mabinda.com Business, Education, Technology Commentary.

The seven founders of Infosys, the Indian software giant, together hold just about 3 percent of the company. That is just 0.4 percent for each of those founders. Jerry Yang, cofounder of Yahoo, holds just 2 percent of the company. If you hold onto more than ten percent of your company after it reaches maturity, then you are a rarity. Jeff Bezos holds a 16 percent stake in Amazon and during the height of the corona pandemic, owing to the booming business Amazon was doing, Bezos was predicted that he would be the world’s first trillionaire. Mark Zuckerberg of Facebook has 28 percent ownership in the company, and that makes him the third richest man in the world at about $185 billion dollars. But that comes with twice the voting class shares, so he gets to dictate the direction of Facebook whichever way he wants. Of course with a renewed sense of activist investors, this will likely be a hard nut to crack.

The chief reason why founders are holding onto too little of their companies is that they are seeking VC money to replace their revenue generation strategy. In the year 2021, there was $285 billion dollars worth of money going to startups. That’s a lot of money. In the olden days, you just had to bootstrap and ensure your company generated revenues and then use that to expand. But then, these days, so long as investors believe that your company is a sound idea, you will bypass the pro typing revenue modelling stage, and go straight to operations. Can you believe that for instance, up to today, Uber isn’t profitable. It warned investors during its IPO that it may never make a profit, and so even as it’s a well known brand name, it still isn’t profitable. That means with every funding round, the company founders dilute their shares ever more.

Don’t get me wrong. VC money is absolutely essential. It finances key operations in the company. It enables you to buy key equipment. Hire key staff to bring your product to market. But it should never be a replacement for the actual going to the ground and getting your hands dirty. The hardest journey for any founder is to move from zero sales to $1 dollar in sales. If you figure out that, then you could even make a trillion dollars in revenue. And that’s the stage that companies that overly rely on VCs make. When an eagle thinks it’s chicks have come of age, it rises high up and begins throwing them down one by one, the chick that will not fly will fall to death, the one that flies goes onto live on its own. If you help a caterpillar get out of its shell, it won’t become a butterfly, it will die, and that’s why VC money is a double edged sword. Too little gets you nowhere, too much kills your initiative.