Skin in the game

I believe one of the key reasons (in addition to product/market insight and ability to recruit and retain great people) why startups can beat large companies is that founders have skin in the game by owning a large part of the company. Take that away and building or investing in a company becomes quite different.

Ownership with ability to lose and make money is a strong incentive also for board members. This goes both for venture investors and “independent” board members. The paper Eric Jackson wrote, even if it was 23 years ago, says that a board member should have a few percentage points of his or her wealth in company shares. That makes sense today too as it drives engagement and motivation.

Author: Henrik Torstensson

Partner at Alliance VC. Investing in Nordic early-stage tech startups.

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