06 Feb 2019
When I first heard about TinySeed, I was excited. Venture Capital isn't for everyone, and bootstrapping can feel impossible. It seems like there isn't much in between. I'm excited to see new, innovative ways for founders to get startup capital.
But as I dug deeper into TinySeed, I came across this in their FAQ:
Traditionally, venture capital has consisted of unicorn-hunting. VCs are looking to fund the next Facebook or Oculus Rift. If a traditional VC funds your business and it gets to $50m in revenue, generating $20m in profit year over year, it’s considered a miss.
This seems naive, disingenuous, or both. Most (all?) angels and early stage VCs would be elated to fund a startup that grows to $50m ARR with $20m profit.
Dan Primack pointed this out succinctly on Twitter:
And the replies to his tweet are a masterclass in understanding VC. In short, VC expectations are related to fund size, check size, and ownership.
As a founder, you should understand this fund math before you a) raise money or b) write off all angel/VC money as bad.
Here's how TinySeed values your company:
TinySeed invests $120k for the first founder + $20k per additional founder, in exchange for 8-15% equity.
As a solo founder, they'll value your company between $680k and $1.4m pre-money. Compare this to median pre-money valuations from "traditional" angel and seed rounds, which is now around $7M. So you can raise 5-10x more money in exchange for the same equity.
If early stage investors consider 20x return a home run, they'll be very happy to see your $50m ARR "lifestyle business" exit for $140m or more.
If, like TinySeed, the same investors had invested at a 1/10th of the valuation? The resulting 200x return would be an off-the-charts grand slam.
TinySeed may be a great option for some founders. I personally admire much of what they're doing, and might have considered it for Formstack:
- They're targeting bootstrapped companies, and I bootstrapped for 3 years before raising a small angel round.
- It's remote, and I started shortly after our first son was born, so wouldn't move across the country to join an accelerator.
- They're not biased against solo founders, and I was one.
But their terms seem structured just like any angel or early stage VC investment — they give you cash for equity in your company. And at a valuation that might be way below market for your company. And you're required to pay investor dividends in perpetuity if you want to make more than their salary cap.
And they get a participating preferred liquidation preference, which has been absent from clean term sheets for a while now:
If the company sells, investors receive the initial investment back (minus any dividends paid to date), and then the proceeds are divided pro-rata based on ownership.
[UPDATE: This is fixed]
The core value prop for TinySeed seems to be the promise that they won't "force growth."
But I personally haven't seen an early stage investor do this. They're focused on making sure the company exists in the next 12 months. Even YC preaches getting to ramen profitable and default alive so you're not relying on investors for continued survival.
Investors don't want you to grow because they like to gamble with the health of your company. They want you to grow because lack of growth is why most companies die.
This is different than the pressure for huge exits, which comes after raising tens or hundreds of millions of dollars from later stage VCs. Especially when you've put yourself in a position where you have to keep raising money over and over again. At some point, the math just gets to a point where you have to become a unicorn to deliver a home run.
But if you're raising a few $100k, and do it with a standard SAFE, you're not giving investors any leverage. There's no board seat, majority ownership, or preferred stock to force you to do anything. And investors will be as happy as you when you build a $50m ARR company.
If you don't need to raise money to build the company you want to build, don't raise money.
Or look to firms like Indie.vc that are structuring funding in a very different way. They apply dividends toward a buy back of up to 90% of investor equity. And dividends are capped at 3x the original investment.
Or look to firms like Lighter Capital that offer debt financing without taking any equity.
But also know that there are "traditional" angels and early stage VCs that you might enjoy working with, and will be aligned with founders. Just raise at a sensible valuation, and build a great business.
08 Jan 2019
I started running frequently a few years ago. I ran my first 5k in 2016, and ran my first half-marathon in 2018.
One of the hardest things I have to do when running is manage my own psychology. Most days, my brain starts telling me it's OK to quit before I reach my goal.
"It's fine. You did well yesterday, take it easy today and make it up tomorrow."
And in a swirl of exhaustion and pain, it's easy to listen.
I realized there's usually only one thing that's physically bogging me down. If I can isolate and eliminate it, the swirl of exhaustion and pain gets a little better.
Is my throat burning? Maybe I just need to take a swig of water.
Is my back hurting? Maybe I just need to adjust my posture.
Have I lost focus? Maybe I just need to play that song that always adds more bounce to my stride.
I see parallels to my time as an entrepreneur. I often found myself in a swirl of exhaustion and stress, nothing going right, wanting to give up. But I had to pause and isolate the pain.
Maybe I just needed to cut enough expenses to give us more runway.
Maybe I just needed to fire an executive that was pulling the team in the wrong direction.
Maybe I just needed to unplug and take a vacation.
Most times, there was one major thing that was bogging me down. And when I isolated and eliminated it, I found a path to keep moving forward.
02 Jan 2019
It's time for me to start writing again.
I've started starting a few times over the years, but it hasn't stuck yet. I'm hoping 2019 is the year it finally takes hold.
I used to blog regularly early in my career, but stopped around the time I launched Formspring. That led to the busiest years of my life to date, which was a good excuse for me to stop writing.
And for a long time now, I've regretted stopping.
Yes, I got busy. But more than anything it's been my insecurities that have held me back from writing more. What can I really contribute in yet another blog post about rehashed topics? Why would anyone care to read my drivel? Why not keep my thoughts to private conversations and personal journals?
But I've noticed a difference between writing in a journal and writing for my blog. There's something powerful in how publishing forces me to think more deeply about what I've written. And there's something magical in a post sparking conversations I wouldn't have had otherwise.
My blog has been instrumental in helping me learn and grow, and I've missed that.
So here I am again, blogging.
The new year is a good excuse to make me take that first step. And maybe sharing my goal publicly will make it harder for me to use "too busy" as an excuse.
Thanks for reading. And thanks for helping me learn.
13 Nov 2016
[Originally posted on Medium]
Look, I get it. Trump won.
I accept it. I’m not whining. I’m not rioting.
And I get it. There are millions of working class people across the country that felt left behind in Obama’s America. They wanted change.
And I get it. It wasn’t about race.
And you especially, I don’t think you’re racist because you voted for Trump. Truly.
But please don’t insult my intelligence by telling me that race wasn’t part of Trump’s campaign.
Please understand why as a black man I’m scared about the next four years in Trump’s America.
Am I supposed to forget that he spent years on the national stage as the leader of the birther movement?
Am I supposed to forget that he started his campaign labeling Mexicans as criminals and rapists?
Am I supposed to forget about all the other times he used racially tinged rhetoric on the campaign trail?
Am I supposed to forget what he said about Judge Gonzalo Curiel?
Am I supposed to forget what he said about the Central Park Five?
Am I supposed to forget all the times he retweeted messages from white supremacists and neo-Nazis?
Am I supposed to forget he hired Steve Bannon, a pivotal figure in the alt-right community, as CEO of his campaign?
Am I supposed to forget his calls for banning Muslims?
Am I supposed to forget his calls to bring back stop and frisk?
Should I go on?
Or did I miss the time that he apologized for any of these things? Where he reached out to the disaffected to clarify his position?
Or did I miss the time when he clearly denounced the acts of intimidation and violence against minorities carried out in his name?
Don’t think I’m pacified because he added Ben Carson to his transition team.
Don’t think I’m pacified because you point out something racist someone else said or did, someone who’s not going to be our president.
Don’t tell me Trump only said horribly racist things and appealed to white nationalists just to get elected. That he didn’t really mean those things.
Don’t tell me he’s really going to be a president for all the people.
Don’t tell me to deal with it.
Don’t tell me to shut up.
That, I do not accept.
03 Sep 2015
[Originally posted on Medium]
“Well, once there was only dark. You ask me, the light’s winning.”
— Rust Cohle, True Detective
The default state in any growing organization is chaos. The chaos of trying to integrate new people into the culture. The chaos of trying to align everyone toward common goals. The chaos of communicating what everyone’s working on.
In the chaos, it feels like the organization is falling apart. You remember how things were so much better back in the day, when everyone could all fit around the same table at lunch. And reading about other companies, you’re convinced everyone else has it all figured out but you.
The problem is that as a company grows, you can’t rely anymore on serendipity to solve communication problems. Metcalfe’s law is working against you — at 5 employees there are 10 lines of communication between each person. At 10, there are 45 lines. At 20, there are 190. By 50 employees you’ve crossed 1,000 lines of communication — chaos.
The good news is that if you’re able to get anything accomplished as an organization amidst that chaos, the light’s winning.
This doesn’t mean it can’t be better. It probably should get better.
The first step is to understand that chaos. Then tame the chaos by designing your organization’s communication protocols in a way that works through it. TCP, not UDP.
As Metcalfe works against you, you’ll have to create processes around deliberate, structured communication. Maybe that’s adopting OKRs, making your daily standups effective, or creating weekly reports and presentations to share internally. Find the nodes and connections that are left in the chaos, and be deliberate in how you communicate to overcome it.
The light will win.