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Welcome back to another episode
of the Startup Therapy podcast.

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This is Ryan Rutan, joined
as always by my friend,

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the founder and CEO of
Startups.com, Will Schroeder.

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Will, we watch founders
fight like hell over giving

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an investor 15%, and then
turn around and hand a

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co-founder 50 cen- or 50%
like it's a free breadstick,

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or like it's 50 cents, right?

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The truth is, man, investor
dilution is usually the

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cleanest equity we give
away because at least we

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know what we got for it.

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Yep.

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Why, in your opinion, are
founders so disciplined with

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investor equity and so wildly
emotional with everybody else?

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It blows my mind.

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It blows my mind that given
how expensive these other

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decisions are, how, like, just
frivolously, like, people- Yeah

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give, give away their
stock to a co-founder-

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Yeah … which, which, you
know, is always m- my, my gripe.

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I'm not anti-co-founder, but
dude, you paid a lot for it.

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Or employees, early
employees, you know, who

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may or may not contribute.

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Or advisors, who I think if you
did the math, are gonna wind

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up being the highest priced
advice you could possibly find-

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much less would pay for.

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Yep.

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Right?

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Founders, w- when we say,
like you said, "Hey, you're

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gonna give up 15% of the
company." "Oh, maybe it

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could be 12," or whatever.

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I'm like- Right … "You're
gonna get actual money, man."

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There's an inbound wire that
justifies that decision,

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right?

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Yeah.

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So- That one's okay

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… 
so how are you okay with giving
some guy you met on- Yeah

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Craigslist 50% of the company
because- Yeah … he could

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build a mobile app, right?

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Right.

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How are you

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okay with that part?

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Yeah.

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Equity is not a thank
you note, right?

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Yeah, yeah.

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It's, it's the most expensive
currency a startup has, but we

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don't treat it that way, right?

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I, I'm gonna, I'm gonna echo
back to something you said,

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I think on the podcast,
but it's been, like, six

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or seven years ago now.

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And, and you said that,
"Yes, today it feels, it

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feels valueless," right?

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Yeah.

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The company's at, at a state
where, like, it doesn't

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feel like it's worth much.

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But remind yourselves that
represents 100% of the

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future value of your company.

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Yep.

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Let me say that again- … in
case anybody choked and

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spit their coffee out.

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It represents 100% of the
future value of your company.

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And so when you are handing
it out like, I don't know,

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Halloween candy, might
wanna reconsider that.

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When I look back at all
the startups that I've done

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and kinda how I've, you
know, distributed equity

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in the past, and I, I'm not
terribly upset about it, of

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all the decisions I made.

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In other words, like I, when I
looked at, at… Like, I never

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looked back and say, "Oh my
God, that person got too much,"

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or, "I got ripped off," or,
you know, something like that.

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Yeah.

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Nothing like that.

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What I'm upset about is how
poorly I valued the equity.

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This is me saying I think,
you know, people more or

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less earned, you know, what
they earned, but I think

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my, my internal compass,
where I, I wish- Yeah

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that I had been more
disciplined about how I

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thought about that equity.

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You know, kinda, you know,
what we talk about now, which

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is, oh, damn, it, it's, it's
worth real money now, right?

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And I think what happens in
the early, early days- is

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we're on the opposite side.

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We can't believe anybody
will do anything for these

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magic beans that we have
called equity, right?

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We're like, "Wait,
you'll do- Yeah.

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Seriously?

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Yeah.

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Like, you, you'll take- Yeah
… you'll take this Monopoly money?

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Seriously?

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Right.

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Yeah.

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Yeah, it'd be like, yeah,
it's, it's like walking into

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a car dealer and being like,
"I just printed this out."

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They're like, "No problem.

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No problem.

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Just go ahead.

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Take anything you want off
the lot and just leave us a

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stack of your fresh-printed
bills right there."

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What throws us off is because
we feel like we got it for free,

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'cause we just came up with this
idea nine seconds ago, that we

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can just give it away for what
we perceive to be real value,

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that it must be free currency.

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Yeah.

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And that's why in the early
days, which is why we're

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doing this episode, which is
why in the early days when y-

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that first year, that first
18 months, when startups

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founders don't realize how
vulnerable they are, that we

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start giving this away, again,
because we're so blown away.

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I'm gonna go back to the
co-founder one for a second.

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Sure.

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The most common instance,
and we will dig into

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this, but the most common
instance is I got this idea.

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If anybody will agree that it's
also a good idea, vis-a-vis

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validate me, and- Yeah … join
me on this insane journey so I'm

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not alone- Yeah … I'll kind
of agree to just about anything.

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Yeah, yeah.

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Yep.

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T- terms?

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Yep.

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terms.

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We don't need a term sheet.

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Here's half the company.

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And I always remember, 'cause
we always saw this live at

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the startup weekend events.

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You know, where in one weekend
everybody came together.

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Any hackathon or
anything else like that.

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And it would always
be the same thing.

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The weekend goes, it goes
from a Friday to Sunday,

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and then on Monday everyone
would be like, "Okay.

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Well, we kind of just divided
up the company, like, in

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thirds on Saturday morning,
'cause that's when we decided

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we were gonna work together.

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Yeah.

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And now it's Monday, and like,
that guy's kind of an idiot.

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I don't think I want to give
him a third of this company.

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Just 'cause he showed
up at this event.

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He's not even from

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here.

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He just flew back
to somewhere else.

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Like,

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what are we gonna do

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now?

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Yeah, yeah, yeah.

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I always remember that,
'cause Ryan, you remember, we

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used to meet with all these
folks on a regular basis.

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Oh, yeah.

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We were really involved
in, in those events.

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And I remember the hangover
on Monday morning, where the,

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usually the person who had the
idea was like, "Man, I just

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gave that guy that just happened
to be in the room, like, a

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third of my company." Yeah.

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Because he was the only person
that, that could write code

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on Saturday morning, right?

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Which is like- Yeah

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you know, when they
started to work in earnest.

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And I was like, "You know
can undo that, right?

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Like, you can go start
another company, whatever."

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And but I always remember
the look on the founder's

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face, where they're like, "I
think I made a huge mistake."

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Yeah.

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'
Cause you did.

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Yeah.

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You, you gave a third or half
your company to essentially a

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stranger for what they might
do someday, and probably won't.

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That is bananas.

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Yeah.

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Why are you freaking out-
It is … about that?

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Yeah.

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Right, I know.

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That's the thing.

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It's, it's, yeah, like we,
we treat investor equity like

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it's some kind of fine china.

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Yeah.

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And co-founder equity
is like bar peanuts.

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Just everybody stick your
hand in and get what you want.

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Uh, don't worry about it.

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Yeah.

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It, it- Half the
company isn't a gesture.

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It's a life sentence on your
cap table, for God's sake.

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A life sentence.

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Like, you are doing so much
to the company- It's crazy

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… by making that decision.

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Yeah.

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With objectively very
little information.

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And unlike investor
equity, which comes with

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a receipt, nothing, right?

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Yeah.

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Investors pay in cash.

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Everybody else pays in maybe.

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In maybes and promises, right?

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Yeah.

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And to be fair, I want
folks to hear this.

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Most of the people you're about
to give equity to, or have given

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equity to, will not perform.

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They will not perform, right?

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And it's not because-

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It's math.

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Right.

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It's, uh… And, and, but
here's why they won't perform.

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Number one, because startups
are transient and hard, right?

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Like most- Yeah … people, once
the, the fog and pixie dust off,

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I wanna go join a startup wears
off, and like- Yeah … oh,

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it doesn't pay anything, and I
have to, you know, consume all-

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Which takes about two weeks,

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by the

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way.

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Yeah, yeah, yeah.

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It's, once people sober
up basically, they realize

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it's a terrible idea.

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Right?

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Which is fair, okay?

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Another reason is the startup
changes so fast that what-

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So fast … you thought you
were gonna do, or what they-

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Yeah … thought they were
gonna do, or whatever the

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conditions were when you made
this pact Just don't apply in

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three, six, 12 months, right?

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Right.

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So nobody's fault,
but the playing field

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changed completely.

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The game changed completely.

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The other thing that you
run into is that for a

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lot of people, what they
think their value will be

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and what it actually is,
is dramatically different.

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Yeah, yeah.

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It would be like me saying that
I wanna play for the Columbus

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Blue Jackets in the NHL, right?

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Like, I'm a pretty good
hockey player, right?

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Um, I can skate pretty well.

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Yeah.

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I can… You know, you've
played hockey with me, Amari.

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I'm okay, right?

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Yeah, yeah.

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You left some bruises on me.

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Yeah.

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But if I took that same
impression of myself and

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took it to that next level, I
wouldn't make it off the bench

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before getting leveled, right?

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Like, and, and that would be
the shortest hockey career ever.

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Yeah.

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And I use this to
say my s- You're

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not getting into the stadium
without a ticket, let's put it

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that way.

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Yeah, yeah, exactly.

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So m- my self-assessment of
what I think my performance is

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going to be- Yeah … doesn't
mean jack shit, and that's

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what I'm getting paid on.

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Because I'm gonna tell
you, I'm gonna go out

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there and nail goals.

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I'm probably gonna have
a hat trick- Yeah … you

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know, every single time.

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Yep.

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Yep.

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And I can say whatever I
wanna say, but I also have to

252
00:07:56,381 --> 00:07:59,681
show up and do those things,
and most people just in

253
00:07:59,782 --> 00:08:01,381
life can't do those things.

254
00:08:01,412 --> 00:08:04,001
They, they can't, you know,
execute onto the best of their

255
00:08:04,022 --> 00:08:06,582
ability, which is why- Yep
… there's a delta in performance.

256
00:08:06,621 --> 00:08:07,801
Yeah, I mean, how often
do we see this, Will?

257
00:08:08,082 --> 00:08:10,631
Founder gives 50% to, let's
say, a technical co-founder,

258
00:08:10,681 --> 00:08:12,462
'cause I think that's one of
the, one of the, the biggest

259
00:08:12,472 --> 00:08:14,702
ways we see- Yep … people
part with equity, because they

260
00:08:14,761 --> 00:08:15,942
need someone to build it, right?

261
00:08:15,962 --> 00:08:16,061
Yep.

262
00:08:16,111 --> 00:08:17,032
And they, they can't
do it themselves.

263
00:08:17,061 --> 00:08:17,691
They don't have
the money to do it.

264
00:08:18,222 --> 00:08:21,121
Six months later, the
product's barely shipped

265
00:08:21,142 --> 00:08:21,921
or not shipped at all.

266
00:08:22,121 --> 00:08:23,501
The relationship
is really strained.

267
00:08:23,982 --> 00:08:25,311
The founder's now
negotiating with someone

268
00:08:25,361 --> 00:08:26,982
who owns half the company-

269
00:08:27,542 --> 00:08:27,681
Yeah

270
00:08:27,702 --> 00:08:30,162
… 
and maybe isn't even
full-time emotional.

271
00:08:30,222 --> 00:08:32,541
It, it, like, and they're not
even there emotionally anymore.

272
00:08:32,562 --> 00:08:32,611
Mm-hmm.

273
00:08:32,611 --> 00:08:33,972
Maybe they are, they're
there, maybe they're not.

274
00:08:33,982 --> 00:08:36,531
But it puts you in such a
weird position as a founder.

275
00:08:36,942 --> 00:08:37,102
Yeah.

276
00:08:37,111 --> 00:08:37,121
Right?

277
00:08:37,141 --> 00:08:38,901
The wrong co-founder doesn't
just cost you equity.

278
00:08:38,982 --> 00:08:40,982
I think that's something
really important here.

279
00:08:41,062 --> 00:08:43,182
Yes, it costs you the
equity, but it also

280
00:08:43,222 --> 00:08:44,662
costs you optionality.

281
00:08:45,082 --> 00:08:45,372
Big time.

282
00:08:45,372 --> 00:08:46,121
It costs you speed.

283
00:08:46,322 --> 00:08:49,082
It costs you sanity,
and it can just, it can

284
00:08:49,162 --> 00:08:50,062
absolutely wreck things.

285
00:08:50,222 --> 00:08:50,322
Yep.

286
00:08:50,332 --> 00:08:52,702
And so I think we have to be
careful here that this doesn't

287
00:08:52,722 --> 00:08:53,882
stop with the equity, right?

288
00:08:54,222 --> 00:08:56,521
The term sheet isn't the end of
your suffering, unfortunately.

289
00:08:56,732 --> 00:08:56,742
Right.

290
00:08:56,762 --> 00:08:58,271
Well, and, and I think,
you know, with the, the

291
00:08:58,342 --> 00:09:00,891
co-founder, to your point,
you can get other investors.

292
00:09:01,281 --> 00:09:03,722
Getting another- Yeah
… co-founder, not unheard of.

293
00:09:03,762 --> 00:09:04,281
It does happen.

294
00:09:04,912 --> 00:09:04,922
Yeah.

295
00:09:05,062 --> 00:09:05,702
Co-founder cycle.

296
00:09:06,122 --> 00:09:08,521
But it's pretty painful,
and it's pretty expensive.

297
00:09:08,552 --> 00:09:08,562
Yeah.

298
00:09:08,582 --> 00:09:11,972
But most importantly, there
is a guarantee of nothing, and

299
00:09:12,002 --> 00:09:13,182
this is just with humans, right?

300
00:09:13,242 --> 00:09:15,391
At least with the- Yeah,
yeah … investor, there's a

301
00:09:15,422 --> 00:09:16,712
guarantee of cash, you know?

302
00:09:16,762 --> 00:09:18,141
Say what you will- Right
… about the equity- So-

303
00:09:18,141 --> 00:09:18,812
that you're gonna give up.

304
00:09:19,002 --> 00:09:21,041
You are going to get
market value cash.

305
00:09:21,541 --> 00:09:21,771
Yeah.

306
00:09:21,802 --> 00:09:24,362
With all of these other
resources, the co-founders, the

307
00:09:24,401 --> 00:09:27,502
employees, the advisors, you
know, humans in general, you're

308
00:09:27,541 --> 00:09:29,182
gambling every single time.

309
00:09:29,242 --> 00:09:30,942
It'd be the- Exactly
… equivalent of this if the

310
00:09:30,982 --> 00:09:34,242
investor came in and said,
"Hey, here's the deal.

311
00:09:34,682 --> 00:09:38,242
I'm gonna give you a million
dollars for 20% of the company,

312
00:09:38,482 --> 00:09:39,342
okay?" And you're like, "Okay."

313
00:09:39,442 --> 00:09:39,602
Yep.

314
00:09:39,802 --> 00:09:40,031
"
Sure.

315
00:09:40,462 --> 00:09:42,862
But I may not give it to
you." Yeah. "But you are gonna

316
00:09:42,882 --> 00:09:44,102
give me 20% of the company.

317
00:09:44,382 --> 00:09:47,012
And over the next- Yeah … two
to five years, every day you'll

318
00:09:47,041 --> 00:09:49,151
come to me and say, 'Hey, will
you give me the money?'" And

319
00:09:49,202 --> 00:09:50,361
every day I'll think about it.

320
00:09:50,442 --> 00:09:51,672
I want to, right?

321
00:09:51,702 --> 00:09:53,301
I'll say that I want to.

322
00:09:53,402 --> 00:09:53,972
Yeah.

323
00:09:53,972 --> 00:09:53,982
Yeah.

324
00:09:53,982 --> 00:09:54,952
But I probably won't.

325
00:09:55,541 --> 00:09:57,882
But you're gonna give me
the million dollars anyway.

326
00:09:57,962 --> 00:10:00,622
How many people would be
like, "That's a great idea.

327
00:10:00,632 --> 00:10:01,531
Where do I sign up for that?"
That does sound perfect.

328
00:10:01,531 --> 00:10:04,322
And yet they do it every single
day- Yeah … with people.

329
00:10:04,612 --> 00:10:04,812
Right.

330
00:10:05,021 --> 00:10:05,912
Every single day.

331
00:10:06,591 --> 00:10:06,601
Yeah.

332
00:10:06,622 --> 00:10:08,682
And yet they'll haggle with
an investor over a couple

333
00:10:08,722 --> 00:10:11,562
of points- Yeah … who will
actually wire the money.

334
00:10:11,622 --> 00:10:11,781
Yeah.

335
00:10:11,882 --> 00:10:11,992
Right?

336
00:10:12,922 --> 00:10:14,992
And then they'll turn around
and give half the company,

337
00:10:15,122 --> 00:10:17,912
so in, in, based on your
math, that would be $2.5

338
00:10:17,962 --> 00:10:19,711
million worth of equity-

339
00:10:19,742 --> 00:10:20,202
Yeah

340
00:10:20,211 --> 00:10:21,651
… 
to someone who
might do something.

341
00:10:21,902 --> 00:10:22,612
Who might do something.

342
00:10:22,742 --> 00:10:22,912
Right?

343
00:10:22,912 --> 00:10:22,922
Right?

344
00:10:22,942 --> 00:10:24,041
And probably won't.

345
00:10:24,082 --> 00:10:25,422
But l- let me stick
with that, though.

346
00:10:25,442 --> 00:10:27,702
Let's say it's, it's
the equivalent of $2.5

347
00:10:27,722 --> 00:10:29,222
million worth of equity.

348
00:10:29,281 --> 00:10:31,222
Now- Yeah … of course I wanna
lay the foundation, everything

349
00:10:31,242 --> 00:10:34,162
we're about to talk about, in
the fact that right now you

350
00:10:34,222 --> 00:10:35,862
don't actually have that money.

351
00:10:36,700 --> 00:10:42,401
However, if you did, if you
had $2.5 million, would you

352
00:10:42,481 --> 00:10:44,200
give it to that person- Yeah

353
00:10:44,200 --> 00:10:47,021
in addition to what you're
gonna pay them for whatever

354
00:10:47,060 --> 00:10:49,761
intangible value that you think
that they're gonna provide?

355
00:10:49,962 --> 00:10:51,582
The answer's almost
always no, right?

356
00:10:51,622 --> 00:10:51,651
Always no.

357
00:10:51,651 --> 00:10:51,661
Yep.

358
00:10:51,661 --> 00:10:54,741
If I had $2.5 million, I would
never give you that money.

359
00:10:55,021 --> 00:10:55,501
Well, guess what?

360
00:10:55,541 --> 00:10:55,781
Yep.

361
00:10:55,820 --> 00:10:56,680
That's called an employee.

362
00:10:57,462 --> 00:10:57,501
Uh-huh.

363
00:10:57,521 --> 00:10:57,531
Yep.

364
00:10:57,541 --> 00:10:59,700
Like, that's what employers
are for, where you just pay

365
00:10:59,741 --> 00:11:01,961
them to do their jobs, and
they do their jobs, right?

366
00:11:02,501 --> 00:11:02,521
Yep.

367
00:11:02,580 --> 00:11:04,841
Giving some, like,
disproportionate massive

368
00:11:04,920 --> 00:11:07,521
amount of, of money to somebody
for what they might do,

369
00:11:08,001 --> 00:11:09,822
especially in the early years,
we have no freaking idea-

370
00:11:10,060 --> 00:11:10,141
Yeah

371
00:11:10,462 --> 00:11:12,781
… 
is a dangerous gambit.

372
00:11:13,080 --> 00:11:13,401
It is.

373
00:11:13,680 --> 00:11:14,901
But nobody sees it that way,

374
00:11:14,920 --> 00:11:14,930
right?

375
00:11:15,040 --> 00:11:15,881
That's, that's what I'm saying.

376
00:11:15,881 --> 00:11:17,381
What, what they're looking at,
what they're looking at at the

377
00:11:17,420 --> 00:11:19,920
beginning is, like, well, it's
worth nothing, and I'm asking

378
00:11:20,001 --> 00:11:21,580
so much of them, all right?

379
00:11:21,601 --> 00:11:23,001
And so, so what
do we have to do?

380
00:11:23,241 --> 00:11:24,580
What would be fair, right?

381
00:11:24,680 --> 00:11:27,982
Oh my God, this is the word that
enters the conversation that

382
00:11:28,080 --> 00:11:29,841
absolutely blows everything up.

383
00:11:30,060 --> 00:11:32,501
Co-founder grants should be
priced like an investment,

384
00:11:32,560 --> 00:11:33,381
like you just said, right?

385
00:11:33,420 --> 00:11:33,430
Yeah.

386
00:11:33,462 --> 00:11:35,241
Not a wedding vow, right?

387
00:11:35,281 --> 00:11:35,341
Yep,

388
00:11:35,381 --> 00:11:36,180
yep.

389
00:11:36,241 --> 00:11:39,040
Till death do we part,
and if we do, you get 50%.

390
00:11:39,101 --> 00:11:39,180
Yeah.

391
00:11:39,200 --> 00:11:40,361
Um, because how many times
have we seen this, man?

392
00:11:40,401 --> 00:11:41,001
And they're rarely

393
00:11:41,401 --> 00:11:42,080
memorialized.

394
00:11:42,901 --> 00:11:43,461
Yeah, right.

395
00:11:43,501 --> 00:11:43,761
Yeah.

396
00:11:44,241 --> 00:11:46,661
Fairness at the start,
right, it, it feels like

397
00:11:46,680 --> 00:11:47,781
the right thing to do.

398
00:11:47,842 --> 00:11:47,920
Right.

399
00:11:47,961 --> 00:11:52,580
But how often have we
watched fairness at the

400
00:11:52,641 --> 00:11:57,382
start- Absolutely rot into
resentment at scale once

401
00:11:57,421 --> 00:11:58,641
they start moving, right?

402
00:11:58,701 --> 00:12:02,322
It just, it happens so
often because as you said,

403
00:12:02,481 --> 00:12:05,462
right, the businesses move
fast, and not everybody

404
00:12:05,521 --> 00:12:06,402
moves at the same pace.

405
00:12:06,541 --> 00:12:07,681
Not everyone is gonna keep up.

406
00:12:07,721 --> 00:12:09,421
Not everybody's gonna
stay there, right?

407
00:12:09,701 --> 00:12:12,961
Just because you're in early
doesn't mean you were in equal.

408
00:12:13,341 --> 00:12:13,441
Right.

409
00:12:13,461 --> 00:12:13,471
Yeah.

410
00:12:13,481 --> 00:12:15,162
And, and I think that's
where this goes wrong.

411
00:12:15,461 --> 00:12:19,101
We got equal shares for what
end up being really, really

412
00:12:19,381 --> 00:12:23,441
imbalanced inputs and, and
outcomes, and it, it achieves

413
00:12:23,561 --> 00:12:26,402
a, a real huge problem a couple
months or a couple years down

414
00:12:26,442 --> 00:12:29,282
the line when all of a sudden
the one who is putting in most

415
00:12:29,321 --> 00:12:32,021
of the time and has exactly the
same amount of equity and is

416
00:12:32,061 --> 00:12:34,541
creating most of the outcomes
and has exactly the same amount

417
00:12:34,582 --> 00:12:39,481
of equity starts to kind of
go, "Hmm, why is it like this?

418
00:12:39,561 --> 00:12:42,141
Oh, yeah, that was
fair two years ago,

419
00:12:42,221 --> 00:12:43,121
three years ago." Yep.

420
00:12:43,161 --> 00:12:44,341
And, and now it no longer is.

421
00:12:44,742 --> 00:12:47,041
I gotta tell you, I was on
the other side of this where

422
00:12:47,161 --> 00:12:48,941
I was the unfair co-founder.

423
00:12:49,141 --> 00:12:49,801
Let me give you an example.

424
00:12:49,821 --> 00:12:51,861
This is actually, uh,
last company I did before

425
00:12:51,902 --> 00:12:54,081
startups.com very long time
ago, like 15 years ago.

426
00:12:54,601 --> 00:12:57,281
I'd started a company called
unsubscribe.com, and I had

427
00:12:57,301 --> 00:12:58,321
the idea for the company.

428
00:12:58,701 --> 00:13:01,161
Um, I had some people in town
in Santa Monica that I w- I

429
00:13:01,221 --> 00:13:03,662
wanted to start it with, and
I'd kind of like a, a game

430
00:13:03,721 --> 00:13:04,741
plan for how it would go.

431
00:13:05,101 --> 00:13:06,961
And so I recruited two
other co-founders, right?

432
00:13:07,601 --> 00:13:10,741
And at the time, I don't
remember exactly what the equity

433
00:13:10,841 --> 00:13:13,641
split was, but, you know, l-
let's say it was like I had,

434
00:13:13,681 --> 00:13:17,701
like, 50% or 40% and they, the
other two had, like, 30%, right?

435
00:13:17,741 --> 00:13:21,561
So- Okay … I had the majority,
but it was my company, my idea.

436
00:13:22,061 --> 00:13:24,262
However, and this is, this
is where it turns, I had

437
00:13:24,302 --> 00:13:26,061
no intention of running it,
which is why I recruited

438
00:13:26,082 --> 00:13:26,981
the other two, right?

439
00:13:27,041 --> 00:13:27,161
Uh-huh.

440
00:13:27,241 --> 00:13:30,061
One was a CEO candidate, the
other was a CTO candidate.

441
00:13:30,122 --> 00:13:33,021
That company ended up raising
money, like, overnight.

442
00:13:33,041 --> 00:13:33,841
Like, overnight, right?

443
00:13:33,881 --> 00:13:36,341
Like, from, like, super brand
name investors like Charles

444
00:13:36,402 --> 00:13:37,421
River Ventures, et cetera.

445
00:13:37,501 --> 00:13:37,881
Uh-huh.

446
00:13:37,921 --> 00:13:40,342
The other two co-founders came
to me- And they were like,

447
00:13:40,402 --> 00:13:43,382
"Hey, Will, like, we totally
recognize that, like, you

448
00:13:43,462 --> 00:13:45,502
brought us together, it was your
idea," and blah, blah, blah.

449
00:13:45,642 --> 00:13:45,822
Uh-huh.

450
00:13:45,972 --> 00:13:47,982
"
But we're gonna be all
in on this." What is

451
00:13:48,102 --> 00:13:49,262
it that you do here

452
00:13:49,482 --> 00:13:49,912
exactly?

453
00:13:50,032 --> 00:13:50,052
Yeah, exactly.

454
00:13:50,052 --> 00:13:50,462
That's exactly.

455
00:13:50,522 --> 00:13:52,462
What do you do here exactly?

456
00:13:52,982 --> 00:13:57,802
And I remember having
this very long, very

457
00:13:57,862 --> 00:13:59,272
uncomfortable conversation-

458
00:13:59,522 --> 00:13:59,832
Oh, yeah

459
00:13:59,982 --> 00:14:01,742
… 
with these other two
co-founders, right?

460
00:14:01,802 --> 00:14:03,782
It wasn't that they
were wrong, okay?

461
00:14:03,882 --> 00:14:05,462
It wasn't that they
were wrong, it's that

462
00:14:05,542 --> 00:14:07,062
I didn't like it, okay?

463
00:14:07,402 --> 00:14:10,142
I want to point out, like,
we assume that there's a

464
00:14:10,182 --> 00:14:13,442
rationality that goes forward,
and there is not, right?

465
00:14:13,522 --> 00:14:14,682
Like, I was like,
"Fuck you guys.

466
00:14:14,722 --> 00:14:15,522
This was my idea.

467
00:14:15,682 --> 00:14:17,582
I literally brought… You
guys are the reason, like,

468
00:14:17,682 --> 00:14:19,742
that you're here, or I'm the
reason that you guys are here.

469
00:14:20,142 --> 00:14:21,522
How… And we just raised money.

470
00:14:21,562 --> 00:14:22,882
Like, how am I the
one getting fired?"

471
00:14:22,911 --> 00:14:23,002
Because

472
00:14:23,022 --> 00:14:23,122
of you.

473
00:14:23,182 --> 00:14:23,362
Right?

474
00:14:23,402 --> 00:14:24,122
Yeah, yeah, exactly.

475
00:14:24,402 --> 00:14:24,462
Yeah.

476
00:14:24,522 --> 00:14:26,662
Now, now in retrospect,
they weren't wrong.

477
00:14:26,922 --> 00:14:29,942
But also you have to fight
with for what's yours or

478
00:14:29,982 --> 00:14:30,922
people will gladly take it.

479
00:14:31,282 --> 00:14:34,422
But I guess what I'm trying to
say is, this is a case where

480
00:14:34,482 --> 00:14:37,172
we equally s- uh, split things
up, not perfectly equally,

481
00:14:37,202 --> 00:14:38,122
but close enough, right?

482
00:14:38,722 --> 00:14:42,192
And as soon as they realized
that I was on the wrong

483
00:14:42,242 --> 00:14:44,542
end of the cap table, if
you will, they came to me.

484
00:14:44,561 --> 00:14:46,542
And to be fair, they were
very professional about it,

485
00:14:46,582 --> 00:14:47,742
and they were very cogent.

486
00:14:47,822 --> 00:14:49,562
And, and eventually
I relented, right?

487
00:14:50,142 --> 00:14:54,502
However, however, this is
one of those cases where I

488
00:14:54,562 --> 00:14:58,552
recognized for the first time
that I was the problem, right?

489
00:14:58,602 --> 00:15:00,302
Like, I was- Yeah … the
thing kinda like holding

490
00:15:00,342 --> 00:15:00,922
it back, so to speak.

491
00:15:00,962 --> 00:15:02,392
And to be fair, I wasn't
planning on working

492
00:15:02,422 --> 00:15:05,102
there, so like, I only
had so much leverage.

493
00:15:05,182 --> 00:15:06,942
I'm like, "Oh, you guys wanna
work on this full-time and

494
00:15:06,942 --> 00:15:07,002
make money?" What do you mean,

495
00:15:07,002 --> 00:15:07,282
guys?

496
00:15:07,302 --> 00:15:09,002
This is going exactly to plan.

497
00:15:09,102 --> 00:15:10,062
Yeah, exactly.

498
00:15:10,082 --> 00:15:12,302
It is the case, even if you're
well-intentioned, even if you're

499
00:15:12,312 --> 00:15:14,682
the goddamn founder, that you
could be the- Yeah … wrong

500
00:15:14,722 --> 00:15:16,402
person in that equation.

501
00:15:16,412 --> 00:15:16,422
Yes.

502
00:15:16,482 --> 00:15:16,912
Right?

503
00:15:16,962 --> 00:15:18,342
And not easy to unwind.

504
00:15:18,442 --> 00:15:19,792
That's something really
interesting, 'cause, like, when

505
00:15:19,822 --> 00:15:22,822
we get into the are co-founders
worth it piece, it'd be fun

506
00:15:22,862 --> 00:15:26,022
to go back and actually look
at, like, original idea versus

507
00:15:26,032 --> 00:15:28,592
founder who actually really
was the one that carried it,

508
00:15:29,082 --> 00:15:31,292
and see how often it is that,
like, it's the original founder.

509
00:15:31,312 --> 00:15:32,972
'Cause we often think of the
co-founders kinda like second,

510
00:15:33,392 --> 00:15:36,382
and sometimes things do start,
like, they, they start so early.

511
00:15:36,392 --> 00:15:36,402
Yeah.

512
00:15:36,422 --> 00:15:38,132
And I think you and I
would both agree on this.

513
00:15:38,132 --> 00:15:38,142
Yeah.

514
00:15:38,182 --> 00:15:41,490
That at that early idea
stage- The idea's really

515
00:15:41,530 --> 00:15:42,880
not worth that much, right?

516
00:15:42,880 --> 00:15:42,970
Right.

517
00:15:43,010 --> 00:15:43,950
It is the execution.

518
00:15:43,990 --> 00:15:46,350
It's all the other stuff that,
that actually makes it valuable.

519
00:15:46,390 --> 00:15:49,410
And to see really, like,
how often kind of the, the

520
00:15:49,470 --> 00:15:51,830
second and the non-idea
person is the one who actually

521
00:15:51,870 --> 00:15:52,750
creates a lot of the value.

522
00:15:52,890 --> 00:15:53,050
Yeah.

523
00:15:53,350 --> 00:15:54,870
But let's do something
here, because I don't wanna

524
00:15:54,950 --> 00:15:57,140
leave this up in the air for
founders who are just sitting

525
00:15:57,170 --> 00:16:00,430
out there like, "I would
give up 50% of my company

526
00:16:00,570 --> 00:16:02,410
for the right co-founder,"
because we hear this a lot.

527
00:16:02,810 --> 00:16:02,820
Yeah.

528
00:16:02,850 --> 00:16:05,090
I got a couple things that
I, I, I generally wanna

529
00:16:05,170 --> 00:16:07,290
say to them when, when I
hear these kind of things.

530
00:16:07,300 --> 00:16:07,310
Yeah.

531
00:16:07,310 --> 00:16:09,029
And I'd be curious what
then you'd add to the list.

532
00:16:09,570 --> 00:16:10,640
It's start with vesting.

533
00:16:11,010 --> 00:16:11,530
Always vest.

534
00:16:11,810 --> 00:16:12,590
Add some cliffs.

535
00:16:13,050 --> 00:16:13,330
Mm-hmm.

536
00:16:13,370 --> 00:16:15,800
Tie additional equity to
actual value creation.

537
00:16:15,810 --> 00:16:19,130
Define what happens if they
stop contributing, and put some

538
00:16:19,150 --> 00:16:22,250
breakup terms in writing before
there's anything to fight about.

539
00:16:22,290 --> 00:16:24,510
Because once the fighting
starts, there's gonna

540
00:16:24,550 --> 00:16:25,430
be no fairness left.

541
00:16:25,450 --> 00:16:27,430
There's gonna be no- Yep … no
coming to terms at that point.

542
00:16:27,610 --> 00:16:28,630
What, what would you
add to that list?

543
00:16:28,950 --> 00:16:29,490
Here's what I would say.

544
00:16:29,570 --> 00:16:32,610
The best thing about that
conversation is it forces

545
00:16:32,670 --> 00:16:33,770
expectations to the table.

546
00:16:34,510 --> 00:16:34,660
Oh, yeah.

547
00:16:35,010 --> 00:16:35,930
And for both sides.

548
00:16:36,270 --> 00:16:39,270
And I think if you wanna set
up that conversation properly,

549
00:16:39,730 --> 00:16:41,870
I think the conversation
has to be bidirectional.

550
00:16:42,270 --> 00:16:42,810
It has to be-

551
00:16:43,010 --> 00:16:43,210
Oh, yeah.

552
00:16:43,440 --> 00:16:45,770
Gotta be … I need to know what
your expectations are, right?

553
00:16:45,850 --> 00:16:45,900
Yep.

554
00:16:45,920 --> 00:16:47,750
If things were to go wrong,
if I were to be the shitty

555
00:16:47,830 --> 00:16:49,250
co-founder, like, you know,
let's say I'm talking to my

556
00:16:49,290 --> 00:16:50,330
two partners at Unsubscribe.

557
00:16:50,830 --> 00:16:52,820
If I'm the shitty
partner, I need to know

558
00:16:52,850 --> 00:16:55,190
what your expectations
would be of me, right?

559
00:16:55,250 --> 00:16:57,970
And if you're the shitty
partner, uh, vice versa.

560
00:16:58,010 --> 00:17:00,670
One of my first partners in my
first business said this to me

561
00:17:00,730 --> 00:17:01,510
when we were doing the deal.

562
00:17:01,570 --> 00:17:04,090
I was, like, 22 at the time, so
I didn't know a lot about stuff.

563
00:17:04,810 --> 00:17:06,950
And I said, "Man, these feel
like, like, feels like a really

564
00:17:07,110 --> 00:17:09,370
onerous conversation." We
were merging our two agencies.

565
00:17:09,860 --> 00:17:09,870
Yeah.

566
00:17:09,870 --> 00:17:12,440
And he said, "Look, we always
start by writing the divorce

567
00:17:12,510 --> 00:17:14,460
papers first, 'cause if we can't
agree- Yeah … on how it'll

568
00:17:14,569 --> 00:17:16,569
end, we don't know how it's
gonna start." Like, for some

569
00:17:16,610 --> 00:17:19,430
reason, that always stuck in my
head, and it was a very friendly

570
00:17:19,470 --> 00:17:21,670
conversation, but just like
a term sheet- Yeah … about

571
00:17:21,730 --> 00:17:22,970
super onerous shit, right?

572
00:17:23,010 --> 00:17:25,190
Like, what happens if- Yeah
… you're convicted, right?

573
00:17:25,410 --> 00:17:26,250
Like, crazy stuff.

574
00:17:26,840 --> 00:17:29,970
And, um, anyway, I really
thought in those, those early

575
00:17:30,030 --> 00:17:34,050
conversations that whenever
you say, "I need to address

576
00:17:34,210 --> 00:17:38,650
your concerns or your desires
or your needs," it didn't

577
00:17:38,690 --> 00:17:42,140
feel like, "Let me draft up
your execution papers," right?

578
00:17:42,620 --> 00:17:42,830
Yeah.

579
00:17:42,910 --> 00:17:46,350
It, it drafted up, "Let's
figure out so you know ironclad

580
00:17:46,390 --> 00:17:47,810
what's fair to you- Yeah

581
00:17:47,830 --> 00:17:49,129
ahead of time." You
know, again, what your

582
00:17:49,150 --> 00:17:50,110
expectations are, et cetera.

583
00:17:50,340 --> 00:17:50,350
Yeah.

584
00:17:50,350 --> 00:17:52,030
And I, I found that
worked very well.

585
00:17:52,590 --> 00:17:54,960
Because I think when other
people see it from, "Oh

586
00:17:55,030 --> 00:17:56,890
wait, I might get screwed?
You're not just worried

587
00:17:56,910 --> 00:17:57,790
about you getting screwed?"

588
00:17:58,150 --> 00:17:58,270
Yeah.

589
00:17:58,340 --> 00:18:00,110
"
Yeah, all of a sudden I'm,
I'm real interested in kind

590
00:18:00,130 --> 00:18:00,830
of what this looks like."

591
00:18:01,610 --> 00:18:02,850
Yeah, no, I think it
is super important.

592
00:18:02,870 --> 00:18:04,930
I mean, I think that, that is
actually what fairness looks

593
00:18:04,970 --> 00:18:05,810
like at that early stage.

594
00:18:05,820 --> 00:18:06,330
Yeah, right, right.

595
00:18:06,410 --> 00:18:07,300
Not 50% of the company.

596
00:18:07,390 --> 00:18:09,490
Fairness is, "Let's have a
conversation around this.

597
00:18:09,550 --> 00:18:11,620
Let's, let's talk about
exactly what happens in,

598
00:18:12,090 --> 00:18:14,389
in the unlikely event of
a water landing," right?

599
00:18:14,960 --> 00:18:14,970
Right.

600
00:18:15,170 --> 00:18:15,699
That's a great

601
00:18:15,770 --> 00:18:15,920
way to put it.

602
00:18:15,920 --> 00:18:17,740
So those things do
need to be addressed.

603
00:18:17,930 --> 00:18:19,699
Early employees,
same issue, right?

604
00:18:20,170 --> 00:18:21,590
I was… That's
where I was going.

605
00:18:21,690 --> 00:18:23,850
On average, startups
are gonna give up 15

606
00:18:23,870 --> 00:18:25,410
to 20% of the company.

607
00:18:26,289 --> 00:18:27,029
In an option pool.

608
00:18:27,089 --> 00:18:28,569
Now, now typically option
pools are a little bit

609
00:18:28,670 --> 00:18:31,509
smaller when they come from
investors, between 5 to 15%.

610
00:18:32,029 --> 00:18:33,789
I went up- Yeah … to 20
just because a lot of times

611
00:18:34,089 --> 00:18:35,970
you've got a lot of early
employees that are granted,

612
00:18:36,049 --> 00:18:37,530
like pre-option pool, et cetera.

613
00:18:37,669 --> 00:18:40,429
So the option pool- Yeah
… isn't always exclusively,

614
00:18:40,869 --> 00:18:43,710
you know, just what was set
aside on serious seed funding

615
00:18:43,769 --> 00:18:44,489
or something like that.

616
00:18:44,849 --> 00:18:47,509
But let's, let's use just
a, a simple number of 15%.

617
00:18:47,849 --> 00:18:50,809
That's a huge bit of the
company, and it's super hard to

618
00:18:50,889 --> 00:18:53,989
ever get back or unwind because
it's tied into so many people,

619
00:18:54,229 --> 00:18:54,900
which is where the problem is.

620
00:18:54,950 --> 00:18:55,169
Yeah.

621
00:18:55,829 --> 00:18:56,030
Yep.

622
00:18:56,309 --> 00:18:57,669
Lots of, lots of little fights.

623
00:18:57,969 --> 00:18:58,609
Yeah, exactly.

624
00:18:58,649 --> 00:19:02,210
If someone's gonna take 15% of
your company as an investor,

625
00:19:02,329 --> 00:19:04,929
you have a term sheet which
has all the terms that,

626
00:19:04,949 --> 00:19:06,509
that they're gonna invest,
like at all the rules and

627
00:19:06,550 --> 00:19:07,629
regulations, so to speak.

628
00:19:08,249 --> 00:19:10,409
You've got, that'll transfer
to an operating agreement,

629
00:19:10,469 --> 00:19:12,429
which will then memorialize
all of those terms.

630
00:19:12,489 --> 00:19:13,569
You kind of know
what you're getting.

631
00:19:13,949 --> 00:19:13,969
Yeah.

632
00:19:13,989 --> 00:19:15,550
Here's the cash and here
are the terms, right?

633
00:19:15,710 --> 00:19:15,730
Yep.

634
00:19:15,730 --> 00:19:18,009
And it's, so long as you
understand those, the

635
00:19:18,089 --> 00:19:20,050
deal has, doesn't have a
lot of questions to it.

636
00:19:20,569 --> 00:19:21,889
Employees don't work that way.

637
00:19:22,409 --> 00:19:24,789
Employees show up, and it's
just like a co-founder, "Here's

638
00:19:24,829 --> 00:19:27,089
what I'm gonna do. I'm gonna
do blah, blah, blah." Right?

639
00:19:27,589 --> 00:19:29,149
And statistically they will not.

640
00:19:29,370 --> 00:19:29,509
Right?

641
00:19:29,569 --> 00:19:31,269
Just Yeah … the
nature of people.

642
00:19:31,609 --> 00:19:34,029
Otherwise, every company
would just keep the people

643
00:19:34,069 --> 00:19:35,669
that they had forever and
there would, there would

644
00:19:35,690 --> 00:19:37,629
never be a termination
or a turnover, right?

645
00:19:38,009 --> 00:19:39,189
Doesn't work that way.

646
00:19:39,289 --> 00:19:40,489
Uh, life works a
little bit differently.

647
00:19:40,870 --> 00:19:41,770
But here's the challenge.

648
00:19:42,069 --> 00:19:43,410
There's management
of people, right?

649
00:19:44,069 --> 00:19:46,590
But there's a big difference
between, "Hey, you're not

650
00:19:46,649 --> 00:19:49,509
doing a good job," and,
"Hey, you're fired." Okay?

651
00:19:49,550 --> 00:19:51,169
Here's- Yeah … and
here's why I say that.

652
00:19:51,209 --> 00:19:53,289
"Hey, you're not doing a good
job," can keep you around

653
00:19:53,329 --> 00:19:56,009
long enough to make it through
your vest period, right?

654
00:19:56,049 --> 00:19:58,929
"Hey, you're fired," sometimes
even has an acceleration to it.

655
00:19:59,590 --> 00:19:59,689
Yeah.

656
00:19:59,949 --> 00:20:03,669
But a vast majority of people
can earn the same amount

657
00:20:03,690 --> 00:20:07,946
of equity Whether they do
a good job or a bad job, so

658
00:20:08,026 --> 00:20:09,686
long as they don't get fired.

659
00:20:10,286 --> 00:20:13,566
I was seeing the scene from,
uh, is it Office Space?

660
00:20:14,186 --> 00:20:16,286
Where he's sitting in there
with the two, the two hatchet

661
00:20:16,326 --> 00:20:20,226
men, and he's like, "What
that'll do, Bob, is you'll,

662
00:20:20,326 --> 00:20:23,726
you'll end up doing just
enough to not get fired."

663
00:20:23,896 --> 00:20:23,906
Yeah.

664
00:20:23,946 --> 00:20:24,186
Right?

665
00:20:24,246 --> 00:20:25,986
And, and that's, it's
kind of it, right?

666
00:20:26,406 --> 00:20:26,636
Exactly.

667
00:20:26,636 --> 00:20:29,506
It's, because look, if,
if equity's making up

668
00:20:29,586 --> 00:20:32,406
for, for below-market
cash comp, great, right?

669
00:20:32,506 --> 00:20:32,686
Yeah.

670
00:20:32,726 --> 00:20:34,226
And sometimes, and
that's a real trade.

671
00:20:34,366 --> 00:20:34,456
Yeah.

672
00:20:34,456 --> 00:20:34,466
Yeah.

673
00:20:34,546 --> 00:20:37,226
I would argue it, it can be
a really bad trade still.

674
00:20:37,256 --> 00:20:37,616
But at least it's a trade.

675
00:20:37,616 --> 00:20:38,186
For both sides.

676
00:20:38,266 --> 00:20:38,966
Yeah, yeah, yeah.

677
00:20:39,006 --> 00:20:41,026
But I was talking,
yeah, that's exactly it.

678
00:20:41,506 --> 00:20:44,706
I was talking to a founder
two weeks ago and they had

679
00:20:45,046 --> 00:20:49,926
layered equity on top of
really strong market comp.

680
00:20:50,286 --> 00:20:50,386
Right.

681
00:20:50,486 --> 00:20:54,186
Without any kind of
performance accountability.

682
00:20:54,226 --> 00:20:54,726
Right.

683
00:20:54,786 --> 00:20:57,886
Which just ends up being silent
overpayment and, and they were

684
00:20:57,946 --> 00:21:00,546
at this point now complaining,
it's like, "Yeah, the team

685
00:21:00,586 --> 00:21:02,126
just isn't motivated and I
did all this stuff for them."

686
00:21:02,156 --> 00:21:03,866
It's like, when did you do it?

687
00:21:04,126 --> 00:21:04,866
At the very beginning.

688
00:21:05,166 --> 00:21:06,946
And what do they have
to do to maintain it?

689
00:21:07,566 --> 00:21:09,146
And it just went dead silent.

690
00:21:09,486 --> 00:21:10,105
Not get fired.

691
00:21:10,556 --> 00:21:10,706
It's like- Right

692
00:21:10,746 --> 00:21:11,606
… 
well, they, they got it.

693
00:21:11,676 --> 00:21:11,876
Not get, and- Right?

694
00:21:11,966 --> 00:21:12,906
Like, no.

695
00:21:13,046 --> 00:21:15,026
It's, in, in some of
these cases, there

696
00:21:15,066 --> 00:21:16,006
wasn't even vesting.

697
00:21:16,366 --> 00:21:18,106
So they were just handed
pieces of the company.

698
00:21:18,116 --> 00:21:18,126
Oh,

699
00:21:18,146 --> 00:21:18,396
shit.

700
00:21:18,416 --> 00:21:19,296
Yeah, and, and- And
they have them now

701
00:21:19,786 --> 00:21:22,266
… 
and look, man, I'm gonna make
a few arguments having been

702
00:21:22,306 --> 00:21:23,526
in this game for a long time.

703
00:21:23,566 --> 00:21:25,166
And, and Ryan, you've
watched a lot of pr- people

704
00:21:25,206 --> 00:21:26,326
come through our company-
Oh, yeah … over the last

705
00:21:26,326 --> 00:21:28,666
15 years, so you, you've
seen it firsthand as well.

706
00:21:28,676 --> 00:21:28,696
For sure.

707
00:21:28,696 --> 00:21:30,366
But it's not exclusive to
folks that have worked for us.

708
00:21:30,866 --> 00:21:34,976
First things first is we give
out equity as an incentive

709
00:21:35,006 --> 00:21:36,356
for the future, right?

710
00:21:36,506 --> 00:21:37,906
And, and everybody's like,
"Okay, I'll take it." Now,

711
00:21:37,946 --> 00:21:40,506
what you said a moment ago,
some people are using it to

712
00:21:40,586 --> 00:21:43,596
actually, like, be a part
of their cash comp, right?

713
00:21:44,086 --> 00:21:46,126
I would argue at which
point you can't pay someone.

714
00:21:46,186 --> 00:21:48,906
Let's say somebody makes
$200,000 a year, and you

715
00:21:48,926 --> 00:21:51,246
can only pay them 100,000
and they're gonna take the

716
00:21:51,266 --> 00:21:52,566
other 100,000 in equity.

717
00:21:53,066 --> 00:21:53,866
Totally fair trade.

718
00:21:53,986 --> 00:21:53,996
Yep.

719
00:21:54,006 --> 00:21:55,816
That's money you didn't have-
Yep … that you would've

720
00:21:55,946 --> 00:21:57,526
otherwise paid them, okay?

721
00:21:57,746 --> 00:21:57,886
Paid

722
00:21:58,026 --> 00:21:58,226
somebody.

723
00:21:58,236 --> 00:21:58,366
Totally fair.

724
00:21:58,446 --> 00:21:58,666
Yep.

725
00:21:58,796 --> 00:21:58,806
Right.

726
00:21:58,826 --> 00:21:59,326
Yeah, yeah.

727
00:21:59,386 --> 00:22:01,756
In that case, I would argue
that they've earned every bit

728
00:22:01,786 --> 00:22:03,926
of it because that was what- Yep
… they were gonna earn anyway.

729
00:22:03,966 --> 00:22:05,596
You just couldn't
pay them, right?

730
00:22:05,626 --> 00:22:05,656
Yeah,

731
00:22:05,656 --> 00:22:05,706
exactly.

732
00:22:05,746 --> 00:22:06,406
Straight up.

733
00:22:06,466 --> 00:22:07,526
Uh, I get that one.

734
00:22:07,536 --> 00:22:09,206
There's a different version
which you just said, which

735
00:22:09,266 --> 00:22:11,116
is we're kind of gonna pay
you what you're gonna get

736
00:22:11,146 --> 00:22:13,705
paid anyway, and you're gonna
get a whole bunch of stock.

737
00:22:13,806 --> 00:22:14,485
And-

738
00:22:14,545 --> 00:22:16,796
Whether you perform or not,
which is where I wanna take this

739
00:22:17,777 --> 00:22:20,697
What's missing in this deal, and
this goes back to the premise,

740
00:22:20,957 --> 00:22:23,977
you know, of this episode,
which is why don't founders

741
00:22:24,118 --> 00:22:27,178
look at the other places they're
giving equity as stringently

742
00:22:27,717 --> 00:22:29,217
as they do with investors?

743
00:22:29,638 --> 00:22:33,457
If I say to you, "Hey, you get
paid $150,000 for whatever job

744
00:22:33,497 --> 00:22:37,377
it is, and you're gonna get a-
an extra $200,000, let's say, in

745
00:22:37,438 --> 00:22:39,337
equity." First question is why?

746
00:22:39,817 --> 00:22:42,117
Like, like- Yeah … what
exactly, how are they

747
00:22:42,157 --> 00:22:44,317
gonna perform differently
than they would've

748
00:22:44,377 --> 00:22:45,637
otherwise performed, right?

749
00:22:45,678 --> 00:22:47,458
In other words, if they go to
another company and they don't

750
00:22:47,497 --> 00:22:49,737
have equity, are they just
gonna not show up for work?

751
00:22:50,058 --> 00:22:52,597
Like, what, what- Yeah … is
it about that, that equity?

752
00:22:52,858 --> 00:22:56,837
I have not seen, in my
years, a dramatic difference,

753
00:22:56,897 --> 00:22:57,897
a dramatic difference.

754
00:22:57,957 --> 00:22:59,817
I've seen a difference, not
a, a dramatic difference

755
00:22:59,858 --> 00:23:03,277
the way people think it is,
between someone who makes a

756
00:23:03,358 --> 00:23:05,417
good m- you know, market rate
salary, like they're well-paid

757
00:23:06,462 --> 00:23:08,162
and someone who has equity.

758
00:23:08,581 --> 00:23:09,992
Now- Yeah … a
few caveats there.

759
00:23:10,662 --> 00:23:12,642
Very few companies ever
get to a point where

760
00:23:12,682 --> 00:23:13,852
equity is valuable, right?

761
00:23:13,962 --> 00:23:16,142
I mean, like, it's,
it's statistically tiny.

762
00:23:16,182 --> 00:23:17,022
Bit of a lottery ticket.

763
00:23:17,402 --> 00:23:17,642
Yeah.

764
00:23:17,692 --> 00:23:17,702
Yeah.

765
00:23:17,802 --> 00:23:20,652
Which is, which is why I said
a moment ago that at what

766
00:23:20,802 --> 00:23:24,282
point you're paying people a
full salary and then paying

767
00:23:24,382 --> 00:23:27,302
people on top is very different
than if you're actually

768
00:23:27,312 --> 00:23:30,222
subsidizing their comp,
you know, with your equity.

769
00:23:30,262 --> 00:23:31,532
At that point, it's not
a lottery ticket anymore.

770
00:23:31,532 --> 00:23:31,552
Yeah, man.

771
00:23:31,552 --> 00:23:31,581
If your employee's

772
00:23:31,622 --> 00:23:33,702
getting paid market rate
and gets equity too, that

773
00:23:33,762 --> 00:23:35,002
equity needs to go get a job.

774
00:23:35,062 --> 00:23:35,602
Yeah.

775
00:23:36,412 --> 00:23:37,042
Like, come on.

776
00:23:37,682 --> 00:23:40,331
You know, something that's
really funny about everything

777
00:23:40,362 --> 00:23:44,062
we talk about here is
that none of it is new.

778
00:23:44,122 --> 00:23:46,182
Everything you're dealing
with right now has been

779
00:23:46,192 --> 00:23:49,782
done a thousand times before
you, which means the answer

780
00:23:49,822 --> 00:23:52,322
already exists, you may just
not know it, but that's okay.

781
00:23:52,762 --> 00:23:54,542
That's kind of what
we're here to do.

782
00:23:54,581 --> 00:23:57,162
We talk about this stuff on
the show, but we actually

783
00:23:57,322 --> 00:23:58,642
solve these problems all

784
00:23:58,682 --> 00:24:01,182
day long at groups.startups.com.

785
00:24:01,462 --> 00:24:04,622
So if any of this sounds
familiar, stop guessing

786
00:24:04,782 --> 00:24:05,662
about what to do.

787
00:24:05,962 --> 00:24:09,061
Let us just give you the answers
to the test and be done with it.

788
00:24:09,662 --> 00:24:10,552
So, yeah, here's
what I'm saying.

789
00:24:10,722 --> 00:24:13,562
From the employee's standpoint,
I think for a lot of employees,

790
00:24:13,622 --> 00:24:15,542
they look at it as, "Oh, I'm
working for a startup company.

791
00:24:15,601 --> 00:24:17,662
I, you know, I deserve a piece
of the thing." Every single

792
00:24:17,762 --> 00:24:20,362
person that's ever worked for
us has been g- has been given

793
00:24:20,422 --> 00:24:21,662
an, an equity grant, right?

794
00:24:21,722 --> 00:24:23,392
It's vested over time,
but, uh, you know, they've

795
00:24:23,402 --> 00:24:24,502
been given an equity grant.

796
00:24:25,022 --> 00:24:27,101
Because I do believe, I…
You know, when, when and if

797
00:24:27,162 --> 00:24:29,072
that payday comes, I want
everybody to take, to get a

798
00:24:29,142 --> 00:24:30,222
piece of it, and that's great.

799
00:24:30,302 --> 00:24:30,462
Yes.

800
00:24:30,522 --> 00:24:34,472
However, however, there's
also a side of it which is,

801
00:24:35,162 --> 00:24:38,462
wait a minute, if we were
to sell today, the people

802
00:24:38,522 --> 00:24:41,262
that work really hard and
the people that just didn't

803
00:24:41,302 --> 00:24:42,962
get fired get paid equally.

804
00:24:43,222 --> 00:24:44,962
Everybody gets a Super
Bowl ring, right?

805
00:24:45,182 --> 00:24:46,831
There is a great, uh… I
told you about this guy.

806
00:24:47,382 --> 00:24:48,972
Uh, there was a great
entrepreneur that I was

807
00:24:49,002 --> 00:24:50,621
meeting with maybe, like,
a year and a half ago.

808
00:24:50,702 --> 00:24:54,002
Uh, we're at a, a restaurant,
and, uh, he's pitching me

809
00:24:54,062 --> 00:24:55,722
on this, uh, on his idea.

810
00:24:55,831 --> 00:24:57,792
And he's, like, notably
athletic, right?

811
00:24:57,882 --> 00:24:57,892
Uh-huh.

812
00:24:57,892 --> 00:24:59,742
You can just tell, like,
when some people are like…

813
00:24:59,782 --> 00:25:01,872
There's athletes who, like, go
to the gym a little bit, and

814
00:25:01,902 --> 00:25:04,002
then there's a professional
athlete sitting- Yeah … next

815
00:25:04,022 --> 00:25:05,862
to people who don't, who just
go to the gym a little bit.

816
00:25:06,462 --> 00:25:06,472
Yeah.

817
00:25:06,482 --> 00:25:08,101
And this guy was the
professional athlete, right?

818
00:25:08,182 --> 00:25:11,182
He was like, like- Uh-huh
… 6'4", like 4% body fat, right?

819
00:25:11,282 --> 00:25:13,022
Like- … not just
a dude, right?

820
00:25:13,062 --> 00:25:13,702
A dude, right?

821
00:25:13,742 --> 00:25:13,922
Right.

822
00:25:14,182 --> 00:25:17,382
Anyway, as he's sitting there
talking, I see this giant

823
00:25:17,422 --> 00:25:20,072
thing flashing on his, on his
ring, or on his, his finger,

824
00:25:20,122 --> 00:25:20,972
which is a ring, right?

825
00:25:21,002 --> 00:25:21,162
Uh-huh.

826
00:25:21,562 --> 00:25:24,362
And I'm like, "I, I gotta pause
for a second. Is that what

827
00:25:24,372 --> 00:25:24,952
I think it is-" What is it?

828
00:25:24,982 --> 00:25:25,342
"… on your ring?"

829
00:25:25,622 --> 00:25:25,711
Yeah.

830
00:25:25,912 --> 00:25:27,142
"
Or on your finger?" And
he's like, "Oh, yeah,

831
00:25:27,162 --> 00:25:27,842
it's a Super Bowl ring."

832
00:25:28,342 --> 00:25:31,642
And I was like, "And you
failed to mention that -" Yeah.

833
00:25:31,732 --> 00:25:35,322
"… in this conversation?" He's
like, "Yeah, I won this

834
00:25:35,362 --> 00:25:38,462
with the Broncos." And I was
like, "Dude, that would've

835
00:25:38,482 --> 00:25:41,382
been the first thing I said
in every conversation-"

836
00:25:41,442 --> 00:25:42,482
Yeah "… I've ever had."

837
00:25:42,782 --> 00:25:44,962
Yeah, "Will, why do you wear
that ring in the middle of

838
00:25:45,002 --> 00:25:46,902
your forehead? Isn't that
supposed to go on your finger?"

839
00:25:46,952 --> 00:25:46,962
Yeah.

840
00:25:48,542 --> 00:25:50,002
But here's what he said, which
I thought was interesting.

841
00:25:50,342 --> 00:25:53,242
He's like, "I never stepped o-
on the field one time," right?

842
00:25:53,252 --> 00:25:54,902
Like, "I, I-" Yeah "… was
like second, third string.

843
00:25:55,242 --> 00:25:57,162
E- everybody gets a ring." He's
like, "You know, whether you

844
00:25:57,202 --> 00:25:59,422
play or not." And I use that.

845
00:25:59,462 --> 00:26:00,422
He's a great guy, by the way.

846
00:26:00,482 --> 00:26:04,558
And I use that as a
metaphor- For this, right?

847
00:26:04,977 --> 00:26:08,637
Like, if we were to sell today,
every person that's ever worked

848
00:26:08,657 --> 00:26:12,158
for us that has equity, whether
they performed well or not,

849
00:26:12,617 --> 00:26:14,117
is going to get paid the same.

850
00:26:14,157 --> 00:26:15,858
Paid the same meaning like,
you know, that their equity's

851
00:26:15,877 --> 00:26:16,837
gonna convert the same way.

852
00:26:17,377 --> 00:26:19,238
And I'm like, "Well, shit."

853
00:26:20,026 --> 00:26:20,946
What happened to fair?

854
00:26:21,026 --> 00:26:23,556
Didn't we s- wasn't fair where
we started with all of this?

855
00:26:23,766 --> 00:26:24,125
Right, right.

856
00:26:24,166 --> 00:26:24,235
Yeah.

857
00:26:24,326 --> 00:26:27,235
And so my, my point with
employees is you're paying

858
00:26:27,266 --> 00:26:29,586
employees equity not because
they're, they're gonna

859
00:26:29,606 --> 00:26:32,605
perform so well, because
they're not gonna get fired.

860
00:26:32,755 --> 00:26:35,245
And I use the latter- Yeah
… to say I know the incentive is

861
00:26:35,266 --> 00:26:38,566
that they'll work harder, and
that might apply, but the cost

862
00:26:38,706 --> 00:26:41,206
is gonna be exactly the same
whether they work harder or not.

863
00:26:41,505 --> 00:26:43,086
You know, same with salary,
but certainly with equity.

864
00:26:43,485 --> 00:26:44,466
Here's what I've seen over time.

865
00:26:44,966 --> 00:26:46,266
It does work with some people.

866
00:26:47,106 --> 00:26:48,666
It does work with some people.

867
00:26:48,706 --> 00:26:51,106
Ironically, those are the same
people who would've worked

868
00:26:51,126 --> 00:26:53,005
and compounded value for
the company whether you give

869
00:26:53,026 --> 00:26:53,876
them equity or not, right?

870
00:26:54,066 --> 00:26:54,096
That,

871
00:26:54,226 --> 00:26:54,366
that, that's

872
00:26:54,406 --> 00:26:54,526
my

873
00:26:54,566 --> 00:26:54,766
point.

874
00:26:54,886 --> 00:26:56,505
The, the value add players
are always gonna be

875
00:26:56,526 --> 00:26:57,766
value add players, right?

876
00:26:57,926 --> 00:27:00,426
A- a- and unfortunately,
I think we too often treat

877
00:27:00,485 --> 00:27:03,706
early employee equity as a
signing bonus when it really

878
00:27:03,786 --> 00:27:06,406
needs to be treated like
a value exchange, right?

879
00:27:06,426 --> 00:27:09,066
Because if it's just, if
it's just a signing bonus

880
00:27:09,076 --> 00:27:10,646
and it's granted at the
beginning, even if there's

881
00:27:10,726 --> 00:27:11,676
vesting involved, right?

882
00:27:11,706 --> 00:27:13,995
Like, vesting isn't value
creation, it is just

883
00:27:14,026 --> 00:27:15,356
time passing, right?

884
00:27:15,386 --> 00:27:17,536
That happens whether we
do a damn thing or not.

885
00:27:18,076 --> 00:27:23,436
Showing up is not the same as
compounding the company, right?

886
00:27:23,466 --> 00:27:23,616
Right.

887
00:27:23,646 --> 00:27:26,745
In, in my opinion, equity should
do, should reward three things.

888
00:27:26,786 --> 00:27:27,766
Three things and
three things only.

889
00:27:28,306 --> 00:27:30,505
Risk, sacrifice, and impact.

890
00:27:30,666 --> 00:27:31,826
Ideally, all three.

891
00:27:32,046 --> 00:27:32,266
Yeah.

892
00:27:32,286 --> 00:27:34,416
But it has to have some
semblance of at least one

893
00:27:34,446 --> 00:27:36,645
of those things for it to
really be a fair exchange.

894
00:27:37,086 --> 00:27:38,886
On that note, let's
move to advisors.

895
00:27:38,916 --> 00:27:40,426
So we're just, got like
the third leg of the

896
00:27:40,546 --> 00:27:41,106
stool, if you will.

897
00:27:41,186 --> 00:27:41,386
Uh-huh.

898
00:27:41,866 --> 00:27:43,946
Advisors crack me up as
a category that, that

899
00:27:43,985 --> 00:27:46,366
gets, uh, equity, not
because they get so much.

900
00:27:46,406 --> 00:27:48,586
I mean, honestly, uh,
advisors, like, don't, don't

901
00:27:48,666 --> 00:27:52,306
ever really compose that
big of the cap table, right?

902
00:27:52,386 --> 00:27:54,566
You know, as far as the-
Right … slice of the pie.

903
00:27:54,606 --> 00:27:56,446
No, but it is, but it's
another great illustration of

904
00:27:56,485 --> 00:28:00,126
how easily founders will part
with it and really not think

905
00:28:00,166 --> 00:28:02,266
through, "What am I actually
getting in return for this?

906
00:28:02,306 --> 00:28:04,866
Would I pay the same thing
for it if it was a cash

907
00:28:04,966 --> 00:28:07,126
payment?" And the answer
is almost always no.

908
00:28:07,406 --> 00:28:09,046
Let me lay this out, 'cause
I, I think we just have

909
00:28:09,086 --> 00:28:10,706
great data to run this, okay?

910
00:28:10,745 --> 00:28:13,076
So currently, uh, this is,
this is coming from, uh,

911
00:28:13,106 --> 00:28:15,346
Carta, I believe, you know,
who does cap table management.

912
00:28:15,406 --> 00:28:19,786
Advisors are currently getting
between .10 to .25% of the

913
00:28:19,826 --> 00:28:21,226
company for their advisory work.

914
00:28:21,306 --> 00:28:23,296
So for, for those of you that,
that are following at home,

915
00:28:23,646 --> 00:28:25,586
that means a 10th of, of 1%.

916
00:28:25,806 --> 00:28:27,245
That is per advisor, not,

917
00:28:27,446 --> 00:28:28,066
not as a- Uh, correct, correct.

918
00:28:28,335 --> 00:28:28,865
Per advisors.

919
00:28:29,005 --> 00:28:29,016
Yep.

920
00:28:29,046 --> 00:28:29,145
Right?

921
00:28:29,706 --> 00:28:31,206
And so, you know, l- let's
say you've got, you know,

922
00:28:31,266 --> 00:28:33,426
three to five advisors, you
know, that could easily cost

923
00:28:33,466 --> 00:28:34,426
you a full point of equity.

924
00:28:34,786 --> 00:28:35,066
Which- Yep

925
00:28:35,286 --> 00:28:36,676
here's where this
gets dangerous.

926
00:28:37,046 --> 00:28:38,846
Numerically, that's
a very small amount.

927
00:28:38,886 --> 00:28:40,366
That's less than 99%-
Yeah … of the rest

928
00:28:40,386 --> 00:28:41,046
of the company, right?

929
00:28:41,426 --> 00:28:41,826
Yeah, yeah.

930
00:28:41,966 --> 00:28:46,546
However, however, where it
gets hilarious is when you

931
00:28:46,606 --> 00:28:49,966
start to do the math of
what it actually buys you.

932
00:28:50,505 --> 00:28:52,326
Here are the categories
that investors usually

933
00:28:52,346 --> 00:28:53,706
get recruited under, okay?

934
00:28:54,186 --> 00:28:57,505
Most popular, category
A, sage-like wisdom.

935
00:28:57,536 --> 00:29:00,686
They have, they have some
sort of sage-like wisdom on

936
00:29:00,746 --> 00:29:03,816
either an industry- Oh … or
a- Yeah … particular, um,

937
00:29:04,046 --> 00:29:06,474
skill set, you know, marketing,
things like that It tends to

938
00:29:06,494 --> 00:29:07,434
be the biggest one, right?

939
00:29:07,574 --> 00:29:09,684
Like, I need somebody… It
used to be back in the day,

940
00:29:09,754 --> 00:29:11,944
like, like the oldy-timey
boards that you put together,

941
00:29:12,034 --> 00:29:12,744
advisory boards- Yeah

942
00:29:13,054 --> 00:29:14,964
were like a doctor, an
accountant, and a priest, right?

943
00:29:15,044 --> 00:29:17,094
I'm kidding, but like- Uh-huh
… it was always like the same-

944
00:29:17,134 --> 00:29:19,804
Cover the basics … like, g-
gaggle of G.I. Joe characters

945
00:29:19,834 --> 00:29:21,534
that you, that you'd- Yeah
… go out and recruit, right?

946
00:29:21,604 --> 00:29:22,744
'Cause you needed
those, those skills.

947
00:29:23,014 --> 00:29:25,214
People often found attorneys
'cause they need legal in the

948
00:29:25,234 --> 00:29:26,894
early days, things like that.

949
00:29:26,934 --> 00:29:31,193
Anyway, regardless of who it
is, the problem is the same.

950
00:29:31,234 --> 00:29:34,614
You're trying to tap that wealth
of knowledge, and you don't,

951
00:29:34,674 --> 00:29:35,634
you don't know what it's worth.

952
00:29:36,314 --> 00:29:39,114
Second thing that I see is,
"I wanna tap a network."

953
00:29:39,614 --> 00:29:41,254
Introductions to customers-
Yeah … introductions to

954
00:29:41,314 --> 00:29:45,074
investors, intro… And by the
way, those can be valuable.

955
00:29:45,114 --> 00:29:45,134
Yeah, yeah.

956
00:29:45,134 --> 00:29:45,203
They can be.

957
00:29:45,203 --> 00:29:47,154
There is an
opportunity for value.

958
00:29:47,774 --> 00:29:48,774
But it doesn't mean-
Yeah … there's value.

959
00:29:49,414 --> 00:29:52,804
Now, so what's interesting about
advisors, unlike employees,

960
00:29:52,854 --> 00:29:56,834
and why we get to them last,
is because they're probably the

961
00:29:56,874 --> 00:30:00,724
most unaccountable part of the
entire cap table distribution.

962
00:30:00,894 --> 00:30:04,683
I know so few advisors that
have actually done the things

963
00:30:04,734 --> 00:30:08,134
that startups thought they
would do, myself included.

964
00:30:09,534 --> 00:30:09,994
Yeah.

965
00:30:10,094 --> 00:30:12,014
I've been asked a billion
times, I know you have, to

966
00:30:12,054 --> 00:30:13,534
be advisors for startups.

967
00:30:13,654 --> 00:30:15,134
I always tell them
the same thing.

968
00:30:15,394 --> 00:30:18,074
I said, "Look, I can be
valuable, but I won't be

969
00:30:18,154 --> 00:30:19,794
valuable." And they go, "Well,
what does that mean?" Yeah.

970
00:30:19,794 --> 00:30:19,924
Right?

971
00:30:20,394 --> 00:30:23,714
I was like, "In your mind, how
you think I'm going to help

972
00:30:23,734 --> 00:30:26,254
you isn't how I- Yeah … plan
on helping you," right?

973
00:30:26,374 --> 00:30:28,454
We were like, "Oh, we- we'll
open up his Rolodex and m-

974
00:30:28,694 --> 00:30:30,854
introduce you to, to all
his investors." No, I won't.

975
00:30:31,414 --> 00:30:31,574
No.

976
00:30:32,254 --> 00:30:32,354
Nope.

977
00:30:32,954 --> 00:30:34,254
That doesn't sound like
a lot of fun for me.

978
00:30:34,694 --> 00:30:36,714
Or, "Will's gonna get involved
in our team and he's gonna

979
00:30:36,754 --> 00:30:39,004
help us daily, you know, to,
to make some decisions." Nope.

980
00:30:39,894 --> 00:30:39,944
Nope.

981
00:30:40,034 --> 00:30:40,694
I got shit to do, man.

982
00:30:40,704 --> 00:30:41,394
That's called employee.

983
00:30:41,734 --> 00:30:42,084
Yeah, yeah, yeah.

984
00:30:42,094 --> 00:30:42,234
Yep.

985
00:30:42,654 --> 00:30:43,894
It's not that I don't
wanna be helpful.

986
00:30:43,994 --> 00:30:46,354
We literally advise startups
for a living, right?

987
00:30:46,374 --> 00:30:47,534
Which is why- Yes … I
don't wanna do more of it.

988
00:30:48,294 --> 00:30:51,464
But it's, it's, I think
the expectations of what

989
00:30:51,494 --> 00:30:55,554
advisors can or will do
pale in comparison to

990
00:30:55,574 --> 00:30:56,754
what they actually do.

991
00:30:56,814 --> 00:30:57,494
Yeah, man.

992
00:30:57,674 --> 00:31:00,374
Like, we, we see people make
mistakes with this all the time.

993
00:31:00,384 --> 00:31:00,394
Mm-hmm.

994
00:31:00,614 --> 00:31:04,164
And, and I think it starts- Yeah
… with, with founders confusing

995
00:31:04,654 --> 00:31:06,174
reputation with contribution.

996
00:31:06,594 --> 00:31:06,734
Right.

997
00:31:06,774 --> 00:31:08,934
A famous advisor who does
nothing is just really

998
00:31:08,954 --> 00:31:10,194
expensive wallpaper, right?

999
00:31:10,334 --> 00:31:12,954
Or the most expensive LinkedIn
endorsement you'll ever get.

1000
00:31:13,434 --> 00:31:15,573
Advice is only valuable if
it does a couple things.

1001
00:31:15,614 --> 00:31:16,724
One, changes decisions-

1002
00:31:17,014 --> 00:31:17,114
Yep

1003
00:31:17,124 --> 00:31:19,143
opens doors, or
reduces mistakes.

1004
00:31:19,534 --> 00:31:22,454
And I think that where we end
up in this trap is that as, as

1005
00:31:22,534 --> 00:31:24,954
founders early stage, we find
people who do those things.

1006
00:31:25,024 --> 00:31:27,334
We talk to somebody once
and they give us some

1007
00:31:27,414 --> 00:31:29,334
valuable advice- Yep … and
it changes one of our

1008
00:31:29,354 --> 00:31:30,614
decisions for the better.

1009
00:31:30,634 --> 00:31:32,244
And then we go- Amazing
… "Great, we should make

1010
00:31:32,254 --> 00:31:33,574
them an advisor," right?

1011
00:31:34,502 --> 00:31:36,162
Most of the time, that's the
one piece of valuable advice

1012
00:31:36,172 --> 00:31:38,122
they had, and now we've
just permanently attached

1013
00:31:38,142 --> 00:31:40,342
them to our cap table and
paid them what could end

1014
00:31:40,382 --> 00:31:43,261
up being tens or hundreds
of thousands of dollars, or

1015
00:31:43,342 --> 00:31:45,202
millions of dollars, depending
on how big the company is.

1016
00:31:45,222 --> 00:31:48,882
You have a, you know, a, a
big, big exit, that 1% all

1017
00:31:48,902 --> 00:31:51,362
of a sudden becomes worth
a lot of money, right?

1018
00:31:51,422 --> 00:31:53,662
This isn't take a penny,
need, need a penny, take

1019
00:31:53,682 --> 00:31:56,002
one, have a penny, leave
one- … kind of thing, right?

1020
00:31:56,162 --> 00:31:59,172
It's, I think advisor equity
is, is one of those places

1021
00:31:59,222 --> 00:32:03,272
where tiny percentages
hide giant waste, right?

1022
00:32:03,282 --> 00:32:05,182
We see this in lots of
places in a startup.

1023
00:32:05,222 --> 00:32:05,442
Yep.

1024
00:32:05,662 --> 00:32:06,821
Um, but this is one of
those where it's just,

1025
00:32:06,882 --> 00:32:08,242
it's so glaring to me.

1026
00:32:08,302 --> 00:32:10,932
It's interesting because from
the advisor's standpoint, I

1027
00:32:10,942 --> 00:32:11,792
think they're well-meaning.

1028
00:32:12,002 --> 00:32:14,902
I definitely don't wanna paint
advisors, right, as some, like,

1029
00:32:14,942 --> 00:32:15,932
shysters or something like that.

1030
00:32:15,982 --> 00:32:16,962
That's not it.

1031
00:32:17,042 --> 00:32:18,722
It's not the advisor's fault.

1032
00:32:18,782 --> 00:32:19,942
It's the founder's fault.

1033
00:32:20,122 --> 00:32:23,582
The, the founder loses this
in a few ways and, and again,

1034
00:32:24,142 --> 00:32:25,022
y- you learn as you go.

1035
00:32:25,382 --> 00:32:28,862
The first place you lose is you
don't clearly define what you

1036
00:32:28,902 --> 00:32:31,102
expect the return to be, right?

1037
00:32:31,402 --> 00:32:31,502
Yeah.

1038
00:32:31,602 --> 00:32:33,782
Ryan, I'm gonna give
you .25% of the company.

1039
00:32:34,062 --> 00:32:37,102
Here's bullet points of
exactly what you need to

1040
00:32:37,122 --> 00:32:38,602
deliver in order to earn that.

1041
00:32:38,652 --> 00:32:38,662
Uh-huh.

1042
00:32:38,682 --> 00:32:41,362
If you don't nail all of these,
you won't get your equity.

1043
00:32:42,062 --> 00:32:44,682
I guarantee the number of
advisors that agree to that

1044
00:32:45,202 --> 00:32:46,582
is geometrically lower.

1045
00:32:47,122 --> 00:32:48,602
Think about why for a second.

1046
00:32:48,662 --> 00:32:50,342
Here, here's, here's an example.

1047
00:32:50,402 --> 00:32:52,242
Take this from the same
standpoint if you were

1048
00:32:52,302 --> 00:32:53,462
hiring somebody, okay?

1049
00:32:53,962 --> 00:32:54,022
Yeah.

1050
00:32:54,032 --> 00:32:55,682
And the person sitting across
from you, the interview

1051
00:32:55,762 --> 00:32:57,902
candidate, and you're
like, "I need you to show

1052
00:32:57,922 --> 00:32:59,882
up for work every day."
They're like, "No." "I need

1053
00:32:59,922 --> 00:33:00,662
you to come to meetings."

1054
00:33:00,982 --> 00:33:04,262
"No." "I need you to work for
the company eight hours a day."

1055
00:33:04,642 --> 00:33:07,422
"Nope, not gonna do that." And
you're like, "You're hired."

1056
00:33:09,132 --> 00:33:11,242
That's essentially, like,
the mismatch of expectations.

1057
00:33:11,802 --> 00:33:14,762
And so- Yeah … now, I
will also say, similar

1058
00:33:14,802 --> 00:33:18,142
to employees, advisors
want to be those things.

1059
00:33:18,202 --> 00:33:19,452
They want to be this
fountain- Yeah, of

1060
00:33:19,452 --> 00:33:19,912
course … of knowledge.

1061
00:33:19,982 --> 00:33:21,462
They want to be
this helping hand.

1062
00:33:21,502 --> 00:33:23,682
They wanna be, you know,
make a good connection

1063
00:33:23,722 --> 00:33:24,822
that works out for you.

1064
00:33:24,882 --> 00:33:27,082
They want to do all
of those things.

1065
00:33:27,142 --> 00:33:29,682
It doesn't mean that
they can or will, right?

1066
00:33:29,822 --> 00:33:30,002
Right.

1067
00:33:30,242 --> 00:33:33,222
Like, I've got a pretty
big Rolodex of investors.

1068
00:33:33,422 --> 00:33:38,112
I theoretically could introduce
you to them, but now, when

1069
00:33:38,122 --> 00:33:40,702
it comes time to actually
do it, here's how the math

1070
00:33:40,722 --> 00:33:42,182
changes very quickly, right?

1071
00:33:42,842 --> 00:33:45,012
I look at all of my,
my, uh, contacts.

1072
00:33:46,070 --> 00:33:48,790
On the one end I've got Roelof
Botha, who's the managing

1073
00:33:48,830 --> 00:33:49,830
partner of Sequoia, right?

1074
00:33:49,850 --> 00:33:52,120
I've known Roelof for 20-
Yeah … something years, right?

1075
00:33:52,149 --> 00:33:54,409
He'll take my call once.

1076
00:33:55,179 --> 00:33:55,239
Uh-huh.

1077
00:33:55,449 --> 00:33:56,510
Like, he's pretty busy.

1078
00:33:56,909 --> 00:33:58,129
Actually, I don't think he's
the managing partner anymore.

1079
00:33:58,659 --> 00:33:58,669
Yeah.

1080
00:33:58,689 --> 00:34:01,229
Anyway, uh, and on the other
end it's, like, just some rich

1081
00:34:01,310 --> 00:34:03,468
dude that I know that, you know,
I, I could introduce you to.

1082
00:34:04,070 --> 00:34:07,330
I want to make these
introductions, but I'm not going

1083
00:34:07,409 --> 00:34:10,449
to if it's gonna burn social
capital that I can't get back.

1084
00:34:10,509 --> 00:34:10,580
Right.

1085
00:34:11,009 --> 00:34:11,020
Yep.

1086
00:34:11,020 --> 00:34:14,049
If I introduce you to, to
Sequoia and that goes horribly,

1087
00:34:14,089 --> 00:34:16,469
there's a fairly good chance
that I've, you know, soured

1088
00:34:16,509 --> 00:34:18,779
my relationship with Sequoia,
and I don't get it back.

1089
00:34:18,790 --> 00:34:19,389
Yep.

1090
00:34:19,429 --> 00:34:20,469
No skin off your back.

1091
00:34:20,690 --> 00:34:22,710
Over 0.25% of what is
still monopoly money.

1092
00:34:22,810 --> 00:34:23,049
Right.

1093
00:34:23,069 --> 00:34:23,549
Right.

1094
00:34:23,609 --> 00:34:26,409
This is… All I'm trying to
say is that technically I could

1095
00:34:26,469 --> 00:34:27,659
make all of these introductions.

1096
00:34:27,810 --> 00:34:30,449
It doesn't mean
that I can or will.

1097
00:34:30,509 --> 00:34:34,159
So your perception of
what my value is doesn't

1098
00:34:34,170 --> 00:34:37,409
necessarily align with
what my ongoing value is.

1099
00:34:37,480 --> 00:34:40,190
Which brings me to point
two, ongoing value.

1100
00:34:41,150 --> 00:34:41,219
Yeah.

1101
00:34:41,310 --> 00:34:43,679
I have a million things that
I can tell you about your

1102
00:34:43,750 --> 00:34:45,909
business that are gonna be
like magic tricks to you.

1103
00:34:45,989 --> 00:34:47,409
I can tell you about-
Yep … like how to update

1104
00:34:47,489 --> 00:34:48,489
your, your pitch deck.

1105
00:34:48,569 --> 00:34:50,330
I can tell you about what to say
in a pitch meeting, et cetera.

1106
00:34:51,210 --> 00:34:54,569
But once you don't need
those specific markers,

1107
00:34:54,630 --> 00:34:57,089
those specific, uh, moments
in the journey- Yeah

1108
00:34:57,109 --> 00:34:58,210
I might be useless to you.

1109
00:34:58,950 --> 00:35:01,210
We have late-stage people
that come to us, right?

1110
00:35:01,250 --> 00:35:02,690
And they're like, "Hey,
yeah, I've, I've solved

1111
00:35:02,710 --> 00:35:03,750
all the early-stage stuff.

1112
00:35:03,810 --> 00:35:05,690
I've got some late-stage
problems where I'm trying to

1113
00:35:05,730 --> 00:35:08,100
let, like, uh, refocus the
cap table, or, or I'm trying

1114
00:35:08,109 --> 00:35:10,410
to figure out what expansion
rounds look like." And I'm

1115
00:35:10,450 --> 00:35:12,770
like, "I can offer some advice.

1116
00:35:12,930 --> 00:35:15,069
I can't offer- Yeah … the
best advice." Right.

1117
00:35:15,100 --> 00:35:18,549
Because when you get to that
stage, different skill set,

1118
00:35:18,770 --> 00:35:19,870
different, a different world.

1119
00:35:20,310 --> 00:35:22,240
I'm certainly fluent in
it, like I understand it-

1120
00:35:22,630 --> 00:35:23,049
Yep

1121
00:35:23,060 --> 00:35:25,259
… 
but there are people
that are better at that.

1122
00:35:25,589 --> 00:35:28,390
Conversely, those people aren't
good at the early-stage stuff

1123
00:35:28,430 --> 00:35:29,650
like you and I are, right?

1124
00:35:29,830 --> 00:35:29,890
Correct.

1125
00:35:29,900 --> 00:35:30,310
So, like-

1126
00:35:30,370 --> 00:35:30,830
Yeah

1127
00:35:30,839 --> 00:35:34,029
… 
my point is, you hitting us
up for early-stage value and

1128
00:35:34,069 --> 00:35:38,130
expecting us to be perennially
u- useful is probably unlikely.

1129
00:35:38,390 --> 00:35:39,980
And of course everybody
wants to be, right?

1130
00:35:39,990 --> 00:35:42,370
And I guess, again, like, like
you said, the, the advisors

1131
00:35:42,410 --> 00:35:44,049
would hope that they can be.

1132
00:35:44,130 --> 00:35:44,150
Yep.

1133
00:35:44,190 --> 00:35:46,759
Uh, but I think in, in
reality it's just the, it's

1134
00:35:46,790 --> 00:35:47,880
time diluting value, right?

1135
00:35:47,910 --> 00:35:49,580
There's gonna be a curve at
which they're, they're no

1136
00:35:49,690 --> 00:35:52,100
longer as valuable to you as
they were in the beginning,

1137
00:35:52,710 --> 00:35:55,500
and yet you've now tied them
to yourself permanently,

1138
00:35:55,770 --> 00:35:56,769
which is the problem.

1139
00:35:56,779 --> 00:35:57,759
Do you remember who,
who Jim Grote is?

1140
00:35:59,102 --> 00:35:59,322
I do.

1141
00:35:59,752 --> 00:36:00,062
Um- Wow.

1142
00:36:00,362 --> 00:36:00,562
Yeah.

1143
00:36:00,862 --> 00:36:02,202
Yeah, all right, uh,
hear me out, right?

1144
00:36:02,622 --> 00:36:04,221
Jim Grote's the founder
of Donato's Pizza,

1145
00:36:04,302 --> 00:36:05,112
for, for folks- Yeah

1146
00:36:05,221 --> 00:36:05,382
who don't know.

1147
00:36:05,462 --> 00:36:07,842
He's also a, a local
legend in Columbus, Ohio,

1148
00:36:07,902 --> 00:36:09,202
where- Yeah, yeah … Brian
and I went to school.

1149
00:36:09,221 --> 00:36:10,502
Damn it, now I want
Donato's Pizza.

1150
00:36:10,542 --> 00:36:10,721
Yeah, I

1151
00:36:10,761 --> 00:36:10,991
know.

1152
00:36:11,042 --> 00:36:11,102
I

1153
00:36:11,122 --> 00:36:11,241
know.

1154
00:36:11,302 --> 00:36:11,392
I know.

1155
00:36:11,392 --> 00:36:12,502
Do you know how far I am
from a Donato's Pizza?

1156
00:36:12,562 --> 00:36:13,922
I can get a Papa John's here.

1157
00:36:13,982 --> 00:36:14,842
Not quite the same thing.

1158
00:36:14,882 --> 00:36:15,011
Yep.

1159
00:36:15,502 --> 00:36:18,741
I met Jim, uh, 20-some odd
years ago, and w- we were

1160
00:36:18,761 --> 00:36:20,692
at, at some event together,
and I got talking to him.

1161
00:36:20,741 --> 00:36:21,741
He's like super nice guy.

1162
00:36:22,302 --> 00:36:24,952
And I remember thinking,
someone at the time was asking

1163
00:36:25,042 --> 00:36:28,202
me for an intro to Jim, uh,
usually like, like within the

1164
00:36:28,261 --> 00:36:31,721
year, and they wanted to, to,
to tap into his knowledge.

1165
00:36:32,442 --> 00:36:32,452
Uh-huh.

1166
00:36:32,462 --> 00:36:35,482
And I remember something that
he and I talked about, and he

1167
00:36:35,542 --> 00:36:37,482
said something to the effect
of like, "Well, I've done a

1168
00:36:37,542 --> 00:36:39,902
lot of this, but I haven't
done a lot of this lately."

1169
00:36:39,962 --> 00:36:41,682
And it always stuck in my head.

1170
00:36:41,782 --> 00:36:42,072
I thought it was-

1171
00:36:42,261 --> 00:36:42,592
Yeah, yeah, yeah

1172
00:36:42,882 --> 00:36:45,252
… 
his level of self-awareness
was extraordinary, okay?

1173
00:36:45,272 --> 00:36:45,962
That's incredible.

1174
00:36:46,221 --> 00:36:46,382
Yeah.

1175
00:36:46,482 --> 00:36:46,511
E- exactly.

1176
00:36:46,542 --> 00:36:48,902
Most people don't realize their
knowledge has a shelf life.

1177
00:36:48,982 --> 00:36:49,502
Correct.

1178
00:36:49,922 --> 00:36:50,132
Right?

1179
00:36:50,502 --> 00:36:50,622
Yeah.

1180
00:36:50,642 --> 00:36:51,712
And you know who
doesn't realize this?

1181
00:36:52,062 --> 00:36:53,632
Fucking advisors, right?

1182
00:36:53,721 --> 00:36:54,362
Yeah, the advisors.

1183
00:36:54,402 --> 00:36:54,962
No, that's what I mean.

1184
00:36:55,062 --> 00:36:55,522
That's what I mean.

1185
00:36:55,622 --> 00:36:58,022
Yeah, I, I think that, in
fact I think that's more often

1186
00:36:58,102 --> 00:37:00,172
spotted by founders than it
is the advisors themselves.

1187
00:37:00,192 --> 00:37:00,202
Yeah.

1188
00:37:00,202 --> 00:37:02,741
I think once you've, you've
achieved guru level, once

1189
00:37:02,782 --> 00:37:04,062
you've- Yeah … if somebody's
told you that you're a

1190
00:37:04,142 --> 00:37:05,802
sage, you're forever a sage.

1191
00:37:05,902 --> 00:37:06,282
Yep.

1192
00:37:06,362 --> 00:37:07,322
It's, it's tough.

1193
00:37:07,622 --> 00:37:10,302
I try to be mindful of
that because, like when I'm

1194
00:37:10,342 --> 00:37:12,421
dispensing advice, and you
and I do this for a living.

1195
00:37:12,882 --> 00:37:12,892
Yes.

1196
00:37:12,922 --> 00:37:16,642
I always try to like play my
own filter and bias to be able

1197
00:37:16,682 --> 00:37:19,892
to say, "Is what I'm about
to tell this person current?"

1198
00:37:20,102 --> 00:37:22,092
Like, and, and how can I
validate that it's current?

1199
00:37:22,261 --> 00:37:22,442
Yeah.

1200
00:37:22,502 --> 00:37:22,902
Right?

1201
00:37:22,962 --> 00:37:24,922
And so I always try
to be mindful of that.

1202
00:37:24,962 --> 00:37:26,842
And I think that for a lot
of people when they seek out

1203
00:37:26,882 --> 00:37:30,462
advice, what happens is they
get an audience with guru.

1204
00:37:30,482 --> 00:37:31,962
You know, whoever the
guru happens to be

1205
00:37:32,082 --> 00:37:32,502
in, in their space.

1206
00:37:32,562 --> 00:37:32,782
Yes.

1207
00:37:33,042 --> 00:37:33,772
Right?

1208
00:37:33,782 --> 00:37:38,022
And that guru knows a
ton about that space for

1209
00:37:38,221 --> 00:37:39,142
their moment in time.

1210
00:37:39,602 --> 00:37:42,062
They drop some, some
incredible nuggets, right?

1211
00:37:42,082 --> 00:37:42,452
And you're like- Right

1212
00:37:42,452 --> 00:37:44,772
"Oh my God, if I could have
access- Yeah … to this oracle

1213
00:37:44,782 --> 00:37:45,882
of knowledge all the time."

1214
00:37:46,082 --> 00:37:47,942
Imagine what else is
in their head, right?

1215
00:37:48,442 --> 00:37:50,042
Mostly ore, unfortunately.

1216
00:37:50,122 --> 00:37:50,322
Yeah.

1217
00:37:50,772 --> 00:37:51,761
You, you, you saw the gold.

1218
00:37:52,882 --> 00:37:55,241
And it turns out for most
people, they're just not

1219
00:37:55,252 --> 00:37:59,432
like a bottomless fountain
of freaking wisdom, right?

1220
00:37:59,462 --> 00:37:59,562
Right.

1221
00:37:59,582 --> 00:38:02,362
They know a couple things
that you don't know right now.

1222
00:38:02,422 --> 00:38:02,772
Yeah.

1223
00:38:02,782 --> 00:38:04,542
And then once you know
them- And guess what?

1224
00:38:04,562 --> 00:38:05,962
They tend to lead
with those, too.

1225
00:38:06,082 --> 00:38:06,782
Yeah, exactly.

1226
00:38:06,802 --> 00:38:07,842
They, they, they lead
with their best shots.

1227
00:38:08,060 --> 00:38:08,202
Yeah.

1228
00:38:08,422 --> 00:38:10,802
When I was starting my
agency, like m- like 19 years

1229
00:38:10,822 --> 00:38:12,422
old, I met this guy, right?

1230
00:38:12,522 --> 00:38:13,502
This guy named Don.

1231
00:38:13,882 --> 00:38:14,582
He, he's a great guy.

1232
00:38:15,689 --> 00:38:17,289
And he was a consultant,
and he was a marketing

1233
00:38:17,309 --> 00:38:17,850
consultant.

1234
00:38:18,289 --> 00:38:18,309
Okay.

1235
00:38:18,309 --> 00:38:21,309
And he was the first
person that I had met that

1236
00:38:21,369 --> 00:38:22,529
understood what marketing was.

1237
00:38:22,649 --> 00:38:24,069
I had no goddamn clue, right?

1238
00:38:24,110 --> 00:38:24,120
Right.

1239
00:38:24,130 --> 00:38:26,090
Even though I was starting
essentially a marketing agency.

1240
00:38:26,510 --> 00:38:28,990
He had gray hair, and
he presented well, and I

1241
00:38:29,069 --> 00:38:30,989
just thought- Yeah … he
was freaking Yoda, right?

1242
00:38:31,130 --> 00:38:31,289
Uh-huh.

1243
00:38:31,590 --> 00:38:35,349
Now, I owe him a huge, huge
debt, and he knows it, and

1244
00:38:35,349 --> 00:38:37,609
he, he reminds me every
single time I see him.

1245
00:38:38,050 --> 00:38:40,589
Because he- … he's the one
that introduced me to the agency

1246
00:38:40,630 --> 00:38:42,829
that, that ended up, uh, we
ended up merging with, right?

1247
00:38:43,130 --> 00:38:46,089
But at the time, uh, and
he, he and I have been

1248
00:38:46,149 --> 00:38:46,949
friends for a very long time.

1249
00:38:47,209 --> 00:38:50,170
At the time, he would say to
me, he'd be like, "You know,

1250
00:38:50,229 --> 00:38:52,369
this is the way things work,
and this is how you charge,"

1251
00:38:52,389 --> 00:38:53,349
and everything else like that.

1252
00:38:53,749 --> 00:38:55,949
And I remember, Ryan,
working for him for

1253
00:38:56,089 --> 00:38:57,889
pennies on the dollar.

1254
00:38:57,949 --> 00:39:00,510
I think my effective- Uh-huh
… billable rate for how much

1255
00:39:00,569 --> 00:39:04,249
he pimped me out was, like,
nine cents an hour, okay?

1256
00:39:05,470 --> 00:39:07,469
Because I thought he was this
fountain of knowledge, and I,

1257
00:39:07,509 --> 00:39:09,229
I was willing to- Yeah … you
know, give up and to learn

1258
00:39:09,269 --> 00:39:10,150
and everything else like that.

1259
00:39:10,329 --> 00:39:12,729
In, in retrospect,
probably a good idea, but

1260
00:39:12,769 --> 00:39:13,529
I wouldn't recommend it.

1261
00:39:14,029 --> 00:39:14,109
Yeah.

1262
00:39:14,169 --> 00:39:15,309
Many years later,
20 years later.

1263
00:39:16,350 --> 00:39:19,370
Don and I get together for
lunch, and, uh, and I'm like,

1264
00:39:19,840 --> 00:39:23,100
"Don, did you know at the time
that I was working for, like,

1265
00:39:23,150 --> 00:39:24,900
nine cents an hour?" He's
like, "Oh, hell yeah, I did."

1266
00:39:27,020 --> 00:39:27,030
Yeah.

1267
00:39:27,480 --> 00:39:30,030
He's like, "I was so upset when
you ended up doing that deal

1268
00:39:30,090 --> 00:39:31,250
and all, your rate went up."

1269
00:39:31,590 --> 00:39:32,630
You know, he's, I was like-
Yeah, that's hysterical … "So

1270
00:39:32,670 --> 00:39:34,490
you're just gonna keep taking
advantage of me?" He's like,

1271
00:39:34,640 --> 00:39:37,090
"Yep." He was saying it
like, you know, in jest, but

1272
00:39:37,110 --> 00:39:39,610
I always thought about that
moment where I'm like, damn,

1273
00:39:39,690 --> 00:39:42,190
dude, the only reason I was
willing to do that is 'cause

1274
00:39:42,230 --> 00:39:44,830
he knew something that I didn't
know at a time, you know, I

1275
00:39:44,890 --> 00:39:47,130
wasn't, I wasn't capable of
getting more of that knowledge.

1276
00:39:47,150 --> 00:39:48,970
And I was will- Right
… willing to pay a massive

1277
00:39:49,050 --> 00:39:50,610
premium in retrospect to get it.

1278
00:39:51,090 --> 00:39:53,570
And I was like, these
founders are easily misled.

1279
00:39:53,810 --> 00:39:55,350
And look, it is tough,
'cause you are making a

1280
00:39:55,370 --> 00:39:56,509
bit of a bet there, right?

1281
00:39:56,530 --> 00:39:57,870
And sometimes the
bet does pay off.

1282
00:39:58,290 --> 00:39:58,370
Right.

1283
00:39:58,430 --> 00:39:58,590
Right?

1284
00:39:58,650 --> 00:40:00,850
So i- in that case, that
investment that you made in

1285
00:40:00,870 --> 00:40:03,590
Don, it was an investment
that he made back into you.

1286
00:40:03,610 --> 00:40:03,750
It did.

1287
00:40:03,750 --> 00:40:04,130
In tro.

1288
00:40:04,300 --> 00:40:04,310
Yeah.

1289
00:40:04,350 --> 00:40:06,210
It all worked out quite well.

1290
00:40:06,250 --> 00:40:08,210
But it's not like
that went to plan.

1291
00:40:08,310 --> 00:40:09,520
It wasn't like there was-
Right … a plan there.

1292
00:40:09,550 --> 00:40:11,130
You're just looking at it-
Right … and going, "You seem

1293
00:40:11,170 --> 00:40:15,150
to know a lot more than I do,
so I am going to, uh, pin myself

1294
00:40:15,190 --> 00:40:17,910
to you, and, and we're gonna
see what happens." It's a long

1295
00:40:17,990 --> 00:40:20,420
shot bet, and I would say for
every time it works out as

1296
00:40:20,470 --> 00:40:24,470
you've just described, there are
20, 30, 40, 50, 60 that don't.

1297
00:40:24,810 --> 00:40:25,790
Think of the cost, okay?

1298
00:40:25,870 --> 00:40:27,110
So, so let- let's
put this out there.

1299
00:40:27,600 --> 00:40:27,630
Yeah, that's fair.

1300
00:40:27,710 --> 00:40:30,410
So if you've got, if you're
giving up a quarter point, let's

1301
00:40:30,450 --> 00:40:32,230
say, to an advisor, which is a
little bit on the higher end,

1302
00:40:32,290 --> 00:40:34,630
but let's use that, but you're
also doing it at a $10 million

1303
00:40:34,670 --> 00:40:37,490
valuation, which is usually,
you know, a good deal for a

1304
00:40:37,610 --> 00:40:39,140
pre-seed, uh, raise these days.

1305
00:40:39,590 --> 00:40:42,540
But you're paying
that person $25,000.

1306
00:40:42,890 --> 00:40:45,440
Now again, you're paying
them in equity future value,

1307
00:40:45,490 --> 00:40:47,120
which will probably turn
out to be nothing, so it's

1308
00:40:47,130 --> 00:40:49,390
not exactly $25,000, okay?

1309
00:40:49,430 --> 00:40:52,150
This has nothing to do with
whether that $25,000 is the

1310
00:40:52,170 --> 00:40:53,640
same as the investor money.

1311
00:40:53,690 --> 00:40:56,350
It's the fact that you're
haggling more over the investor

1312
00:40:56,370 --> 00:40:58,570
money than, than you are
over, over this, this 25K.

1313
00:40:58,850 --> 00:40:58,940
Yep.

1314
00:40:59,250 --> 00:41:02,630
And so think of how many
times you wind up pinging

1315
00:41:02,690 --> 00:41:04,790
that person in the time
that you work with them.

1316
00:41:04,830 --> 00:41:06,700
In your mind, you're talking
to them all the time, and

1317
00:41:06,730 --> 00:41:08,250
then they're always up
in your world, et cetera.

1318
00:41:09,310 --> 00:41:11,009
We have advisors
at Startups.com.

1319
00:41:11,350 --> 00:41:12,290
I won't name names-
Yeah … 'cause they're

1320
00:41:12,330 --> 00:41:13,080
all great people, right?

1321
00:41:13,250 --> 00:41:15,720
But big brand names that you've
probably never heard of 'cause

1322
00:41:15,750 --> 00:41:17,880
we failed to mention it, right?

1323
00:41:17,910 --> 00:41:18,350
Yeah.

1324
00:41:18,390 --> 00:41:23,870
Who I think maybe- I have given
three requests to ever, right?

1325
00:41:23,899 --> 00:41:23,909
Uh-huh.

1326
00:41:23,910 --> 00:41:25,730
In the 15 years that we've
been around, like ever.

1327
00:41:26,410 --> 00:41:30,190
And I think on average, I
probably paid for each email

1328
00:41:30,230 --> 00:41:33,190
or phone call at least $10,000.

1329
00:41:33,779 --> 00:41:34,230
Yeah.

1330
00:41:34,250 --> 00:41:34,549
Right?

1331
00:41:34,560 --> 00:41:36,049
It ends up being a
pretty expensive email.

1332
00:41:36,290 --> 00:41:36,680
It is.

1333
00:41:36,710 --> 00:41:36,960
It is.

1334
00:41:37,230 --> 00:41:39,299
And I can't even remember
what the requests were.

1335
00:41:39,370 --> 00:41:42,359
If we look back, you know,
we own a platform, uh, called

1336
00:41:42,430 --> 00:41:45,390
Clarity, which of course is,
is, uh, an expert exchange.

1337
00:41:45,950 --> 00:41:47,299
This is ironic- Yeah … that
we're talking about

1338
00:41:47,350 --> 00:41:50,129
this because, like, we
actually know exactly what

1339
00:41:50,169 --> 00:41:51,850
advisors get paid- Yes

1340
00:41:51,890 --> 00:41:53,549
for actual real
world startup advice.

1341
00:41:53,580 --> 00:41:53,610
Yeah, yeah, yeah.

1342
00:41:53,710 --> 00:41:55,310
Because we write those
checks to the advisors

1343
00:41:55,330 --> 00:41:56,448
every time the startups ask.

1344
00:41:57,069 --> 00:41:59,810
Ryan, you've done
hundreds and hundreds and

1345
00:42:00,129 --> 00:42:01,250
hundreds of these calls.

1346
00:42:01,810 --> 00:42:01,990
Yes.

1347
00:42:02,450 --> 00:42:04,529
How many times have
you gotten paid $5,000

1348
00:42:06,049 --> 00:42:06,410
for a call?

1349
00:42:06,410 --> 00:42:08,230
For a call, exactly zero times.

1350
00:42:08,270 --> 00:42:08,840
Yeah, exactly zero times.

1351
00:42:08,840 --> 00:42:09,350
Exactly zero times.

1352
00:42:09,569 --> 00:42:11,830
Now, I have had tell, people
tell me the, the call was

1353
00:42:11,850 --> 00:42:14,529
worth $100,000 or that it saved
them two years to their life.

1354
00:42:14,560 --> 00:42:14,570
Yeah.

1355
00:42:14,570 --> 00:42:14,580
Awesome.

1356
00:42:14,580 --> 00:42:16,310
Which I would equate to several
hundred thousand dollars.

1357
00:42:16,710 --> 00:42:18,470
So value is there, right?

1358
00:42:18,549 --> 00:42:20,509
But nobody ever offered
to actually pay me the

1359
00:42:20,549 --> 00:42:21,069
full value of the call.

1360
00:42:21,109 --> 00:42:21,270
Yeah.

1361
00:42:21,390 --> 00:42:21,400
No.

1362
00:42:21,400 --> 00:42:23,230
Nobody was like, "You know
what? So we're gonna send you

1363
00:42:23,669 --> 00:42:26,470
half of that $100,000 you saved
us. We really appreciate it."

1364
00:42:26,690 --> 00:42:26,819
Right.

1365
00:42:26,850 --> 00:42:27,210
Never happened.

1366
00:42:27,310 --> 00:42:30,279
And on average, these advisors
who are getting paid by the

1367
00:42:30,390 --> 00:42:32,839
minute from startups to, to
give their advice- Yeah … and

1368
00:42:32,850 --> 00:42:33,669
they're great advisors.

1369
00:42:33,710 --> 00:42:35,480
I mean, I, I highly recommend
going on there and, and

1370
00:42:35,490 --> 00:42:36,069
finding some great people.

1371
00:42:36,129 --> 00:42:38,910
But are getting paid hundreds
of dollars for the advice.

1372
00:42:38,970 --> 00:42:41,330
Now, to be fair- Yes … it's
not because they're trying

1373
00:42:41,350 --> 00:42:42,770
to get rich off of Clarity.

1374
00:42:42,830 --> 00:42:44,810
We always said that Clarity
is iPhone money, right?

1375
00:42:44,850 --> 00:42:46,779
Like, it's, it… For, for
the advisors- Yeah … it's,

1376
00:42:46,830 --> 00:42:48,700
it's not all the money that
you, you'll make to make a

1377
00:42:48,750 --> 00:42:51,160
living, but it's enough to
buy a free iPhone, right?

1378
00:42:51,169 --> 00:42:53,540
But most advisors, yourself
included, are doing it 'cause

1379
00:42:53,549 --> 00:42:56,089
they wanna be helpful, but they
wanna, like, have s- like a

1380
00:42:56,149 --> 00:42:57,730
metric of their time, right?

1381
00:42:57,850 --> 00:42:59,560
Like- Yeah … hey, if you're
gonna take up 20 minutes

1382
00:42:59,589 --> 00:43:02,069
on a call with me, like, it
should have some friction

1383
00:43:02,149 --> 00:43:04,029
for you too, 'cause it
definitely has friction for me.

1384
00:43:04,569 --> 00:43:07,270
It saves you from the
Googleable advice- Yeah

1385
00:43:07,290 --> 00:43:07,560
uh, syndrome.

1386
00:43:07,620 --> 00:43:07,630
Yep.

1387
00:43:07,630 --> 00:43:09,270
Or at least you're getting
paid to Google for people.

1388
00:43:09,470 --> 00:43:09,710
Yeah.

1389
00:43:10,240 --> 00:43:11,089
Um, yeah, yeah.

1390
00:43:11,569 --> 00:43:13,919
Yeah, I, I did, I got, I got
called out once, uh, I don't

1391
00:43:13,930 --> 00:43:16,040
remember if it was on X or
on LinkedIn, but somebody was

1392
00:43:16,129 --> 00:43:20,490
like, "Hey, asshole, how can
you charge $400 an hour to…

1393
00:43:20,720 --> 00:43:22,690
What, what makes you think
you can charge $400 an hour to

1394
00:43:22,730 --> 00:43:23,520
talk to people on the phone?"

1395
00:43:24,049 --> 00:43:27,672
And I said, "Well- I pasted
back the two comments around,

1396
00:43:27,712 --> 00:43:29,622
"You saved two years of my
life," or 100, you know,

1397
00:43:29,801 --> 00:43:31,122
"Helped us make $200,000."

1398
00:43:31,462 --> 00:43:31,682
Yeah.

1399
00:43:31,781 --> 00:43:34,202
And said, "So, so there's part
of it." I was like, "The other

1400
00:43:34,221 --> 00:43:37,281
part is I started at 100, and
I got too many calls, and I

1401
00:43:37,322 --> 00:43:39,682
went to 200, and I got too many
calls, and I put to 300 and

1402
00:43:39,702 --> 00:43:41,122
I got a little less calls."

1403
00:43:41,132 --> 00:43:41,142
Yeah.

1404
00:43:41,142 --> 00:43:42,942
"And I put to 400, I got
exactly the number of calls

1405
00:43:42,982 --> 00:43:44,502
I wanted, which wasn't
too many, but people-

1406
00:43:44,522 --> 00:43:46,422
Yep … showed up really,
really well prepared." Yep.

1407
00:43:46,422 --> 00:43:48,522
"So here's the booking
link." He never called me.

1408
00:43:48,741 --> 00:43:50,602
Yeah, it comes back to here's,
here's the value of my time,

1409
00:43:51,062 --> 00:43:52,122
and here's the explicit cost.

1410
00:43:52,462 --> 00:43:53,242
But my point is- Yeah

1411
00:43:53,242 --> 00:43:55,842
even at $400 an hour,
no one would've gotten

1412
00:43:55,862 --> 00:43:57,721
to $25,000, right?

1413
00:43:57,752 --> 00:43:57,762
Right.

1414
00:43:57,762 --> 00:43:59,342
And, and that's
just one example.

1415
00:43:59,402 --> 00:44:00,502
That'd be a lot of hours.

1416
00:44:00,642 --> 00:44:03,622
It would take a lot of hours
to consume 25K, and that's

1417
00:44:03,642 --> 00:44:05,502
a lot of hours you're not
gonna get out an advisor.

1418
00:44:05,562 --> 00:44:06,322
You just aren't.

1419
00:44:06,362 --> 00:44:07,062
So here's what I would say.

1420
00:44:07,662 --> 00:44:10,982
I love the fact that
founders are really well

1421
00:44:11,102 --> 00:44:14,882
conditioned to price their
equity and hold onto it.

1422
00:44:15,301 --> 00:44:18,682
I hate the fact that they only
apply that rubric to investors.

1423
00:44:18,942 --> 00:44:19,662
Sometimes.

1424
00:44:20,301 --> 00:44:20,402
Right?

1425
00:44:20,801 --> 00:44:21,462
Which is the only person- To

1426
00:44:21,482 --> 00:44:23,172
the one place where
there's actually a clear

1427
00:44:23,241 --> 00:44:24,192
value exchange, right?

1428
00:44:24,261 --> 00:44:24,622
I know.

1429
00:44:24,702 --> 00:44:27,241
Now, you can argue whether it's
an equitable value exchange or

1430
00:44:27,261 --> 00:44:29,002
not, but at least it's clear.

1431
00:44:29,102 --> 00:44:30,182
You know exactly what

1432
00:44:30,241 --> 00:44:30,402
you're getting.

1433
00:44:30,402 --> 00:44:31,252
You will get it, right?

1434
00:44:31,281 --> 00:44:32,872
Like, like you will-
Yeah … get the money, right?

1435
00:44:32,872 --> 00:44:32,892
Yeah, yeah.

1436
00:44:32,902 --> 00:44:34,511
It'll be conditional
and everything else like

1437
00:44:34,582 --> 00:44:35,822
that, so it's- If you
don't, you won't give

1438
00:44:35,862 --> 00:44:36,772
up the equity, right?

1439
00:44:36,801 --> 00:44:37,042
Right.

1440
00:44:37,182 --> 00:44:37,402
Yeah.

1441
00:44:37,462 --> 00:44:39,642
Versus all these other
buckets where like, ah,

1442
00:44:39,702 --> 00:44:40,542
what could go wrong, right?

1443
00:44:40,572 --> 00:44:42,741
And like, you're just like,
like saying, it goes back to

1444
00:44:42,761 --> 00:44:45,062
what I said a moment ago, which
is you're literally saying

1445
00:44:45,122 --> 00:44:48,062
to, quote, "an investor", "I
am gonna give you the equity.

1446
00:44:48,402 --> 00:44:49,342
You might give me money.

1447
00:44:49,662 --> 00:44:50,322
Let's shake on it."

1448
00:44:50,562 --> 00:44:50,721
Yep.

1449
00:44:51,122 --> 00:44:51,882
Like, what?

1450
00:44:52,602 --> 00:44:52,702
So-

1451
00:44:53,022 --> 00:44:53,132
Yeah

1452
00:44:53,702 --> 00:44:56,732
… 
all I wanna say is like, we have
to use equity to pay for stuff.

1453
00:44:56,732 --> 00:44:58,942
If there's nothing wrong
with doing a co-founder

1454
00:44:59,062 --> 00:45:01,172
deal or obviously giving
employees equity or, or

1455
00:45:01,301 --> 00:45:04,062
giving advisors equity,
that's not the argument here.

1456
00:45:04,072 --> 00:45:04,082
No.

1457
00:45:04,102 --> 00:45:06,382
The argument is
how you treat it.

1458
00:45:06,422 --> 00:45:08,971
The argument is how you-
Yeah … focus on that value

1459
00:45:09,342 --> 00:45:10,342
and how you pay for it.

1460
00:45:10,822 --> 00:45:13,221
If you're looking at that value
as amorphous, and you're just

1461
00:45:13,261 --> 00:45:15,862
willing to give up half the
company or a quarter point to

1462
00:45:15,922 --> 00:45:19,672
somebody and not be sure that
you're extracting that same kind

1463
00:45:19,702 --> 00:45:22,982
of value as you would from an
investor, you're leaving way

1464
00:45:23,022 --> 00:45:24,322
too much equity on the table.

1465
00:45:24,342 --> 00:45:27,471
There's never- Yeah … gonna
be a point ever in the history

1466
00:45:27,502 --> 00:45:30,281
of you building your company
where you're like, "Man, I wish

1467
00:45:30,422 --> 00:45:32,261
I gave away more equity," right?

1468
00:45:32,752 --> 00:45:34,202
"I wish I gave Brian
more equity- Yeah … for

1469
00:45:34,241 --> 00:45:35,171
those calls," right?

1470
00:45:35,202 --> 00:45:35,781
That'll never happen.

1471
00:45:35,801 --> 00:45:36,422
Yep.

1472
00:45:36,502 --> 00:45:39,432
What will happen is you're
gonna look at every one of those

1473
00:45:39,462 --> 00:45:43,732
transactions, and you'll say to
yourself, "Man, I really wish

1474
00:45:44,062 --> 00:45:48,162
at that moment I had treated
every single share that I ever

1475
00:45:48,202 --> 00:45:51,982
gave away exactly like a dollar
that I was taking back for

1476
00:45:51,991 --> 00:45:54,602
it and extracted that value,
because that's the only thing

1477
00:45:54,741 --> 00:45:55,781
I have left to show for it.

1478
00:45:55,801 --> 00:45:57,362
And in the end, that's
all that matters."

1479
00:45:58,662 --> 00:46:00,362
Overthinking your startup
because you're going it alone?

1480
00:46:00,902 --> 00:46:02,761
You don't have to, and
honestly, you shouldn't,

1481
00:46:02,962 --> 00:46:05,542
because instead, you can
learn directly from peers

1482
00:46:05,562 --> 00:46:06,921
who have been in your shoes.

1483
00:46:06,962 --> 00:46:09,241
Connect with bootstrapped
founders and the advisors

1484
00:46:09,281 --> 00:46:11,622
helping them win in the
Startups.com Community.

1485
00:46:11,902 --> 00:46:16,542
Check out the Startups.com
Community at www.startups.com

1486
00:46:16,622 --> 00:46:17,442
to see if it's for you.

1487
00:46:17,781 --> 00:46:18,801
Could be just the
thing you need.

1488
00:46:19,062 --> 00:46:19,962
I hope to see you inside.