I'm sure this question gets asked a lot but I think mine may be slightly different here. I am building a startup in the beauty space and have been looking for a technical co founder for a few months now. I have connected with someone who has a super strong profile, the right skills, complimentary skills, working chemistry and similar vision. We work well together and are now excited to get started on the MVP.
We discussed equity split – neither of us are experts but we've both dabbled in entrepreneurship. My family has a few entrepreneurs in it and they have advised me on a 50/50 split for these reasons:
- Previously bad experiences with people being unequally motivated on anything that was not a 50/50 or even split, founders leaving, my family member regrets not having a fair split because it just caused problems in the end (successful startup)
- Their view (and I also feel this way) slicing pie method or equity calculated by hours worked is a distraction in the beginning, since equity is really worth nothing for a very long time. Family member's view is that the person needs to be "all in", and if 50/50 is agreed then that signals they are in it for the long run rather than relying on cushioning themselves if they change their mind
The co founder is not an expert either (his own words) but feels that slicing pie sounds fair to him because
- In his words, "we don't know what will happen" etc with the product, so its good to work on a tracked hours basis
- He did says something somewhat concerning which was after "we don't know what will happen"… "the MVP may not work or in a years time there may be this perfect opportunity" [for him] – concerns me as obviously I'm looking for someone who is all in too
- Overall it just makes sense to him because it is so granular and modular, and it works well when we decide to bring in others
Would love to hear your thoughts on this
“I gotta say it was a good day.”
I’m so fricking pumped today. Really, truly. Yeah, Valence announced > $ 5 million in funding led by GGV and Upfront. That IS a big deal, but I’ll get to that. But Kamala Harris was picked to be the Vice Presidential candidate for the Democratic Party. That means she’ll be the first female Vice President of the United States, the first female Black Vice President and the first Indian-American Vice President. I don’t take this for granted, be ready for a fight. But let’s be clear. WE WILL WIN. We might have to fight for it after the votes go our way but let’s get ready for the fight.
So let’s get it.
Valence. It is a company with a mission to create better access and more funding for Black entrepreneurs and executives. Valence is led by a talented CEO, Guy Primus and was the brainchild of my partner, Kobie Fuller. If you want to follow two great Black executives who work at the intersection of technology and venture capital make sure to click on those links and follow them on Twitter.
So what exactly is Valence and why does it matter?
18 months ago, my partner Kobie Fuller was inspired to build a solution for a problem he faced regularly: as one of the few Black partners at a VC firm (an estimated 3% of GPs in venture are Black vs 14% of the US population), he was consistently asked for warm intros to Black professionals, to Black VCs, and to talented Black operators and entrepreneurs.
Venture firms wanted to meet talented Black founders but didn’t know where to start to find them. And Black entrepreneurs wanted access to decision makers but didn’t always have the easy connections. In fact, one of the biggest criticisms I personally get when I suggest that founders should “get introductions to VCs” is that this might reinforce existing racial imbalances by providing easier access to White professionals than people of color.
An imbalance clearly exists in access and networks that has resulted in a tech industry where an estimated only 1% of venture dollars go to Black founders and only 3% of the workforce is Black and a country where Black individuals hold a disproportionately low amount of the wealth — only 3%. As Kobie says, he didn’t have a “magical database” of great Black talent, so he set out to build a solution not just for himself, but also for the community.
Personally I believe that to fund more people of color you need to put check-writing authority in their hands the same way that if you want to see more women funded you need more women GPs. My greatest criticism of our industry is that women and people of color feel the need to leave larger VCs to create their own firms. We have a responsibility to help propel them to the top ranks of our biggest firms to make our check writers more representative of our society overall.
There is a very clear economic rational and strategic advantage for doing so. There are amazing Black entrepreneurs, Indian entrepreneurs, Chinese entrepreneurs, female entrepreneurs, gay entrepreneurs and so forth. OBVIOUSLY! If 90% of the check writers are White, straight men then it’s clear if you are different than that you’re going to have an advantage. As I always say, being great as an investor is about having “edge” and edge means knowing somebody or something that very few others know. It’s about swimming in lanes where others aren’t present. Being diverse in the VC industry is a VERY LOW bar and a clear differentiator.
At Upfront we believe in improving access for founders and entrepreneurs to networking, professional development, and economic opportunities, and that’s what Kobie set out to do with Valence, which he incubated in our offices. Huge hats off to Kobie for the idea, energy, direction, evening hours and the foresight and salesmanship required to bring on Guy to take the helm.
Building a mission into a business
By the time Valence launched in late 2019, the team had built the necessary systems and technology to seamlessly engage and onboard the community — not just the users, but also some pilot corporate partners who also believed in the mission and opportunity and who wanted to leverage and support this amazing database of talent. It was also important to Valence to not only connect users, but also to celebrate the successes and spotlight great Black leaders through high-quality content and design.
As soon as Valence launched in November 2019, the business quickly had proven demand from the community, not only from senior business leaders but also from so many young, talented professionals who could benefit from the inter-generational networking that Valence supported so seamlessly. Since launch, the Valence platform has supported more than 5,000 micro-mentoring sessions (AKA Boosts)— allowing the kind of invaluable network support that’s so critical to success and advancement for even the most talented founders and operators.
You can hear more about the importance of mentoring from Kobie Fuller, Valence advisor James Lowry, and John Legend — yes, THE John Legend — in this video from the 2020 Upfront Summit.
So things were going well for Valence in 2020, amazingly even in a pandemic. And then in May the world was galvanized by the tragic murder of George Floyd (and Breonna Taylor. And Ahmaud Arbery. And Rayshard Brooks. And the many Black women and men before them whose lives were taken at the hands of the police.)
When the mission meets a movement
In these months, not only did we see widespread civic protests but so many industries, including ours, faced a reckoning that despite even the best intentions, lip service wasn’t enough. We all needed to take action to address the imbalance of access, and to literally put our money where our mouths are. Suddenly a spotlight was put on everything that the Valence team had been building, and there was even more energy around the business.
I always say that you can judge a startup’s future based on how fast they’re able to execute when it counts. Well, I can tell you that within weeks of the civil unrest, Valence had:
- Introduced the Valence Funding Network, where GPs from more than 30 of the top venture funds representing more than $ 60B in assets under management joined Valence with the goal of linking Black entrepreneurs on the platform directly to venture decision makers.
- Increased membership by more than 20%
- Hired a CEO, Guy Primus, who was previously the CEO of The Virtual Reality Company as well as the COO of Overbrook Entertainment. He’s been a leader at the intersection of media and tech for many years and we’re grateful to partner with him.
- Announced their Series A funding round, which Upfront participated in and which was led by Hans Tung from GGV. Hans has been a great peer and collaborator on other portfolio boards and we’re excited for him to join Valence at this pivotal time. We have worked closely with GGV for years and they were a natural fit for helping to build a network like this given their investment in Chief (for women) and The Mighty (which helps families with people facing health challenges).
Since day one we have anticipated great things for Valence and with this groundswell of support at the civic level as well as the industry level, we hope to see meaningful improvements in access and dollars for Black professionals. Please join me in congratulating Guy, Kobie and the team for what they’ve built so far, and what’s to come.
How Valence Aims to Provide Better Access and Funding for Black Founders & Executives was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.
I love the book Rich Dad Poor Dad. It was my fav growing up. Since then, I've founded several startups, was employee #3 at a $ 65m VC firm in SF, and realized that there is a similar phenomenon to what Robert Kiyosaki is talking about in Rich Dad Poor Dad currently occurring in Silicon Valley.
Let's tastefully call this phenomenon: Rich Founder Poor Founder.
The point of entrepreneurship is freedom. Yes it’s to build cool shit and innovate and all that, but at the end of the day the sort of person who becomes an entrepreneur is usually doing it because they want freedom to control their day and work on the things they care about.
A lot of people go out and start their first business and try to make it a venture backed startup. That’s the wrong move. That’s like going to the gym and trying to bench 250 lbs on day one. It’s not that you can’t build up to that, it’s just not the right move today. I think the right move is to start a business that can make you $ 100k+ per year in profit. It doesn’t matter if it can’t scale past that, it’s about building that foundation to give you the freedom to try new things. Fail at those new things and it doesn’t matter as you have that financial foundation. It could be something as simple as a consulting or a services business, or a digital product like a course, newsletter or subscription podcast. Anything that is high margin, simple and enabled by the internet.
VC’s may shit on lifestyle businesses but at the end of the day they collect a 2% yearly management fee regardless of their success and typically have a great lifestyle (once their fund size is above $ 100m AUM).
Ask yourself what’s an easier path to wealth and freedom?
Path 1: Venture backed startup
90% chance of $ 0.
Small personal income until scale, IPO or liquidity event.
Massive dilution. Most founders end up owning 5%-20%. $ 500m market cap = $ 25m-$ 100m for founder(s).
Path 2: Lifestyle business
50% – 75% chance of success.
Pay yourself whatever you want out of profits over time.
If you can bootstrap your way to $ 300k/yr in profit and invest half of that ($ 150k/yr) at 10%/yr for 20 years = $ 9.6m + $ 150k/yr salary to enjoy your life with your family and friends. After 20 years, you can choose to sell that business or automate it and let it ride but with $ 9.6m invested in a conservative portfolio paying out 5% annually = $ 480k/year in interest or $ 40k/mo for you to live off without ever touching the principal nor sacrificing quality of life.
The definition of rich is having passive income that’s greater than your burn. I’m pretty sure we can all comfortably live off $ 40k/mo without ever having to leave the house.
But wait this isn’t a fair analysis as venture backed startups typically reach scale or a liquidity event in 10 years and you did 20 years for the lifestyle business. Fair, I’m sure after 10 years most of us can comfortably live off $ 20k ish/mo without ever having to work or touch the principal investment.
Most entrepreneurs start with one goal in mind: freedom. If you value freedom, you should have one goal for your first company, and that’s to build a lifestyle business that can produce $ 100k+/yr of personal income. It can be boring and it doesn’t have to scale. It sets yourself up for the foreseeable future and then you can afford to take big swings. Forget startups. Forget venture capital. Build something that gets you in the game and makes you a living first.
I think VCs may underestimate the extent to which mainstream entrepreneurship is a key input to outliers and moonshots. So many successful billionaire founders had a “never worry about rent again” moment via an exit in a much more boring business before swinging for a home run.
Elon Musk — before sending rockets into space and revolutionizing the auto-industry, Elon Musk was broke building Zip2 (online city guides for newspapers) before he netted $ 22m on the sale. Source
Patrick & John Collison — built Auctimatic: auction management software for small Ebay sellers, and sold it for $ 5m before going on to found Stripe, valued at $ 36b. Source
Mike Bloomberg — now worth $ 60b, Mike Bloomberg had a nice “never think about rent again” exit at 39 when Salomon was acquired by Phibro in 1981; he received $ 10 million. Bloomberg said “The Salomon Brothers did me the two greatest favours in my life. They hired me and they fired me.” Source
Daniel Ek — Spotify isn’t Ek’s first success. Daniel Ek became a self-made millionaire at age 23, before even putting a single thought into Spotify. At 23, Daniel Ek “retired” after he sold his online marketing company Advertigo to Swedish digital marketing firm TradeDoubler in a deal worth $ 1.25 million.
Alex Tew — started the Million Dollar Homepage to raise money for his university education. He sold 1 million pixels on a 1000 x 1000 pixel grid on his website for $ 1 per pixel. He ended up making $ 1,037,100 USD before founding the billion dollar meditation app, Calm.
Austin Allred — co-authored the growth hacking textbook Secret Sauce, which became a best-seller and provided him the personal seed money to build Lambda School, valued over $ 150m.
And countless others: Ev Williams (Blogger), Pincus (freeloader, support.com, tribe), Travis
Kalanick (Red Swoosh), Stewart Butterfield (Flickr), Jason Fried & DHH (37 Signals services business) etc.
All of these entrepreneurs built more of a lifestyle business or had a smaller liquidity event before they built a rocket (figuratively and literally for Elon). There is no greater security than knowing that no matter what risks you take, you have a business or enough cash in the bank to pay for your livelihood.
If you start by building a lifestyle business it will force you to build a product or offer a service that customers actually want. It forces you to create a monetization plan and it forces you to build a real business. By starting a lifestyle business it forces you to create something you’re passionate about and build an actual business that will actually help attract VC if that’s the path you choose to go down.
Renowned value investor and Warren Buffett mentor, Ben Graham, once said: “In the short-run, the stock market is a voting machine. But in the long-run, it is a weighing machine.”
AKA in the short term the market may value hype and narrative, but in the long term it always values real traction, revenue, earnings and margins.
We’re seeing this play out in the venture market today. In the last few years you may have heard startups raising at eyebrow lifting valuations and hiring large masses of employees. But behind the curtain their P&L is f*cked! They have little to f*ck all for revenue and huge expenses.
Founders often get attached to valuations and forget that when they sell the business, the weighing machine is the only thing that matters. The buyer has to have a way to pay themselves back, either via earnings, a future sale or strategic synergies.
Your venture valuation is irrelevant. Venture valuations aren’t backed by fundamentals and their funds have been compared to a ponzi scheme. Build a lifestyle business where results, traction, revenue, margins and earnings are the things that matter because at the end of the day, the numbers have to work with the weighing machine.
Pro tip: If you’re bootstrapping, you can still take advantage of venture capital by using all the VC subsidized software available on the market.
The internet is the greatest leveler of access to entrepreneurship society has ever seen. There is far too much focus on raising venture capital and creating 100–1000x outcomes and not nearly enough on leveraging the internet to empower entrepreneurs to build profitable and sustainable software-enabled lifestyle businesses.
TL;DR 'Rich Founder' is someone who creates a sustainable 'lifestyle business' with a high probability of success. 'Poor Founder' is someone who thinks they need to raise venture capital, a fancy office, big staff and a bunch of resources to succeed. Rich Founder has a probability of success and enjoys his/her life. Poor Founder is miserable and might as well go to a Casino and put it all down on Red 5.