How can 'founder-friendly' SAFEs destroy my cap table?

welcome back to Today's Show today we have Ari Newman with us co-founder and managing partner of massive VC exited founder welcome to the show Ari thank you so much great to be here you Ari you and I have been kind of going back and forth on the Merit of safes and how safes are not so safe uh in the end of the day and I wanted to bring you on the show and just jump straight into kind of the impact safes can have as Founders as they're perceived to be a friendly founder friendly vehicle but I think you have an alternative opinion that I think is important to educate Founders on so I would just love to just jump straight in and just hear your thoughts on what are safes why are they perceived to be safe and why maybe they aren't so safe absolutely yes I've uh I've written on this topic and I've been around this for a long time so glad to talk about it and uh you know as we jump in I think first thing I would say is uh this is a safes are you know this simple instrument everyone uses it YC published it everyone just assumes that's how you're supposed to raise money um but out in the public domain all we hear about are like the best case outcomes of unicorn companies or abysmal failures and there's very little information being disseminated about what happens in between which is really the area where Founders and investors can make a lot of money but the companies have to raise money the right way the cap tables and the pricing have to be handled correctly and St safe and stacking safe can actually be a huge problem if they're not managed for so let's take a step back and explain you know a situation where stacking safes you know comes about like how how does a Founder get stuck in a situation into to stacking a safe and and maybe for our more firsttime Founders you know start with just explaining how a safe Works absolutely so a safe is a simple literally called the simple agreement for future Equity it essentially is an evolution of a convertible note uh they are fundamentally different in that a convertible note is actually a debt instrument and treated differently in terms of the legal implications and safes are really a piece of paper that say Hey when you raise a preferred priced round I'm giving you this money as if I was part of your preferred pric round and that is the intent of it um they offer almost no investor protections except for the sort of intent to convert there's no information rights it's like very simple um and so if you want to raise money for your company and you don't want to give investors a lot of Rights you don't want to spend a lot on legal uh it's the fastest and easiest way to subscribe investors to give you money in exchange for someday owning a piece of your Equity yeah I'm actually a big as a on the investor side you know I'm pretty anti-s safe in a lot of cases but for early stage venture sure everyone gets it and you know it's a it's a lottery ticket at the end of the day so a lot of investors will just kind of like all right well we'll deal with it as it comes down the road but um I guess what happens with Founders when maybe that first 100K 300K comes in on a safe and at like a$2 million you know valuation you know what what kind of what's that kind of cascading effect or you know still ball that kind of gets bigger and bigger and starts becoming a problem yeah there's there's a lot there actually so one of the big areas of risk around this for for a company is that it's so it's it's so easy to just progressively keep raising 50 100 200k and in in the modern world where everything's supposed to be founder friendly like investors are told hey you know you should be a Founder friendly investor and Founders are like hey these aren't founder friendly terms that's all the coaching right so we've we've like lost the plot founder friendly means make it super easy for the company no hygiene no governance and no expectations so it is very much a it is very much a lottery ticket um and I don't think that that ultimately serves the industry as a whole both investors and people farming companies all that well uh so if you and I go and start a company tomorrow I can go file some Charter somewhere and download the YC saf and start sending it to our friends we could raise a million bucks in a week we have no idea what we're doing if if we're first time if we're first- time Founders we probably have no governance we don't have a board uh we probably already made a bunch of mistakes and we could triv Le spend the money and then go back and raise more and then go back and raise some more and then when some other investor comes in and we've already raised one or two million on these saves we can go hey we don't want to keep selling company you know a bunch of the company at this cap so why don't we raise the cap and that is where stacking saves start to happen the stack is raising a you know a bunch of money on a safe at one conversion cap or one set of terms then you raise some more at a higher set of terms and sometimes you even raise some more at a third set of terms and I have seen both super Savvy multi-time Founders think they're being sophisticated by creating scarcity and they'll say I'm only raising a million at a six cap and the next million's going to be at an eight cap and the next million's going to be at 12 and I have so much demand for investing in my company you better get in now right and the the punchline of all of of the downside is ultimately the longer the company is Raising on saves the further along it's getting hopefully the the more Enterprise Value it's creating the higher the expectations are for the first priced round and you end up in a really challenging situation sometimes where either the if the company's doing amazing and let's say you raised $5 million at different caps and the company goes and raises you know 10 on 30 10 on 40 20 on 50 like we can throw around whatever numbers who want the higher the post gets for the price round the more the buying power of these saves and there is a dead zone if there if it's a big in the money deal and the company's doing amazing like you can kind of absorb the conversion but there's a lot of financings that become near and possible to complete effectively in the Middle where the company is doing pretty well they need to raise a whole bunch of money now but they've never done a price Dr and so all of that money that you thought was like cheap and easy and free converts into part of your price round so if you're raising 10 in new money and you had raised five in stock saves you could the buying power of that five could be like 15 right three three Act plus the 10 so now it's 25 on 30 pre you just sold like 80% of your company in one round and if you do it other ways right by pricing first and raising saves in between you could sell 30 or 40% of the company collectiv the other thing that happens to Founders is they get squeezed the new money investor says I need to own x% and I want to write the size check oh and I need to own a certain amount too I can't have you get 30 70% deluded three co-founders you each need to own 15% of the company so you've only been around for three years you thought everything was cheap and easy but now your series a or your C+ price round is like near impossible to navigate yeah and I I personally went through this with uh you know one of my companies where wasn't so much safe as convertible notes but you know similar in terms of stacking them and the problem with convertible notes as a Founder is they usually have maturity dates and they have to convert and you know that's why I found like that's why I'm like as a Founder you want say because it doesn't have that that restriction or that you know kind of deadline but it also again problem with the saves is that lack of accountability in governance I think cripples companies because like you pitch you know as a Founder you pitch your heart out you you get all these people all wrapped up onto your your ship and you're you're taking them up you know for for a ride to hopefully have a big outcome but maybe that shift's not that great or the destination is not as good as you thought it was going to be and you know that as the founder and operator you know everyone else thinks you're awesome everyone else thinks you're this amazing person but you're dealing with a psychological trauma of like I'm not that awesome like things aren't that great and when you gota have to like you know come back to the well and raise money and like do everything like the the proper way and you don't have governance you don't have anyone actually checking in on the performance of the company there's no board there's no like maturity date where things have to be like kind of assessed on a particular situation a Founder can kind of hide the you know the reality of the situation I made an investment in a company this is exactly why the company failed and everything going for them there's just a couple boxes they needed to get checked just the founder didn't have that oversight uh from the perspective of like wanting that outcome and um yeah it happens too much to to Founders and again you said it that you think they're they're being Savvy and smart but in reality you know if you have the luxury raising that price around sooner and just having good terms for everyone involved at that moment set up the structure early you know it's actually pretty advantageous yeah and I think the I think the you know the message I would deliver is hey now it like the the reality is that you pay now or you pay later there is no hiding right if you choose to not pay the 20 to $30,000 that the lawyers charge you to do a proper priced round with an opinion letter and set up the option tool and do all of that in a bespoke way if you're like that's expensive I don't want to do it I just want to raise some money quickly and get going you're going to pay double or triple later a A pre-seed or seed company that has at least a couple of like angels that are comfortable agreeing on a price the company's way better off just taking 30k of the mil ion that you raised agreeing on some reasonable valuation and putting together a priced seat and then if you want to raise another million in saves the conversion cap becomes informed around where the previous you know round was and you finance the company in a priced way so that you only have one step to convert into the next price round and there's already precedent the benefit of your price round was you had to establish a board of directors you set up the aing pool you did a 409a you set up the 83b elections and there's some like governance and a bunch of people that are quite frankly more invested when it takes nine seconds to fill out the safe and wire 20K it's you're you're the investors like as you said you're just buying lottery tickets if you actually spend a bunch of time and help the company with formation and hygiene you kind of are more invested and there's this other benefit which is if the outcome is not amazing and there's acquisition interest if the company was reasonably priced the buyer knows exactly how much they have to offer to satisfy the cap table and if you've got a company that raised $5 million and the founders self you know self set the cap at one year 30 because they thought they could get away with it the those smaller buyers those Aqua hires those two or 3x deals are not going to happen they're going to go this company's too expensive for where it is just walk and or or or you're going to get an asset purchase right which rarely works yeah rarely works out economically and so so so just like you like I when I was raising money for my last company it was convertible notes safes didn't exist and after I I I raised you know I went through the very first techar class in ' 07 and so uh that was even before techar offered the 100K convertible and so there was none of that but I still raised uh the very first um the very first chunch of our company priced I had like a you know 45 second hallway conversation with David Cohen about the pricing in the company and we actually raised like a half a million dollars priced in 2007 and I only then when we raised more money it was there was no negotiation it was like raise another you know raise some more money at the post of the last one right we didn't have to repic the company um in that era people started using convertible notes and So eventually when I joined techar as an investor and started you know investing in a lot of companies I started looking at cap tables I started running the conversion map we built a very extensive cap table calculator that actually had a function to identify the buying power that all these convertible nodes had and that was when I really woke up to some of these problems was you know I think I did a 100 plus seed Investments at Tech Stars and I ran a lot of cap table analysis and I was started to see these two three five 10x buying powers for these notes right or Force conversion events where the companies really weren't ready for break yeah and then on the administrative side techstars had kind of a nightmare trying to track the conversion date the interest rate all of the sort of carry forward value so you know coming back to coming back to safes I think it's a great safes are a great Evolution but they just need to be used correctly yeah and I think it's it's it's a tool in the toolbx uh at the end of the day and you know just after hearing you saying hundreds plus deals and tex STS or convertible notes were kind of the you know the most common thing at that early early stage you know kind of makes sense and really the advice that we you know kind of hearing is you know just be weary of stacking accessibly and making it about bumping the valuation because it just can deter it it creates confusion with employees that's the other thing we didn't talked about is like the 409a versus the actual priced grounds you know Common versus preferred there's a lot of complexity it's probably not best to be like talked about because you need the visuals and you know the models to break it all down but um one of the big issues with employees like you don't have an option pull you're just kind of like yeah we'll give you Equity but like how are you going give them equity and at what price and if you don't have that priced r the 409a 409a for those that don't know is just a a method of valuating the company common shares uh that is accepted by the IRS in terms of pricing shares um but it's usually Far Cry for away from the actual like five million cap 10 million cap that you raise at uh in most cases that most most people don't realize that's actually we you know we can move on but I do think that's an important thing for Founders to understand uh the valuation of early stage companies has nothing to do with what the business is actually worth it's a function of the deal you can do or the Venture math about how much the investors feel is appropriate to own at the early stages you only really earn your valuation through execution and business growth and so it's all funny money in the in the early days if you keep raising saves and you don't create an option pool and you don't set a 409a valuation until like series a the the common shares that you give to your employees have a much higher strike price than they could have had if you priced the company set up the option pool out of the gate at a lower par value right and So eventually your employees have to spend more of their own money to buy those shares and if you haven't issued those shares the investing doesn't you know is likely to start even later which means more of them are going to pay you know regular income when they get liquid so in service of your entire company and all of the shareholders including your employees that are working working tirelessly probably for low cal like please be smart about this yeah it's better for employees it's better for kind of future rounds it's cleaner you get governance you just set up a stronger Foundation that's higher likeliness of success and for those exits you know just it's a lot cleaner to know what the outcomes would be in an exit scenario uh and a lot more predictable whether it's a grand you know a home run or you know solid base hit or double uh it's just a lot cleaner that you know have that charer so I think you know one thing I want to talk about now is like why do you have this perspective is because you've been on so many boards you've been on so many you know invested in so many companies so I want to talk a little bit about that and how that's kind of shaped your perspective in the VC ecosystem uh and specifically talking you know maybe back at your uh partner days at Tech Stars um you know you sold your company and sound like you went to to Tex I kind of walk us through that journey of what like being a founder and then kind of being on the other side of the table uh as a partner and investment firm sure um the the short version of the story is that after I sold uh filter box to Jive I spent two years at Jive and we took Jive public uh and after Jive was public and my two-year lockup had expired I wanted to go go do something new and the truth was I didn't know what I wanted to do next I definitely was interested in meaning further into invest in I had done some halfhazard Angel Investing and quite frankly like none of those early random checks I wrote on stuff that came my way worked out but I really enjoyed learning about other businesses I love it working with other Founders um and as I was trying to figure out what I wanted to do next I you know went back to techstars and to David and asked how I could help and one thing led to another uh I ended up being Tech star's first Network Catalyst I started helping David with um at the time the second fund uh it was you know then called bullet time to a $25 million vehicle uh that became one of the one of the early techar funds um just helping him you know kind of like an associat or principal um and then ultimately we decided to raise a bigger pool of capital and so you know that was my Evolution from op you know from founder to investor uh what I found for me was you know the way my brain is wired like I'm essentially addicted to ideas I love learning and I love the zero to one of building companies you know out of ideas and so my the ability for me to be around other really smart people support their Journey uh leverage some of my experience um and place bets on things I thought were really big Ideas uh as incredibly go what would you say is kind of been one of your more yeah not so much the biggest but just your your favorite investment like the one of the deals that you were most proud of yeah I mean that's a from the techar era or now I can I could talk about that for days you know pick your favorite CH yeah I don't know you know I I I think one of my favorite old stories um was uh the the seed investment in chainalysis which is um a very well-known now blockchain security company and I started playing you know I have a product and Technical background I started playing around investing with you know in crypto in 200 yeah 16 um I think it was and I was already aware of the blockchain um and this company came through one of the accelerators and you know we put a a standard 100K check into the company and you know the conversation at the investment committee was the same conversation I had heard U you know for like 20 years first it was the internet is not going to be a thing right um I I built a filesharing service in 1999 and I was told the internet's not going to be a thing and then uh I built a social media analytics business and I was told social media is not going to be a thing and then cry the blockchain and crypto comes around and you start to hear the same narrative but this company was actually solving a business problem for the industry right blockchain was trying to make things easy for people to hide Financial transactions and here was a company trying to provide like Global level transparency it was really interesting business super smart Founders um and it was you know we made that investment at a time where uh half the world had never heard of blockchain yet and it was it was just way out there but it that ended up you know performing super well obviously they became a multi-billion dollar company uh I just remember the conversation in the room being like is this thing going to stick around to even what saying I was like I've heard this before so so that was fun sometimes the contrarian bets are always the best ones yeah quick plug for Founders looking for an edge raising Capital companies on thunder. VC have gone on to raise over a billion dollars since joining our Network it's absolutely free just go to join. thunder. BC to get started and if you leave a comment on this video down below with your company's name and the problem you're trying to solve you'll be inured to win a free coaching session with me okay that's it just comment down below now let's get back to the show yeah you've had an interesting background of kind of being that founder operator raising money uh and now you're kind of on the the partner deploying Capital yeah can you speak you know being this the show is about fundraising can you speak to kind of what it was like as a Founder versus a VC partner raising capital and and how that those two are you know one of the same or complete opposites yeah I feel like we need like three more episodes for this conversation what if if if I only knew now you if I only knew now what I wish I knew then kind of thing you know um I would say like look the last time I raised money as a Founder it was a very long time it was 2008 20072 2008 I was actually raising money you know before and and through and after the global financial crisis um so it wasn't easy but I would say the biggest thing that I would lacked as a Founder was an appropriate and deep understanding of of the Venture industry and the objectives and sort of game not game but the objectives and the mission of the of the partner across the table from me and this is something I really feel strongly about also which is any founder that's going to go raise money there's kind of three things you need to know one is just because you chose to start a company you are not entitled to a single dollar get get off the entitlement just because you and someone else are smart and you think you're going to change the world like you're not entitled to money and I think there's a lot of like Founders that do understand that and are humble about it but there's also a lot of entitlement and expectation like why does company a get money and why don't right um I know exactly what you mean the the other thing is like spend some time to understand venture capital map understand power law returns understand the reality of a pooled capital vehicle understand fund sides and like at the end of the day your job as a VC is to Triple or quadruple the pool of money you raised from your investors and the only way to do that is to get meaningful ownership of companies that you think are going to be hyper successful everything else is uninvestable or essentially uninteresting because of the model right the winners have to make up for the losers they all the data from 80 years of the cooled capital model says I need two or three of these companies to be huge huge home runs to make up for all the other activity and all of the fees I've collected and so you might have a perfectly good company that you're pitching to a a partner and you might end up creating a successful business that could even be e up positive that could grow to aund million doll company but if they can't see what you see or they don't believe that the opportunity to partner with you is orders of magnitude more interesting than everything else they're seeing there's no way they're going to get there and so understanding that Dynamic that you're selling a product and they're selling a product is really important and I I think from you know pitching a a VC with that and being able to have that knowledge and perspective uh as a Founder but then when it comes to you know being the partner and having to have that portfolio construction and being able to convince LPS that you're gonna find those two or three companies and that you're GNA be able to get as much uh equity in those winners as possible you know it's like how how what's that experience like in terms of presenting that narrative and that story yeah it's a great question also I think I think the answer is really different if you're uh either a first-time F like if you're a firsttime founder and you're a first time GP in a fund and you're raising your first fund there's a lot of similarities right uh when the biggest one is if you're raising a seed round or a pre-seed as a Founder the investors are really betting on you it's like you know the tech Stars we used to say team team team market and execution like does this person work quickly can they move mountains do they have great people around them and like are they solving a hard problem in a big Market and as a firsttime GP you have you have to go to the LPS and you know everyone says they have proprietary differentiated deal flow but you're still selling what you did before in your career not your track record as an investor as a multi-time Founder your set if you had a successful exit now you go hey look what the outcome I created I was successful I'm going to do it again you know I'm I'm a lower risk bet this time if you're raising uh a bigger pool of capital and your first fund is going okay you're doubling down on what you already did so it's a different narrative um you know I think the challenge in both scenarios is differentiation the the truth is there's thousands and thousands of preed and Seed funds there's ones that focus on climate there's ones that focus on AI like there's horizontal there's vertical and honestly most companies are pretty undifferentiated too I mean in the last six months how many you know slap some AI on it SAS companies have I seen that are all variations of the same thing theme right so if I have a preed SAS AI fund my strategy would be to index the best so you have to convince me that you're the best of of the ilk in order to get a chip but I think there are similarities there I would say the big difference As you move up into larger pools of capital is how is is the longer lens and the relationship right and so there's a big difference between working with someone who's going to allocate $10 million to your fund and believe that they're going to work with you for a decade than someone that as you said earlier is buying a 25k lottery ticket into some idea to see what happens yeah it's a very different Dynamic and also just with the LPS like with companies you know when you take money from a VC it hopefully is a 10year relationship that ends well for everyone um but with with LPS it's pretty much guarantee it's a it's a 10year relationship maintaining that relationship and you know producing results if not 20 or 30 years depending on the length of the fund the strategy the the parallel there would be like one or two lead investors of a seed or a series a in terms of that long lens relationship with anchor LPS that are probably in hopefully in for one or two funds and are going to work with you and help and and and be part of the winning team over the long right no so yeah I think that's well said and it's a perspective also just to and that's why I was like having you know find managers on the show and kind of sharing that perspective to Founders and just it helps a Founder know the Venture method like it's not just about you wanting money and feeling entitled which yeah I think that's very well said and comes up all the time you know when you can kind of sniff it off a Founder when they feel like they're entitled to the money as opposed to like working on the relationship and demonstrating the value they you know can earn the right to get that money um what I want to talk about now is uh you've been on a lot of boards and you know I think that's an interesting you know perspective to to be on we talked about governance earlier and you know kind of you've probably seen a lot of safes maybe work out not work out uh it's probably shaped your opinion but what's it like kind of sitting on the other side of the table you know across from the founder on the board and what are some kind of the you know good stories of like things working out and maybe some of the stories where you know we should air on the side of caution with with Founders I think I think the difference between like a successful engagement board relationship and a and a fail State comes down to Simply two things trust and communication and W every time I've been in a situation where I try to show up as an empathetic you know past founder understanding what it's like to be the person that's the CEO dealing with the board and support and engage with a Founder who genuinely wants the input and can take the feedback and wants to avoid the the known landmines those relationships are fantastic and in the sit situations where the founders view the board or the investors involved in the company as a burden or just fundamentally don't trust that the people that back them have their best interests at heart use those relationships have become very difficult and I honestly struggle with the super Socratic approach um sometimes and as an operator and a founder and a builder when I see a company about to step on a landmine or screw something up from a governments or hygiene standpoint or just missing Things based on my experience I just my instinct is to want to hold up the mirror and say hey we can do this a different way I'm always constructive but I'm often very direct about that and I so so personally for me it's difficult um in those situations but when I sort of reflect on all of the times where it's really gone sideways in terms of me being involved company it's usually because the founders just look at the board as a burden and a tax not as partners and you know in my personal situation I had when I raced started filter box I told you I raised a price round we had we free seed was not a thing then like we made that up later so we raised a very small seed round and I had a board out of the gate with a essentially a million dooll seedr right and I had had two investors one formerly on the board one Observer I had three investors in the rim sometimes and two co-founders and they were fantastic because the reporting the self-accountability and the dialogue about what's working what's not working what do we need to do how do we think about the market was incredibly helpful and there was a moment when we had just closed the second tranch of the capital and one of my my uh you know lead investors Trevor ly from flywheel was like this might be a great opportunity to get some uh to get some convertible debt like you just closed the price round this is the right time to go after it it'll buy us some more Runway would have never been thinking about convertible right or or you know um not convertible but a um a Deb facility from Venture debt right so um I would have never been thinking oh let's add another quarter million or half million to the balance sheet via Venture debt and it was absolutely the right call and sure enough the next you know what happened right after we got that closed the global financial crisis right um and then as we're thinking about spend and and Runway and revenue um having those conversations was super helpful and then the last thing I'll say is the ultimate uh acquisition by J was a result of having a board when we started getting inbound acquisition offers from other companies that we weren't interested in it triggered all of the people around the table to start thinking about who else could be a fit for us and that is how we got connected to job we one of those introductions so you know of course getting ready for the board meetings was extra work of course I walked into those meetings nervous that I was going to screw something up right but ultimately the value that I got materially affected the outcome yeah I've add it uh on both sides of the coin I've had a very value ad more partnership oriented board and then I had a very aders adversarial board that uh you know had you know signed up for a bigger outcome you know this ad adversarial board and albe we were very much aligned at at investment the writing was on the wall that every major player was going to make that impossible for us to do outside of raising 200 million in a market that was not going to be possible uh and you know we lost a a huge acquisition deal due to time delays of trying to make something out of nothing from our chairman trying to like push something forward that was against the you know Founders and team what we wanted and what we were trying to do uh it created that you know tension and I think you're you nail on the head in terms of being able to have those relationships those conversations and being open and honest and that reporting I think is also super important one of my least in favorite parts of board meetings is accountability you know just being able to like oh yeah we we don't know the answer we should know the answer so we can't go in there not knowing the answer so we gotta figure out the answer uh there's a lot of like scrambling final minute but I think it's super crucial for for Founders to have that accountability and that governance uh and I think boards play an important role in that yes and you know it's better to just put all the cards on the table like if you if you understand that the that the investors showed up because they want want a 10 or 100 extra money and that was what you sold them as a narrative and then the reality of running the business a couple years later says this is not the path that we're on everyone knows it and so it's better to work together and say what is what is the right outcome how do we either find an acquisition find a home return some Capital but let's not keep doing this thing where no one's happy for another five years right and the Investor's job is to back the company and believe in the founder and Do no harm and you do that for as long as you can until you start to believe uh that either the founder the leadership team is actually being destructive to the company themselves or or affecting your ability to get your money back and then you know sometimes ugly things do happen but the more open and transparent the dialogue is the more it's a partnership the founder came and said I don't I really don't know what the moves are like I'm I don't see how to get out of this full like maybe I need some help figuring this out I would much rather have that conversation because of course the investors already see it which is why they're frustrated right that's a lot better place to to be in terms of a dialogue with the people that took a huge amount of risk on you than to just pretend it's not happen yeah it's it's tough as a Founder because sometimes you might want all these things but you know the psychological of just like you know issue of just being a Founder just like trying to Still project that everything's okay uh in reality they should just sit down and swallow the pill and have the conversation to then and have Clarity on what actually is at the table and I just feel that with with Founders they sometimes choose the wrong board because they chose the money or the terms over the the board member or the partner and I feel as a VC you win access the deals by being that partner and being that value at and building that relationship and maybe get in more attractive and better terms for the VC um because of that relationship and kind of being that um that accountability buddy uh you know as you get down to things um so so Ari one thing we haven't talked about which I feel we should is massive VC you're fun um obviously you you r at teex Star a little bit You' you've had experience in various different areas but what ultimately LED you to starting massive VC and and kind of what's your focus yeah uh my partner David Mandel and I started massive in 2020 and you know we we took we took a lot of inspiration and input and learning from all of our prior experiences so David's also a multi-time Founder I'm a multi-time Founder I spent you know a number of years as a partner at Tech Stars and we started asking ourselves the questions about like what's amazing about venture capital what's great about entrepreneurship and funding technology companies and where is there room for growth or change um and what was missing when we were Founders that we wish we had gotten from investors and so we put all of that together and you know realized that we could go and do what everyone else was doing and raise a full Capital fund and it wasn't that interesting to either of us and quite frankly we were like two middle-aged white guys in Colorado like we're not even that interesting as as emerging managers in some ways um that's you know it it's just the reality and I am too interested in too many things to like sign up with LPS to be the seed stage B2B SAS invester for the next 20 years in my life I personally want to put my own capital and my time and energy in into world changing interesting Dynamic category leading companies that I'm that get me out of bed in the morning because I want to see them win because they're going to change something in their industry and that you know and and we just really wanted to work with people that we trusted um we have a very strict sort of no policy around Who's involved in our ecosystem too old and too grumpy to uh to tolerate that and so we also realized hey we don't have to go raise a traditional fund we have lots of deal flow and we have a huge Network and so we started investing on a deal by- deal basis using spvs and we started to scale that up and from 2020 to the middle of 21 when the market was getting hot quite frankly it was not that hard for us to grow and we went from like 10 investors to about 60 and we got more sophisticated about how we ran the platform we built a membership model and eventually over time we got to where we are now which is a you know we're really excited about which is we are a hybrid platform so we have a committed Capital vehicle called the massive index and we still have investors that participate in our Investments on a deal by deal basis and we have figured out a really unique way operationally to make to allow both types of investors to invest in the same vehicle and we offer investors way more flexibility than being a padel p and a traditional fund so for anyone out there that's listening if you're an LD and Adventure fund which is great you know you get a quarterly report the GPS make the Investments you find out what you bought later and whatever you commitment you made to that fund like some portion that goes into the companies based on the check size and the ownership but you are a passive investor and when we got started with massive I we started writing really detailed diligence memos to keep ourselves accountable but we started sharing those and that really was interesting to folks to like see all of our underwriting and so that information gave people more confidence to lean into these companies a bit more and to get excited about it so we today still run that model where before we close an investment we share a 10 15 page diligence memo and a bunch of our work with all of the investors whether you're pre-committed to our Index Fund or you're going to pick and choose and so everyone gets to ride shotgun with us through that back half of the process and decide what size check they want to write into that company and our job is the cat herting of figuring out what allocation to ask for from the company working with all of our investors based on appetite and making all of that come together and so um we have you know figured out a fairly elant way to be a hybrid platform so you can commit to being in the next 10 or 20 Investments that we make and do be be completely passive on one end or you can pick and choose with us and be very selective to build a portfolio for yourself but leverage our access and underwriting and uh Capital pooling because you know Angel Investing being a GP and or an LP and a preed or seed fund um at smaller check sizes it's not you know there's lot there's INF deal flow like there's a million places to place Debs we invest at seed plus early series a and up to growth we do not to preed and SE it's very difficult for a small individual check to get into a b round or a c round or be part of a hundred million doll financing and so we we provide a really unique ability for investors to get into those kinds of deals with way more information uh than you would typically get and not having to write a $5 million check to to be an LP in a in a growth fund that's a compelling offering I don't hear that often so I could see you know that's a way you've differentiated and attracted LPS to to your fun and uh you know I appreciate it too because you know I outside of like the friends in my network that you know I appreciate and trust and write a small check to uh you I definitely do not like trying to pick winners in preced C there's just there's just too much noise so I think you found a a good area to focus on um yeah Ari this has been an absolutely fascinating conversation jumping from your founder background and talking about saves and as a you know GP and different roles um if a Founder wants to reach out to you what's the best way to get your attention uh the best way to get my attention is to just email me I'm re massive. VC uh put into the subject uh a reference to this podcast that'll catch my attention and uh I'll know what the context is and I'll be happy to engage and if you're a founder and you're looking for Capital last thing I'll say is as I said uh we're seed plus early a uh and Beyond and we don't do preed and Seed uh and we invest in deep Tech Enterprise and climate good to know well do your homework uh Founders you know send keep it relevant and keep it respectful uh um but uh you all this has been an awesome conversation and I really enjoyed it and I can't wait to get this out and hopefully it helps open up people's eyes about how safes and Boards you know work and how they can be used uh both for good or bad depending on uh those outcomes and how people approach it so uh it's been an absolute pleasure having you on and thanks for joining us great to be here thanks Jason appreciate it thank you for watching today's episode as a reminder I'm your host Jason Kirby I built and sold multiple companies with over 135 million in transactions as either a Founder operator investor across multiple Industries I'm currently the managing director and founder of thunder. BC where we help companies and Founders at all stages navigate what capital to raise and who to raise it from and help improve company's odds of raising the capital if you need help reach out to us at help. under. BC if you like Today's Show please share with your friends give us a like or a comment down below and as a reminder show is published weekly to get notified new episodes and our newsletter be sure to go to our website at join. thunder. VC and if you sign up today I'll send you a few freebies on how to negotiate a term sheet how to get a free list of relevant VCS and much more that's it no more Shameless plugs thank you and see you next week