Founder Fridays No. 86
Founder Fridays No. 86
The Secret YC SAFE -- Gen Z Broke the Marketing Funnel -- How To Be Great at Hiring
Happy Friday.
I hope you had a great week! Check out the Post of the Week section at the very bottom to better understand the check sizes involved in startup fundraising.
The Secret YC SAFE
All Y Combinator insiders know that there’s an off-menu SAFE that YC uses to invest in its startups. YC provides its startups with $125,000 in cash for 7% fixed ownership, implying an effective post-money valuation cap of $1.78 million. Unlike other SAFEs that rely on a valuation cap or a discount, the YC SAFE relies on a “conversion percentage” to determine the number of shares issued in the next round. The formula to convert the YC SAFE with a conversion percentage is essentially the same formula as the post-money SAFE, which implies the ownership percentage: conversion percentage * company capitalization = shares of safe preferred stock. For example, if a startup receives $125,000 in exchange for a 7% YC SAFE, the implied valuation cap is $1.78 million. But this is unlike the standard post-money valuation cap SAFE, where the implied ownership is calculated by dividing the amount raised by the valuation cap. The key advantage of the YC SAFE (conversion %) is to simplify negotiations. If the investor knows her check size and what target allocation you need on the cap table, you can use a conversion percentage. This approach can even be more founder-friendly compared to a post-money valuation cap, which represents a minimum ownership percentage and increases if the cap does not exceed: (i) the pre-money valuation at the next equity financing round or (ii) the discount, if one applies. Law of VC (12 minutes)
Gen Z Broke the Marketing Funnel
Over the last few decades, marketers have focused their efforts around the consumer funnel. The potential customer moves through the funnel in the following stages: awareness, interest, desire, action. The funnel was built for the old world, and Gen Z doesn’t live there anymore. Instead, they live in an infinite loop of inspiration, exploration, community and loyalty. Of course the main driver is that Gen Z is spending a ton of time on YouTube and TikTok, and that’s influenced how they make purchasing decisions. As a result, retailers are behaving more like media companies. Surprisingly, despite their reputation as digital natives, Gen Z shoppers still value in-person experiences. Seventy-four percent of Gen Zs think in real life (IRL) experiences are more important than digital ones (compared to 66% of millennials). Though they conduct in-depth research online, 73%of Gen Zs prefer making a purchase in a store while shopping. This article is chocked full of insights and is essential reading for anybody running a consumer-facing brand. Vogue (17 minutes)
How To Be Great at Hiring
To be great at hiring, your company needs to nail: 1) Planning (headcount, resourcing, coherent strategy). 2) Attracting (employer brand, JDs, culture). 3) Evaluating (interview). 4) Closing (get offers accepted). 5) Supporting (day 1 + ongoing). Here's the problem: Most organizations focus on three and four only. Safe For Work (16 minutes)
Founder FAQ: Do I Really Need To Qualify My Company in My Home State?
Short answer: yes. Determining whether or not your startup needs to qualify to do business in a state can be a complex and confusing task. Failure to qualify to do business in a state can result in penalties, such as fines or even the loss of the right to do business in the state. The Wayfair case and the rise of remote workforces have made it even more important for startups to understand the regulations surrounding state tax nexus. Working with your accountant to comply with these regulations can help ensure the long-term success of your startup. 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
An Innovative Law Firm?
Being listed among Fast Company's “Most Innovative Companies” is an honor for our law firm, yet we believe innovation matters if it actually produces better outcomes for startups. Here’s how we’ve innovated to better serve startups:
Clear Pricing. Traditional billable hours can lead to misaligned objectives and unexpected fees. We've replaced this with straightforward, flat-rate pricing.
General Counsel. Most entrepreneurs want a trusted legal partner, but they hate surprise legal bills. At Westaway, we take care of your startup’s legal needs for a fixed, monthly fee so you can control your costs and focus on scaling your business.
Automation and Artificial Intelligence (AI). We've streamlined our operations through automation and AI (where appropriate), ensuring efficient, high-caliber results.
If you’re an innovative startup looking for an innovative law firm, let’s talk.
Post of the Week
