Founder Fridays No. 57
Founder Fridays No. 57
Helping startup founders and operators scale smarter.
Happy Friday!
Money Words
Joanna Wiebe, copywriting expert, believes there are three “money words” that startups should use to increase conversion: 1) You. In order to positively impact persuasion, “you” should make the consumer the grammatical subject of a sentence. 2) Get. “Get” is great in headlines to emphasize benefits. (Uber uses it twice in their homepage headline.) 3) And. The word “and” is an insidious lose-money word. It shows up everywhere. It’s small and functional, so it seems to be friendly. But here’s the thing. “And” only appears in a sentence to join more than one thought together. Our brains don’t enjoy trying to suspend a bunch of thoughts in the air as we seek meaning or try to decide. First Round Review (12 minutes)
Pro Rata Decay
Pro rata rights (see Founder FAQ section below for a description) have become a standard term in venture capitalist (VC) funding. The downside to this term for startups is that it could limit the ability for new investors to take a strong equity position in the company. Point Nine managing partner Christoph Janz has made the case for a decay rate to be built into pro-rata rights over the course of multiple VC rounds, which could help solve some of the investor issues. A firm could have 100% of their pro rata rights in the first round post their initial investment. In other words, they can maintain their full stake, with the percentage lowering in each subsequent deal. This would create more space for new investors further down the line while also keeping existing backers in the pool. They would be diluted but to a lesser extent than if they weren't able to invest at all. It would provide smaller VC firms with more flexibility to invest. Pitchbook (5 minutes)
The Silicon Valley of Europe
As Klarna's billionaire founder Sebastian Siemiatkowski prepares to stage one of the biggest-ever European fintech company listings, a feast of capitalism, he credits an unlikely backer for his runaway success: the Swedish welfare state. In particular, the 39-year-old pinpoints a late-1990s government policy to put a computer in every home. Siemiatkowski began coding on that computer when he was 16. Fast forward more than two decades, and his payments company Klarna is valued at $46 billion and the company plans to go public. Sweden's home computer drive, and concurrent early investment in internet connectivity, helps explain why its capital Stockholm has become such rich soil for startups, birthing and incubating the likes of Spotify, Skype and Klarna, even though it has some of the highest tax rates in the world. Some executives and campaigners say the Scandinavian nation demonstrates that a deep social safety net, often viewed as counter to entrepreneurial spirit, can foster innovation. It's an outcome that might not have been envisaged by the architects of Sweden's welfare state in the 1950s. Reuters (6 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.
Convertible Note: Guide / Video
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.
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