Founder Fridays No. 63
Helping startup founders and operators scale smarter.
Happy Friday.
AI Funding Slowing
It seems unthinkable, but momentum for generative artificial intelligence (AI) appears to be slowing after captivating venture capitalists (VCs) and the broader public, leading to a surge in VC funding. While investment remains high by historical standards, excitement appears to be waning in the sector as large tech companies make waves and investors realize that many generative AI applications may not be ready for prime time. The number of generative AI deals fell to 101 rounds in Quarter 3, a 29% decline from Quarter 2. Deal value was also on a downward track but ended higher at $6.1 billion thanks to the blockbuster deal for up to $4 billion that Amazon inked with Anthropic, a provider of large language models. Pitchbook (3 minutes)
Startup Advisors
What’s the story with startup advisors? General Catalyst just released a survey on the topic. Here are some key takeaways:
Impact. Ninety-one percent of startups say that their advisors are impactful.
Growth. The most common use for advisors is to help unlock growth. The expertise areas most sought after are: product, sales, growth, marketing and leadership.
Equity Compensation. The most common compensation is pure equity. Generally, advisors are getting 0.1% of outstanding shares on a two-year vesting schedule. If there is a cliff, it’s usually shorter than three months. We most commonly see two years with no cliff.
Advisor Agreements. Written agreements are nearly universal. Ninety-three percent of startups use advisor agreements. General Catalyst (5 minutes)
4 Communication Styles
Communication experts William Gudykunst and Stella Ting-Toomey identify four communication differences that consistently show up in diverse groups:
Succinct vs. Elaborate. This communication difference is the degree to which you prefer succinct, brief explanations versus elaborate, descriptive ones.
Contextual vs. Personal. This communication difference is the degree to which you prefer to take statuses such as company and position into consideration versus preferring informality and equality.
Instrumental vs. Affective. In instrumental cultures like Germany, the norm is to go straight to the task and avoid the upfront chitchat. But for truly effective communicators, much more time is taken to connect on a personal level before talking business. In addition, effective communicators use much more emotion and enthusiasm as they talk about things, even if they're work-related.
Direct vs. Indirect. Direct communicators are explicit and clear; indirect communicators are less explicit and vague. Management Issues (5 minutes)
Founder FAQ: Why do VCs prefer Delaware C-corps?
There’s a common myth that startups incorporate in Delaware for tax purposes, that’s not true. You pay taxes where you earn the revenue (usually the state you’re headquartered in) not where you’re incorporated. Incorporating in Delaware is a popular choice for VCs due to the state’s well-established corporate legal ecosystem. Delaware is home to both the most advanced corporate statutes and court system in the country. Delaware’s corporate law is renowned for its fair and predictable nature, making it a popular choice for businesses. The state’s corporate code, which is the most established in the United States, has been developed and refined over many years to provide a comprehensive framework for corporate governance. In addition, Delaware’s courts have a well-established track record of resolving corporate disputes in a fair and efficient manner. The Delaware Court of Chancery, which handles most corporate disputes, is composed of judges with extensive experience in corporate law. This specialized court allows for quicker and more predictable resolution of corporate legal matters. Westaway (3 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.
Built By Founders for Founders
I co-founded my first startup with friends in 2007. As a founder, I struggled to find affordable law firm designed for early-stage startups. So I created one myself. Westaway is a law firm built by founders, for founders. If you're ready to ditch the outdated billable hour model and try a new approach to legal that saves you time and money, let's talk. I'd love to jump on a 15-minute call to show you how we can make legal smooth, fast, and cost-effective for your startup. Schedule a call with me now.
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