As The Notorious B.I.G. argues, more isn’t always better! It’s easy to understand how this nugget of wisdom can be helpful in everyday life, and by extension in the art and science of building companies. But is this true when we talk about co-founders? Countless pieces of advice from the Valley’s most prominent voices prefer to take the opposite stand and preach the natural benefits of having at least one other co-founder, the miracle drug. Benefits include, but not reduced to, complementary expertise/background, having a friend to share burnouts with, additional content for the “team” slide of your pitch deck, and making Paul Graham happy.
The success rate of solo-preneurs vs teams of co-founders deserves a better approach, a data-driven approach. Let’s have a look at the data in PreSeries and see for ourselves. We used the PreSeries Analyst Platform to filter the PreSeries’ dataset of 385K+ companies. We kept only the companies founded after January 1st 2000 (before this year the databases does not contain enough unsuccessful companies to compare with) and that achieved a successful exit (Aquisition, Acqui-hire or IPO) or were closed. We will first have a look at the data from a general perspective before diving into exits and closures based on the companies’ last rounds: Seed, Series A, B, or C.
Overall, it seems that in proportions, the more co-founders, the more likely they are to achieve a successful Exit. 27% chances with 5 or more co-founders against 13% for solo-founders. Startup closures still remain very high in general with most of them happening with solo-founders (9973 in our sample) or teams of 2 co-founders (7958 in our sample), they are the two most common scenarios.
Comparison by funding rounds
Not all companies are created equal and are meant to join the heavyweight division. Startups come in all shapes and sizes, and grouping them by the last funding round they achieved is a helpful way to avoid mixing the big and the small ones.
When looking at the success/failure ratios of early-stage startups that successfully closed a Seed round, we notice that the rate of failure is very high (the highest of all when compared to the other stages). But having more co-founders still increases the likelihood of a successful Exit, 6% for solo-founders against 15% for teams of 5 or more co-founders. It is worth noting that the seed stage is where most startups end up shutting down with over 14k closures registered against almost 5k after Series A, 2k after Series B, and 1k after Series C.
Advancing to further rounds seems to be a good sign of resilience, by weeding out startups unable or unwilling to raise more funds it gives more place for successful startups to shine under the spotlight. The first indicator is the overall number of startups declining. With a total of 26k companies in our analyses, around 16k exited or closed after a seed round, 6k after a Series A, 3k after a Series B, and 1k after Series C. At the same time the likelihood of achieving success increases considerably. For solo-founder, 6% after a Seed round, 16% after a Series A, 22% after a Series B, and 27% after a Series C. There is one notable difference for companies exiting after a Series C, teams of 3 co-founders have more success (52%) than teams of 4 (43%) and teams of 2 (38%). Furthermore, the trend seems to reverse for teams of 5 or more co-founders after a Series B: chances of success are 15% after a Seed round, 36% after a Series A, 46% after a Series B, and then drop to 26% after a Series C.
In a nutshell, choosing a co-founder is like a marriage, do it for the right reasons, not because everybody does it. There are success cases in all scenarios, the most frequent being 1 – 3 co-founders, but being able to achieve follow-up rounds makes all the difference and having more co-founder (stronger team) looks like the best option for resilience. One possible explanation here is that teams of 2 or more co-founders may be better at making decisions (e.g. a technical co-founder and a sales/business person at the minimum). Solo founders still remain the most represented group at every stage. Being surrounded by a great group of early employees instead of having co-founders is one way to take advantage of the diversity benefits while keeping the cap table and strategic decision making easier.