Founder Exits

I think founder exits is a really interesting problem.

Startup outcomes are often framed as binary:

  1. Startup dies
  2. Massive success

Of course, there's a big gap between these 2 outcomes, and the majority of non-failure cases fall into it. And there's a problem that often emerges in that middle.

Say that, a few years after a company's founding, it reaches $2M in revenue and $1M in profit. That's a great outcome by any objective standard.

But what if it also becomes clear that the business isn't headed for the massive success outcome? Maybe the market shifts, or is smaller than expected. Growth might be durable but not explosive.

Even though the company is healthy, the founder may no longer be the natural long-term operator. Its scale might not justify another decade of the founder's time. $1M in annual profit is strong, but not life-changing when it's split between co-founders & investors.

At this stage, it's rational for a founder to consider an exit. But there are a few structural problems:

First: except for strategic fits, the buyer landscape is limited.

And second, there's a psychological barrier to even considering an exit. Founders and investors often avoid difficult conversations. The founder feels an obligation — to investors, employees, customers — to pursue a larger outcome, regardless of its likelihood. And the VC has little incentive to push for an exit for a subscale result.

I’ve seen this pattern from multiple sides of the table, and I think it's one of the most interesting problems in the world. Here's my case:

  • Capable entrepreneurs are one of society's scarcest resources.
  • The nature of power laws and markets makes it ~impossible to predict the magnitude of an outcome ahead of time, even for the most capable entrepreneurs.
  • A large % of them quietly have some version of the above problem (good-not-great outcome + obligation to company + no good exit opportunities).

This leads me to conclude that the opportunity cost to society is larger than we tend to recognize, and that this is one of the most useful problems to work on. This is Tether's basic purpose.