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The four year vesting schedule the typical startup uses today is an issue waiting to be happened. If a founder leaves a year or two before the last cliff, he still owns a large portion of the cap table in many rounds to come. The outgoing founder may think this is fair, but the remaining founders are the ones who add value – and resentment isn't the only problem.
“The opportunity cost of dead equity is talent and capital,” explains Jake Jolis of Matrix Partners in a guest post for us this week. “Talent compensation and raising capital are the (only) two things you can use your startup's equity to do, and you need to do both to make your business big. If you are looking to build a big business, the road ahead is still long and windy and you are going to need all the help that you can get. When your competitors don't have equity, you are literally competing with a handicap. "
Instead, he argues that founders who are just starting out should consider doubling the vesting schedule to around eight years. In one example he cites, a founder who leaves a four-year plan after two and a half years, even after a major new round of funding, the creation of a pool of stock options for employees and additional employees, could receive 22% of the company's shares, which for a replacement rent to co-founder- Level are reserved. With an eight-year plan, that would only be 11%, and there would be a lot more left to attract new co-founders.
The full article is about Extra Crunch, but I'll add more important bits here given its broad value:
Given the risks still ahead of the business, this level of compensation is often much fairer from a value added perspective. With less dead equity on the cap table, the startup is still attractive in the eyes of VCs and well positioned to land a strong replacement for co-founders to help move the company forward. The alternative can cripple the company, and even Co-Founder B won't be happy to own a larger percentage of zero. While it is better to do this when you start the business, a co-founder unit can extend their lock-up period later as well. The main requirement is that all co-founders believe that this is in their best interest and agree to it. Most of the repeat founders I spoke to agreed that four years is too short. If I were to start another company personally, I would pick about eight. You definitely don't need that. You might decide that four or six are better for your co-founder unit and your business.
One last thought from my founding years. The outgoing co-founder should continue to want to see the company's success as big as possible in order to maximize the value of their own stocks. On the steep line between failure and success in this business, an extended vesting period is an effective way to help the company get the most out of them after the hard work of the early days.
Why a successful early stage VC company is now moving into SPACs
SPACs are an exciting development for any public or private investor, Amish Jani of FirstMark Capital told Connie Loizos. In fact, his company has historically focused on writing early-stage checks. So it's a little unsettling at first to see FirstMark Horizon Acquisition's SPAC raise $ 360 million and go in search of the right unicorn. But he explains it all pretty well in an in-depth interview this week:
TC: Why SPACs? Is it fair to say that it is a shortcut to a hot public market at a time when no one knows exactly when the markets might shift?
AJ: There are a couple of different topics that come together. I think the first is the ability (SPACs) to work and really well. (Our portfolio company) DraftKings (merged retrospectively into a SPAC) and made a (private investment in a public equity business); It was a pretty complicated transaction and they used that to go public, and the stock has done incredibly well.
In parallel, (privately owned companies) have been able to raise large amounts of capital over the past five or six years, which has shifted the schedule (for going public) quite a bit. (Now there are) tens of billions of dollars in value in the private markets and (at the same time) the opportunity to go public and build trust with public shareholders and take advantage of the early tailwind of growth.
He goes on to explain why public markets are likely to stay hot for the right SPACs in the future.
AJ: I think a bit of a misunderstanding is the idea that most of the investors in the public markets want to be hot or fast money. There are many investors interested in being part of a company's journey who have become frustrated because they have been frozen from access to these companies because they have stayed private longer. Our investors are some of our (limited partners), but the vast majority are long-only funds, alternative investment managers, and people who are passionate about technology as a long-term disruptor and want to align themselves with this next generation of iconic companies.
Check out the whole thing on TechCrunch.
SaaS continues to boom with Databrick's financing and segment acquisition
Perhaps Segment would have gone public soon, but instead Twilio maxed it out for $ 3.2 billion this week. The popular data management tool will now be part of Twilio's ever-expanding suite of customer communications products. Perhaps it is another sign of a period of consolidation in this sector after a pre-Cambrian explosion of SaaS startups over the past decade? Alex Wilhelm looked at the financials of the deal for Extra Crunch and concluded that the deal wasn't too expensive – in fact, he believes Segment might be able to hold out a little more, especially given the multiplication of Twilio's share price by year.
Databricks has since evolved from an open source data analytics platform that struggled to generate $ 350 million in revenue. According to an interview Alex did for EC with CEO Ali Ghodsi, the factors behind this growth were a shift to focus on more proprietary code, large customers, and sophisticated features. It is now aiming for an IPO next year.
And what about the IPO market, which was a little quieter this week? Alex gives a letter note to each of the 18 best-known tech companies that went public this year, noting that most of them continue to remain positive from their original prices.
The start-up scene in Nigeria will be a turning point with the paystack deal
Lagos has built a strong local startup scene for years, and this week that resulted in a victory that could mark a new era for the city, country and beyond. Stripe has agreed to take over payment provider Paystack under a deal Ingrid Lunden hears is worth more than $ 200 million. With Stripe's own goals for a massive IPO, Paystack is poised to deliver sustained returns for the company and its investors, and to provide Nigeria with a new generation of investors, founders, and highly skilled employees closely linked to Silicon Valley and other innovations are centers.
A startup hub only needs one or two of the right offers to change everything. Readers who paid attention to the purchase of YouTube by Google almost exactly 14 years ago today will remember the surge in funding, foundations, acquisitions, and overall internet industry activity that helped the Silicon Valley internet scene to get on its feet (and helped this website get on its feet too on the map). Stripe has announced that it is planning another global expansion that could include additional deals like this, so more cities around the world could get their moments this way.
Viennese startups are finding new opportunities during the pandemic
In this week's European Investor Survey for Extra Crunch, Mike Butcher finds out about Vienna, Austria, which has seen growth in local startup activities recently. Here is Eva Ahr from Capital 300, who is focused on Germanic and Central Eastern European investments, regarding the impact of the pandemic on local markets:
Telemedicine, online education accelerated. We are seeing a shift that would otherwise have taken years, especially in the relatively conservative German-speaking area. As mentioned earlier, mental health solutions, remote hiring and employment are some of the opportunities highlighted by COVID-19. Highly exposed companies are companies that have served the long tail of businesses, small traders and local businesses that have closed in the past few months or have had much less traffic and are therefore extremely sensitive to their cost base and are hiring services that do don't do 110% essential.
Mike is also working on a poll in Lisbon and we'd love to hear from investors focusing on the city and Portugal in general.
All about TechCrunch
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South Korea pushes for AI semiconductors as global demand grows
The need for real equity in equity compensation
Trump's recent immigration restrictions are bad news for American workers
How COVID-19 and the resulting recession will affect female founders
Startup founders built hacker houses to restore synergies in Silicon Valley
Brighteye Ventures' Alex Latsis talks about European Edtech funding in 2020
Dear Sophie, I came with a B-1 visa, then COVID-19 happened. How can i stay
What the iPhone 12 says about the state of the smartphone industry in 2020
Hello and welcome back to Equity, TechCrunch's venture capital-focused podcast (now on Twitter!) Where we unpack the numbers behind the headlines.
The whole crew was back today, with Natasha, Danny and me, analyzing what was really a blast of news. Many startups are raising. Many VCs are increasing. And shoot some unicorns to go public. There's a lot to get through, but we're here to catch up with you.
Here's what we got into:
A summary of the media: The Juggernaut raised $ 2 million in what we found cool and timely. News of a cash-raising media startup was coupled with rumors of email media darling Morning Brew's exit at a cost of up to $ 75 million. Each story was recently backed up by reports of Axios' sales success. It's nice to cover some media news that aren't new layoffs.
A group of wellness startups raising capital: If you want to exercise your mind and body, it has been a good week of news for you. Calm is looking for new funds with a fresh, higher valuation. TechCrunch offers coverage here. Coa raised and added $ 3 million to his coffers for group mental health classes. And Playbook has collected $ 9.3 million for its fitness instructor platform.
VCs have collected tickets: It's a hot time for VCs to raise funds. OpenView, Canaan, True Ventures, Lead Edge Capital, First Round and Khosla either close rounds or announce new fundraising drives.
Also on the VC beat: Terri Burns has been named an investment partner at GV.
Finally, we looked into recent GetAround funding and turnaround history, which has broken us down into Airbnb's own recreation. TechCrunch has more to offer here.
And so we have until Monday morning off. Chat soon and stay safe.
Equity declines every Monday at 7:00 a.m. PDT and as fast as possible on Thursday afternoon. So subscribe to us on Apple Podcasts, Overcast, Spotify and all casts.