☕️ Tech Breakfast Club Hits Escape Velocity (Don't Miss It)

+ How to Structure Your Friends and Family Round

Author

Morgan Barrett
May 10, 2024

Today’s Menu ☕️

👋 Hi, Breakfast Club Members!

Belated shoutout to Macy Gilliam, TBC member, for winning a Webby. Super proud of the content she’s created as well as her charity work for Big Brothers Big Sisters.

Reply to this newsletter with the name of the early stage (preseed/seed) startup you’re most excited about (and a blurb on why) and I’ll donate $5 to Big Brothers Big Sisters.

I’m excited to see everyone in NYC next week. El Segundo Tech Breakfast Club was a blast. Shoutout to Spencer Rogers (NYC Tech Breakfast Club member) and Joseph Lillard (Boston TBC member) for making the pilgrimage to Gundo and celebrating with us.

If you haven’t been paying attention to what’s happening in hard tech just south of LAX and want the backstory - check out this post from Nathan Mintz

Also, thank you to Dominique Fu from Citizens for sponsoring this edition of the Tech Breakfast Club Newsletter.

Tech Breakfast Club Events

NYC Tech Breakfast Club May 15th with Rachel Braun. It’s going to be packed but if you’re an early stage founder who is crushing it - let me know and I’ll get you a spot (or if you’re an early stage founder who is struggling but you’re still a great hang, that works too)

AI Focused NYC Tech Breakfast Club May 22nd with Julien Reiman from Baseten. Mainly open to CTO’s and Machine Learning Leaders in New York

SF Tech Breakfast Club June 18th with Jack McClelland

LA Tech Breakfast Club June 20th

Tech Breakfast Club NY Tech Week Events

Return the Fun(d) Tech Week Party Friday June 7th. We’re back with unprecedented amounts of DPI. Join me, Ariana Nathani from Drinks First, and hundreds of other Tech Breakfast Club members for a blowout party.

Wednesday Evening Standup Meeting with Underground Overground Comedy, June 5th. Sponsorship is available -

NYC Tech Breakfast Club Meetup (BIG) Tuesday, June 4th, with Kate Chichi of Founders Club

NYC Tech Breakfast Club Meetup (small) Thursday, June 6th with Lori Berenberg of Bloomberg Beta

VC Golf Outing (10 out of 20 slots filled) Wednesday, June 5th. We’re playing Bayonne GC! This might be the sickest thing I’ve ever put together. Shoutout to Jeff Miller at Valuation Research for sponsoring a foursome. If you want to sponsor a group - we’ve got a little space left.

Citizens 🤝 Tech Breakfast Club

I would like to give a big thank you to the startup banking team at Citizens. If you came to the most recent Tech Breakfast Club in El Segundo, you might have had a conversation with Dominique Fu - if you’d like to chat further with her, shoot her an email:

Fuel your growth and pursue each milestone with a set of financial products and services built for your innovative company. Enjoy a dedicated, empowered point-of contact and a team of experts who can proactively address your needs and collaborate with you to develop customized strategies to help your business succeed.

Startup Law
Friends and Family Rounds

I’ve written about this before but since I got a question this week on the topic of Friends and Family rounds - meaning the financing round before founders take money from angels - I thought I would discuss how to structure a FNF round again.

It’s tough to get interest from angels (and VC’s) before you can show some traction, especially as a first-time founder. Unfortunately, although it’s gotten a lot better in recent years, you still might need $75k+ to get to a point where angels will find your startup attractive. Yeah, some founders can get funding off of just an MVP but it’s rare.

 If you’re fortunate enough to have a network of close professional contacts or family members willing to back you at the start here’s some advice:

  • Everyone should still be an accredited investor (this is self-certified)

  • To keep legal costs down, it should look (on paper) like a small seed round with angels (convertible note or SAFE with discount to future equity round price), save for a few crucial differences (described below).

  • Unless someone in your F&F group is a professional angel investor who is comfortable setting a valuation on your company, it should probably not have a valuation cap. This avoids the risk of setting it too high or too low, both of which can negatively impact your next round.

  •  It should contain what’s often referred to as an “MFN” (most favored nation) provision allowing the terms to be amended and restated to be on par with the next financing round (when angels get involved). This ensures that the lack of a valuation cap does not result in your later more professional investors (who usually insist on a cap) getting a better deal than your biggest risk-takers (your friends and family).

  •   I would go one step further, though, and give your F&F a discount on the future valuation cap that angel investors get (this is not the same as an equity round discount typically contained in SAFEs or Notes). This “Super MFN” on a future valuation cap allows you to reassure your F&F that they’re getting the best deal for taking the most risk, while waiting for later angel investors to actually set the price for you.

    Happy to chat more about including a Super MFN Valuation Cap provision, or to share a template, if you’re thinking about a Friends and Family round.

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.