Here’s the full version (including original title and language) of my guest blog post that Fast Company ran today. It’s longer, but hopefully has more details that entrepreneurs can learn from:
A few months ago I got a call from a magazine based in New York; the writer wanted to run some details by me about my first company, YouSendIt, that I co-founded with Khalid Shaikh and Amir Shaikh in Silicon Valley over 7 years ago. Here are the exact questions he asked me:
1. Did I convince my co-founders to give me the title of CEO shortly before our Series A financing? (Everyone knows that I love corporate titles and want to marry them.)
2. Did I then structure our Series A term sheet such that all founder shares (including mine) were re-vested over *5* years? (Why not 10 years, or 500?)
3. Did I share *only* the signature pages of said Series A term sheet with my co-founders? (We must have been low on printer paper that day and the boys probably weren’t interested in thoroughly reading the most important (still) document in the history of the company.) UPDATE: The confusion was around my old cofounder asking to scrutinize all employment documents and stock purchase plans before giving board consent, nothing to do with the financing for which he had all the documents. I’ll cop to not sending the employment docs to him for review because all of them were identical to the ones he signed himself.
4. Did I then fire one co-founder 3ish months later and the other 13ish months after financing (presumably to screw them out of their stock)? (Should really have thought of it in month 11, pre-one-year cliff.)
5. Was this why one of my co-founders came off the rails and launched a denial of service attack against YouSendIt.com, for which he was indicted, and to which he recently plead guilty? (Whaaat?)
You read #5 correctly. Denial of service attack launched, tracked by the FBI, indicted, plead guilty, awaiting sentencing. It all played out in federal court.
The voice on the other end of the phone really would have had me scratching my head if the claims hadn’t been made before on public blogs (by a mystery author!) over the last 5 years. But nobody had ever taken them seriously because we would have had to be, all of us (me, co-founders, investors), dumb-asses to do any of it.
Look, I get it: magazines don’t sell themselves and who wants to bother with the details anyway? Problem is that there’s a federal criminal case that’s awaiting sentencing and the company can’t comment until it’s all done. Shucks.
So what can we learn from this ass-hattery in the meantime? For starters I was part of a most brutal founding team trainwreck. Better yet I’m like Bruce Willis from Unbreakable (spoiler alert: Bruce and I both walked out alive). YouSendIt is truly running at scale and I started my second company (PunchTab, holla!) earlier this year with my co-founder, Mehdi Ait Oufkir, who was early enough at YouSendIt to know how it all really went down, an awesome team (many of whom worked with us at YouSendIt before making their fun elsewhere), and the same happy seed investors are participating too. Here’s what I did differently the second time around to make it happen for PunchTab, with tie-ins to the 5 claims above.
1. Titles are meaningless but expectation setting is crucial. At YouSendIt all of our first business cards read Co-Founder (my LinkedIn still does, didn’t change it because I never felt any different) until the fateful day a well-meaning VC on Sand Hill asked us “Who’s the CEO here?” And it was the beginning of the end; we then did the title thing for fundraising optics, mutually agreed upon, mutually a really bad idea… Roles should have been discussed and expectations set before the company was formed. Mehdi and I had the talk concerning PunchTab when we sat down for the first time. We also took our investors through it before raising a single dime. My favorite question from Sand Hill this time around: “Are you in it for the long haul? Because a CEO change is always a disaster!” Look for these positive signals from everyone who is early at the company, otherwise you’ll waste a lot of time.
2. Oddball terms from either side will likely hurt everyone. We received one Series A term sheet at YouSendIt. Yep, just one. So the terms were standard and there wasn’t a lot of back and forth about valuation and such. PunchTab received multiple term sheets. And still both sides combed through every detail to make sure that we don’t spook anyone now or down the road. It’s a small valley and the last thing you want is to start a new partnership explaining away old surprises.
3. Let the attorneys work on documents while you work on trust. A lot of the decisions we made for our seed financing at PunchTab were done verbally and closed with a handshake; everyone honored these decisions and gestures were made on both sides. These included commitments like “just tell us how big the check needs to be”, “we will not take any more investor meetings”, and “let’s make room for anyone else you want in this deal.” Granted, I’d known most of the investors involved for years but they still had to take all of this back to their partners, why deal with that? Because it’s the best way to do deals and the best investors understand this. Pick co-founders and your broader team based on shared values; you have no idea how much overhead it saves.
4. Founding teams get screwed up every day. Here are the top reasons I get called for advice by first-time founding teams and venture funds trying to help their founders:
i. the guilt felt by one founder taking a leadership role (first among equals) after cranking on product for so long. I spent my 2010 Christmas holidays learning Python + Django (I’m an old PHP + CodeIgniter guy) to make sure that at least a few lines of code that I write are in PunchTab at all times. It just makes me feel better and maybe when the young guys see this they tune me out a little less too.
ii. the realization that you haven’t really worked with someone until you’ve started a company together. I’ve been in the valley for 11 years and can *easily* count the people I’d found a company with on one hand.
iii. the disaster scenario: a CEO change. Both the founder and inbound hired gun have a lot of anxiety, as they should. We both put in the time to make it work at YouSendIt.
The big takeaway: you’re not alone, this is Silicon Valley. It’s the same for VCs too: one investor told me how bad he felt the first time he funded a founder that turned out to be a very bad human being. To his surprise when he broke the news at the Monday meeting every partner in the room put up his hand and shared a similar story. Some funds have mandatory criminal background checks for founders (you would too if someone you backed took the money and ran, references really aren’t worth a damn anymore). Your founding team issues are minuscule in comparison, you’ll live.
5. Still think you’ve got serious founding team issues? Another bit of advice I’ve given on occasion to early stage teams struggling with each other or their investors: learn to move on. Sometimes this stuff really can’t be fixed; and it’s at least partly your fault for not doing a better job at the beginning. In this environment there is demand for real founder DNA; if you think you’re the real deal you might be better served starting again, wiser, and with a clean slate.
So I can officially add a speaking topic to my repertoire (previously I was pigeonholed as the freemium guy, early stage funding guy, or Canadian founder, eh?). Now I’m also a reluctant expert on building functional founding teams. I survived a founding team trainwreck that should have ended me, the company, and in the process should have wasted millions of dollars in venture capital. But I beat the odds and if you’re honest with yourself, you can too.
Catch me on Twitter at @ranjithkumaran for more war stories; if I haven’t seen it yet then I’m happy to connect you with someone who has.