Starting your Startup Joe 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 time Inception
Your brain Funding v1.0

Startups are Trench Warfare

FOUNDING A STARTUP IS REALLY
FUCKING HARD. NO JOKE.

“Don’t start a company unless
it’s an obsession and something you love. If you have an exit strategy, it’s not an obsession.” Mark Cuban

“Focus on the problem. If
you’re only excited about the solution, you’ll lose interest when your solution doesn’t fix the problem. ” Adil Wali, CTO of ModCloth

FIND A MENTOR WHO HAS
FOUNDED A STARTUP BEFORE.

Forming the Company

Choose your partner wisely

founder(s) (n): The person or
people who agree to quit their jobs after initially conceiving and 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” TO EARLY EMPLOYEES

You

Them

FIND PEOPLE ECONOMICALLY ALIGNED 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 AN
EXTREMELY DUMB IDEA.

Funding the Company

“Money is a renewable resource.
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. What
investors think your company is currently worth sans investment. 2. Bullshit.

post-money valuation (n): 1. Company’s
pre-money valuation plus the dollar value invested. 2. Bullshit. 3. Money in the bank.

dilution (n): 1. The action
of making a liquid more dilute. 2. The act of stock being transferred from the people creating the company to the investors with the money, thus reducing the percentage of the company the people creating the company own.

liquidation preferences (n): 1. The
dollar amount that a holder of preferred stock will receive prior to holders of common stock. 2. The act of investors covering their asses.

preferred stock (n): 1. Stock
that entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividends. 2. The act of giving up all control over your company.

convertible note (n): 1. A
loan whose value may be converted into common or preferred stock. 2. Easiest, most founder friendly form of capital on the market.

discount (n): 1. An investment
discount convertible note holders receive in subsequent rounds. 2. If the Series A share price is $10.00/ share, and the convertible note holder has a 20% discount, they may buy at $8.00/share.

price cap (n): 1. A
share price ceiling that note holders enjoy in subsequent rounds of financing. 2. If the convertible note’s price cap is $5M, and a round is raised at $10M, the note holder gets twice as much value.

priced round (n): 1. Financing
the company by selling a certain percentage for a mutually agreed upon price at a mutually agreed upon value of the company. 2. The most expensive, investor friendly form of capital on the market. 3. Moment when your notes convert into preferred 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 18 months 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 ARE
NOT YOUR FRIENDS.

Spending the Money

MONEY / EMPLOYEES = $12,000
– $15,000

74% 18% 3% 5% Rent
Infrastructure People Other

Cloud

Physical Hardware

Physical Cloud Hardware Cost 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 increase innovation? Lower
the cost of failure.” Joi Ito

CLOUD VS. PHYSICAL HARDWARE IS
A BUSINESS DECISION.

Rails Django Code Igniter Prototyping
✓ ✓ ✓ ORM ✓ ✓ ✓ MVC ✓ ✓ ✓ Community ✓ ✓ ✓ Scalable ✓ ✓ ✓

LANGUAGES DO NOT SCALE. ARCHITECTURES
DO.

RDBMS NoSQL Well known ✓
Ecosystem ✓ Linear scaling ✓ Multi-master ✓ Scalable ✓ ✓

“As far as technology, go
with what you know.” Mark Cuban

THE TECHNOLOGY STACK YOU CHOOSE
IS AN IMPLEMENTATION DETAIL.

Creating the Product

“The best products in the
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 IN YOUR MINIMALLY
VIABLE PRODUCT (MVP).

Approaching Product 1. 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.

Product / Market Fit Enjoy
the Ride

@joestump