The Founder Discount and Risk Aversion




Eric Olson posted some interesting comments about the VC-InsideOut "Founder Discount" podcast– Entrepreneur Series- Episode 2.  Eric’s summary of the episode also speculates on the possible negative personal pressures that below market cash compensation can have on the business decisions made by an underpaid founder who becomes risk averse.   

I am aware of a non-VC backed company whose founders bootstrapped the initial development with their personal capital and chose to underpay themselves for several years as good "company stewards" often do.  The good news is that they succeeded in building a very interesting software services business that held great promise.  They had raised over $5 million from friends and family and one strategic partner, and they were now anxious to follow this capital by raising their first insitutional round from VCs.

But the business held sufficient promise that another strategic partner noticed and preempted the VCs by making an offer for the entire business.  The offer was difficult to pass up for entrepreneurs who had lived with the pressures of the "founder discount", so they took the bird in the hand.  We will never know how much money they left on the table, but I suspect it could have been a big number. 

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