The silent battles of founders
Beyond the hype, beyond the billion-dollar valuations, what is it like to be a founder?
Wil Schroter is a serial entrepreneur and the CEO of Startups.com, the world's largest online accelerator. His first taste of entrepreneurship came in 1994 when he founded his first company as a 19-year-old college dropout. After growing it to over $700M in capitalized billings and getting acquired, he launched Virtucon Ventures, an incubator for web startups. In 2010, he also co-founded Unsubscribe.com, which was acquired two years later by Trusted ID.
Wil has been an entrepreneur since before startups were even a thing. He has had a front-row seat to the journeys of countless founders and knows what happens behind the curtains, beyond the hype, and the billion-dollar valuations. In today's episode of Founder Secrets, he unpacks some of the silent battles that every founder faces.
Pushing beyond limits
Wil's first company was Blue Diesel, one of the first web design agencies. "At the time," he recalls, "you didn't even pitch your business. You were literally selling the entire Internet. One day, I got an opportunity to pitch the entire board of the Automotive Association because they wanted a website. When I got up there, 19 years old, I still had pimples on my face, and people assumed I was an intern. They literally waited for the actual CEO to show up. I was treated like a sideshow. I think nobody in that room, other than me, was under 100 years old. It was like the Jedi Council. Their first question was 'What's the internet?'”
A few years later, Blue Diesel won a $250 million per year deal from Eli Lilly, the pharmaceutical giant behind Prozac. This sparked interest in the company, which was later acquired and taken public. Afterward, Wil launched an incubator and an array of startups, including Swapalease.com, Unsubscribe.com, Startups.com, and Fundable.com. This was a rewarding journey, but it came with a great deal of challenges.
"I was 37 years old and working every waking hour," recalls Wil. "One day, I was at a launch with my team and something about me just didn't feel right. I got in the car, called my wife, and told her that something felt weird. As soon as I said that, my lights went out and I faded to black. Why did that happen? Well, let's see. I had just had my first child, gotten married, moved, started a new company, and hadn't slept in years. Any one of these events could trigger a response like that. I had all of them at the same time.”
"Founders need to regain their mental health. I don't say this lightly, but I've never met a founder, after 10 years of running a startup, who says, 'Oh my God, I can't believe how lean I am. I can't believe what good shape I'm in. I can't believe how good my mental health is. All my relationships are fantastic.' The problem is that no one reminds you to be careful with your mental and physical health. When it’s too late, your body will tell you by shutting down.
So the first thing is to get what you are dealing with out of your head. Most of us just internalize this stuff. We don't share it because we're embarrassed. We might feel like a fraud at our company, or we feel that we should have done better. I've talked to an awful lot of founders, and I've never met anyone who says, 'I can't believe how well I've done with everything.' And if they are, they're full of shit."
Another mistake is talking about your struggles with the wrong people. As Wil puts it, "We tend to not talk about this, or we talk with people who don't really understand what we're going through. Your life partner is a great example. They're usually not very good people to share what you are dealing with for a few reasons. The main issue is that there is often a consequence in that relationship. If I tell my wife that we have just a month's worth of runway left in the company bank account, that creates a whole new thread of tension at home.
When I go to another founder and tell them that I have a month of runway left in the bank, it's a very different conversation because they have probably been in the same situation. They actually understand. So if you're going through this journey, connect with as many other founders as possible and share what's in your head.”
A golden cage
The ideal scenario for every startup is to grow quickly and achieve a big outcome. However, this only happens to 0.1% of startups. So, what happens to all these companies that have just raised a lot of money but cannot do another round?
"I had dinner with a founder who raised $250 million for a really good company," recalls Wil. "He has been working on it for 10 years and has a decent salary, but he does not know how to get liquid. This is the part of the story that no one wants to talk about. It is fun to talk about big valuations and how big a company can be, but no one goes on a podcast to talk about how messed up they are for being stuck in a cap table with no liquidity or value.”
“Investors will tell you that you are on the same side of the table," observes Wil. "No, you're not. Don't ever fall for that one. Their incentive is to have you grind it out as long as possible. They don't care. They're getting paid either way.
So, what are your options? Number one is to realize that you can quit. I know that sounds obvious, but it's often not. Founders assume that they are indentured to the company. At the end of the day, you are not. You can quit. That is an option.
First of all, you've been vested for a long time, so spending more time there won't earn you any more stock. Second, if you leave, the company is screwed. By this point, the likelihood that they are able to recruit into a company with debt, equity, and probably no additional capital is almost zero. Founders forget that they are in the driver's seat. They prevent themselves from creating a better situation because they've developed this guilt that they haven't performed in a certain way.”
Of course, transitioning from being the CEO of your own company to getting a job is not a situation that many founders would want to be in. However, you don't necessarily have to quit. You can also renegotiate your deal. "Let’s say that I am the CEO of a company and I've raised money. However, I've been forgoing a market salary for 7 years now, a fact that my spouse reminds me of daily.
And if I had a bonus structure, it was set up during a time when things were very different. You might have received a percentage of how much you raised. But guess what? We're never going to raise again, so that bonus structure is useless. You're going to get a bonus based on revenue targets that were set during a much different time with much different expectations. So the first thing is to renegotiate cash. A lot of founders don't realize that this is even on the table.”
The problem, according to Wil, is that you now own a significant portion of something that was supposed to be valuable. But if it lacks liquidity, it doesn’t matter. “You might be at a point in your life where you're trying to buy a house or start a family,” he says. “My advice is—if you can get one or two million dollars in cash through any kind of secondary sale, do it. Two years ago, this would have seemed heretical when you were raising hundreds of millions of dollars at a billion-dollar valuation. Here we are, 24 months later. You need to reset your expectations.”
The meeting happens before the meeting
According to Wil, there is a specific process for addressing these situations. "You don't just show up at a board meeting," he explains, "and say that you want more cash on the last slide.
Every board has a sliding scale of friendly to unfriendly people. You have the one person who still likes you a lot and will shoot you straight, and the one person who's kind of a jerk. Go to the friendly person first and tell them what's on your mind. Be very honest about where you're at, both personally and professionally.
Make it clear that this isn't a nice-to-have for you. It's a must-have. Explain that your plan B would be to look for another job. You can't make it sound optional because they will always push it back. If you are very explicit, it gets treated very differently.
Rally your friend first because that person can give you a lot of insight about something you might be missing. But you have to get it out of your head. He can then take you to the next most friendly person, and the three of you get some consensus. Then you slowly work up the stack of people who don't like you. You want to know everybody's answer before you ever have that board meeting.”
While Wil is talking specifically about a founder’s compensation here, this approach to board management is applicable to any controversial decisions. As Wil puts it, the meeting happens before the meeting.