Success = Co-founder vs. Failure = "Early Employee"

Have you ever noticed, that, after the fact, successful companies have many "co-founders", while failed startups have only "early employees".

I first noticed this phenomenon when I was a VC, back in the early/mid-2000's.   PayPal had just completed the first "mega" acquisition of the post-dot.com-nuclear winter (the price was ~$1.5 Billion — pocket change, it seems, in today's frothy M&A environment). 

As typically happens after acquisitions like this, the PayPal employees began to trickle out of eBay over the next year or so.  This occurred for all of the usual reasons that plague post-acquisition integration:  financial reasons (becoming fully vested, etc.), as well as a mismatch between the cultures of the two companies that began to wear on both sides.

In this diaspora, some went into venture capital, some "retired" and, among a number of other pursuits, some went on to start new companies.

As these startups began to pitch the VC community, a number of them came through my firm.  I began to notice that anyone who had worked at PayPal in the first year of its existence identified themselves as a "Co-founder".  Through coincidence, I happen to know a lot about the actual facts of the founding of PayPal (actually, two separate companies that, after a year or so, merged to become the "PayPal" that we all remember today). 

So, I knew that most of the claimants were, in the charitable cases, puffing, and, in some cases, simply mis-representing the facts.  The human desire to bask in reflected glory is deep and longstanding, but it always lowered my estimation of the person who falsely made the claim.  Normally, it was enough of a reason for me to pass, and move on to the next company.

Surprisingly to many people, and unlike seemingly similar terms, such as "Chairman", "CEO", "Board Member", "VP Marketing", the term "Founder" has no legal significance.  It's not mentioned in any corporation law or regulation, and no legal penalty attaches to its mis-use.  No legal obligations flow from calling oneself a founder (unlike the legal job categories listed above).  So, naturally, one would expect "title-inflation" to occur here — and it does.

The history of Facebook is a more recent object lesson in this phenomenon.

The caution offered here is that Silicon Valley, for better or worse, is a small town, and the early histories of many companies, especially the successful ones, are well-known.  It doesn't help, and can harm, your chances of getting financed by falsely claiming co-founder status.