The following blog post is from Greg Phipps, our managing director of venture capital investment here at Innovacorp.
Lately I’ve noticed a number of start-up founders and entrepreneurs in the Canadian ecosystem launch a second and even third company. Not as serial entrepreneurs (consecutive start-ups) — they've chosen to start and build multiple companies, at the same time!
I’ve noted their updated LinkedIn profiles and the self-designated title of "parallel entrepreneur." The term is generally accepted as applying to an individual or team that starts and manages the growth of two or more companies concurrently.
Um, “in parallel,” as it were. (It’s probably one of the few truly self-explanatory terms in entrepreneurship and start-up investment nomenclature.)
As a champion of entrepreneurship in all its forms, I’m genuinely enthusiastic about all start-ups and applaud their founders. And founders are undoubtedly elated about their new initiatives. But when it comes to parallel entrepreneurship, I have a different physiological response. My acid reflux goes off the charts.
I’ve maintained a vocal opinion about parallel entrepreneurship for a long time. My take on it is not positive. Actually, it’s downright bad. I should emphasize, however, my negative view of the concept is founded solely in the context of investing in and supporting an entrepreneur and the venture they persuaded us to back.
Every time I’ve learned about an entrepreneur choosing the “parallel path,” I can’t help but be plagued with unsettling questions like: How much time are they dedicating to one opportunity or the other? Am I getting short-changed as an investor? Is the board aware of this and do they really support it? Is the entrepreneur ready to bail out of our venture? Do they know something I don’t about the prospects of the first company and, ergo, my investment?
I conduct an imaginary phone call over and over in my head. “Hello? You’re doing well? Good to hear. What the hell are you doing? I thought we had an agreement. We back your venture, and you focus on that company and that company alone. I expect 100 per cent of your mindshare, your subject-matter expertise, your professional experience, your leadership of the team and your intellectual capabilities.”
The fact is, if an investor (angel, venture investor, corporation, etc.) provided capital and other forms of support (network connections, referrals, mentoring, board directorship, incubation), they did so in the belief that the entrepreneur and his or her team would apply all – not just some – of their time, effort, networks, resources, blood, sweat and tears into the company, to ensure its success and maximize a return on investment for those who supported the venture. It seems like a simple formula, and the relationship between entrepreneurs and investors is, by mutual agreement and/or legal commitment, a contract.
Are there circumstances in which it makes sense to start another company in parallel? Sure. I would maintain an open mind if, say, the second company is created to bring value to the first venture, addresses a glaring gap in the supply chain, and is operated at arm’s length. Or if there could be a segregation of business focus and activities that mitigated risks or improved the entrepreneur’s ability to raise additional capital.
In other words, if the second company is created to leverage growth, I can get my head around it. If, however, the entrepreneur is simply hedging his or her bets, we better have a serious discussion. If you don’t have confidence in the product, service, competitive position, use case, value proposition, customer feedback, traction, momentum and prospects for the future, we have a problem. Starting another company while representing yourself as a full-time leader of the venture I backed is unprofessional and a conflict of interest. I can’t support it.
Most certainly, if I were aware in advance that an entrepreneur was intent on starting another company post investment, I would never support the initial investment.
Don’t get me wrong, I don’t believe that entrepreneurs who accept investment capital are committing to a life of indentured servitude to shareholders. I certainly understand entrepreneurs must “have a life,” with downtime and opportunities to pursue other interests, hobbies and diversions, so they don’t burn out and can maintain healthy relationships with family and friends. Starting and scaling a technology company is hard. Really hard. Starting a second company, frankly just seems masochistic. Go surfing in Honduras to re-group and centre. Write a novel. Run marathons. Want to learn the power of meditation in Big Sur? Great. Enjoy it (and sneak me in the back door once you’re there, please).
Sure Elon Musk and Sir Richard Branson are well-known and loved (or loathed) entrepreneurs who have pulled off parallel entrepreneurship. But both of them have always hired managers and teams to effectively pursue their visions and commercial ventures. And I suspect if either of those two business leaders, who espouse and practice parallel entrepreneurship, discovered the C-level executive of one of their business divisions had a second job, and wasn’t giving 100 per cent of their effort and time to their employer, they’d be sacked before you could say “LinkedIn profile update.”
Halifax, Nova Scotia, September 21, 2016