OPINION: Selling your startup does not mean success

In the world of startups, founders and investors often grapple with questions about growth, capital requirements, and liquidity. While these inquiries reflect the logic of venture capital, where investors seek substantial returns and founders pursue scale and liquidity, there is a less frequently asked question: Are we constructing the companies we truly desire to own, or the companies dictated by our funding models?

When success takes on a different meaning, experiences of successful entrepreneurs can challenge conventional definitions of success. One such founder revealed that if she had known what she knows now, she would have never sold her first company. Another founder changed his approach to building his next venture after experiencing the consequences of external capital and rapid scaling.

These revelations highlight the tension that arises when decisions that lead to one definition of success may inadvertently steer the company away from another. Multigenerational companies, such as the A.E. Köchert jewellers, which have been family-owned for over two centuries, provide a compelling illustration of how ownership priorities can evolve over generations.

Their emphasis on craftsmanship, customer relationships, and continuity showcases a mindset that prioritizes long-term sustainability over short-term financial gains. This long-term view raises a broader question about how a company's definition of success influences its development, protection, and legacy. When choosing a funding model, startup founders face one of the most consequential strategic decisions.

Venture capital can provide the resources necessary for international expansion, product development, and market leadership. However, it comes with its own economic logic, including fund lifecycles, return expectations, and portfolio dynamics that can impact a company's growth strategies, financing decisions, and exit opportunities.

A business that could generate attractive profits for its founder over several decades may not necessarily attract the scale or liquidity that venture funds seek. This does not imply that the business is inherently flawed; it merely indicates that it may not align with the capital's requirements. Conversely, a founder who aims to retain full control may underinvest in markets that necessitate rapid expansion, potentially compromising long-term competitiveness for short-term independence.

The critical challenge lies in aligning a company's economic objectives, investors' expectations, and founders' ambitions. While both parties may make rational decisions that prioritize different outcomes, their interests are not necessarily in harmony. When these interests are aligned, capital can serve as a significant catalyst for growth.

Conversely, when they are not, even a profitable and expanding business can become a breeding ground for discord. The decisions regarding ownership profoundly affect a company's future trajectory. Harvard Business School researcher Noam Wasserman's research on the "Rich versus King" dilemma further underscores this point. Founders often face a trade-off between building a highly valuable company that requires significant ownership and control and retaining autonomy over their business.

This dilemma extends beyond the question of wealth versus control and encompasses time horizons, incentives, and the freedom to redefine success as the company evolves. Before seeking funding, founders should carefully consider three questions. Firstly, what kind of business are they constructing? A venture-scale technology company with global aspirations may necessitate a distinct capital structure compared to a profitable business intended to compound value over several decades.

Secondly, whose definition of success will ultimately dictate the company's decisions? Founders and investors may converge on growth objectives but may hold divergent views on profitability, ownership, and the timing of an exit. Lastly, what are they willing to sacrifice and what must they safeguard? Factors such as speed, independence, culture, product quality, and long-term flexibility all hold value.

Determining which trade-offs are acceptable and which must be protected is paramount. These questions do not have universally applicable answers, but avoiding them entirely can inadvertently perpetuate unresolved trade-offs. Ambition can manifest in various forms, and Europe requires entrepreneurs willing to build globally competitive companies while also recognizing that not every successful enterprise should adhere to the same financial blueprint.

A successful funding round does not equate to a successful business; a higher valuation does not inherently translate to greater long-term value, and an exit, while financially rewarding, may not necessarily be every founder's ultimate objective. After years immersed in the startup and investment ecosystem, spending time with businesses that prioritize long-term perspectives over funding cycles has not diminished the desire for growth.

Instead, it has heightened the interest in the ultimate purpose of the growth itself. One may aspire to raise €100 million to become a global category leader, another may seek to retain control and own their company for three decades, and a third may aim to establish a legacy that the next generation can inherit. The error lies in choosing one model over another without first clarifying one's own definition of success.