The Dime💰 Notes on Venture Capital - Part IV: Additional thoughts

If you made it here, congratulations and thank you. I truly hope that what I've shared has been helpful and that you were able to share it with others. The goal at the end of the day is to empower others with information needed to fundraise for their businesses. Simple and plain. While we're here, there's at ton people who won't tell you either because they don't want to or simply don't have the exposure to properly equip you with appropriate thoughts or responses. So I felt that adding some context for you to take with you as you navigate your way through this journey would be a well intentioned parting gift. So here's this week's edition of The Dime💰. Part four of the "Notes on Venture Capital" series - "Additional Thoughts."

First Time Founders

If you're a first time founder all of this is going to be very scary and exciting for you. Each decision is life altering and you may even enter a phase where you can imagine what your life can (or even will) be in the next few years. In some ways, you may be counting your eggs before they hatch. Don't do it. Live in the moment and be forever present in these moments. Take time to journal and take detailed notes on as much as you can. Your wins, your losses, you perfections, and your mistakes... take notes on everything. The reason why is because it's going to be valuable in what I'm about to talk about in the next paragraph.

As a first time founder you have one focus and one focus only, building the best business you can sell. This is probably the total opposite of what you hear people on Twitter say but listen to me. Unless you're building a something that is creating an economy around it or are changing the face of an entire industry, the likelihood of your product going to IPO or reaching unicorn status is sub 1%. This is entirely okay. The reason why this is okay is because if you end up selling a company for $100 Million and you own 20% of that company when it sells you would have made $20 Million in 7-10 years. That's a very nice chunk of money. Additionally, you can use the notes I told you to take, plus the money, to build a new company, move much faster, and raise money at a faster rate because now you are a founder who has exited their investors. You will now have great credibility and your own money to take yourself to that IPO or that unicorn status on your second go around. Before PayPal, Peter Thiel started Thiel Capital Management, Elon Musk started Zip2 (which sold to Compaq for $341 Million and must only got $22 Million from that), there are many more stories like this. The first company is rarely the one that hits it out the park. It's usually the second or third one that goes really crazy. I know you want to be the Steve Jobs, Mark Zuckerberg, or Bill Gates but those are truly the anomalies in this space. You want it to be the Jobs way... but it's the other way.

Board Seats Matter

I can't express this enough. You need to make sure that you retain a level of control in your company because as it gets bigger your control will slowly dwindle away. If you have a lawyer worth their salt, they'll make sure you will always have a way to retain control. That lawyer should be proactive about it but just in case they aren't, make sure you put that request in. I've been in the rooms in a post-series A situation where the board make up looks crazy cause now its 4 against 1 and that 1 is you. From there decisions aren't really yours to make anymore even though it is your job to drive the company to profitability. You won't get the option to choose every single person on the board (because your investors will ask for seats and will choose who sits there) but building a relationship with these investors before taking their money will help you discern who to take money from because that may be who will sit on your board some day.

Equity Matters

Beyoncé spoiled you guys. I mean yes, she's right, being paid in equity in certain circumstances is better but as a founder that doesn't mean you should be giving equity away like candy. I often encounter founders who just run around saying "hey, do this for me I'll give you ummm 5% of the company or whatever." That's all fun and games until you're trying to raise money from real people with real money and they say "yeah here's $10 Million for (insert egregious amount of equity)." Now you're in a position where you can't say no because it's $10 Million but after they take their equity you look at how much you have left and you realize now you're basically the little guy on the cap table and you still want to raise money in the future. Now you're regretting giving away so much equity in the beginning for people who did you little favors here and there (and possibly those didn't even pan out the way you thought they would). From my experience you should be highly selective in who you give your equity to. There should only be two criteria.

1. This person will do work that will make the company money today, the immediate future, and long term.

2. This person is giving me cold, hard, cash.

Person in criteria 1 should never get their equity all at once, they should earn it over time. Person in criteria 2 should choose when they want their equity but you should always try your best as a founder to give it to them as late as possible.

Your First Very Big Check

This is going to vary but usually your first very big check comes in late in your seed round or in your Series A round. Either way that big check is usually something over $1 Million. For like 99% of you reading this, it will be the most amount of money you ever held in a bank account with your name associated with it. The first phone call you need to make is to your Mom. The second phone call you need to make is to your Lawyer. The third phone call you need to make is to a Chief Financial Officer (CFO) because that's the person who's going to make sure that you don't fuck this up royally. You get one chance and one chance only. There are a few options if you don't want to hire a CFO in the beginning. You can get a fractionalized CFO which basically is just an outside consultant who makes sure your books are handled well and the money is in tip top shape. But if you're really trying to do it right, you're going to want a person who either was a CFO somewhere before or was at a pretty big accounting firm or something like that. You want a stone cold killer who's going to figure out any way possible to make sure that you're stretching that money as far as possible.

Whatever You're Trying to Do Just Call The Damn Lawyer

Founders dream of never having to call a lawyer once and really believe in that dream. I don't know where founders picked up this culture from but early on they have the tendency to avoid talking to lawyers until someone else tells them they should. I'm guessing because LegalZoom's horrible marketing has convinced you that you can create a well standing corporation that's prepared for Series A funding for a simple payment of $500. Maybe it's because Google has convinced you that whatever that user posted on Quora 10 years ago about their legal issue is correct. Maybe that janky ass contract that ChatGPT wrote you will work and hold up in court (it won't). It's a lie. It's all a lie. You should be talking to the Lawyers first. The Lawyers are very well connected, they probably dealt with whatever issue you're dealing with before, and they likely won't charge you a dime if they're just on the phone with you for 15 minutes and don't have to do any paperwork or anything. You should be calling the Lawyers first.

If you're thinking about starting a company? Call the lawyer. Thinking about doing your first hire? Call the lawyer. First contract? Call the lawyer. Trying to get your first office space? Call the lawyer. Splitting equity with your friends? Call the lawyer. Stop being afraid of the lawyers. The reason why I say this is because the lawyers are tired of cleaning up the mess that was made which could've been saved by a phone call. Stop being scared, stop being cheap. Call the lawyer. Even if you have to borrow money from your Mom, it doesn't matter, its cheaper to call the lawyer early than it is to call them later because most of the time you're already fucked if you're saying I think it's time to call the lawyer.

Have Fun

Never forget that this is a privileged process. Millions of people start businesses everyday but not everyone gets access to venture capital. If you're making it this far you're doing great already so do not torture yourself by comparing how much you got with someone else. Do not try to expedite yourself to the big money. Do not be so caught up in the industry game that you forget why you started your business in the first place. Being in control of your own destiny in this particular way is a very special experience and I never want you to look past that. You will meet some incredible people along the way who may actually be a part of your life forever. You will learn things about yourself and others that will make you a better person. Do not discount those from your experience.

Have fun and I wish you the best. That's it from this week's edition of The Dime💰.

See y'all next week.

CJB