Getting fired from your own company could be one of the worst nightmares of a Founder. And definitely, rebound is not simple. Under this section, we will discuss couple of examples in India and outside where Founders were forced to leave their own companies. Some did made a good comeback and some did not, but the premise is to avoid such events in the first place.
Why does this happen?
It is important to understand that while investors do invest in ideas, at the same time, they invest in the person with the idea. It is more like a partnership. Like every relationship, Founder – Investor relationship equally requires trust and cooperation. When any of these elements of the relationship is broken, discomfort starts to emerge.
Many Founders, are not experts in legal and financial matters, whereas Investors do understand these aspects in detail. Understandably, at the time of fund raising, new Founders tend to sign several legal documents at the time of fund raise without understanding them in detail. As a result, Founders tend to agree to certain conditions without understanding the repercussions.
What is the cure?
The ultimate cure to this issue is to retain 100% equity with yourself such that no other person has any other rights. This, however, is not practically possible if you are in the market to raise funds.
While there is no cure, the best one can do is to be aware and take right decisions at the time of fund raising. We have quoted some of the real-life examples, where things did not turn the way Founders would have anticipated.
Some examples – Indian startups
Housing.com was founded in 2012. As per media reports1, the CEO was removed by the Board of Directors due to behavioral issues towards investors, ecosystem and the media, which the Board believed was detrimental to the company.
2. Flipkart.com – Sachin Bansal
As per media reports2, after leading Flipkart since its initial date, Sachin Bansal lost control of his company in 2015 when his planned transformation of the company failed. Both the founders were removed from operational roles by the investors and they appointed a new CEO to look after the future of Flipkart. Sachin did try to acquire more stake in Flipkart, from 5.6-6%, to have a greater say in the operations of Flipkart but the same did not go through. Sachin even tried to push for greater rights for shares held by minority shareholders but even that did not sail through. After much of turmoil with the investors, Sachin eventually stepped out of Flipkart by selling his remaining stake.
Some examples – outside India
The startup ecosystem has been around in developed economies India for several decades now. Even some of the greatest companies as we know today have seen conflicts between Founders and investors. We have cited below few examples of well-known startups.
Steve Jobs had turned Apple into a billion dollar company by 1985. However, due to power struggle between the CEO, the board of directors, removed Steve Jobs from Apple. Though Jobs did return back to Apple in 1996 and turned-around the company.
Yahoo.com as we all know was one of the most famous internet companies of the early days. Founded in 1994,
Founder Jerry Yang was forced to step down from the leadership when he was criticised for turning down offer from Microsoft for selling Yahoo for $44.6 billion amidst dominance of Google.
GroupOn was founded in 2006 and its revenue grew to over USD 800 million by 2010.
Founder Andrew Mason turned down the $5.3 billion offer from Google and proceeded with an IPO. When the share prices fell, investors felt that there was a need to change the leadership and accordingly, he was fired.
Founded in 2009, Uber has become one of the daily used words for many in the world. Uber grew to an estimated value of USD 70 billion by 2017.
Upon various allegations about discrimination and harassment in the company, the largest shareholders of the company demanded resignation of the Founder, Kalanick. He left the position of the CEO, but retained his seat in the company’s board.
This post is part of our Founder’s handbook – “Negotiating Shareholder’s Agreement”, a comprehensive handbook for founders to negotiate shareholder’s agreement. Click here to download the complete handbook.
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