Forget What They Told You About Building Startup Teams. Look at Data Instead
Contrary to popular belief, historical data suggests that larger founding teams have better chances to build successful startups.
One of the most widespread rules of thumb in the venture industry is about the number of startup founders. It implies that an optimal number of founders is 2 or 3, startups with a solo founder are OK-ish, startups with 5 or more founders are rotten. Is this belief based on a solid foundation? It’s not. CrunchBase data indicates the opposite: the more founders a startup has, the better its chances are to raise money and have an exit.
CrunchBase contains information about 39,465 companies with two founders, 12.5% of them raised over $10 Mln. At the same time, there are 4,877 companies with 4 founders, 20.3% of which raised over $10 Mln. The chart below demonstrates an overall trend: “more founders” means “better chances to raise money”, but large founding teams are rare.
Note: This article is based on CrunchBase data, retrieved on September 10, 2019. As CrunchBase gets frequent updates, you will see slightly different numbers when you follow the links above.
There is a similar picture when it comes to exits.
The “large team” effect becomes super vivid when it comes to valuations: 1.5% of 5-founder teams created unicorns, in contrast with only 0.26% of unicorns among 1-founder teams.
From the perspective of an academic mathematician, this analysis might seem shallow and very basic. But from the perspective of a practitioner, it has enough data to conclude that larger teams have better chances to build successful startups. So, why does the industry seem to think differently?
Only one in 70 companies has 5 or more founders. During the first decades of the VC era, no fund was large enough to collect statistically significant data about large teams’ performance. Instead, investors built their opinion on the subject based on theoretical assumptions. And then it just became a widespread bias that most people internalized as an “obvious” truth.
One can draw several practical conclusions from this post. The most important one:
If you are an entrepreneur thinking about launching a startup, try to get more cofounders onboard.
And, of course:
Never blindly accept a common belief without challenging it and validating the underlying data.
Good luck and may the venture force be with you!
P.S. Interestingly enough, a few years ago a similar analysis of CrunchBase data led its author to conclude that “you don’t actually need a co-founder” to launch a startup. But he missed the final step and neither answered nor even asked a question about the correlation between the founding team’s size and startup’s chances for success. And, I believe we are actually talking about causation here, not just a correlation.