
Subsidiary for startups - danielzenchang
My cofounders want to establish a subsidiary company to spin off a new service.  The only reason for doing that is to satisfy existing investors because we used their money to build the new service.  I want more opinion about this issue... Personally, I don&#x27;t think that is a good idea because the subsidiary will be controlled by the parent company (to let investors to have a cut of it) which might affect followings;
1. No investor is willing to invest that kinda subsidiary company especially the parent company is only Pre-A without a clear growth.
2. Early employees might have less motivation for this subsidiary startup. (because it loses part of the fun part of being a startup: doing the way you want)<p>We should either stay at the same startup or spin off an independent startup but not to make a subsidiary.  Existing investors can still have better term to invest in the new startup.  Anyway, I am trying to let members know this isn&#x27;t a good idea but it seems the knowledge I have isn&#x27;t enough for them...<p>Any suggestions?<p>Thanks!
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brudgers
From the description I see two orthogonal issues.

1\. Is the new business model better from a business standpoint than the
current idea?

If yes, forget about a subsidiary and pivot all resources to the new business
model. How that is done depends on the second issue:

2\. Are the investors suitable for the new business model? [where "suitable"
means willing to maintain their investment following a pivot.]

If no, then folding the existing company and starting a new company is an
option worth considering. Such a case illustrates what YC means by "investing
in people rather than ideas".

On the other hand, if the answer to the first question is no, then the idea of
a subsidiary has a high probability of forming a distraction for a resource
constrained company.

Finally;

A. Adding a subsidiary just complicates the legal structure of the company and
therefore is likely to discourage investors.

B. A company can have two or more products without forming a new legal entity.

Good luck.

