Far and away the most common mistake venture capitalists cop to is keeping a portfolio company founder in the CEO slot too long. For people who don't like to admit to mistakes, it's an easy one to shoulder because it contains the implication that the investment was a sound one in the beginning, but also carries a de facto defense of the ultimate decision to throw the entrepreneur overboard.
So in making "founders" the foundational aspect of a venture fund, so to speak, partners in Founders Fund II may indeed be creating a "new model for venture investments to meet the changing needs of today's entrepreneur," as they declare in a press release announcing the new $220 million fund. Founders Fund I drew its name from the fact that its four principals were all successful company founders, but also emphasized the moniker in sourcing deals from entrepreneurs who expect to play key, long-term roles in the companies they formed.
Peter Thiel, Ken Howery and Luke Nosek all were founders of PayPal, while Sean Parker founded Napster and Plaxo Inc., and they put some of their winnings from those companies into a $50 million Founders Fund I that famously talked its way into VC-averse Facebook Inc. and also made investments in startups including Geni, Powerset, Quantcast and Slide. The partners admitted in an interview with The Wall Street Journal that there was some resistance in raising money from limited partners for the go round, but still made quite a showing for a debut fund while emphasizing their founder-centric approach.
"Founders Fund has developed a comprehensive package designed to create near perfect alignment of interests between founders and their investors," the announcement of the latest fund boldly declares, and the firm further aligns its interests with entrepreneurs in issuing each startup founder shares of a special "Series FF" stock that can be converted to preferred stock in future funding rounds to provide some early liquidity. - Clifford Carlsen
See Dec. 18 press release from Founders Fund
See Sept. 11 post from Tech Confidential
See Dec. 18 story in The Wall Street Journal
Continue reading below
