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Founder Fridays No. 46
Helping startup founders scale smarter.
We had some good news last week on startup funding. As you’ll see below, that’s tempered with some bad news.
The big news in the past week is how much Threads has blown up. It’s reached over 100M users in 5 days (the fastest growing app in history). I’m still learning the platform. What do you think? Love it? Hate it? Flash in the pan? The future of social media? Anyhow, if you’re on Threads, let’s be friends.
Click here to follow me on Threads. I’m committing to post at least one threaded post / day in July. Hopefully you’ll dig them.
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Less Deals Being Done
Last week, I shared the good news that dollars raised and valuations were up across the board from Pre-Seed to Series B in June. However, that’s not the full story. The flip side of the coin is that there are less deals being done. The total dollars invested are down. Global venture funding in Q2 2023 fell 18% quarter over quarter to $65 billion. That’s down 49% compared to the second quarter of 2022, when startup investors spent $127 billion. The first half of 2023 is down by similar proportions. In H1 2023, global funding reached $144 billion, marking a 51% decline from the $293 billion invested in H1 2022 and a 10% decline from the second half of 2022. Crunchbase (5 minutes)
The Power of Reframing
The magic of reframing offers a transformative lens for seemingly intractable problems, turning potential drawbacks into unique selling points. The story of Night Nurse illustrates this approach perfectly; the team developed a medicine that worked well but had the side effect of drowsiness. So, they decided to reframe and positioned the medicine as a night-time remedy, thereby not only alleviating flu symptoms but also facilitating restful sleep for faster recovery. The notion of reframing also broadens the concept of product-market fit, suggesting that instead of solely focusing on product enhancements, finding a more receptive market for the existing product can be equally beneficial. This principle is vividly demonstrated in a classic magazine advertisement for Chivas Regal that reframes an expensive scotch as an affordable luxury by comparing it to a Rolls Royce, a yacht and a Rolex. (It’s a beautiful ad, click the article to see it.) Hence, when faced with product challenges, it's worth pondering whether the perceived drawbacks could be appreciated in a different context, thus providing an innovative pathway to success. Product Lessons (9 minutes)
An outdated way of thinking about peak performance is: “maximum effort = maximum results.” But research shows that it doesn’t actually work that way in reality. Here’s what actually works: The 85% rule, which counterintuitively suggests that to reach maximum output, you need to refrain from giving maximum effort. Operating at 100% effort all of the time will result in burnout and ultimately less-optimal results. While the precise number 85% may just be a rule of thumb, it’s a helpful one for managers who want to create high-performance teams without burning people out. Harvard Business Review (8 minutes)
Founder FAQ: What are pro rata rights?
Pro rata rights are options granted to current investors in a startup, allowing them to purchase additional shares in future funding rounds to maintain their existing equity stake, thereby preventing dilution from new investors. These rights are typically negotiated as part of the investment agreement and included in the term sheet, but their structure can vary depending on each investment deal, with some investors possibly getting priority over others. There may be restrictions on the quantity of shares an investor can purchase or the timeframe within which they can exercise their pro rata rights. Typically, startups don't grant these rights to all investors but reserve them for those who have made significant contributions or have proven particularly beneficial to the company. Westaway (5 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.