PayPal backer questions “energy and passion” of minority stake co-founders

A partner at VC firm Plug and Play today stressed the importance of co-founders having an equal equity split in their startups when they start out, questioning the passion and motivations of those with a minority stake.

Plug and Play partner Carolin Wais — whose firm has backed PayPal, Shopify and N26 — also reiterated common concerns about investing in first-time solo-founders, saying they might lack resilience.

While a 50-50 split between co-founders might appear the fairest deal, it can lead to founders becoming deadlocked on tough decisions and possible legal disputes.

Wais, who oversees Plug and Play’s investments in EMEA, said: “I believe in equal splits of equity. If you are not splitting the equity equally or at least in a fair way, long-term you won’t be incentivised.”

Wais pointed to the example of a startup, in which the founders had a 95 per cent and 5 per cent equity split, which would then get diluted over subsequent funding rounds.

She said: “Would they really want to stick around and spend their life’s purpose on this?

“I think it’s just about long-term founder incentivisation and making sure everybody comes in every day with the same energy and passion.”

Speaking at the SIM conference today in Porto, Wais also highlighted the dangers of VCs and other investors investing in solo founders.

She said: “If you think about the life of a startup. At the beginning everything looks great and you have a lot of motivation. 

“And then it starts getting rough, you know. You don’t raise that round, you maybe don’t get that customer on board, or something falls through. And then usually, if you have someone else, or even a third person in your team that backs you up, that takes you through these ups and downs, it’s way more successful.”

She said: “The companies that have more than one founder they are more successful, just because they have more resilience, more drive and more energy to do this.”

Exceptions to the rule, she said, were solo founders who had previously backed successful startups, such as unicorns.