I was talking to a couple of people the other day about the similarities between being an entrepreneur and what we used to do on the trading floor. When you were a trader, usually 100% of your capital was tied up in your business. You owned a seat, that went up and down in value. You had to deposit relatively large amounts of money in an account-and then take risk trading it. Every day was an adventure.
Entrepreneurs are no different. They have put it all on the line with their businesses. As the business matures, the equity value of it can increase exponentially. But, it’s awfully hard for the entrepreneur to unlock the value. If the business fails, they are back at square one.
They walk the tightrope every day.
An aside, one of the reasons that we IPO’ed the exchange was to unlock value that was buried in our memberships. This is one big reason the IPO process for startups needs to be remade. It’s good for companies to IPO. Sarbanes-Oxley and lots of other federal regulations have made that process artificially hard.
In the funding process, entrepreneurs sometimes have the ability to pull money out. There are arguments for doing it, and for not doing it. It’s a case by case basis, but I don’t think it’s a black mark for entrepreneurs to pull a little money out once you get passed a Series A financing. It might be good for their psyche which will help them run their companies better.
You might wonder how someone with so much on the line sleeps at night. It’s sometimes hard. But, small businesspeople have the same problem. They just don’t have businesses that scale like startups do. As long as you take care of the little things that you have to do every day things hum along. My advice to CEOs is to create a company that they would want to work for.