Is investing in companies where the founder is still the boss a smart move?

Founder-led companies outperform the rest of the stock market on average. Here's what makes the difference.

If you're only investing in a handful of shares, there's a stong chance you may be left disappointed. Of the thousands of companies listed on the US stock exchange over the past century, just 4% yielded almost all of the returns. The remaining 96% failed to outperform short-term government bonds (source).

However, the chances of having a winner in your portfolio are greater if the company is run by its founder. Research by Bain & Company indicates such founder-led companies outperformed their counterparts by a factor of 2.1 in total return (price gain and dividends) between 2015 and 2025 (source).

The difference is even more striking in the tech sector, as founder-led tech companies performed 2.6 times better than the rest between 2015 and 2025. And even if you don't include the tech sector, founder-led companies still perform 1.4 times better than their competitors (source). Older research also points in the same direction. Between 1993 and 2002, founder-led companies generated an annual return of 4.4% more than companies without a founder at the helm on average (source).

The power of 'skin in the game'

There are various reasons why companies who have their founder as CEO perform better. The most important one is that much of the founders' personal assets are in the company. Jensen Huang, for example, owns around 3.5% of Nvidia – a stake of more than $170 billion (source), Mark Zuckerberg controls Meta through a special share structure and has a personal stake worth tens of billions (source), and Larry Ellison owns more than 40% of Oracle (source).

This creates a different kind of incentive than with a CEO brought in with bonuses and share options. For a founder, the company is their life's work. Their name – and their reputation – depend on it.

This is in stark contrast with CEOs appointed to their positions, who hold less than a fifth of the shares typically held by founders on average (source). The alignment of interests is a fundamental difference in founder-led companies. While an appointed CEO might think more in terms of five to ten years, a founder might think in decades.

A long-term vision as a strategic weapon

The founders' philosophy translates into decisions that professional managers rarely make. Jeff Bezos, for example, ploughed investment into Amazon Web Services for years, while its main business barely returned a profit. Investors stayed away, but Bezos carried on. Today, AWS is the profit machine that supports Amazon (although Bezos is no longer the CEO of Amazon).

In the 2000s, Jensen Huang invested heavily in CUDA, a programming platform that eventually became the backbone of the AI revolution. An appointed CEO faced with Wall Street's quarterly pressure would probably have reduced such a long-term investment.

Mark Zuckerberg put tens of billions into the metaverse, to investors' displeasure. While that project hasn't paid off yet, the attention he then paid to AI has. This kind of long-term thinking requires someone who isn't afraid of losing their position. Companies run by their founder are also more innovative, generating 31% more patents on average (source).

The moral authority to make difficult choices

Another element also comes into play: the founder's moral authority. When a founder asks their team to make sacrifices or consign a popular project to the scrapheap, the question carries a different weight. The team has seen how the founder has staked their own house – be it figuratively or literally – on the success of the company. This creates loyalty and an ownership culture that can be hard to replicate with an appointed CEO.

The other side of the coin – when the founder becomes a risk

The same qualities that are founders' strengths can also make them a risk. Elon Musk is a prime example of both sides of the same coin. As a co-founder of Tesla, he has created equity value that challenges any benchmark – but many see his personal image as a risk.

This 'key man risk' – the danger that the company becomes intrinsically linked to one individual – is real. Super-voting share structures, where founders retain disproportionate control through special shares, can facilitate decisions that circumvent the usual checks and balances.

Finally, there is the issue of succession. Who will succeed Jensen Huang? Or Mark Zuckerberg? The answer to this question impacts how the stock market reacts to potential departures. Anyone who invests in a founder-led company must also think about the day when the founder is no longer at the helm.

Conclusion

The evidence is compelling. On average, founder-led companies perform better thanks to a combination of skin in the game, long-term thinking and a corporate culture that is hard to replicate.

Yet 'average' is never the whole story. Not every founder is a Jensen Huang or Jeff Bezos. Some founders cling on to outdated ideas for too long, block succession pathways, or intertwine their personal destiny to the company to the point that they become an anchor rather than a driving force.

For long-term investors, however, it represents a meaningful consideration in the investment process. A founder who has tied their own fortune to their company takes a different approach to a manager who achieves their bonus targets and then moves the goalposts.

You should always combine this filter with an in-depth analysis of the fundamentals, valuation and risk profile. What's more, you should always remember that diversification remains the cornerstone of a solid investment portfolio.

Before investing, be sure to read up on the key features and risks of financial instruments.

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