The Art of Successful ‘Failure’: Founders who made big bucks after exiting startups they founded

Digging into startups history, there are a few names in India and across the globe that surface, where founders exited the companies which they once founded and, yes, pocketed some handsome amount. There were a variety of reasons why they left and not all exits led to tragedies like WeWork but yes, their exit was definitely would be counted as “failures” for their respective startups. Here goes the list:

Founders: Brian Acton and Jan Koum

Year of Exit: Brian (2017) and Jan (2018)

Reason for Exit: Brian had several disagreements with Mark Zuckerberg while Jan’s exit was also a result of not so cordial relationship with Zuckerberg and Facebook COO Sheryl Sandberg. 

The fate of The Startup after founders exit: Facebook still owns WhatsApp and continues to grow it as a platform but it did make adjustments to its terms of service unifying profiles of its users across products for better data mining and targeted advertising

Founders earned: According to Forbes estimates, Koum held about 45 percent stake in the company, while Acton's stake was over 20 percent which as per 2014 was close to $6.8 billion for Jan and around $3 billion for Acton.

The most talked deal of the decade in the field of tech was when Facebook picked up WhatsApp for a whopping sum of $19 billion, $3 billion of which consisted of Facebook stock granted to both Koum and Acton. While all looked great, soon cracks started to emerge between the Facebook management the WhatsApp founders. While the actual exit reasons were unknown various news reports suggested that the WhatsApp founders had issues with Facebook’s approach to data privacy and encryption. Both founders, Acton and Koum, who are devout privacy advocates were not happy with Facebook’s approach of unifying profiles across its products that could be used for data mining and ad targeting, as well as a recommendation system which resulted in their exit leaving behind their founded startup.

Founders: Travis Kalanick (sacked as CEO but remained a shareholder)

Year of Exit: 2017

Reason for exit: Kalanick was forced to leave Uber’s CEO seat by the venture capitalist onboard due to misconduct charges, although he remained the largest shareholder of the company.

The fate of the startup after founder’s exit: With Kalanick exit from the top seat, Uber continued to grow as a company. In May 2019, Uber went public with an IPO at $45 a share raising a minimum of $8.1 billion achieving an initial market cap of roughly $70 billion.

Founders earned: As per pre-IPO shareholding Kalanick owned 8.6 percent of the company’s pre-IPO shares valued at roughly $6.02 billion, assuming an initial market cap of $70 billion.

Travis Kalanick has been an entrepreneur all his life. Before Uber, he was the co-founder of Scour, a peer-to-peer file sharing application and Red Swoosh, a peer-to-peer content delivery network. But what got Travis the real fame was his startup Uber, a transportation network company which he founded with Garrett Camp in 2009. Kalanick held the position of CEO since inception to 2017 where the company grew multi-fold. Although in 2017, Kalanick was accused of misconduct when a former employee published a blog post unfolding that the company had widespread issues with respect to gender discrimination and sexual harassment. This incident triggered venture capitalists and investors on the board of Uber forcing Kalanick to move out of the company’s active operations and day-to-day activities.

Founders: Kunal Shah

Year of exit: 2015

Reason for exit: Sold Freecharge.com to Snapdeal.com

The fate of the Startup after the founder’s exit: After the founder’s exit, Freecharge changed a couple of hands finally landing with Axis Bank and has launched Digital Credit Cards.

Founders earned: In the year 2015, Kunal Shah’s net worth was reported to be at $1.3 billion assuming most of it coming from the Freecharge.com sale to Snapdeal for a whopping $400 million.

Freecharge was founded by Kunal Shah and Sandeep Tandon in August 2010 where it was a digital marketplace that allowed people to pay their bills via internet and provided them with partner brand coupons thus making their payment effectively free of charge. While the company was seed-funded by Tandon Group and Sequoia Capital in 2010 its major funding came in 2011 when Sequoia Capital pumped in Rs 200 million. The company raised a couple of more rounds of funding finally being acquired by Snapdeal in 2015 where the funders exited the venture -- with spending less than 5 years in the startup they founded

Founders: Sachin and Binny Bansal

Year of exit: 2018

Reason for exit: Sold controlling stake to Walmart

The fate of the startup after founders’ exit: Flipkart continues to operate as a wholly owned subsidiary of Walmart.

Founders earned: Sachin and Binny Bansal both held around 5 percent of the company when Flipkart was acquired by Walmart. While news reports suggested Sachin cashing out his stake for an estimated $800 million, while Binny retaining his stake of around $850 million.

In 2018, India saw one of its largest deals in the e-commerce space when US retail chain Walmart won a competitive bidding war against Amazon to acquire a majority stake in Flipkart for $15 billion. This gave Walmart a controlling stake of 77 percent in Flipkart. This acquisition although didn’t come as a cakewalk as Sachin moved out of the company by selling his stake and signing a non-compete clause, while Binny Bansal resigned from the company after being investigated on “allegation of serious personal misconduct.”

While exiting businesses is a definite art that most startup founders, especially in India, are slowly learning, exiting too early and making big bucks is not something that looks healthy for the ecosystem. Every startup starts with a vision and an organisation shapes up around it. It attracts tonnes of stakeholders who foresee their future with the company and when these early exits happen, it leaves behind a vacuum that the acquirers often fail to fulfil. This leads to layoffs and pivoting of the business model, which often cripple innovation and other relationships that the startup was known for.

While none of the stakeholders are wrong in their capacities, the ecosystem does get contaminated by the mad rush behind money. Just imagine what if an organisation that has survived for more than a century would be a part of this mad rush for exit… I leave it up to your imagination.