess of Silicon Alley vs Silicon Valley, most entrepreneurs and VCs agree that top technical talent in the NYC area is extremely scarce. This imbalance forces many business-oriented entrepreneurs to hire independent developers instead of taking on a technical co-founder.
While the scarcity of technical talent is one theory explaining why single founder companies are more popular in New York vs. California, another possibility is that the bulk of NYC-based startups may not even need a technical co-founder. Research from CB Insights found that, in California, 41% of VC-backed deals and 30% of VC funds went to internet startups in Q2 2010. The equivalent numbers for New York during the same time period are substantially higher, with 73% of deals and 70% of deal dollars funneled to internet startups. With advances in social media, cloud computing, and other technologies, the barriers to both building and marketing internet businesses have been substantially lowered in cost and effort, enabling entrepreneurs to build companies without having technical expertise on the founding team. This is especially true of consumer facing businesses that can be rapidly developed off of existing platforms. Thus, unless you’re trying to solve a tough engineering problem or build a disruptive platform, you can probably make do without a technical co-founder. After all, why give away 30-50% equity if all you need is a neat-looking website?
Given these trends in resources and funding, here are some key tips for would-be single founders:
1) Leverage Your Location – There are plenty of biases in favor of two founder companies and against single founder companies. Put the odds of getting funding in your favor by building a company in places like New York and Boston where VCs have demonstrated a willingness to bet on single founders.
2) Find a Defensible Business Edge – The ease of building internet companies these days means that your technology can be easily replicated or exceeded by competitors. Be sure that your edge is in your domain expertise, your business relationships, or your team.
3) Become an Expert at Recruiting Talent - Carter ‘s advice is to focus on finding people smarter and more competent than you to fill the holes in your expertise. Be sure to check references as you want people who can deliver excellent work, not just sell themselves in the interview process. If the references are anything less than stellar, move on. Mediocre teammates will sink your startup just as easily as a mediocre co-founder will.
- Max Klein – My Co-Founder Took My Company and My Girlfriend
- Business Insider – You Don’t Need a Co-Founder Anymore
- Mark Suster, Both Sides of the Table – Hiring at a Startup
- CB Insights, VC Human Capital Report
- Venture Hacks - How to Find a Co-Founder
- Bob Cavezza, Founders Block - How to Find a Co-Founder