Be Rich or King? Founder Case Study
Knut King was not keen on raising a lot of money, since he enjoyed running a company, and wanted to retain close control. Raaz Rich, on the other hand, was mostly interested in maximizing the financial returns. How might these founder preferences affect the choice among the three strategies?
The founder preferences will have a large impact on their choice among the three strategies. For instance, Knut King enjoys having control and thus, the strategies from Ian and Flo both involve giving away equity which could have an effect on future decisions making abilities depending on specific terms included in the term sheets such as voting rights and board rights. Consequently, Knut King would prefer to go for strategies which are feasible using bootstrapping methods. However, in this case it is difficult as the technology will undoubtedly be expensive and thus require investment even in a disruption strategy, funds will be needed to develop the minimum viable product. However, if this can be done with minimum funding and the firm can quickly establish their own revenue streams once launching their product with the customer then the company can sustain itself with little need for more funding. Depending on the terms in the first round, this could allow Knut King to remain king and keep control of the company. However, it could be to the detriment on financial returns as capital expenditures and low profit margins are usually what allow growth of the company by attracting customers. Furthermore, the IP strategy will be difficult for King to remain King as patent applications and their defence is expensive so investment will be needed which will usually come at the price of equity and control.
Raaz Rich will be more open to larger funding and giving up control for financial returns. As explained by Wasserman (2008), Raaz is happy to have a smaller slice of the pie, with belief that it will be more valuable. This will enable him to openly accept funding to grow the company quickly and develop a market defining product that will engulf competitors.
