With all the talk about founder equity ownership at time of IPO, it’s important to address three common entrepreneur reasons for starting a company: lifestyle, FU money, or legacy. There’s no right or wrong reason and some of these reasons overlap. With entrepreneurs that continually focus on more and more rounds of VC money, they are generally focused on building the biggest company possible, often to leave a legacy.
I know of a local entrepreneur that started and built a nice VC-backed company up to eight million in revenue. The investors decided to sell the business, and consummated a deal for $23 million dollars. Sounds great right? Well, the entrepreneur walked away with his piece of the deal amounting to $250,000. Raising money early in the process, and swinging for the fences, resulted in so much dilution and liquidity preferences that he had roughly 1% of the result. While it wasn’t his ideal outcome, he knew what he wanted to do and he went for it: he wanted to leave a legacy.
Here are three common reasons entrepreneurs start companies:
- Lifestyle – Some people have the desire to create their own environment, hours, and culture
- FU Money – Some people want to get rich and not have to report to anyone again
- Legacy – Some people want to build a large, sustainable company that their grandkids can see
Reasons for starting a company vary wildly. Over time, patterns start to emerge and entrepreneurs typically have one of these three reasons.
What else? What are some other reasons besides lifestyle, FU money, or legacy to start a company?