Founder Fridays No. 102
Lambda: A Cautionary Tale -- Seed Is Broken -- Empathy = Productivity
Happy Friday.
Lambda: A Cautionary Tale
This article presents a compelling cautionary tale that founders must read, chronicling the rise and fall of Lambda School, a coding bootcamp founded by Austen Allred that promised to teach programming skills with no upfront costs through Income Share Agreements. Despite initial hype and significant venture capital funding, the school faced numerous controversies, including misrepresented job placement rates, subpar education quality and legal troubles. The article details how Lambda School's business model ultimately failed, with poor student outcomes and financial losses leading to layoffs, rebranding and eventual regulatory action. Finally, it explores Allred's role in the company's downfall, highlighting his tendency to misrepresent facts and his inability to address the fundamental issues plaguing the school — serving as a stark warning to aspiring entrepreneurs about the dangers of prioritizing growth and hype over delivering genuine value and maintaining ethical practices. Sandofsky (22 minutes)
Seed Is Broken
The term “Seed” is broken. Today, it can mean everything from backing first-time founders with no product to investing in serial founders with significant traction, encompassing rounds from $500K to more than $6 million. Between 2010 and 2020, the average seed deal grew from $1.7 million to $4.6 million, with some rounds exceeding $22 million. This has made the leap from Seed to Series A funding more challenging, reducing the percentage of Seed-stage startups advancing to Series A within two years from 23% in 2020 to just 5% in 2022. To clarify, Seed funding can be divided into two categories: Seed Inception, the initial ticket for companies just starting, focusing on product iteration, critical hires and MVP development; and Seed Expansion, rounds for founders who have achieved milestones and metrics, concentrating on go-to-market testing and scaling with a small team. Moonfire (9 minutes)
Empathy = Productivity
Bosses who exercise empathy can create a workplace culture that fosters higher productivity, stronger connections and better overall organizational health. Jamil Zaki, a research psychologist at Stanford University, emphasizes that empathy is a skill that can be developed and cultivated in the workplace, and leaders play a crucial role in setting the tone. By connecting with their employees, being vulnerable and rewarding empathetic behavior, bosses can create a culture where kindness and understanding are the norm, leading to reduced stress-related illnesses, lower burnout rates and increased innovation among employees. Ultimately, investing in empathy is not just a matter of being "soft" but a strategic choice that can yield tangible benefits for both employees and the organization as a whole. McKinsey & Co (34 minutes)
Founder FAQ: What’s the Difference Between RSAs and RSUs in Startup Equity?
Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs) are very different, so don’t be fooled by their deceptively similar names. RSAs are an issuance of a certain number of shares of the startup’s common stock. These shares are typically subject to vesting, meaning that they cannot be sold or transferred until certain conditions are met, such as the employee remaining with the company for a specific period of time. RSUs are a promise by the company to issue stock after certain vesting milestones have been achieved. Westaway (6 minutes)
Startup Funding Guides
I’ve put together a series of guides to equip founders to excel at fundraising. These guides break down the deal term by term and give you negotiation tips so that you can speak to investors with confidence.
Convertible Note: Guide / Video
Certainty in an Uncertain World
The startup journey is filled with uncertainty. A fractional General Counsel (GC) provides the certainty of on-call legal expertise. Having an experienced GC gives founders invaluable peace of mind. With a seasoned startup legal expert on demand, founders have a steady guide through uncertain legal terrain. The GC acts as a trusted strategic advisor while handling day-to-day legal tasks. This lifts a huge burden off of startup leaders, allowing them to focus on growth with legal confidence. Rather than getting bogged down in legal details, founders feel empowered delegating tasks to an expert and focusing on their vision. Founders sleep better knowing their GC can swiftly handle any legal issue that arises. If you’re curious how a fractional GC can give you peace of mind, let’s talk.
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