Rethinking Startup Leadership: From Team Building to Alternative Growth Paths w/ David Carpe

Welcome to another episode of the Whole Human Podcast. My name is Peter Sorgenfrei, and today I have David Karp with me. Welcome on the show, David.

Hey, thanks for having me.

So David is in northern Portugal, as you can see by the beautiful screen and pool behind him. That is not fake. That is actually the view in this house. But David, for the people who don't know you, can you introduce yourself? Where did you come from and why are you in Portugal?

Sure. Yeah, I am. I was moved here from Boston. That's where my wife and I were living, where I'd lived for more than 50 years. And I'd been in tech for, you know, for decades. So I was, it was kind of a nutshell of my background. You can read the LinkedIn. A studio art major, like pre-med with studio art, stone sculpture, pre-poverty and pre-welfare. That's what my parents called it, pre-welfare. And then wound up back in the '90s talking my way into— I was really into finance, talked my way into equity trading and fixed income. Wound up as a research associate at Fidelity Capital, kind of like the venture side of Fidelity Investments.

Mm-hmm.

And then went off to business school, did a startup. Started this very specialized consulting firm. Through that, wound up kind of falling into Microsoft in the old office of the CTO, and then spent about, I don't know, over a dozen years there consulting off and on as a part-time employee. Then helped this other woman, this sort of famous woman in the Valley, build and sort of took over her search firm. I was mentored by her, then she retired. She was a very famous Valley consultant. And then Joined early Signal Fire, the number one seed stage fund in the Valley. Back, I knew Chris from forever ago from Boston, and he had moved out to California. The fund was forming and started talking to them in, I don't know, 13, 14, 15. Joined them in 17 as an advisor, and then did that for about six years. It was a blast. It was that the fund grew from you know not a lot. Fund one, I don't know, fifty-five million to billions.

AUM.

It was bananas, like thousand percent. Growth, right? It was crazy.

And so, so you were a venture capitalist, and then what happened?

I'm not— I was not investment side. I was a, I was a portfolio guy. So this is sort of a more detailed discussion about the VC industry.

Yep.

So we were building a talent-first fund, like the first AI quantamental strategy. There's a lot going on there, and part of that was portfolio founder support. And so that was—

So, so again, for, for the audience who may not know what it means to be in charge of the portfolio and founder support. What was, what was your role actually like? What did you do on a day-to-day basis?

Yeah, so it's funny, it's a role that doesn't really exist in Europe, in European VC. Part of that is because AUM is so much smaller.

And AUM, for the people listening, is assets under management. So it's a term for how big the fund actually is, how much money it has to deploy into companies.

Right. And based on the amount of money it manages actively and the management fees it draws, it has money to pay gargantuan salaries. So, in the Valley, where investment partners on investment are at 7-figure salaries, in Europe, they're at a small percentage of that. And in the Valley, it's in general, not just at Signifier, but a lot of the top funds for more than a decade have made it a point to stand out by providing direct support to the teams they invest in. That's the basic idea. So, if you're an early-stage startup, pretty much everything that's on your mind is going to fall into a bucket that has to do with talent, talent-related topics, compensation, hiring, team building, anything human capital. And then over here, everything else is kind of go-to-market, separating people from money, pricing a product, figuring it out. And so the idea was that a fund— And then at growth, there are much more complex issues, back-office operations, shareholder communications, maturity, engineering, or team restructuring and redesign. But early stage, that means that a fund can provide very tactical and strategic hands-on support for an early-stage investment. So instead of just giving a fintech money in a $5 million round, they could actually make an introduction to a large bank for a commercial partnership. And that would be the GTM support. My side was talent. So I was the early-stage guy. So that's really just product and engineering, which is what I've been doing kind of forever. And so, and I have a little website up for my eponymous search firm, but it's a lot of co-founder searches, CTO searches, first heads of engineering, first heads of product, first product hires, the builders, like the people who make the stuff. So people who either come from code or live in that ecosystem and build and design the products with technical depth.

You just mentioned something that triggered something in me. You said the co-founder search.

Yeah.

So let's just talk about that situation. So some person, let's say Susan, has a brilliant idea. You guys want to fund it, or the fund wanted to, the company wanted to fund it. You would then help her find a co-founder because she may not have certain— so she may need to round it out technically, or she may need somebody to be more of a sales and marketing person. Or what were those situations like? And how did you find these co-founders?

Yeah, it's a, it's a much of that. We could talk about that for hours. It's a weird one.

Well, you get 5 minutes.

I'm good at it. I've done some really, some really interesting ones. And I think not everybody is in need of a co-founder, which is one of the first decisions to make. Some people just need founding team members. And so they have to make up, there's like a, that expression, the sort of a come to Jesus meeting, like self-forcing people to self-actualize and assess Their own competencies. For some founders, it's very obvious. We had one founder who was a wildly successful product manager, you know, from his early career, had built some famous products that you've heard of, and then built and sold a couple. And he came in, so kind of like an EIR, but with an idea versus an interest in sitting on the sidelines of investment and doing another flavor of an EIR. So that person is basically saying, Okay, I will take the money from this fund, but I know to build, I need a technical co-founder. I'm not an engineer. And that person knew from prior experiences how they wanted to divide responsibility, ownership, decision-making, strategy, fundraising, like everything. They knew that what they needed was a co-founder to build a company with versus countless other founders, including many I've met here, who don't necessarily need a co-founder. I see a lot of these studio accelerators doing these forced co-founder dating things. Everybody needs a co-founder. to go build a startup. And so they force people to mate and quickly. And like any, it's almost like a VC, early stage VC version of those bad dating reality shows where, you know, people are supposed to quickly mate or something. I don't—

But isn't it, but isn't it also true that the chances of success go up somewhat dramatically if there's more than one founder No, there's no, there's really no data that supports that. There is not. Okay. I thought it was that 2 founders—

And there's also no data that supports youth. The most successful founders tend to be over 40 years old.

Right.

And so there's, there are all these things about the myth of the solo founder being more likely to fail. And it's, I think there are deeper problems. Usually it's, yeah, I've seen a lot of really bad founding team formations.

Right.

Including a bunch since I moved here where it's just obvious people are getting really bad advice on what they need to do.

So, if somebody's sitting in that situation, right? If somebody listening to this or watching this today is in an accelerator program or is in a situation where they feel like they're getting a co-founder forced upon them, what's some advice that we can give them? How do we get them to Maybe think twice before accepting the common wisdom, which apparently is not so common.

I— it's a hard one. I— investors are— it depends where they are. I think you're in Europe. I think there's so much risk aversion that people think if you're, if you're already risk averse, then at least if there are more people involved, you're— it's like you're amortizing the risk over the number of co-founders. You're reducing the odds of failure by maybe increasing the team size a little bit. Like 4 mediocre people working on a bad idea will improve the odds of success of that bad idea versus just the original 2. And so you see people adding like a sales hire to a team that— it's just some weird decisions.

Yeah, I, I've, I've speak— I've spoken to, to solo founders over the last couple of years that are quote unquote negotiating with somebody to join their their, their idea or join their business if they're building it, right? And so oftentimes they are in this situation of how much equity should I give, you know, how should I structure it, what kind of title should I give them? There's all these sort of tactical questions in my mind, right? And so I try to get them back to the first question is, well, what is it that you actually need to succeed?

Right, right. Literally, like, what— that's usually my question. Like, with people, they get obsessed with these bad advice pipelines. So they've— the locus of control is a title versus a function. For example, you need a head of engineering, you need a CTO, when the statement or comment should be, what's wrong with engineering? Like, what's happening?

Yeah.

You're a technical founder. Is it the amount of time you have to manage people? So what you need is just leverage for task management. And then you figure out that could be a team lead, that could be a senior IC who writes production code instead of an eng manager. You don't need a head of engineering, you don't need a CTO, you don't need to give up that equity or that allocation. Yeah, it's hard. I think people, it's easier for people to just step back. I would say with those people, when people offer advice, this is like, this is what you need, ask them, A, exactly why, where they've seen that work before, like an evidence-based approach. You're offering this advice, where have you seen that hire work before in a similar situation? And I think around that, you can find out very quickly that the people offering that advice haven't really seen that. It's like academic. It's like conjecture.

Right.

And so, based on something they've seen or anecdotally something they read in a magazine about team structure, they have some advice about adding some technical talent or you need a product hire or, you know, you need some GTM support.

My experience is also typically people building companies typically need less people, honestly, in the beginning, need less complexity, need less structure, and they spend a lot of time trying to create these new relationships and set up how they're going to run their company rather than figuring out, is what we're doing actually solving the problem that we believe our customers are having, right? Or potential customers.

Right.

So, the advice that I also, in addition to what you're mentioning, give is saying, well, kind of trust your gut. If something's wrong, if you feel like somebody's giving you advice to go out and find a co-founder, And if you don't really feel that that's what you need to be doing, then don't.

Right. Then don't do it. Or you can do what you mentioned briefly, which is bolting people on, which is kind of— it's like founding team versus co-founder. To me, a co-founder is one thing. It's the equal co-founder with equal voting rights in an equal distribution of shares. And that's a co-founder. Anything else is some other flavor of distribution of equity. And so, you have a founding team, you have co-founders, but they're really founding team members.

Right.

And depending on that equity, they look more and more like employees. Somewhere around that 5% allocation is where you'll see, in my experience, that's somewhere 4% to 6%, that range. That's where I believe early-stage investors should look at it like, oh, we're backing somebody in. Almost like a founding team member. Above that, you might see people backed in at 10% on something that's already funded. So I was involved in something like that where we— you're— so it's not uncommon to give massive de-risked incentives to people. So a company has been formed, things are underway, maybe the product's not in market, but something's been de-risked, like funding has already been received. And I've worked on several projects like that where we're backing somebody in. to fill a critical role, a founding team member role. And then really it's more like not a co-founder, it's sort of a co-founder. It's a gargantuan allocation, but without parity, without a lack of parity across the—

And that's, I think that's an extremely important point. The number of times I've seen 2 people either start a business together or one starting it and the other come in and then do it at parity, right? 50-50 equal rights. And then not having an agreement in place that actually resolves dispute between the two.

Right.

And so, like, the company gets stuck even after a couple of years of successful operations. It gets stuck because now the two co-founders can't see eye to eye and there's not a proper agreement in place to say, okay, what happens if I, Peter, say we should do A and I, David, say we should do B, but we have equal rights, right?

Right.

So, that's a whole— that's a whole other topic. Of the co-founder agreement or the shareholder agreement, essentially, right? Right.

It leads to these really horrific dynamics. I mean, the overwhelming majority of startups fail just because of team dynamics. It isn't because the product idea is bad. It could have been a bad idea. There are tons of bad ideas, but I mean, the teams are just so bad. And if you think about the way the Valley historically worked, you had a lot of really young, inexperienced people, bright, bright, fast-moving career trajectories, but otherwise emotionally, you know, young people intellectually and emotionally still in their 20s, all of a sudden, you know, given a lot of capital and a lot of management responsibility. The majority of them have never really managed living people before. And so that's something people forget. And so a lot of times when I was working with— that's my whole life was early stage, like -1 to 0 and 0 to 1. So studio co-founders, accelerators, EIRs, early stage, all the way through like growth, some growth stage stuff because the portfolio, but that is, yeah, that's like this bad, it's like this bad, this bad advice stream that I've— sorry, I lost train of thought there, but I think there are some.

Yeah.

There are some serious problems in early stage team formation advice and incentive structures and responsibilities. Like the example I just gave, typically people around that founder will say things like, you need to throw engineering leadership at this problem. And the conversation should have been about the processes used to build the product, what was slowing the company down, like what was missing. And I just feel like— People get excited about early-stage team building because the equity is a power— can be a powerful tool to attract people. But it's—

But also for the people in the business, right? So, from the person coming from the outside, it feels very attractive to join early stage. But for the person on the inside, he or she is like overwhelmed with all these questions where they don't feel super comfortable and at home, for example, in engineering. And then they think, oh, let me bring in somebody. Because that will solve my problem because they will know.

Right.

Meanwhile, it introduces— maybe they don't know as well as you think because you actually haven't gotten the experience working with them.

Right.

Second, how are you guys going to work together and how's that going to work out? And what about all the other challenges and issues you're having? So, to me, it often starts with actually having a good sense of priority in terms of what is it we need to do. And what I see oftentimes is startups overspend Literally and figuratively, on marketing and talent, or the time to attract talent versus on getting the product market fit absolutely unequivocally right, and then take it from there.

Right, right, right. They don't define their responsibility. So people form companies as co-founders; they don't clearly define what they're responsible for, which leads to arguing and fighting who controls fundraising strategy, who controls investor updates, or Final votes on hiring, but it's, yeah, it's, it's, it can be frustrating watching it over here is, can be maddening because you see some good ideas and teams and the velocity of capital is so slow.

It's, yeah. So let's talk about that a little bit. So what are you doing? What are you doing over here or down there in Portugal? How do you spend your days these days?

Yeah. So I've been doing some consulting for startups in the States that I still know. So meaning like for income and then over here, I've created a nonprofit. which is really me and doing a lot of stuff through Startup Lisboa and some other nonprofits over here. But it's kind of like VC, like an open VC platform. So the idea was that the kind of support I was providing to founders and the kind that you see in the Valley, just in general, at top early-stage funds, it requires access or privilege. It means that you know the fund, you have received money from the fund or have a friend at the fund. Like founders I helped because I have somebody, we knew people. And so I spent a lot of time with founders around the fund, just outside of our investment portfolio, because they were just friends of the fund. And I think there is this size and scale problem in Europe. So the idea here was to make those kinds of connections, provide that kind of support with a lot of experience in the Valley, in the front rows of early stage to founders here. dealing with similar issues. The problem in really, not just in Portugal, but in Europe is there's no Silicon Valley. There's never been one. And so there is, separate from the lack of angel investors and all these other problems, there's a giant missing bench of executive leadership that would train, mentor, advise, coach, or otherwise develop this army of talent across Europe. So you find a lot of these talented young builders coming from product and engineering, Going to build startups, raising small amounts of money in Europe, and then they go to their VCs. But in Europe, unlike the Valley, the VCs are mostly former McKinsey or finance; they aren't people who built products. And so, if you go to them and say, "Hey, do you know anybody at Airtable who can talk to me about these self-service APIs that they built this product?" That was something I would do. I'd either know that person or go find that person, or you know, like. But over here, that kind of resource doesn't exist. Those networks don't exist. So the idea was to become like a conduit like that, to start connecting founders to resource human capital in the Valley. And then, you know, and then help them myself with whatever sort of all sorts of weird stuff I've been doing.

And how is it going so far? It's still early days, right?

Yeah, it's going well. We had one acquisition offer, one team. I got funded. Another brought some commercial revenue to save them. They were going bankrupt. So I found them some contract build revenue. Yeah, like a few, a good handful of wins.

Yeah.

Like 200. I also, in the good but bad, helped a couple of founders terminate co-founder relationships and kind of coached them through, which is difficult. These were startups that had also already raised money. So It was interesting because it was a good example of the investors locally not really having been through that exercise before. Right. Like that's a, it's easy to see when people should break up, but—

But hard to do.

Yeah.

And especially if you're as an investor, you're probably also worrying about, okay, how do we make the right decision here? Or what happens if co-founder number 1 leaves to the team, to the dynamics, to the development of the product, to the trajectory of the company, right? I mean, it's, I think it's pretty obvious if the company's dying. But if the company is relatively successful, but not as successful as it otherwise could be, it's one of those things, right? You know, things are going pretty well.

And— Right.

But we know that this matchup at some point is going to break. So how do we fix it before it does? And it's either through co-founder coaching, kind of stuff that I do, or getting, helping people getting a healthy divorce, right? Which is also something I've been involved in in the past.

Right, right. It's painful. Yeah, there's a lot of— there are a lot of problems, and I think I've seen all of them. I've seen these movies like 1,000 times.

Right.

But there's a lot of stuff in early-stage team building that's just thorny and difficult, including early leadership hiring. Basically what I was talking about, sort of like younger, less experienced people suddenly being required to build and grow executive teams, like at Series B, to hire very seriously accomplished people who in turn require their own form of mentoring and learning that might not exist there at that company.

So do you imagine you continuing to doing this to, to, to build a nonprofit, or, or is this a step to doing something else, or somebody else taking it over? You know, what is— what do the next couple of years look like for you?

No, I think— sorry, I got the leg cramp. I think I'll keep doing this I've been doing it part-time since I got here, so I'll probably continue to do it this way. So I do like a quarterly workshop with Startup Lisboa with each cohort on early-stage team composition and building, and then all sorts of open mentoring through them, like through scheduling in Portugal.

Right.

And I think Portugal really needs it. I think what I'll probably do is disengage more and more, which I have been, from the Valley, separate from people I know, which is a lot of people. I feel like that, like, Those people generally need less help.

Yep.

Their their investors are well equipped to do stuff outside of people who are reaching out like for specific advice. I mean, like the hours, the lifestyle, like overlapping with California from Europe is is miserable.

The there's there's one comment that you made that I think some of our listeners might find slightly controversial. So of course, I'm going to bring it up again, which is that the the VC community in Europe is populated mostly by financials. financial people or ex-McKinsey consultants.

Yes, it is.

Don't, don't you think that we, though, in the last, let's say, 10 years have seen companies be so successful both in Berlin and— or the Spotifys of the world or the Klanas or, or other, you know, tech companies or that have spun out angels that are now also starting to create larger funds? Don't you think that we're going to see more sort of builders There should be more, there should be, right?

There should be like this absolute deluge, right? Of, of early stage investors, emerging managers, all this wealth was created. And there are tons of these early stage funds, but it doesn't look like they're moving capital. So what it looks like is a lot of talking, a lot of people talking at a lot of get-togethers and social events, a lot of sort of rooftop high-fiving.

Yeah.

About the startup scene, the startup ecosystem. I think the volume of accelerators and studios is a good example of this. I've been in some of their WhatsApps and I've read their threads in great detail for many months. I don't really feel like they're paying attention to the part where you have to find people who can build things. All of the studio discussions are about finance, back office operations, distribution of equity, financial management strategies, LP and fundraising. Nowhere will you see discussions of who, who has an idea. What is the idea?

I am happy that such an experienced investor and operator says this because, you know, I, I'm not that—

I'm not an experienced investor. I wasn't in core investment.

Well, you were sitting, you were sitting pretty darn close to, you know, I sat on every Monday investment meeting for over 5 years.

We were an open, transparent fund, so I I'd say I learned more in 5 years of those Monday Invests, just those Mondays, than I did in business school about how an early-stage team and growth team tears the— just tears apart what looks interesting that made it to an investment team meeting. So, it's obviously good.

Yeah.

But why it— why they pass. And I think when you look at the backgrounds of the people who built and who then go on to make those kinds of investment decisions in the Valley, you'll find more people who have built stuff and made stuff making decisions about investing than in Europe. In Europe, on average, you can just go— don't believe me, just go look at websites of VCs in Europe and go look at the backgrounds of the partners and find me a former, like, product executive from a Spotify working on early-stage consumer. You know what I mean? Like, there's just so, so few of them. And you can just throw a dart in the Valley, they're like everywhere. People are, I think it's different. It's like a risk-on forever.

But isn't that, isn't that why also that many of the startups in Europe that actually become the ones that we know about and read about are funded by American funds?

Yeah, because it's, it's that you won't really see what's kind of like the Europe versus the US now is kind of the way it used to be like East Coast, West Coast.

Yep.

And so Boston was risk-averse. Boston was where— Boston was some big fundamental distributed systems bets, right? Digital Computer, Polaroid, Wang. So hardware, things like that. The West Coast was where people just dreamed up shit, right? That was where you come up with a Snapchat, you know, and make a huge bet on a social media. You won't see a company like Google.

David, we could go on about this because I didn't realize this when we spoke last, but we agree on so many fronts. I was about to say, you know, the accelerator is the new black, right? Everybody has one.

Right. It's all— they're awful.

Kind of like other things where it kind of becomes trendy to do something and people, you know, announce that they're part of 4 different accelerators at the same time. And I'm like, what now? Right.

And what's worse is the degree to which it's been so— like entrepreneurship, it's in and of itself. To me, it's incredibly important. And now that I'm in Europe, in a country that has a particularly low average household income and minimum wage, where entrepreneurship is really important in this country, the idea that you can escape these wage structures by building your own business, creating your own opportunity, it's, it's almost been oversold. And so now it's been oversold to an entire generation that believes everybody has to be a founder.

Yeah.

It's like, I, you know, hey, I did this project at work. I manage a project using this tool called Asana. Um, I have an idea for a startup that does project management software. And so, and so it's like a feature, not a product. I— who knows? But I think you wind up with these people who either, A, believe they have to go pursue these studio accelerator opportunities instead of just their own ideas. They don't even need—

Yeah.

These studios are offering nothing. They're giving them peanuts. They're charging back fees. They're providing little support. It's, you know, it's a mixed bag. Probably I'd say maybe like 10% are probably really good.

Yeah.

If I had to put like a hard guess on it. But I think that is, that's hard. And I think there's also a lot of opportunity in tech that's oversold, what I'd call deep tech. There's a lot of lightweight opportunity that's not VC scale that I think that's what's of interest to me, like at Bus Factor, my nonprofit, is people that I've met here, separate from the software startups I've spent a lot of time with, there are tons of people working on what I'd call like scalable lifestyle businesses, right? So tech-enabled services, digitization in traditional industry. So it could be born of consulting or a lightweight product. And to me, those companies could never raise VC, but they could build for really interesting outcomes.

And that's another good point. Not everybody needs to raise. David, we, we have to round it off here. This was fascinating. And for the people listening, we will, in the show notes on Spotify or on YouTube where you might be watching this, put a link to David and to his nonprofit Bus Factor and anything else we can come up with that would be helpful for you to, to learn more about the topics that we discussed today. David, thank you so much for joining me.

Yeah, thanks for having me.

This was another episode of the Whole Human Podcast. If you have Any topics, any guests, any questions, find me. Should be pretty easy, right? Peter Sorgenfrei. There's not a lot of us out there. And let me know, and I will be happy to cover them in a future episode. Thanks so much.