☕️How to Keep a Founder Poor (as a VC)

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Author

Morgan Barrett
June 26, 2024

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SF Tech Breakfast Club last week with Jack McClelland crushed - so excited to head back to the Bay Area next month.

Also, continuing to get questions about the Anti Dilution tweak to the YC SAFE - if you want to read that article on how to fix the YC SAFE, click here

For those who are new (a lot of you) or those who don’t know - I’m Morgan Barrett, creator of Tech Breakfast Club. I host breakfast meetups in NYC, LA, SF, (and occasionally Austin, Miami, Boston) that bring together the best founders and investors.

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Scroll down for event signups and my article on selling secondaries.

Tech Breakfast Club Events

LA Tech Breakfast Club July 11th
Cohosting this with Scott Howard from House of VC. Scott has a fascinating approach. He invests in early stage companies disrupting legacy industries and helps these startups grow by engaging a select network of family offices (and the industry leading, legacy companies the families built).

San Francisco Tech Breakfast Club June 18th
Cohosting with Amber Yang from Bloomberg Beta. She coined the phrase “Cerebral Valley” and has invested in some of the most interesting early stage AI companies.

NYC Tech Breakfast Club DTC Edition July 24th
Cohosting with Zach Cox, DTC Killer

New York Tech Breakfast Club July 25th

Tech Breakfast 🤝 Clerky

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I’m beyond excited that Clerky and Tech Breakfast Club are partners. When you’re ready to start your company, email me (or reply to any TBC newsletter), and I’ll invite you to a special Clerky portal - as a Tech Breakfast Club member, you’ll save $100 on Clerky’s already reasonable fees.

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Legal Stuff: Selling Secondaries
How to Keep a Founder Poor (as a VC)

Even though you’re officially in growth mode (the company is crushing it after years of your hard work), your lead investor isn’t necessarily excited about you, the founder, selling shares for liquidity.  

If your investors are untethered from reality maybe they say something about how they want you to “stay hungry.” They claim that taking money off the table will make you slack off.

If they’re a bit more reasonable, maybe they ask you to wait until your company’s metrics are even healthier and you do a really large series B.

Hunger can be a superpower, but it can also cloud judgement and force shorter term thinking, particularly if a spouse knows your company is crushing it and yet, years after you started the company, life still feels “poor.” This impatience can lead to smaller exits.

Taking even just a small amount of money off the table – enough to allow a comfortable lifestyle (buying a home, sending a child to private school, affording a couple well deserved vacations, payoff debt, etc) – can radically shift the ambition of a founding team.

I love this article from a couple years ago called “It All Changes When the Founder Drives a Porsche.”

In the article, Micah Baldwin argues that Twitter, Snapchat, and even Facebook would have been way less likely to achieve multibillion dollar exits if the founders had been pressed for cash along the way.

Make sure you’re aligned with your investors from the start and that they’re thinking about secondaries as a way to get to an even bigger outcome.

And, to make the process of selling secondaries easier, you might want to consider Founders Preferred Stock – stock that converts into any series preferred stock when sold. Because of the additional rights conveyed it’s worth more to investors than common stock. It can also save you taxes in a meaningful liquidity event.

About Morgan
Morgan, besides running Tech Breakfast Club, is 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.

Have a legal question? Reply to the newsletter. Happy to chat.