Pulley’s Post

Transcript

What are some of those gotchas that, you know, first time founders might not know the things relating to the equity that can come and hurt you? Yeah, I think equity is the most valuable so that your company has if the company ends up being successful. So to get the 1st 100 users within Pulley, I did the Collison Brother install. So this was John and Patrick Collison. What I'd heard was that literally to get the users for Stripe, they would sit down next to them and they would onboard them to strike. So thought about doing the same thing, the collision. Installation, the collision installation exactly. So for Pulley, we want to do the same thing. I knew that Demo day was coming up. We wanted to sit next to all these founders, get them on board a pulley so we can manage your capsule and prepare them for demo Day. What are some of those things that the basic question that this was my pitch, the question I will lead with was. How much of the company do you own? And it was actually really surprising. How many folks didn't know the answer to that question or they were off significantly? Ohh wow. And it it could anything be by the rays of friends and family around before YC or I was just going to say this is a pretty early stage so you should have a pretty firm handle on how much you own. It's oftentimes friends and family around or if they raise money from other accelerators prior to Why C with complex term sheets. Or advisors oftentimes can also get. A lot of equity within the company. So when I say they're off, I like a significant amount is like if you have 3 cofounders, any other advisors and you had a friends and family around, maybe in your mind you think like great, 3 cofounders 100% / 3. I own 33% of the company. And in reality, that could be closer like 20%, which is a pretty significant difference because then in each round you're giving up more of the company. So like some of the mistakes is that early on if you give up too much of the company and you still need to raise that seed, you still need to raise that a then. Investors can often look at this and sometimes think do you actually own enough of the company as a founder to still be motivated to grow the company on the other side or I think having misconceptions because the amount that you give up in every round of funding differs for the industry. Battletech tends to raise heavily early on. SAS companies raise a different multiples than consumer companies. So I think also having misconceptions of what type of funding they'll need to take in subsequent rounds in order to be able to hit their goals. And then I would see like another, this isn't so much a mistake, but like another thing I found that founders often had challenge with was really selling what the value the equity could be to people that wanted to join the team. They would present this value is what is the value of the company today. And I mean, most seed stage companies are not worth that much by definition today because the company is still really early. So if you're positioning this as a percentage of a not very large number. Then your perspective candidates are looking at this is like, wait, why would I give up the salary that I have at Google, Facebook, Microsoft today to join your startup when the story should be, and this is where we are today. If we hit our muscles, this is how the company could grow and imagine what your ownership stake could be worse. So that's why Pulley built out like a really great offer letter tool so that we can walk founders through that process and get them on board. I love this. I I just need to interject. You have a very wrapped audience. There between Carolyn, who's a corporate lawyer and me, who's a wannabe lawyer, I've loved talking about this because it does sort of like feel like Monopoly money to new founders. And ohh, sure you wanna be advisor. I'll, I'll give you 3%. And they don't realize the implications of that. Ohh. I have so many anecdotes about founders not realizing how valuable equity is and just handing it out like candy to anybody who will help them even marginally. And you're like, they give 1/2. Percent to people and you're like, what did this person do for you? Ohh, they looked at my business plan. You know, you're like, ohh, that's so killing me Kara. Exactly. So like on the fundraising front, cause Carolyn like what what I got was remember like why she helped me through fundraising and I got a spreadsheet template that had iterative calculations I needed to turn on in Excel. And you're nodding because I'm like, I don't even know what iterative calculations are. And I was like we're and spent like 15 minutes on YouTube looking for the dongle to be able to turn this on like and shut it down and opened up Excel again to make it work. But like, because some of these rounds are complex, I see this is more like that's it's, it shouldn't be this hard to just know if I fundraised on these terms, if I give away pro rata, if I give away MFN, if I give away some of these clauses, what does it mean in the future when I raise my next round? How much do I actually have to give away? How big should my employee equity plan be? And my perspective is actually you should create a fairly big employee equity plan so that you can incentivize people to join your team. But I think it's hard to know how to make some of those decisions when it feels like you're finding the dark and you don't have the tooling available. And the only option is spend a lot of money working with a lawyer to understand something. Yeah. And by the way, lawyers aren't so great at the math part of this. So they're great at giving you the advice, like looking at the market and saying, like, this is what we see the size of employee polls. Lawyers are great for that. But. Like. When it comes to manipulating spreadsheets, there's like a class of lawyers who are good at that and then they like a bigger class of players who are not good at it.