Monday, January 02, 2012

The cult of the founder

In the world of technology,  the founder is rightfully 'top dog'. Founders are put up on pedestals, its a badge of honour, the most admired of roles.
Settling for co-founder is certainly a better moniker than even CEO.

Founders take the risk, make the leap, make the sacrifices.
And we need the heroic and iconic founders - the Steve Jobs, Jeff Bezos, Marc Andreessen, Nikolas Zennstrom et al to inspire future ones. Their tales are the stuff of legends.

We all know, however, that it is far more complicated than that.
Seldom has a founder been able to realise a dream (or even formulate that dream) without the commitment, blood, sweat and tears of at least a few others. Think Steve Wozniak, Paul Allen, Kevin Colleran (who??) and bunch of others, Janus Friis, Craig Silverstein.



Founders often get disproportionate rewards - both financial and in terms of recognition.

Most recently, I have been consulted - along with many others - by the UK Government asking for ideas as to how to stimulate further the growth of entrepreneurialism in the tech sector.
The Government has been listening and have implemented some important tax and visa changes which are most helpful in this regard. Two of the policies illustrate just how founder focused they have been - and where there is room for further important enhancement.

Firstly,  UK capital gains tax - the tax on the first £10m for entrepreneurs is now only 10%.
However, if you did not have founder shares, but joined after the founding of the company and have an option package, then providing its an approved scheme - eg EMI - then you'll be taxed at 28% - or if unapproved then possibly at 50%. Doesn't seem right, does it?
Often senior execs in a startup have taken considerable risk, leaving highly paid jobs, accepting far lower salaries in the expectation of making a significant capital gain.
We need to attract more of this type of talent to our startup companies and a change to the CGT rules will help significantly.

Secondly, the Entrepreneurs Visa. A big step forward enabling non EU entrepreneurs, with recognised backing to enter the UK. This does not yet apply to talented people - non founders.

So, lets hear it for the unsung backup teams - its tough to build a great company but doing it on your own is simply impossible.

5 comments:

  1. Michael10:56 am

    Do tax breaks really motivate founders or early employees ?

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    Replies
    1. early employees, most definitely. Someone coming from a well paid, 'safe' job at a large corporate joins a startup swapping income for potential capital gain. The number of shares they will seek is often directly related an expected outcome. The difference between 50% and 10% tax is material.

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  2. +1 for a more tax efficient way of providing stock options to non-full time staff.

    Adding industry influencers, mentors or advisors to a company is an essential step in expanding experience, connections and guidance. These people usually take a non-full-time role which means their stock options must be unapproved. Stock options are a great incentive in these cases, but 50% tax really takes the icing right off the cake. Would love a better way.

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  3. Totally agree!

    One point I would add on this one Robin is that EMI relief on approved options is still capped at £120,000 of market value (unlike Entrepreneur relief at 10M!). Seems like this should be increased.

    If you join in a senior role in a startup that already has a strong valuation, you are very likely to have some or all of your options open to full whack income tax.

    Ideally, tax incentives should help build big successes where we create multiple millionaires in each company!

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  4. I'm still holding out for a lack of angel investment being the biggest challenge facing the UK. Every founder (or co-founder, of which Wozniak was one) I know says raising the money takes too long, is too hard and tends to be poor valuation, making future investment rounds more difficult.

    While it seems a little unfair that CGT for early employees is not as generous as for founders, the founders put in a lot of work getting the company to the point where it can employ people - and I'm not hearing many people saying they're struggling to recruit into start-ups because of the CGT issues for equity parts of the remuneration package.

    ReplyDelete