View from Seattle: The Founding Team Phenomenon

By: William Carleton, Counselor @ Law, and volunteer chair of ACA Public Policy Advisory Council

Don't look now, but entire development teams, with significant experience (2-3 years+) working together, are leaving giant tech companies to found startups.

If 20 years ago the archetype was two renegades in a garage with an idea and the will to figure stuff out, today's paradigm is six or seven developers and a political savvy business leader (or two, or more) who have learned to trust one another and work effectively as a unit. All courtesy of the experience of shipping products for a well funded, publicly traded company.

Are there potential impediments to you and your favorite colleagues following this pattern? No question. Invariably your team, too, will have signed IP assignments, confidentiality clauses, and restrictive covenants (noncompete, nonsolicitation provisions) that protect your employer and channel what (and who) your new startup may and may not pursue. On top of that, the law protects the trade secrets of your employer, and rightly imposes on you a duty of loyalty.

But with proper planning, even non-competes are navigable.

Often, the teams are able to scope what they want to do outside the contours of the BigCo noncompetes as written. Sometimes, the giant has its act together enough to recognize a synergy: perhaps the new startup will build products or services that validate a new BigCo platform.

Over the winter holidays, a friend asked me, what explains this phenomenon?

An economist or sociologist might have answers on a macro level. And to a large degree, the reasons are the same that have always motivated entrepreneurs. But here are patterns I see, arguably unique to the founding team phenomenon:

  • Members of the founding team, typically ranging in age from the mid-20s to the mid 40s, have been well paid for some years. So they have savings and can afford to work without a paycheck for a year or two.
  • Many have spouses who continue to hold down six-figure jobs with established tech sector employers, decreasing financial stress on households.
  • People are having children later. Much later, from what I can tell.
  • Big companies are writing noncompetes that are more precise, better tailored to the potential harm.
  • People by nature are as loyal as they ever were, but today they're not naive about corporate politics.

I should add that this phenomenon bodes well for early stage investors: yet more risk is sucked out of the deal, when, even prior to a seed round, a proven, core team is already assembled and hard at work.

But get in the note or SAFE round, if there is one, if you can. These teams are typically funded quickly, and their priced rounds are oversubscribed.