Multitasking: Best Practices To Leave And Found A New Startup?
The short answer is most definitely yes. While every situation is unique, the three cases below provide a framework around the best practices of multitasking with the goal of building a startup.
Case 1: you have a job and want to start something new
The most classic case is wanting to transition from a corporate job to founding a startup. The natural questions are when and how to do this, especially if you are dependent on the income from your previous job. The further complexity is it is very hard to raise meaningful funding unless you are already full-time. The way to break this chicken and the egg is to start small: apply for a business plan competition, a research grant, an accelerator or incubator (very similar except the latter is typically affiliated with a university), or go to family / friends. This is pre-seed at its finest, when it’s typically just cofounders with an idea.
Speaking of which, instead of getting into debates on how much the idea is worth, just punt the question to later by doing a SAFE. The norm is to raise enough funding to last for a few months so you can prove enough milestones and transition into full-time. Also, the norms around such SAFEs is a valuation that is 4-5x the amount raised. As you get traction in such a fundraise do a parallel processing with your existing role – disclose to the people who should know, create a transition plan, perhaps helping find your replacement. The good news is for most people a 1-3 month transition plan is enough and that is also more than enough to do a successful pre-seed.
Case 2: you have started something and want to start another one
One solution is to be CEO of two companies. After all, Elon Musk did it with Tesla and SpaceX and Jack Dorsey did it with Twitter and Square. But these are huge exceptions to the rule. Being a CEO of one company is hard enough, if you are mad enough to run two companies then the reality is you need to be a proven entrepreneur to get enough leeway from your investors, employees and the overall market.
A second route, arguably a more sensible one, is to find a CEO for either of the two companies. In the interim, you can be the Acting CEO, conducting the search for the top rolem, ideally within 3-6 months. Companies occasionally have the Chairman of the Board and the CEO be different people, with the caveat it’s especially atypical in early-stage startups.
A third way is to build a venture studio. In a venture studio you incubate 2-3 ideas per year, stay very involved especially in the beginning, and find a CEO to run it long-term. While an accelerator is typically a 3-month program taking up 7-10% ownership, a venture studio is more often a 18-month incubation where the studio takes up 20-30% ownership.
Case 3: you are winding something and want to start another one
If you already have a buyer lined up, fantastic, if not seriously consider hiring a banker who can expand your options. Bankers will typically take 5-10% of the sale price as their commission, sometimes with an additional retainer. Most M&A happens as a result of long-term relationships between companies i.e., the acquirer already knows you well for a while, perhaps because they have been partners.
As part of winding down and preparing to create a new company, the exit clauses are obviously the key. Double trigger around the stock will accelerate your vesting. Some or all of your team may be locked in by the acquirer as part of the M&A. Non-competes are not enforceable in some jurisdictions like California, but non-solicits are and you should obviously think through the industry relationships at stake regardless. Finally, there are potential issues around IP if the new company depends in any way on the old company.
Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.