Founder Fridays No. 173
Investor Updates Matter -- Two-Tier Seed Market -- The Enterprise Marshmallow Test
Happy Friday.
If you’re looking for some Christmas tunes this weekend and next week, check out my Ultimate Christmas Playlist.
Investor Updates Matter
Founders who send monthly updates to investors 3-6 months before raising are 3× more likely to close their round—but 95% never send a single one. VCs invest in trajectories, not snapshots, and regular updates let them watch you execute over time, building conviction before you ever ask for money. This week, build a segmented list of 50-100 investors (prioritize warm intros, include tier 2 funds and angels), send a short permission email asking if they’ll accept monthly updates, then block one hour every month to send a 3-paragraph note with your key metric, one win, one challenge, and a specific ask. When you officially raise, you’ll pitch to people who already believe in you—turning a cold fundraising grind into conversations with allies who’ve been rooting for you since month one. Venture Creator (7 minutes)
Two-Tier Seed Market
The gap between median and top-tier seed valuations is exploding—not because the middle is falling, but because AI startups are commanding premiums so large they’re creating a two-tier market where traditional benchmarks no longer apply to everyone. Early-stage companies are running leaner teams and stretching runway longer, while 92% of pre-seed rounds now use SAFEs instead of priced equity, fundamentally changing how founders should think about dilution timing and valuation strategy across different sectors. Download Carta’s State of Seed report this week and compare your metrics against sector-specific benchmarks, not overall averages—if you’re in AI, negotiate equity packages using AI premium data; if you’re not, use the median numbers to avoid leaving money on the table or pricing yourself out. You’ll either discover you’re undervalued relative to comparable companies and can push for better terms, or you’ll realize the “standard” advice you’re hearing is contaminated by AI outliers and adjust your expectations to match reality. Carta (6 minutes)
The Enterprise Marshmallow Test
Every successful crypto company pivoted to trading, cannibalizing mindshare and leaving just a few winners—and right now, every AI company is making the same mistake by pivoting to enterprise too quickly and abandoning what made them successful in the first place. Chasing immediate revenue from big contracts creates a marshmallow test: founders optimize pricing and positioning for Fortune 500 buyers, accidentally pricing out indie developers and early-stage startups who would have become loyal advocates, destroying the self-serve motion that compounds growth without hiring armies of salespeople. If you’ve pivoted to enterprise, calculate this week what percentage of your original ICP can still afford your product—if developers or small teams who loved you six months ago now see you as “enterprise software,” immediately design a parallel self-serve tier that captures them without cannibalizing big deals. You’ll build a business that scales revenue without linearly scaling headcount (the new efficiency standard), while maintaining the grassroots adoption that created your initial momentum instead of becoming just another sales-driven vendor competing on ACV alone. The Split (9 minutes)
Founder FAQ: Why Data Privacy Is Important For A Startup?
Startups treat data privacy as a compliance checkbox when it’s actually a trust-building moat—and the gap between what you say in your privacy policy versus what you actually do will destroy customer relationships faster than any competitor can. “Say what you do, do what you say” sounds obvious but most startups fail by making honest-sounding claims (we don’t share data with third parties) while their standard operating procedures contradict those statements, and investors now view privacy compliance as a signal of responsible business practices worth funding. Audit your privacy policy this week against your actual data practices—where you store data, who has access, which third-party vendors see it—then either update the policy to match reality or change your practices to match your claims, because misalignment creates legal liability and destroys trust. You’ll avoid devastating fines that end bootstrapped startups, build customer confidence that drives engagement, and signal to investors that you’re running a sustainable business instead of accumulating hidden legal risk that surfaces during diligence. 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
Control Legal Spend
Startups suffer from unpredictable legal bills under the billable hour system. Fees fluctuate month to month without warning. Law firms drag out billable hours, but startups foot the bill. Even basic work can lead to surprisingly high legal bills. This unpredictability cripples financial planning. Budgets rarely match actual spend. With utter uncertainty around legal spend, startups cannot forecast or manage burn rates effectively. The antiquated billable hour system fails them. Our General Counsel flat, monthly fee service gives startups cost certainty. Legal spend becomes predictable with bundled services and no surprise overage bills. By switching from hourly to our flat-fee model, startups finally get confident budgeting, accurate forecasting and predictable legal spend. If you’re sick of getting surprise legal bills and are interested in controlling your legal spend, let’s talk.
The privacy audit framework here is spot on. Most founders don't realize the compliance gap is basically a hidden tax on growth until it becomes a fundraise blocker. I ran into this exact issue last year when we had to basically freeze ops for a week to reconcile discrepancies between our policy langauge and actual vendor contracts. The "say what you do, do what you say" prinicple sounds basic but the operatinal lift to maintain that alignment is way harder than people expect, especially when you're scaling fast and adding tools constantly.