claim candidate goes to: this-edition A all three
Investors select for the founder they can steer; control is written into the contract, and founders get replaced
Dinis's hypothesis: between two founders with the same idea, drive and talent, one deciding factor is which one the investor believes they can control. The nearest tested trait is coachability, which investors openly prefer though 'being coachable doesn't necessarily make your firm more successful'. Control is in the paperwork: Kaplan and Strömberg found that when a firm performs poorly the investors obtain full control, and only when it performs very well do they give most of it back; non-compete and vesting terms make leaving expensive. Wasserman found 50% of founders no longer CEO by year three and fewer than 25% leading the IPO. The investors' answer is that control creates value (each level of founder control cut pre-money valuation by 17.1 to 22.0 percent), but that measures exits, not the mission; founder-led companies in the S&P 500 performed 3.1 times better in shareholder returns from 1990 to 2014. In Wardley terms the investor moves the founder towards commodity, as record labels did to performers once the songs, the producers and the distribution were the assets.
Decided by. Nobody yet: a candidate for Dinis to read, comment on and decide (keep, rewrite, merge, cut, article first, later, not doing it).
Note. The article's own limits: no study tests controllability directly; the value evidence cuts against the argument; Bain's figures are not peer-reviewed; the founder-tenure figures are from the late 1990s and early 2000s; not that investors are villains; and Dinis has a stake. The profile it says is filtered out is the founder with a strong vision and strong ethics, which it says is close to many European founders.
Where it comes from
- The controllable founder Who is the commodity; Why one and not the other; Control is written into the contract; Founders get replaced; The investors' answer, and the long run (newsroom)
What it answers in the 2018 book
- Be a founder answered written, Life Patterns
- Are you a pionner, Settlers or Town Planners answered outline, Life Patterns
Where it goes
Chapter Fund it, or do not, part Start the company (drafting); topic Be a founder (or a one-person service).
Other ideas proposed for the same chapter: Fund it, or do not: the worst time to raise is before you are profitable, and the best is when they call you, We study survivors: a risky practice can look like the cause of success when only winners are counted, Sell, don't issue: the investor buys the founder's shares, the founder lends the company what it needs, and nobody buys the steering wheel, What breaks: EIS is lost on bought shares, a big early sale reads as doubt, the founder-lender is a creditor, and a broad non-compete closes the fork, Europe's slower, sceptical money suits a founder who can build first.
Node idea:investors-select-for-control in graph.json; see it in the graph. Source: admin/content/graph/ideas.json.