Putting The Band Back Together
One of the great things about being in business with serial entrepreneurs is that they have a wealth of talented people they’ve worked with in past startups to tap into as the company grows.
Some founding teams stick together from startup to startup and its always great to get the chance to back a whole team of successful serial entrepreneurs. But that doesn’t happen very often.
Success creates wealth and wealth and ambition generally lead talented startup people to try their own startups. Its like when the Beatles broke up and John, Paul, and George each went on to solo careers.
But sometimes a startup is so exciting and full of potential that it pulls the dream team back together. Everyone in startup land likes to work on a big winner and so many entrepreneurs are willing to give up on their own startup dreams (at least temporarily) and get the band back together for a while.
We are seeing this play out in a number of our portfolio companies right now and its a very encouraging sign. It may also be true that as times get tougher, the best teams are coming together and consolidating around the best opportunities.
Whatever the reason for it, it’s very exciting to see. Teams that have worked together successfully before know the strenghts and weaknesses of each other and they know how to get along, make hard decisions, and move the ball forward each and every day.
One thing that’s really hard in putting the band back together is equity stakes. When you have a team that was together in a prior company, they have the knowledge and history of their respective value and ownership stakes hard wired in their mind.
When some come back to join the band well after the company has been formed, the equity stakes that can be offered are often much less and certainly in a different balance. I’ve seen this problem delay and even prevent putting the band back together.
One thing I generally advise is to be more generous with equity being offered to a former colleague or partner than the market might dictate. For one thing, you know the value of the person much better. And also, you can argue that even though the stake being offered is lower than they might want or expect, its higher than market. That often does the trick.
The one area I think this approach is the most effective is with engineering talent and engineering management. Its so hard to build a technical team that can deliver the right product in the right timeframe and works well with the rest of the company.
I once flew from SF to NYC seated next to Steve Chen, co-founder of YouTube. When I asked him about their ability to scale the service without many issues he said ‘I never worried about scaling issues. Whenever we needed more engineering talent, we’d just tap into our network of former colleagues from PayPal and eBay’. It didn’t hurt that eBay/PayPal had become a big company by then and talented people were vested and chomping at the bit for a new challenge.
Putting the band back together is a key reason why places like silicon valley have a competitive advantage over other startup regions. But locations like New York City, Boston, Seattle and a few other regions around the world certainly have enough history of startup success now that they benefit from the same effects.
So when you are growing fast and trying to find the right talent to match the opportunity, you should always try to put the band back together if you can.
Nicely timed post. We’re been doing exactly that(bringing back old band members), and I have to second your take on the equity issue. Ultimately, it’s been a matter of acknowledging the worth of the relationship and the worth of the individual, NOT from the market’s perspective.
i must add, though…the market provides excellent benchmarks, nonetheless.
Fred,I have been thinking about a similar topic for awhile: the value of staying together. EG: can a group of people create something greater and longer lasting than their individual efforts, despite the lack of personal satisfaction/freedom of going their own way? Music is a huge part of my life, and I have been looking for examples in the music world that can inform other aspects of life, such as business, family, etc.While the Rolling Stones vs the Beatles is a tempting comparison, the example I keep coming back to is U2. Economically, they split all profits/royalties equally among not just the four band members, but include their manager as an equal share. Songwriting credits are split the same way.There is a quote from Harry S. Truman that I heard a couple years back that really changed my outlook on life:”It is amazing what you can accomplish if you do not care who gets the credit.”While I hate to think that if Peter Gabriel hadn’t left Genesis, that the world would be robbed of his solo music – I can’t help but see far more examples of the incredible value of staying together. The recent trend of band reunion tours (Pixies!) is an indication of this. I recently read a quote from Billy Corgan where he bemoaned breaking up the Smashing Pumpkins – a band with a huge reputation of its singer feeling he was better than the whole.Thanks, have a great day.-Dan
He had a few moments too
Yeah, acting as the conductor on Thomas the Tank Engine kids’ cartoon series was really a highlight!
what about ringo?
Great post. We’re also doing just what you suggest in bringing the band back together.In 2002, three of us got together and started Meetup.com. Along the way we worked with many talented and smart people, who we mostly retained, but usually kept in touch with.Last year, 2 of the 3 original founders (me and CTO Peter Kamali) got back together and started again. When we needed a strong developer, it was no accident we turned to another former Meetup developer. And when we wanted some marketing help…same thing.This helps everything move faster and produces higher quality work. The interviews, equity, and compensation discussions were extremely fast and just the beginning. Some other benefits…Now, we’re always surprised about how quickly we complete projects. We don’t have the need for long meetings to “get on the same page”, we don’t have to learn about our work styles, or tiptoe around when we disagree. Much of the difficult work to learn how everyone works and can work together has been done, and it’s a huge benefit to us.I’d add one thing though. From our experience, it’s also good to mix in some new people. We were lucky to get some new band members and they help us break away from our shared thinking. They challenge us with new ideas and perspectives, when we probably would have just gone with what worked at Meetup.Great post!
Prior success together is something I look for always when choosing a startup. I joined my current one (www.tungle.com) in large part because the CEO and CTO had a prior exit together. In fact, throughout the management team there were direct and indirect prior successes. ie. the CEO used to be a VC and invested in my 3rd startup which we sold for $47M. So, I’m in full agreement with you. Bringing the band back together is key.
When we started Object Design, four of the five technical founders (including me) had worked together at Symbolics before. So we were all “known quantities” to each other, not to mention friends.I was the only one who had been a co-founder of Symbolics. It didn’t make any difference at all. My boss (one of the other Symbolics guys) got more equity than me, and the CEO got more than him, and I thought that was fair and had no trouble with it. Object Design was very successful and went public. (It’s now a subsidiary of Progress Software, 20 years later.)
Another great proof point. Thanks for sharing it
It’s really great to work with people you’ve worked with before. But you do also have to be careful of group think. As they say past performance doesn’t always predict future performance so it’s sometimes good to have someone with a different perspective on the team because, afterall, it’s a different company, often a different market, and different times. So many variables. The trick is to have the team that has worked together be open minded enough to listen to others with different perspectives…be open to change.Good luck in 2009 with your companies and your vetted teams!
Bring me four fried chickens and a Coke!
Hi HunterWe make two kinds of investments at USV1. where we are backing the service based on observed success/traction tumblr, etsy, and delicious would be good examples of this2. where we are backing the team based on prior success indeed, zynga,clickable, feedburner, etc would be good examples of thisIn the first category, we don¹t normally find a full team and we expect thatwe¹ll have to help a lot in the company building processIn the second category, we expect that the team can do most, if not all, ofthe leg work on team building and in fact we¹ve mostly found that to be trueWe certainly do try to diligence that if we haven¹t worked with the teambeforeHope that helpsFred
would be interesting to be able to do a 3rd type of investment that allows for discovery of the other two types. i know historically that hasn’t really been possible with traditional VC structures, but feels like the angel / smaller VC market is now providing this.
Well I don¹t think you need the angel/small vc market to point you towardsuccessful serial entrepreneurs. We¹ve got a group of about 20-30 in ourecosystem that we¹d be inclined to back every time they started somethingnew. We do need to be comfortable with what they are doing (not going toback someone doing clean tech even though I¹d be very happy to see talentedpeople tacking that problem)The other category, services with traction, clearly needs capital that playsearlier than us. We¹ve been very happy with the role of Y Combinator andthat style of investing and hope to do more with the companies that come outof those programs. We also work closely with the angel community to see thethings they are investing in. and sometimes we¹ll invest alongside ofangels. We did that in all three of the companies I mentioned (etsy,delicious, tumblr).I can¹t emphasize enough the importance of angels in the venture system.Small VCs are good too, but there¹s simply not enough of them.