Founder’s syndrome has taken a troubling turn.
Young startup founders, who have seen the success of founder-driven companies like Apple, Google, Facebook and many others, think they’ve got it all figured out.
They’re getting money, but they don’t think they need advice or mentoring. The last thing they want is a parent figure telling them “No.”
And these days, those who can rein them in — venture capitalists, investors, boards — are giving them free rein.
The results aren’t good.
Skully, the smart motorcycle helmet firm, has run out of money and shut down. Theranos, which promised to reinvent medical testing, faces multiple investigations. LendingClub’s founder and CEO departed amid an altered loan documents scandal. Clinkle, the payment startup, raised $30 million but has little to show for it. Zenefits skirted state insurance regulations.
There are more ticking time bombs out there. The Securities and Exchange Commission, which is reportedly looking into a bunch of these companies, must be just gearing up.
Founder’s syndrome — when a founder thinks he or she knows what’s best and doesn’t want critical feedback — has long been a tech industry affliction. But these days, it’s becoming a bigger problem.
Too many startup CEOs see themselves as the revolutionary tech expert reshaping a field with new platforms that seasoned business professionals couldn’t understand. They know what they are doing. They don’t need governance and controls.
Their attitude is, I deserve this. My company is hotter than anyone else’s. I raised this money. They gave it to me.
At Skully, the founders used investors’ money as “their personal piggy banks,” according to a lawsuit filed by a former employee. They bought cars, went on vacations and hired strippers, the suit claims. They didn’t deliver their product to customers, who had paid for helmets, and declined to sign a non-disparagement agreement that could have allowed the company to go on without them. In the end, the firm closed.
Perhaps if Skully advisers and board members had pushed harder on the founders to be more accountable earlier on, things might have turned out differently.
Venture capitalists share some responsibility for today’s problems as well. They have shifted to being less of a parent and more of a friend to CEOs.
“In an up cycle, everyone competes to be more founder-friendly,” said Venky Ganesan, managing director of Menlo Ventures and chair of the National Venture Capital Association. Instead of telling the startup founder to stay in and work, venture capitalists go to a Taylor Swift concert with them, he said.
“The role evolution didn’t do either party justice.”
That new role was evident in a video promoting Rothenberg Ventures, a four-year-old seed stage venture firm that appears itself to be stumbling, with mass staff departures and an inquiry from the SEC, according to TechCrunch.
In the video, John Kobs, co-founder of Apartment List, praises the firm, saying it “feels more like you’re doing business with your friends than doing business with your dad.”
Of course, firsttime founders should find investors who share their vision. But when there is a lack of mentoring or controls, problems emerge.
“First-time founders haven’t been humbled by reality,” Ben Parr, an investor and author, told me. “Investors have to be very wary of any founder that demonstrates the ego effect.”
Andy Cunningham, the strategic marketing and communications expert who worked with Steve Jobs, said most of the entrepreneurs she works with are “sponges” for help and guidance. But lately, she has seen what she calls “silver spoon entrepreneurs. They have been given more money than they know how to handle.”
For the record, Jobs, the co-founder of Apple, turned to powerful mentors such as Mike Markkula and Regis McKenna in the early years. “He didn’t take anything for granted,” Cunningham said.
With funding becoming tighter this year, companies afflicted with founder’s syndrome already are facing some hard truths. And advisers, mentors and board members will have to deliver the bad news.
“Now that capital is expensive and time is cheap, governance is coming back,” Ganesan of Menlo Ventures said. “I think people are getting the memo.”
Unfortunately, for companies like Skully it’s too late.
Contact Michelle Quinn at 510-394-4196 and mquinn@bayareanewsgroup.com. Follow her at Twitter.com/michellequinn.
