Founder Fridays No. 44
Helping startup founders scale smarter.
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Pervasive societal inequity in the United States is strikingly evident in the startup world. In 2022, Black and Latino founders received only 1% and 1.5% respectively of total U.S. venture capital (VC) funding. Closing this gap is not just the right thing to do; it is also key to driving innovation and unlocking economic gains. A McKinsey study into the economic state of Latinos and Black Americans suggests that in a parity scenario, Black- and Latino-owned businesses would generate an additional $1.6 trillion and $2.3 trillion respectively. Beyond the larger macroeconomic gains, founders with greater gender and ethnic diversity achieve 30% higher returns for investors upon exit than their White men founder counterparts. McKinsey (11 minutes)
Hire and Wire
The McKinsey report reminded me of an article I wrote for Forbes in 2020 about inequity in the startup ecosystem. #hireandwire is a movement amongst the startup community to take action by hiring Black employees and investing in startups led by Black entrepreneurs. If we, as a community, are going to hire and invest more intentionally, we need to stop blaming the pipeline problem and the denominator problem and start innovating our talent and deal sourcing practices. What does innovation look like? Research by Lori Mackenzie and Shelley J. Correll at Stanford University can help. To overcome the personal, cultural and institutional racism in our companies, we can start by taking two steps: First, by closely examining and broadening their definitions of success, and second, by asking what each person adds to their teams, their “additive contribution.” Each of us has the opportunity to make small decisions that will engage and empower Black employees, investors and entrepreneurs. If we want to see a more just and equitable world, one where opportunities and access are available regardless of skin color, we must take proactive steps to disrupt the status quo. When we do, we will find that our teams, our companies and our world will be better for it. Forbes (7 minutes)
An Exceptional Coverage Plan For Parental Leave
My sister-in-law is in labor today, so babies are on my mind. If you’ve got a parental leave coming up in the next year or next decade, you will want to bookmark this exceptional coverage plan for parental leave. 1) Start early and socialize often. Your coverage plan will require a lot of input, so start working on it at least a few months before you plan to be out. Then start socializing early, and aim to finish at least a month before the due date. 2) Determine your parental leave timeline. To start, contact Human Resources to understand your company’s leave policy and what you are eligible for. If you’re the first person taking parental leave at your company, this article is a great resource to help you advocate for the time you deserve. 3) Outline a coverage plan. It should cover your primary responsibilities and who will serve as your proxy for each. Here are two ways to approach this: bottom-up if you’re an individual contributor and top-down if you’re a manager. 4) Support your team. If you’re a people manager, your job is to support and unblock your team. That’s hard to do if you’re not there, but it is possible if you get creative and clearly delegate. 5) Don’t share your contact information broadly. Now that you’ve identified coverage for yourself and your team, you can be strategic about who you share your contact information with. You get to decide who can get in touch with you, how and for what reasons. Tempted to be very available? It’s a trap! Lenny’s Newsletter (8 minutes)
Founder FAQ: What is a valuation cap?
When a startup is raising funding on a Simple Agreement for Future Equity (SAFE) or a Convertible Note (collectively known as Convertible Security), the investors’ capital will convert into preferred shares in the company at a future round of equity financing. The amount of equity the investor will receive for their investment is determined, in part, by the Valuation Cap on the Convertible Security. A Valuation Cap is a predetermined limit on the maximum valuation of a company. It is the highest valuation at which the amount invested in the Convertible Security would be converted into shares. It is the maximum valuation that the Convertible Security investor will pay, regardless of the actual valuation of the future equity financing. Westaway (7 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.
Move Fast. Don’t Break Things.
Hi! I’m Kyle. This newsletter is my passion project. When I’m not writing, I run a law firm that helps startups move fast without breaking things. Most founders want a trusted legal partner, but they hate surprise legal bills. At Westaway, we take care of your startup’s legal needs for a flat, monthly fee so you can control your costs and focus on scaling your business. If you’re interested, let’s jump on a call to see if you’re a good fit for the firm. Click here to schedule a 1-on-1 call with me.