Do Investors Have Bad Families?
What’s it like starting a company with your spouse?
I get this question fairly often.
Several times now, I’ve heard investors say they don’t like to invest in couples, while in the same breath saying that they like to invest in companies with co-founders who have known each other a long time. So … starting a company with your high school best friend, good. Starting a business with your spouse, bad.
This makes me very curious about the types of marital and family relationships these investors have. I’m well aware that many marriages end in divorce and possibly many families that stay together are dysfunctional. However, it’s also true that family businesses are a staple of the American economy.
I can think of reasons why working with your family can be a disadvantage in growing a business – the primary ones being nepotism – promoting relatives over more qualified applicants, and difficulty separating work and family relationships.
However, I think there can be significant advantages, especially, as in our case, when we have been together a long time.
- We know each other’s strengths and weaknesses. The Invisible Developer is great with software but he hates meetings. He is never going to pitch – ever. On the other hand, if a new language, Swaboomi, is invented next week and it would be a significant benefit to our business, he will be writing excellent Swaboomi code before anyone else you know.
- We have learned to work together as a team. My husband does the lion’s share of his debugging in the Unity editor on a top of the line Mac. Last week, I spent 50 hours going through our latest game on Windows, on a cheap computer with crummy wireless, playing the game over from beginning to end. Bugs that might have slipped through the cracks, I picked up and fixed.
- We can communicate with each other without getting emotional because we are on the same team. Not all couples can do this but you have to understand that I am married to the calmest person on earth. So, I can say, “Look, it’s 4 am and we have spent the last year working on this game. I know we want it to be perfect but unless you find a bug that causes the computer to turn into a dinosaur and eat the player, we are releasing this public beta tomorrow.”
- We have commitment. When starting a company, losing a key team member is the kiss of death. The sole founder of another startup in our building (who doesn’t know we are married) tells me every time he sees me that he is going to lure The Invisible Developer away as a co-founder. Since his fringe benefits at 7 Generation Games include having sex with him and raising his children, I’m not too worried.
- We’re used to pulling our weight. I hate audio editing, but I do it. Dennis doesn’t like design meetings, but he does it. It’s like in a good marriage. When something needs to be done, there’s no saying, “That’s not my job.”
- We don’t have problems at home with a spouse because of all of the hours put in on the job. In fact, it is appreciated and understood because we are both pursuing the same goal.
- Time. Every investor would like to think the team is thinking about their company 24-7. When we think of a new game engine, JavaScript library or idea for a function that could really expedite development, whether it is during dinner, as we’re having our first cup of coffee or at 10 pm, there is someone else right there eager to hash it out.
Of course some couples have dysfunctional relationships and that can be a disadvantage. It seems to me that a couple who would have enough shared interests to start a business together are more likely to be the type who have commitment and good communication. Why would investors assume that all couples starting a business are the other type? Do they all have dysfunctional families themselves?
Your blogs are so funny!
But I know you’re lying about having sex. Aunts and Moms don’t have sex. I have faith in my heart that Maria, Jessica, Elizabeth, Jennifer, Amanda, Ronda, myself, Christian, and Julia are 9 immaculate conceptions given to you and mom by God because you are such a devout Catholic!
(Did I get everyone’s ages in order? Not sure about Jennifer/Elizabeth [DOB 12/82])
Yes, you did get the order correct. We are very competitive. I got married, so Joy had to get married. Then she had a baby to get ahead. Then I had to have a baby. She couldn’t stand that it was even so she had another baby. So I had another baby. Joy wasn’t having any of this even shit so she had another baby. Then my husband had an accident so baby having was out for a while. Joy felt sorry for me so she divorced her husband to level the playing field. It’s been going on for 50 years. We are currently even on number of husbands but she has one more child and several more grandchildren. I’m counting on Jennifer to start popping them out so I can pull ahead again in the reproduction Olympics.
But when it comes to the ACTUAL Olympics, your branch of the family is still ahead ^_^
I don’t have a whole lot of experience with VC, but at some point I was considering going that route and started following VC blogs and discussions. If the perspective I gleaned from studying the subject is correct, the risk of a dysfunctional marriage is not the key issue:
First is the fact that many people get married for a wide range of factors and “great developer” does not typically rank very high amongst them.
In fact, for many people, inconsequential things like “having great hair” or “a nice pair of err… glasses” takes precedence over programming skills and business acumen when selecting a marital partner.
There are obviously couples where both husband and wife can pull their weight to build the core product, but it’s not the rule. In many (most?) cases, you have one person who can actually do the job and the marital partner isn’t qualified to do much anything but gets involved anyway by virtue of being the marital partner, in which case you really have one founder doing the job alone and hand holding the other “founder”, meanwhile negotiating share and revenue split as if there were really 2 founders.
There are lots of start-ups requesting investment, at least a 75% failure rate and venture capitalists seem to use hard and fast rules to weed out the “bad ones”. I am not at all surprised that “being a couple” throws a red flag.
And then there is the issue that venture capital is targeting a certain profile: high risk/high reward companies. Ideally, they would finance 100 companies down to crashing failure in the hope of finding 1 Google that will pay them back in spades. Other founders go crashing down in flames, of course.
About 25% will turn in some kind of profit, but that’s bonus. What they really want is one big win, so they are not looking for rational people with reasonable business plans offering reasonable ROI. They want crazy but competent people with crazy ideas willing to risk everything at crazy odds for crazy profits, and preferably young people who don’t have other options, need the money and are willing to sign off big chunks of their dream in exchange for a few thousands.
That’s the profile they are looking for. Young, apparently competent with big untried ideas, unattached and willing to risk everything to strike it big.
75% fail outright, 24% turn out not to been that crazy after all, and 1% might score some genuine big time.
A married couple, especially an older one with children, planning to create a nice, reliable business, with actual products… Why I bet you don’t even work from your garage at all!
Starting up with your high school bestie is different. Typically, your “high school best friend” was studying the same things as you, went to the same university (otherwise, you wouldn’t have kept in touch) and when it comes to going in business together, the issue of whether or not one of them is good in bed is not a consideration. They are young, they have no or little “normal” business experience and are going to risk everything for a chance to make it.
You’d have better chances tacking on another couple “0s” on the back of your profit estimates and reminding them that Colonel Sanders didn’t score the big time until went in business with his new wife, “the Colonel’s Lady”. 😉
Actually, there is a pretty high correlation in educational achievement and occupational status between husband and wife. This is one factor which is increasing inequality in this country. While it is true that young singles without children have the freedom to take on a lot of risk, so do older couples whose children are raised and who have paid off the college educations.
How having been successful enough early on to be able to work for free for years to develop a product is a NEGATIVE has never made sense to me.
I could also note that Cisco was founded by a husband and wife team and is now worth $90 billion
“How having been successful enough early on to be able to work for free for years to develop a product is a NEGATIVE has never made sense to me.”
The highly cynical side of me thinks that if you have successful experience and are wealthy enough to work for free for several years, your negotiating position is too strong to make a really attractive “angel” investment deal.
You wouldn’t consider letting an investor gain a significant share of your company for a couple years’ worth of instant noodles, but a lot of young entrepreneurs are will and do.
On a less -but still somewhat- cynical note, there is an issue of connections and introductions. The field seems to operate a lot on referrals. A VC looking for new ventures to fund will check out with their own successful entrepreneurs to introduce them to other good candidates on the assumption that likes attract likes. Most of these entrepreneurs are of the younger persuasion and their connections would tend to fit that category as well.
And of course it also works the other way too. I recently met some guys on the mat involved with drop shipping and within a few days ended up meeting a bunch of other “diginomads” living within a couple blocks from my place (digital nomads, guys working online exclusively, like myself, but younger and hipper). And they are all on the same page, all talking about how they do this or that and who they are meeting and who’s got what and… If I was out looking for a VC referral, I’d probably get contacts, referrals and interviews through these guys.
If 90% of the entrepreneurs financed by VCs are young guys and gals, a lot of the effective networking for VC funding will happen through these guys. It might be worth ringing up some of your aluminis and see if some of them are entrepreneurs. If they are, they might be able to “hook you up”.