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Last thing you see before the venture studio takes 40%

You know what pisses me off? There's 40 names on a cap table and I'm the only one commenting on their LinkedIn post.

This guy is having books on great European entrepreneurs. Translated into English specifically for his podcast. Absolutely incredible. Founders is the most underrated business podcast in the world.

But we don’t need the National Guard, right?

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Here are the financial situations of a few founders I know: 1) Salary paused indefinitely. 2) Searching for side jobs to pay the bills while continuing to run the company. 3) Relying on a spouse with a normal job because the startup isn’t making money. We’re talking enormous stress here. But money isn’t the only problem a lot of founders have. They also pay a toll in terms of their personal relationships. Here are some of the tougher situations I’ve seen: 1) Rarely seeing young children. 2) Losing a future wife. 3) Drinking escalating. 4) Health deteriorating. Everybody wants to be a founder when it’s all parties and hoodies and TED talks. But that’s not the reality of being an entrepreneur. The reality is a stressed out guy or gal sitting at a computer, isolated from friends and family, and slowly going broke. And here’s the worst part: for most of them, all this sacrifice won’t lead to success. The company will fail anyway. “Gee Francis, that’s some black attitude for a guy that just came back from vacation!” I know. But I see so much rah-rah on Twitter that I think it’s time to tell the truth. That said, many founders would not want to do anything else. And if you don’t feel the same way, that you absolutely must build this thing, don’t. It all comes down to a scene in one of my favorite movies, Heat: “So you never wanted a regular type life.” “What the f— is that, barbecues and ballgames?”

One of my fastest growing startups, Recall AI, needs: - Full stack devs - Marketing and community managers DM me.

Google is in serious trouble. Yesterday, OpenAI dropped ChatGPT Search, its new Google killer. ChatGPT Search can pull realtime data from the internet to answer your questions. But is it better than Google? This morning, I tried 3 real questions I needed answered on both ChatGPT Search and Google. Let’s see who wins! 1) Market data. Sitting in North Jersey a little past 9am this morning, I wondered where markets would open. Yesterday was a rout…how are things looking? I asked ChatGPT Search where the e mini is trading. This is a futures contract on the S&P 500 and indicates where the market may open. Let’s see how it does… ChatGPT Search nailed it, pulling up-to-the-minute data on the e mini. Looks like we’re headed for a strong open! Now, let’s try Google… Google produces a different result, showing that the market is set to open flat. So, who’s right? I clicked through to Marketwatch to find out… Turns out, ChatGPT Search was 100% accurate and Google was completely wrong. Google’s answer was worse than useless — providing incorrect data is counterproductive. It would’ve been better to just refuse my query. ChatGPT Search stomped Google on this round. On to #2… 2) Perplexity funding. I heard that Perplexity is raising a new round. What will the valuation be? Let’s ask ChatGPT Search… ChatGPT Search pulls up an answer right away and gives us multiple, reliable sources. Great work! On to Google… Google gives us the same answer, and both are correct. So, this one’s a tie. Now that ChatGPT has realtime search, I think Perplexity’s dead. My bet is this will be a small acquisition for somebody. 3) Will dinner get rained out? I’m supposed to meet a friend in the city for dinner tonight. Singaporean! Yum yum. But it’s looking pretty grey this morning. Will I get soaked on the way over? Let’s ask ChatGPT Search… ChatGPT Search gives a very precise answer. Looks like we’re all clear! On to Google… Google doesn’t answer my question directly. However, it does provide a nice little graph showing the chance of precipitation throughout the day. It’s not a direct answer, but Google’s response gives me useful detail on today’s weather. Looks like it should be all clear come dinner time. I’ll call this one a tie. Wrap-Up We saw 2 ties and one win for ChatGPT Search. ChatGPT Search takes the day! Let’s keep in mind, this product is 24 hours old. It’s only going to get better. If I were Google, I’d be terrified right now. They need to release a competitor to this ASAP. Order pizza, work all night, make it happen. And if I’m at Perplexity, I’m sending out resumes right now. I think that company is a 0. What do you think of ChatGPT Search?

This is beyond disgraziad. This is an infamia.

This morning, I opened a deck and said “Oh, no.” They had done the unthinkable: written a 44 slide deck. There are 5 pitch deck mistakes that cause the big vein in my forehead to bulge. I’ll tell you what they are, so you can avoid them. The Forbidden Five 1) Too long. A deck should be a short, punchy summary of your company. Aim for 10-12 slides. You definitely don’t want 44 — and believe it or not, I’ve seen even longer ones than that. This morning, I looked at 22 decks in a row. Other investors are doing the same. We need to find out the basics on your startup and move on to the next. Please, make it easy for us — keep it brief! When your deck is too long, the odds go up that the investor says “Ahh!” and just closes it. You don’t want that to happen. 2) Too much text. I’m squinting, I’m pulling my laptop closer to my face. And I still can’t read it. Decks do not lend themselves to large amounts of text. The slides become crowded and unreadable. Leave the narrative in the deal memo. Keep the deck simple. Each slide should be a single thought. Aim for a single sentence, phrase, or chart. Your ideas get lost when the slides aren’t legible. 3) Fantasyland TAM’s. “Real estate is a $114 trillion industry!” Whenever I see something like that, I turn a sickly shade of green. Giant, fantasyland numbers mean nothing. And when you throw them around, it’s hard to take you seriously. Here’s how to do a proper TAM… Let’s say that the company in question is a prop tech SaaS startup. They sell a building management platform to property management companies. Their software costs $10,000 a year and there are around 50,000 potential customers. So, the TAM is $500 million. Keep your numbers rooted in reality. A smaller number with strong justification behind it is way more convincing than a huge figure plucked from nowhere. 4) Advisors. Ick. Never include advisors in your slide deck. They will have little or no effect on your company. They’re just not relevant. When a startup puts advisors in the deck, it makes me think they don’t have anything more substantive to show. Keep the focus on the actual team, the product, and the customers. 5) Word salad. Do not use any of these words: democratize, streamline, poised, line of sight, dynamic, or stakeholders. No jargon, ever! Instead, tell us in clear language what you do, why it matters, and how it’s going. Wrap-Up Founders, I love ya. You’re working hard and moving the world forward, bit by bit. That’s why I’m telling you this. I don’t want investors to pass on your company just because your deck is a mess. The good news is, these problems are easy to fix! Take a couple hours, sit down, and fix them! I guarantee you it will be worth it. What are your slide deck pet peeves?

This episode is so fantastic with so much information I found myself repeatedly rewinding and taking tons of notes. If you invest in startups, this is an absolute must listen. You may want to go at 0.7x speed.

Next week, YC’s first fall batch will present at Demo Day. Here is what will distinguish the top companies from the stragglers, based on my scores of meetings with YC companies over the years. 1) Top Tier. This elite group makes up 5-10% of the batch. These companies have built a serious business in a very short period of time. They have significant revenue, typically $150,000 to $500,000 ARR. You’ll see these guys raising $2 million at a $20-25 million post-money valuation. The rounds often wind up oversubscribed. 2) Mid Tier. This is the average YC startup, perhaps 60% of the batch. Expect to see revenue of $3-5,000 a month, often in pilots. You’ll usually see these raising $2 million at a $20 million post-money valuation. The rounds do not usually oversubscribe. 3) Lower Tier. This final group of companies is struggling to sign customers. It represents perhaps 30% of the batch. Expect to see zero revenue with these. They may have some Letters of Intent (LOI’s) or a rich pipeline, but cash is king, and they don’t have it yet. You can pick these up at a $15 to $20 million cap. The round is unlikely to oversubscribe. Even if a startup isn’t at the front of the pack on Demo Day, it can still be a huge success. No one can look at a brand new company and say for sure where it’s headed. Why Investing in YC Companies Is Hard Let’s take the average YC company at Demo Day. We’re talking about a startup with a couple thousand a month in revenue priced at a $20 million cap. If you build an entire portfolio of these, it will be very hard to make money. Assume a miracle happens and one of these startups hits a $1 billion valuation. You’ll be diluted by half along the way, giving you a 25x return. A portfolio of early stage startups might contain 30-40 companies. So, that $1 billion outcome didn’t even return the fund. Meanwhile, most of the others are probably failing. The fundamental problem for the investor is that these are pre-seed companies priced like late seed stage startups with $500,000-$1 million ARR. How I Approach Investing at YC That said, YC has a history of producing some of the best companies. I don’t want to exclude YC as a source of deals. I pick off one or two excellent YC startups a year before Demo Day. I also invest in others a year or two after Demo Day, when their traction has caught up to their valuation. This gives me a portfolio with a couple high priced deals balanced out by many cheaper ones in non-YC companies. My average entry price stays reasonable, at $11 million for companies averaging around $300k ARR throughout 2024. Wrap-Up YC does a ton of filtering for the investor. They also give their startups some of the best coaching on earth. This valuable service isn’t free. Hence the higher valuations. Like any luxury product, it’s okay to indulge from time to time — if you have the money.

You know what pisses me off? There's 40 names on a cap table and I'm the only one commenting on their LinkedIn post.

Last thing you see before the venture studio takes 40%

This morning, I opened a deck and said “Oh, no.” They had done the unthinkable: written a 44 slide deck. There are 5 pitch deck mistakes that cause the big vein in my forehead to bulge. I’ll tell you what they are, so you can avoid them. The Forbidden Five 1) Too long. A deck should be a short, punchy summary of your company. Aim for 10-12 slides. You definitely don’t want 44 — and believe it or not, I’ve seen even longer ones than that. This morning, I looked at 22 decks in a row. Other investors are doing the same. We need to find out the basics on your startup and move on to the next. Please, make it easy for us — keep it brief! When your deck is too long, the odds go up that the investor says “Ahh!” and just closes it. You don’t want that to happen. 2) Too much text. I’m squinting, I’m pulling my laptop closer to my face. And I still can’t read it. Decks do not lend themselves to large amounts of text. The slides become crowded and unreadable. Leave the narrative in the deal memo. Keep the deck simple. Each slide should be a single thought. Aim for a single sentence, phrase, or chart. Your ideas get lost when the slides aren’t legible. 3) Fantasyland TAM’s. “Real estate is a $114 trillion industry!” Whenever I see something like that, I turn a sickly shade of green. Giant, fantasyland numbers mean nothing. And when you throw them around, it’s hard to take you seriously. Here’s how to do a proper TAM… Let’s say that the company in question is a prop tech SaaS startup. They sell a building management platform to property management companies. Their software costs $10,000 a year and there are around 50,000 potential customers. So, the TAM is $500 million. Keep your numbers rooted in reality. A smaller number with strong justification behind it is way more convincing than a huge figure plucked from nowhere. 4) Advisors. Ick. Never include advisors in your slide deck. They will have little or no effect on your company. They’re just not relevant. When a startup puts advisors in the deck, it makes me think they don’t have anything more substantive to show. Keep the focus on the actual team, the product, and the customers. 5) Word salad. Do not use any of these words: democratize, streamline, poised, line of sight, dynamic, or stakeholders. No jargon, ever! Instead, tell us in clear language what you do, why it matters, and how it’s going. Wrap-Up Founders, I love ya. You’re working hard and moving the world forward, bit by bit. That’s why I’m telling you this. I don’t want investors to pass on your company just because your deck is a mess. The good news is, these problems are easy to fix! Take a couple hours, sit down, and fix them! I guarantee you it will be worth it. What are your slide deck pet peeves?

Here are the financial situations of a few founders I know: 1) Salary paused indefinitely. 2) Searching for side jobs to pay the bills while continuing to run the company. 3) Relying on a spouse with a normal job because the startup isn’t making money. We’re talking enormous stress here. But money isn’t the only problem a lot of founders have. They also pay a toll in terms of their personal relationships. Here are some of the tougher situations I’ve seen: 1) Rarely seeing young children. 2) Losing a future wife. 3) Drinking escalating. 4) Health deteriorating. Everybody wants to be a founder when it’s all parties and hoodies and TED talks. But that’s not the reality of being an entrepreneur. The reality is a stressed out guy or gal sitting at a computer, isolated from friends and family, and slowly going broke. And here’s the worst part: for most of them, all this sacrifice won’t lead to success. The company will fail anyway. “Gee Francis, that’s some black attitude for a guy that just came back from vacation!” I know. But I see so much rah-rah on Twitter that I think it’s time to tell the truth. That said, many founders would not want to do anything else. And if you don’t feel the same way, that you absolutely must build this thing, don’t. It all comes down to a scene in one of my favorite movies, Heat: “So you never wanted a regular type life.” “What the f— is that, barbecues and ballgames?”

Chat with every podcast you've ever heard, every article you've ever read. Recall. Live now on Product Hunt. Upvotes appreciated. Link below...

Who's building something awesome?

Deep in the bowels of a startup’s data room, there’s a critical document: the cap table. A problem with this document can kill a financing. Let me run you through 4 common cap table problems so you can avoid them. 1) Dev Shop or Venture Studio on the Cap Table. Here’s something you never want to hear: “What’s ACME Ventures and why do they own 40% of the company?” Some startups come out of a venture studio. These programs are a lot like accelerators, except they take way more equity. A typical accelerator like YC takes about 7% of your company. 40% is outrageous. If YC, the best program in the world, gets 7%, why should any other program get 40% The problem with a venture studio owning so much of a company is it leaves way less stock for the founders. And they’re the ones actually doing the work. Some startups give a huge slug of equity to another group of predators, the dev shops. These agencies help build your product. I recommend against using them even if they don’t take equity. But if they take a big slice of your startup, it’s an absolute nonstarter. 2) No CTO With 10% + Equity. A true founder owns at least 10% of the company at seed stage. When I see a startup that doesn’t have anyone technical at 10% + ownership, I get worried. Who will keep building product if this company runs out of money? Hired help will run for the hills. Only someone incentivized with a big chunk of stock will keep working even without a salary. A lot of startups are hiring a Founding Engineer or Lead Engineer, giving them a couple percentage points of equity, and calling it a day. No bueno. I also see an engineer being named “CTO” but without the ownership to back up that title. An engineer with 5% equity isn’t a true CTO. 3) Departed Co-Founder Owns Too Much Stock. Sometimes, a co-founder decides this whole company building thing isn’t for him. I get it — the late nights, the crappy (nonexistent?) pay, who could blame him?! But you don’t want that guy owning a fat slice of your company. You want to reserve that stock for people who are actually contributing day to day. You can solve this problem by vesting everyone’s shares over 4 years, as most tech companies do. This way, you don’t reward people for work they haven’t done. If you messed this up and a departed co-founder owns a larger chunk, you can still recover. So long as they don’t own over 10%, it’s usually not a problem when you go to raise money. 4) Founder Equity Too Low. To make a startup a big success, founders will have to work day and night for a decade. If we expect them to do that, they better have appropriate incentives. At the early stages, founders should own the large majority of the company. At the close of a seed stage funding round, the cap table might look like this: Founders: 60% Employees: 20% New Investors: 20% I’ve seen seed stage companies where the CEO’s equity was 10% or less. That means that after many more funding rounds, the CEO would own next to nothing at IPO. You can’t get someone to work 100 hours a week if they don’t own a meaningful piece of the company. Wrap-Up All these cap table problems come down to founder incentives. We want to assemble the right team and give them strong incentives to succeed. This means we need builders, and we need to give them serious ownership. We can’t waste ownership on venture studios, dev shops, or people who don’t work here anymore. In the early stages, keep your cap table tight and founder ownership high. If you do this, you’ll make more money. You’ll also find it easier to fundraise! What cap table problems are you seeing out there?

Crazy day please send any good vibes you may have 😁

One of my fastest growing startups, Recall AI, needs: - Full stack devs - Marketing and community managers DM me.

A huge problem I see w/ decks is they're so vague. What exactly do you do? What's an example of a customer getting benefit? If you can put that front and center, you will raise money much more easily! :)

Yesterday, I met w/ a founder I invested in a while back. She showed me the reasons VC's have passed on her new round. Most make no sense. Being a founder must be maddening.

Google is in serious trouble. Yesterday, OpenAI dropped ChatGPT Search, its new Google killer. ChatGPT Search can pull realtime data from the internet to answer your questions. But is it better than Google? This morning, I tried 3 real questions I needed answered on both ChatGPT Search and Google. Let’s see who wins! 1) Market data. Sitting in North Jersey a little past 9am this morning, I wondered where markets would open. Yesterday was a rout…how are things looking? I asked ChatGPT Search where the e mini is trading. This is a futures contract on the S&P 500 and indicates where the market may open. Let’s see how it does… ChatGPT Search nailed it, pulling up-to-the-minute data on the e mini. Looks like we’re headed for a strong open! Now, let’s try Google… Google produces a different result, showing that the market is set to open flat. So, who’s right? I clicked through to Marketwatch to find out… Turns out, ChatGPT Search was 100% accurate and Google was completely wrong. Google’s answer was worse than useless — providing incorrect data is counterproductive. It would’ve been better to just refuse my query. ChatGPT Search stomped Google on this round. On to #2… 2) Perplexity funding. I heard that Perplexity is raising a new round. What will the valuation be? Let’s ask ChatGPT Search… ChatGPT Search pulls up an answer right away and gives us multiple, reliable sources. Great work! On to Google… Google gives us the same answer, and both are correct. So, this one’s a tie. Now that ChatGPT has realtime search, I think Perplexity’s dead. My bet is this will be a small acquisition for somebody. 3) Will dinner get rained out? I’m supposed to meet a friend in the city for dinner tonight. Singaporean! Yum yum. But it’s looking pretty grey this morning. Will I get soaked on the way over? Let’s ask ChatGPT Search… ChatGPT Search gives a very precise answer. Looks like we’re all clear! On to Google… Google doesn’t answer my question directly. However, it does provide a nice little graph showing the chance of precipitation throughout the day. It’s not a direct answer, but Google’s response gives me useful detail on today’s weather. Looks like it should be all clear come dinner time. I’ll call this one a tie. Wrap-Up We saw 2 ties and one win for ChatGPT Search. ChatGPT Search takes the day! Let’s keep in mind, this product is 24 hours old. It’s only going to get better. If I were Google, I’d be terrified right now. They need to release a competitor to this ASAP. Order pizza, work all night, make it happen. And if I’m at Perplexity, I’m sending out resumes right now. I think that company is a 0. What do you think of ChatGPT Search?

Why are there no chain bars?