Phil Libin discusses merging his company with another and the funding challenges that came with an unconventional structure. He argues for sticking to traditional methods in everything except core product innovation.
You said that you joined with another smaller company. How did that process go as far as managing ownership and sticking those two companies? Well, it was mixed, frankly. On the one hand, it was really good in terms of the two companies meshed together. And Stepan, the founder of the other one, and I just got along fantastically well. And he was. He was just fantastic about being extremely helpful, but also not getting in the way because I was the CEO of the combined entity and sort of culturally it worked out. So the mix between the two people, that actually went great. The two teams, there were some difficulties, but for the most part that was very good. The main problem that we had, which I totally didn't anticipate and why I do not recommend doing this at all, is it made us unfundable. Because what it turns out is investors, especially here, but really everywhere, they don't want to see creativity on the cap table. Anything that doesn't start like a normal startup, it's like two friends in college and you get started, you get some founder shares and you do friends and family and then you do an angel. That's normal. As soon as you have something weird, you're like, whoa, there's like two different companies and one had some investment and one had others. And the cap table is too long and there's already multiple class of stuff stock. As soon as it looked different, basically, until we had enough traction to actually make it worthwhile for investors to look beyond that, no one would look beyond it. So we probably struggled for a year longer than we would have otherwise because of that. And I had no idea, I had no idea that investors were kind of were going to be like this. But it was very difficult for us to raise money because we had an unconventional structure. And that kind of taught me an important lesson, which is startups. People say that startups should be innovative as sort of the engines of innovation at a startup. Completely wrong. Startups must never innovate on anything at all whatsoever except your one thing. So the thing that you're doing, your product, you pour all your innovation on that. Everything else, it's got to be completely by the book, completely cookie cutter. You do not want to be smart about anything else because. Because it'll just get in the way of it. So when an engineer comes to you and says, hey, Phil, maybe we'll call you Phil, but this database we're using is really crappy. I've got an idea for a totally better database that I can write myself and it will totally be better for us. I'm going to write my database. You say, no, we're going to use the boring database off the shelf, because that's good enough. If you are passionate about writing a better database, you go and start a database company. And then you do that. And if somebody else comes in and says, hey, I've got a totally clever way that we can figure out our stock options that are like, not really how other people are doing stock options because the way other people are doing them isn't fair. And I've got a better way of doing stock options. You say no, because that's going to make us unfundable. If you're passionate about a different way of doing stock options, you go and start, I don't know. Well, whatever, you're screwed, I guess. So the mistake we made is we innovated in the initial structure of the company, which is not something that I would repeat.
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