Today’s Menu ☕️

• NYC Tech Breakfast Club Nov 13th

• SF Tech Breakfast Club Dec 5th

• Remgu: Sourcing Top European Engineers

• Option pools and how to avoid excessive dilution

👋 Hi, Breakfast Club Members!

Thank you Luka @ Remgu for sponsoring today’s edition. Luka helps growing companies source top European engineers

We’re getting excited for NYC Tech Breakfast Club next week - Lori Berenberg (Bloomberg Beta) and I are cohosting a “it’s a little early for us” Holiday Party edition of Tech Breakfast Club. If you’ve ever been told by a VC that your company is a little early for them, then we’d love to have you join.

After that, I’m off to SF for a bit. Looking forward to seeing the SF crew, including long time friend and frequent cohost, Jack McClelland (VC @ Afore)

Resources:
-Clerky offers a $100 discount for TBC Members on their formation packet. Reply to the newsletter and I’ll send you an invite
-Fixing the YC SAFE: Reply to the newsletter and I’ll send you a redline for the YC Postmoney SAFE that can save founders millions in dilution
-Better Bookkeeping offers streamlined support to founders on everything from bookkeeping to tax strategy and filing.
-Ramp is offering a $500 bonus to TBC members when they start using Ramp.
- Hubspot: Tech Breakfast Club members get their free CRM and 50% off HubSpot pro plans if you purchase by Nov 30th. Redeem directly here. Questions? Reach out to Cristine at [email protected]

Tech Breakfast Club Events

NYC Tech Breakfast Club Nov 13th
Lori Berenberg (Bloomberg Beta), the Queen of Early Stage Venture in NYC, is back again to cohost Tech Breakfast Club. This is the last one of the year (don’t worry we’ll be back in January)!

SF Tech Breakfast Club Dec 5th
Closing out the year with Jack McClelland (Afore) in SF. Jack just sourced a deal from Tech Breakfast Club - come join and 10x your deal flow.

Tech Breakfast Club 🤝 Luka

Meet Luka, founder of Remgu, who sources top European talent for fast growing companies

You studied CS at Waterloo – incredible CS program – then you worked at companies in Toronto, Chicago, and NYC for almost two decades... why did you move to Croatia?
I moved to Canada as a kid from Croatia but then I went back on vacation in 2017 and met my wife. So, I moved back to be with her. I started finding all of this incredible technical talent that spoke English very well – that’s what prompted me to start Remgu

Who is Remgu a good option for?
We’re ideal for startups and SMB’s seeking top-quality European talent for long term engagements. Our talent is elite – we’re very selective and do intensive vetting. So when a client comes to us, the process is very streamlined, we match them with one or two handpicked candidates. So for $50 to $80/hour you can get a vetted experienced senior engineer instead of settling for the most junior and inexperienced US based engineers.

Why is Remgu a better option than competitors?
We have near perfect retention of clients, and I think that comes from our long term perspective. We’re not here to maximize profit from every engagement. We want to grow with our clients. We have a lean and flexible model with low overhead, so clients keep coming back to us for more and more talent.

If you’re ready to build out your team, the easiest way to get in touch with Luka is connecting with him on LinkedIn

All my homies hate dilution
How To Own More Of Your Startup

Many founders don’t realize that having too large of an option pool is basically a give-away to their VCs (and employees). By having a large unused pool, founders are absorbing dilution that everyone else on the cap table would otherwise (and should) share. 

How can an unused pool impact dilution? Doesn’t it just get canceled upon exit?

In a Term Sheet, VC’s generally make you top up the option pool to have a certain % of availability post-closing, but they make the pre-money cap table absorb all the dilution from it. They like to ask for way more than you really need.

It’ll look something like this –

“The total post-Closing available option pool (excluding granted options) represents 15% of the fully diluted shares of the Company.”

The higher the %, the lower the price the VCs are paying for their shares, and the more dilution the founders are absorbing. The price VCs pay is valuation / fully-diluted capitalization. Again, that denominator includes the unused pool.

The pool you reserve before your first VC financing, even at formation, will set the baseline for negotiating how much of an option pool “top up” VCs make founders absorb.  Don’t do the VC’s work for them by starting with a very large pool, which makes the VC’s top-up look benign, even if it’s not.

Even before a financing, never reserve a larger pool than what you really expect to use in the next 12 months. Further, when the VC’s top-up request comes in, have a hiring plan and a solid argument for how much of a pool you really need, and make the VCs argue for theirs.

Finally, many key employees will analyze their equity compensation package against the fully-diluted capitalization. They’ll say something like “I want 2% of the fully-diluted.”

If your fully-diluted has too large of a pool, you’ve artificially inflated the number of shares an employee gets to hit their 2% target. In an exit, that unused pool gets canceled. But guess what? Their number of shares stays the same, so they end up with a lot more than 2%. You overpaid simply because your starting pool had a lot of “wasted” space.

Bottom Line: reserve a thoughtfully planned option pool; not an ocean. 5-10% is often more than enough. The number you choose can have 8+ figure implications for founders over a company’s lifetime.   

About Morgan Barrett:
Morgan is the creator of Tech Breakfast Club. He hosts breakfast meetups in NYC, LA, SF, (and occasionally Austin, Miami, Boston) that bring together the best founders and investors.

Morgan is also a Startup Lawyer at Optimal, an elite lean boutique startup law firm repping clients funded by a16z, Sequoia, Kleiner, Accel, and countless other VCs. He works with clients from formation to exit, in collaboration with Optimal’s partners.