Choosing your technology stack is one of many decisions you’ll have to make when creating a company from scratch. Along with this, you’ll need to figure out who you should found a company with, ...
Choosing your technology stack is one of many decisions you’ll have to make when creating a company from scratch. Along with this, you’ll need to figure out who you should found a company with, who you should take money from, what the company culture should be, management processes, and who to hire when. Joe will be covering basic technology stack choices (cloud v. hosted, frameworks, etc.) as well as other critical decisions one faces when starting a startup.
Starting your StartupJoe Stump, CTO & Cofounder of SimpleGeo
• Early employee at three startups ranging from bootstrapped to venture funded.• Angel investor in three startups.• Advisor to seven venture funded startups.• Cofounder of two venture funded startups.
Itʼs lonely at the top.
Implementing vision takes timeInception Your brain Funding v1.0
Startups are Trench Warfare
FOUNDING ASTARTUP IS REALLYFUCKING HARD. NO JOKE.
“Don’t start a company unlessit’s an obsession and something you love. If you have an exit strategy, it’s not an obsession.” Mark Cuban
“Focus on the problem. Ifyou’re only excited about the solution, you’ll lose interestwhen your solution doesn’t fix the problem. ” Adil Wali, CTO of ModCloth
FIND A MENTORWHO HAS FOUNDEDA STARTUP BEFORE.
Forming the Company
Choose your partner wisely
founder(s) (n): The person or people whoagree to quit their jobs after initially conceivingand brainstorming an idea.
How many founders?• Investors want to see more than one founder for redundancy reasons.• More than three founders leads to dilution and control issues.
What to look for?• Find people who have a similar work ethic as you.• Find people with complimentary skill sets.• Find people with a similar approach to product development as you.• Find people with similar values.
BE WARY OF GIVING THE TITLE “COFOUNDER” TOEARLY EMPLOYEES
You
Them
FIND PEOPLE ECONOMICALLYALIGNED WITH YOU.
Good A little friction is good.
Bad A lot of friction is bad.
SimpleGeo✓ Matt Galligan is an established designer with expert knowledge of CSS, HTML, and branding.✓ Joe Stump is an expert in building scalable web infrastructure, recruiting engineers, and programming processes.๏ Both are extremely opinionated product people.
Slicing up the Pie
• All founders should be on a four year vesting schedule. One year cliff, 25% vested up front, monthly vesting after cliff.• Set aside 15% for an employee option pool. Your investors will make you anyways.• File your 83(b) election.
• First non-founding engineer should expect 1-3%• Early engineering hires can expect 0.5% to 1.5%• Director level around 1%, VP level around 2-3%, CEOs between 6-9%
PLEASE FILE YOUR 83(b) ELECTION(PRETTY PLEASE).
48% of $1M is greater than 15% of $1M.
Hire a Lawyer
• Many law firms in the Bay Area will form the company on consignment.• Investors in the Bay Area are used to dealing with a handful of lawyers. Speeds up process and saves money on closing.
Delaware C Corp
USING CHEAP LAWYERS IS ANEXTREMELY DUMB IDEA.
Funding the Company
“Money is a renewableresource. Time is not” Adil Wali, CTO of ModCloth
Bootstrap the Company
Venture funded company
Venture Bootstrap Backed Control ✓Fast to market ✓No distractions ✓ No dilution ✓
pre-money valuation (n): 1. Whatinvestors think your company is currently worthsans investment. 2. Bullshit.
post-money valuation (n): 1. Company’spre-money valuation plus the dollar valueinvested. 2. Bullshit. 3. Money in the bank.
dilution (n): 1. The action of making a liquidmore dilute. 2. The act of stock beingtransferred from the people creating thecompany to the investors with the money, thusreducing the percentage of the company thepeople creating the company own.
liquidation preferences (n): 1. The dollaramount that a holder of preferred stock willreceive prior to holders of common stock. 2.The act of investors covering their asses.
preferred stock (n): 1. Stock that entitlesthe holder to a fixed dividend, whose paymenttakes priority over that of common-stockdividends. 2. The act of giving up all control overyour company.
convertible note (n): 1. A loan whosevalue may be converted into common orpreferred stock. 2. Easiest, most founder friendlyform of capital on the market.
discount (n): 1. An investment discountconvertible note holders receive in subsequentrounds. 2. If the Series A share price is $10.00/share, and the convertible note holder has a20% discount, they may buy at $8.00/share.
price cap (n): 1. A share price ceiling thatnote holders enjoy in subsequent rounds offinancing. 2. If the convertible note’s price cap is$5M, and a round is raised at $10M, the noteholder gets twice as much value.
priced round (n): 1. Financing the companyby selling a certain percentage for a mutuallyagreed upon price at a mutually agreed uponvalue of the company. 2. The most expensive,investor friendly form of capital on the market.3. Moment when your notes convert intopreferred stock according to their terms.
“Raise money when you can; not when you want to.”
A few gotchas• Be wary of aggressive pro rate rights that allow investors to “buy up” in subsequent rounds.• Be wary of board composition early on.• Be wary of any one investor owning a majority of preferred stock.
Company Structure• Preferred stockholders have all voting rights to change company charter.• Common stockholders have no voting rights.• Founders are at-will employees of the board.• All transactions (fundraising & exits) must be approved by board and majority of preferred stockholders.
YOU CAN BE FIRED FROM YOUR OWN COMPANY.
“A 2x return in less than 18months is uninteresting to us.”
LOLWTFBBQ?!
Moving the Needle
1. Invest $2m at a $4m pre-money valuation for 33% of the company.2. Sell company for $12m in less than 12 months.3. PROFIT! $2m in profits from the sale.4. On a $400m fund you’ve netted a 0.5% return for your fund’s LPs.
1. Look for investors who have founded and ran a startup before.2. Look for investors with some of their own money in play.3. Look for investors who understand the problem and are excited about your solution.
INVESTORS ARENOT YOUR FRIENDS.
Spending the Money
MONEY / EMPLOYEES = $12,000 – $15,000
74%18% 3% 5% Rent Infrastructure People Other
Cloud
Physical Hardware
Physical Cloud HardwareCost efficient ✓ On-demand ✓ Less to ✓ maintain Automated ✓
Key Questions• Does your application have abnormal performance characteristics or density requirements?• How much time, money, effort, and management will go into building & maintaining multiple colocation facilities?• What is the opportunity cost to your product if you are fully staffing a network operations center?
“Want to increaseinnovation? Lower the cost of failure.” Joi Ito
CLOUD VS. PHYSICAL HARDWARE IS ABUSINESS DECISION.
“As far as technology, go with what you know.” Mark Cuban
THE TECHNOLOGYSTACK YOU CHOOSE IS AN IMPLEMENTATION DETAIL.
Creating the Product
“The best products inthe world start out as features.” Kevin Systrom, CEO of Instagram
“If you’re not embarrassed when you ship your first version you waited too long..” Matt Mullenweg, CEO & Founder of WordPress
BE MILITANT INYOUR MINIMALLYVIABLE PRODUCT (MVP).
Approaching Product1. Focus on a single use case that addresses the problem.2. Start with a minimal core set of features.3. Release and listen to your users.4. Question your initial assumptions based on feedback.5. Rinse and repeat.
Rodrigo Ayala
Also, You vs. Them is brilliant :-D 1 year ago
Its height of creative and graphic communication and very impressive,
Thanks,
Kulkarni Mohan 1 year ago