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Founder Fridays No. 56
Helping startup founders and operators scale smarter.
Thanks for all the support last week on the launch of Ace - Chat GPT for Startup Law. Thousands of startups have used it. I’d love to hear your feedback when you try it. Cheers!
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H1 2023 Funding Data
Aumni just released its report on venture funding for the first half of 2023. Here are some highlights: 1) The number of deals is down 40 percent in the first half of 2023 compared to the second half of 2022 and down 85 percent from the peak in the first half of 2021. 2) Total capital raised is down 24 percent in the first six months of the year relative to the prior half-year, and post-money valuations have declined between 22-37 percent across various stages in the past 12 months. 3) 22% of deals done in Q2 of 2023 were down rounds, up from 5% in Q2 2022. 4) Unsurprisingly, AI startups are getting higher valuations. The median post-money valuation for an AI company in H1 2023 was $45.2M compared to $35.2M for software companies. 5)The median interest rate on convertible notes has risen to 10.7%. Aumni (18 minutes)
Why do investors care so much about LTV:CAC? Investors often use 3x LTV:CAC as a rough benchmark of a consumer company's financial health. If your customer lifetime value (LTV) is 3 or more times your customer acquisition cost (CAC) within 5 years, that means your company has efficient returns on sales and marketing spend. Solid unit economics has a cascading effect across your business: a higher LTV:CAC ratio means for every dollar of sales and marketing investment, your company has higher margins and so more profit to reinvest back into its business, which means that you can build better products and, hopefully, capture more market demand. Companies are ultimately valued on their future cash flow generation, so the higher your margins, the higher your valuation. In fact, improving your LTV:CAC from 2x to 3x can nearly triple your valuation. This article walks through some calculations using the long-term margin projections across 60+ US public consumer internet companies. a16z (8 minutes)
Coaching > Solving
Managers are not solution vending machines. They’re not paid to give answers. Great managers know they need to invest in the long game: building a team that is constantly growing, feels empowered to drive results, and reaches higher levels of performance. The default approach for most managers is to fix the immediate problem. However, coaching is often the most effective approach. Coaching allows us to shift the focus away from ourselves and onto the person we’re coaching. Of course, this term is still a bit fuzzy, especially in the startup world, where coaching can take many forms. We define coaching as getting someone from where they are to where they want to go by tapping into their own wisdom and keeping them accountable to achieving their goals. To put it simply: Coaching is a skill, while being a manager is a role. The key element is tapping into their own wisdom, not your wisdom. When we constantly support our teams using our wisdom, we are hyper-focused on solving the problem at hand based on our past experiences and learnings. If you’re looking to improve your coaching skills, this article has tactical advice for you. First Round Review (21 minutes)
Founder FAQ: What is the difference between C-Corps and LLCs for startups?
When starting a new business, one of the most important decisions you’ll make is choosing the right legal entity structure. The two most common structures for U.S. startups are C-Corporations (C-Corps) and Limited Liability Companies (LLCs). While both offer liability protection and other benefits, they differ in several key aspects, including taxation, management structure and ownership restrictions. In this post, we’ll examine the differences between C-Corps and LLCs, and help you determine which structure is the best fit for your business. This article will establish the general principles. Westaway (10 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.