Today’s Menu ☕️

• SF Tech Breakfast Club Dec 5th

• EL Segundo Tech Breakfast Club Jan 9th

• Austin Tech Breakfast Club Jan 16th

• NYC Tech Breakfast Club Jan 22nd

• Fintech Tech Breakfast Club Feb 5th (NYC)

• Citrin Cooperman

• Featured Job from Twill

• Pro Rata Advice

👋 Hi, Breakfast Club Members!

Thank you to Tom Porricelli at Citrin Cooperman for sponsoring today’s newsletter and helping emerging companies with assurance, tax, and advisory services.

Scroll down for signups for upcoming Tech Breakfast Clubs. I also wrote some thoughts on pro rata rights.

Really excited to cohost TBC NYC in January with Ben Braverman. You might know Ben as one of the early guys at Flexport or you might be familiar with him as cofounder of Saga Ventures (along with Max Altman). And if you don’t know Ben yet, he should 100% be on your radar. Super savvy operator turned VC. Read more about Ben in this interview I did with him a few months ago.

In other news, after 100’s of mediocre dumb tweets, I finally had an excellent dumb tweet! If you’re interested in tips about how to improve your cold email response rate, I’d say follow for more, but this was really my only piece of advice.

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
-Ramp is offering a $500 bonus to TBC members when they start using Ramp.
- HubSpot’s 50% off deal for startup CRM ends November 30th. Sign up here for auto approval. Questions? Reach out to Cristine at [email protected]
- Remgu: Talk to Luka @ Remgu for sourcing top European engineers at a fraction of the price of American talent

Tech Breakfast Club Events

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.

El Segundo Tech Breakfast Club Jan 9th
Kicking the year off with in the most important 5 square miles in America

Austin Tech Breakfast Club Jan 16th
Hopefully my cholesterol is under control by January - planning on eating a ton of tacos and brisket

NYC Tech Breakfast Club Jan 22nd
Cohosting with Ben Braverman (Saga Ventures). If you’re embarking on a worthy quest - come join!

Fintech Tech Breakfast Club (NYC) Feb 5th
Cohosting with Parker Odrich (Communitas Capital) and Topher Price (MS&AD). Come join if you’re building or investing in Fintech

Bonus: Laurent Span, one of TBC’s favorite VC’s, is throwing a holiday gala on December 6th in NYC. Grab your tux and grab a ticket: https://posh.vip/e/the-gala-3

Tech Breakfast Club 🤝 Citrin Cooperman

In today’s dynamic digital landscape, technology companies face an ever-growing array of cybersecurity threats. From sophisticated ransomware attacks to advanced phishing schemes, businesses must stay vigilant to protect their data and maintain operational integrity.

For expert insights and practical strategies to address these challenges, contact Kevin Ricci, Partner in our Cybersecurity Practice, and Tom Porricelli, Partner and Technology & Media Practice Co-Leader - who specialize in helping businesses navigate the complexities of today’s cybersecurity risks. Together, they provide valuable guidance on building a proactive cybersecurity culture, identifying potential vulnerabilities, and deploying effective defense mechanisms.

Don’t miss the opportunity to strengthen your organization’s defenses and reach out to Kevin and Tom for tailored advice and support.

💰️ Featured Job (brought to you by Twill)

If you know someone for this role, sign up for Twill here! They'll email you a link to submit your referral. If your referral lands the job, you’ll get a $5k-25k referral bonus. 

Open Roles:
Google, L4 and L5 Product Operations Analyst, Privacy, Safety & Security (Mexico City Only)

Referral Bonus for Twill Members:
$5k-$25k

About the Role:
Product and Business Strategy Leaders bring together teams across Google’s functions to help products execute optimally. Our team pushes Google to scale at key points that refine our products and infrastructure by executing efficiently, bringing solid business sense and sound judgment, and working effectively across organizational lines.
Privacy, Safety, and Security (PSS) coordinates privacy and security initiatives across Product Area (PA) and functions to help Alphabet maintain its user-first focus, invest in constructive relationships with regulators and key opinion formers worldwide, and ensure that ongoing strategy work is conducted with transparency and accountability.

Ideal Candidate:

• Based in Mexico City, Mexico; Hybrid (3 days in office),

• Bachelor’s degree or equivalent practical experience and MBA

• 4 years (for L4) and 8 years (for L5) of experience in management consulting, product management and strategy, or analytics in a technology company.

• Experience working with and analyzing data, and managing multiple projects.

Is this legal?
Deciphering Pro Rata Rights

Okay – you’re a founder and you’ve convinced a VC to invest in your preseed or seed round. Hell yeah! The investor sends over a YC SAFE. That’s close to a standard (but see my prior newsletters on how to tweak it to save millions long-term).

Cool. But then they attach a side letter. They’re asking for Pro Rata – is that a big deal?

It might look something like this -

This is what we call a Pro Rata of Fully Diluted. Pretty classic. This means that the denominator by which the particular investor’s ownership is divided (to determine their pro rata %) is the entire capitalization of the Company, including outstanding shares, options, warrants, and shares reserved but unissued under the Company’s equity plan.  So, for example, if Investor X paid $1m for 1,000,000 shares, and the total fully diluted capitalization is 10,000,000 shares, then his pro rata percentage is about 10% (1MM/10MM).  If you do a new $10 million round, Investor X has the right to purchase 10% of that round.

One of the smart things this hypothetical side letter does well (from an investor standpoint) is apply the pro rata to each additional round of SAFEs instead of waiting (which might be a long time) for the priced equity round. Although this is more favorable to the VC, and a little tedious for the founder to update the VC every time terms shift, it reflects the reality of startup funding. You’re likely going to have multiple rounds of SAFEs.

Why would an investor want pro rata? Well, a couple reasons. Pro rata investments, especially on a risk adjusted basis, tend to perform better. By the time the company raises another round, the investor will have more working experience with founder and have a better feel for the future. Some funds that make very early investments (like pre seed) need to double or triple down on their winners to make up for the majority of their portfolio that never goes anywhere. And then, in the case of a down round, pro rata rights protect an early investor from getting screwed by later investors.

Founders intuitively sense that the more follow-on investment rights they grant at pre seed/seed, the less flexibility they have when it comes to their next round.  This is where it’s important to do due diligence on your investor. Do they play well with others? If 18 months from now, Sequoia wants to lead your series A and they need to hit certain ownership amount to do the deal, will the investor with pro rata rights be flexible?

When to be worried
Hopefully this doesn’t happen, but on the other end of the spectrum, you’ll see Pro Rata of the Existing Round. Instead of total capitalization, the denominator is how much you raised for the preseed or seed. If the investor put in $1m of a $1.5m pre seed/seed, they’d be entitled to 67% of the next round. That feels predatory.

So, in summary, Pro Rata of the Fully Diluted, pretty fair. Anything else, yikes. There are actually quite a few flavors of pro-rata in-between these extremes. Use experienced counsel to help you identify and navigate them.

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.