As my colleague pointed out in this article several years ago, listed founder-led companies have historically outperformed the rest of the market by some distance.
There are a number of factors that are potentially behind this phenomenon, but I think Ben Horowitz from venture capital firm Andreessen Horowitz sums it up best.
When explaining why Andreessen Horowitz prefers to invest in companies that are founder-led, Mr Horowitz said:
“Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant. They instinctively know that big product cycles come from investment and that even the biggest product cycles will eventually fade.”
Mr Horowitz added: “Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance.”
This is seen as a big negative, as it takes time to innovate.
“Investments in innovation do not pay out in the current quarter. Typically, they don’t even pay out in the current year. If you care about your bonus this year, you are directly incented not to make investments in new inventions as you will incur the expense, but reap no profits,” he explained.
Given the success that Andreessen Horowitz has had investing in founder-led companies, it’s hard to argue against this.
The venture capital firm made early investments in the likes of Facebook, Slack, Instagram, and Airbnb.
Are there founder-led companies on the ASX?
There are actually a decent number of founder-led companies on the Australian share market for investors to choose from.
I like the look of Kogan.com Ltd (ASX: KGN) as a long term investment. The ecommerce company, which is led by Ruslan Kogan, looks like a big winner from the shift to online shopping.
Another option to consider is Dicker Data Ltd (ASX: DDR). The leading computer hardware and software company was founded by David Dicker and Fiona Brown. It has been going from strength to strength in recent years and shows no sign of stopping. Mr Dicker remains the company’s CEO, whereas Brown sits on the board.
A final founder-led company which I would invest in is ResMed Inc. (ASX: RMD). The sleep treatment focused medical device company has been an exceptionally strong performer over the last decade thanks to the growing demand for its products and software.
ResMed founder Peter Farrell is the Chairman of the company and his son, Mick Farrell, has been the Chief Executive Officer since 2013.
As well as Dicker Data, Kogan, and ResMed, I think the five recommendations named below could be market beaters over the long term…
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More reading
- The 3 ASX tech stocks that helped this fund manager outperform in May
- ASX 200 investor in your 40s? 3 shares to buy now
- These ASX shares just zoomed to multi-year highs
- Buy these ASX growth shares for monster returns
- Real wealth from 3 roaring mid caps in May
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Kogan.com ltd. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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