Equity.
It’s usually talked about in percentages.
50%.
20%.
10%.
Who gets what?
But in The Founder’s Dilemmas, Wasserman challenges us to think about equity a little differently.
Every time a founder gives someone a piece of the company, they’re making a prediction.
Not about what that person has already done.
Instead, about what they think that person will do next.
And that is a much harder question.
Equity Is a Bet on the Future
When a company is young, there is a lot we simply don’t know yet.
We don’t know which ideas will work.
We don’t know which employees will become indispensable.
We don’t know which skills the company will eventually need.
We don’t even know exactly what the company will look like in five years.
So when a founder decides to give someone 10% of the company, they are really saying:
I believe what you will contribute in the future will be worth 10% of what this company becomes.
That makes equity feel less like a reward and more like a bet.
And the weird part is that founders have to place these bets before they have much evidence.
An employee who seems like a great hire today might become an incredible leader.
Or they might not.
An investor might simply provide capital.
Or they might introduce the person who becomes the company’s biggest customer.
The value isn’t always visible when the equity is given.
Investors Are People Too
I think this is especially interesting when it comes to investors.
It would be pretty easy to think about investors as a source of money.
The company needs $2 million.
Investor A will give them $2 million.
Investor B will also give them $2 million.
So…who cares?
But Chapter 9 makes it clear that investors can bring a lot more than financial capital.
They can bring experience.
Connections.
Industry knowledge.
Credibility.
Advice.
Social capital.
And sometimes those things could be worth considerably more than the money itself.
That also means founders aren’t simply choosing where their money comes from.
They’re choosing who they’re bringing into the company.
And that person now has an ownership stake.
They may have a say in important decisions.
They may have relationships with other people the company needs.
They may be involved for years.
So the question isn’t really just:
Who will give me the money I need?
It’s:
Who do I want sitting at the table while we build this?
The Hard Part
This might be the part of entrepreneurship I find most difficult to wrap my head around.
Founders have to make these decisions before they know the answer.
You have to decide what someone’s future contribution is worth before you can actually see that contribution.
It reminds me a little of hiring.
You are trying to predict someone’s future performance from limited information.
Except with equity, the stakes are much higher.
You aren’t just deciding someone’s salary.
You’re deciding how much of something that doesn’t fully exist yet you’re willing to give them.
And there is no way to know exactly who will create the most value.
The employee hired on day one might eventually build an entire department.
The investor who seemed like the obvious choice might turn out to be difficult to work with.
The person who seemed like a small piece of the puzzle might end up being one of the most important people in the company.
You don’t know.
You have to make the best prediction you can with the information you have.
So What?
I think this changes how I look at equity.
It isn’t just ownership.
It is a statement about the future.
Every equity allocation says something about who the founder believes will help create that future.
That is why I think the investor decision is more complicated than comparing how much money someone is willing to put in or how much ownership they want in return.
The cheapest money isn’t necessarily the most valuable money.
And the person who contributes the most money isn’t necessarily the person who contributes the most value.
The real question is what happens after the investment.
Who opens doors?
Who knows things the founder doesn’t?
Who brings relationships the company didn’t have?
Who helps make better decisions?
Who is actually going to help build what the founder is trying to build?
Because equity isn’t really about dividing up what the company is worth today.
It is about deciding who gets to participate in what the company might become.
And nobody knows that answer yet.
References:
Wasserman, N. (2013). The Founder’s Dilemma: Anticipating and avoiding the pitfalls that can sink a startup. Princeton University Press.
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