When Should Founders Provide Early Liquidity To Retain Staff?
11:20PM Sep 19, 2023
Speakers:
Alex Wilhelm
Tyson Hendricksen
Amir Ashkenazi
Maria Dramalioti Taylor
Keywords:
liquidity
founder
vcs
employees
company
investors
secondary market
market
shares
exit
sell
precede
business
vc
approach
equity
series
transactions
startup
talking
One of the benefits of working at a startup has always been the potential upside an employee can get from stock options when the company eventually exits. But in today's market, guys, what's an exit? Was exits are few and far between. And of course, the only way you can get employees can find liquidity. And sort of, maybe companies can use employ Quiddity to sort of keep the momentum going. Now that exit, maybe it looks further away, or wait to just keep people engaged in sort of building because startup is such a long journey, but Tyson isn't really that easy.
It can be I think that you know, if it was 2021, I would say pretty easy, pretty easy. I think that you know, in this market, the bar is certainly higher when you're when you're looking for secondary liquidity. I think that you know, buyers are more picky. I think there's also challenges with cap tables nowadays. The big investment rounds have kind of made it difficult for common to be valued at a level that would be acceptable to most employees. And so there's some complexity there, but I think it's definitely possible. Yeah, that's my answer. But yes, it's absolutely possible.
And Amir, I wanted to ask you as well, you're also
I disagree with Tyson.
Let's start there.
I think it's actually really difficult. Like, I don't know how many of you in the audience sold shares in a secondary market? I bet it's less than 5% of the people we have here. Like a wish we had a secondary markets like NASDAQ where there is enough demand and there is bidding and pricing is obvious. The reality is so far from this that it's even harder to describe. So I disagree with Dyson is although he's an expert in the field, but I think it's for employees, it's actually really difficult to realize the value of the they've worked so hard for and this is something that as an industry we have to fix.
And following up on that I was gonna ask you since switchboard is not your first company. You've sort of been through this process before companies in the past, how has employee liquidity and sort of how companies think about the stock options changed?
Yeah, so switchboard is my sixth company and every time we start and you think you're in a market and you compete with certain number of companies, you actually compete with all public companies and you compete with them for talent, and all public companies have the advantage of public currency. So if there was an easy way to make it available for employees, I think that would have been great for all founders of early stage startups. So this isn't my I'm in switchboard we're doing a collaboration platform for people that want fewer meetings. And it is still difficult to provide the liquidity that we want to employees before the dial one cupboard went public fields were acquired. I remember I can probably list on two ends, the number of instances that we add where we managed to give liquidity to employees before the public IPO.
And can you talk a little bit about what your strategy and approach looks like currently, your current company?
Yeah. So the truth is that there is so much we as founders and CEOs, our main obligation is to build successful companies. And there is so much that we can do to help and facilitate the process like we can be transparent we can be supporting it, but the market and regulation obstacles friction that is making it very difficult. So, when I saw the need I also invested in a company called equity b that is providing some kind of solution for this and their solution is not actually to buy the shares but to do forward contract that is giving the employee most of the future value without the risk. And I think this is one approach that can work for employees and for companies to provide early liquidity.
And this obviously, is a topic that sort of you would get a different answer. If we're talking about an early stage startup. We're talking about a late stage startup as well as talking about the employees first the actual founder themselves. And Maria I'm curious because you come from the European market. Well, how is it different over there when you guys talk about companies and founders offering liquidity?
Well how many Europeans do we have here? Oh, good luck, guys. Alright, so let's tell the Americans how it works. overbear in Europe, it doesn't
find the liquidity is something that happens after the series CEO would say comfortably. And seriously, it's debatable and saying that CSA is always it's almost always no. There are two reasons One is cultural. When the angels go in, typically, and I've been an Angel before I was before I became a VC so as an angel didn't have the mindset views. No, I would get money out before the founder gets any money out of the company. So it's a cultural thing, but also is a systemic structural issue, because most of the funds are having have capital from the European investment fund from the business and bag and they do not like secondaries, they do not actually allow the funds to invest in secondaries to give founder liquidity. So we have a systemic as well as a sort of a cultural issue. It's starting to change now and here's why it's changing. Because, as there were more unicorns there is there is more confidence in the ecosystem. Liquidity starts flowing earlier in the system, but still it's trickling down. And the problem that serious challenge that you have in Europe because of the lack of liquidity is that founders are more prone to accept the sub sub optimal exit. That's where you see quite a few exits sub billion you will have 300 million 400 million exits and that's because that liquidity, it will take a lot more time and at some point, the founder said, Right, I'm cashing out. I need to raise a family
instead of looking at how companies can think about this, from the beginning, you're just starting to hire employees. You're just starting to put some of these more sub standards into place as you're looking to build the company. How should founders think about employee liquidity, maybe their own liquidity down the line when they're just starting to build how can they set up these programs?
So this is totally confidential, right?
No one No one's taking notes, right? Yeah, nobody's taking notes.
So first of all, as founders there are ways to take care and make sure that you will be the the secondary option is going to be available to you. In later stages. There are I'm not a legal expert, not a tax advisor. But there are ways when you form the company to make sure that some of your common shares will be transferable to preferred class Murray. I'm sure you know more about this than I do. But you can make sure that your common share can convert to a preferred show after purchase. The other thing that is really important is choosing your partners. Choosing the VCs that you work with what is the approach Maria talked about? cultural resistance from the venture capital side to liquidity of founders, like how strong it is with your founders, with your partners. I think this is for at least historically. That was one of the main obstacles and it's really kind of stupid because basically it puts the founders and the VCs in a completely competing misaligned interests. As a founder, if you start a company you reach 100 million of value you still own 20% of it. Wow, that's amazing. It's a life changing. You want to get out for the VCs. This is meaningless. It doesn't matter if they sold a $100 million company. So I think the more VCs can do to help founders be on their side and go for the big exit and the big or even building a big company the better it is found. The most important thing is find the partners that will work with you on this
Tyson Maria, what do you guys think?
It's very interesting. Would you're saying that how can they preemptively start thinking programmatically about the liquidity and the other thing we we've seen is very encouraging as they start building founders start building in the SSA phase of the CSA round the ability to sell up to 10% of their stock between five and 10% of their stock without perhaps the sort of the the approval of the entire shareholder base but just the approval of the board with you're doing this ways is sort of pre empting the conversation that hey, I want to be able to do that. Now. Let's go to the other the other side of you know, all the way do being able to sell 20 30% of the business at Series B that won't work. What do you want to do with found the liquidity or liquidity for the C level the employees is to use it catalytically for value creation within the startup. In other words, sell a level at the appropriate time. So that they get encouraged to build even more value for the business and the shareholders. If we start thinking like that, then we will start to new when we learn about both the opportunity and the challenge that we have with lack of lack of liquidity in the ecosystem.
Yeah, that's a really good answer. Yeah, I think I think that it's oftentimes called series FF shares in the US, you know, for the founders to take 10% of their stake that can, you know, be sold and things like that. I think it's a good signal to future investors that hey, this is our intention. And I think, you know, I think founder liquidity is, is oftentimes a bit easier to come by because at least in 2021, it was kind of a deal term. A lot of funds would say, hey, you know, we're, you should really take money off the table. That's why you should let us invest. And it was pretty heady times in that, in that that period. I think that I think that series FF is a good way to do it. Obviously you got to build a valuable company and you need to have kind of excess demand beyond what the company needs. So if you're trying to raise $10 million, and you have $10 million dollars of investment, you're not doing a secondary because no investor is gonna say, Oh, you want to go to companies and just take it for yourself. That's, that's weird. And so I think that's that's the key is you kind of have to have an excess of demand. What I think is interesting is what some companies are doing they get much larger is programmatic liquidity. So thinking about this from the perspective of, hey, we're gonna do quarterly sales in an organized way for our employees. And I think that's, that's something that requires you to kind of at that stage, you know, these are champagne problems, you're doing very well. If you have demand that would come back quarterly to buy more common stock from your from your, from your employees. That's something I've seen some of the best companies doing and the opposite of that would be companies that completely blocked transactions, which which is which is pretty pretty, pretty busted. In my view. I think that a couple things I was a private placement broker says I was helping employees and shareholders sell stock for for several years before doing what I'm doing now. And notice and you know, I hear things that come in and say, Oh, what are we blocking transactions to protect the validity of our cap table and we want to know who are investors on stuff? Well, the reality is, you block transactions and then four contracts happen. Now you have no idea who the beneficial owner is or SPVs happen and SP interests, trade and all this stuff, like when there's demand for your equity. You know, these what used to be very exotic have now become very mainstream instruments that a lot of funds have included in their mandates and so you're never gonna stop it. And then there's there's downsides right? I mean, in the in the kind of peak in 2021 Notice does real time pricing for mid to late stage companies. And, you know, the valuation of stripe was $211 billion in the secondary market, and they were blocking transactions. And then now it's 50 billion, which is, oh, boohoo, it's still 50 billion, but that's down 75%. So you have Instacart went out today, they were roughly a $10 billion valuation and they were worth 40 in the peak and they're blocking transactions. And so I just think you kind of have to think about I think you kinda have to think about liquidity for yourself as a founder, that's great, but also the culture you're trying to build and like, thinking about more for your team as as something that can that can, you know, be an HR benefit almost over time and, and the reality is, some people say, Oh, well, if they get liquidity, they'll just leave and it's like, well, what kind of culture do you have? Like, someone gets a couple 100 grand, they just leave? Okay, maybe they should leave. And I think it's more of a holistic conversation beyond just your own personal liquidity as a founder.
I want to give a practical advice to founders I assume there are many founders here in the room, founders to think oh, I'm going to sell when I need find that it's almost impossible to sell when they need or when they want. You can sell when you solve a problem for someone by selling. So for example, my first company was shopping.com. We you're going to make fun of me but it was in 97. The valuation was $3 million. We wanted $3 million. The VC came in at one to $2.5 million. There was a gap through funny right? Yeah. Today's like the pre precede, it's like and my co founder basically came with this great idea. Okay, we'll agree to this valuation or you will agree to evaluation, we're going to give you the ability to buy some of our shares just a little bit of our shares. We're basically going to give you the option for you in half. And after a year and a half the exercises we made a little bit of money and that was nice. That was a way to solve a problem and provide future liquidity by the way, the VCs immediately said Oh, but it's going to be like an exit for you. And my smart co founder immediately told him no, that will be an exit for my wife. I will be keep on working
and I want to circle back to something you said Tyson about how like companies blocking their employees from being able to share or to sell share options. What does that signal to their employees and sort of why why should companies maybe try to avoid that mindset, especially if they're looking to do hiring in this sort of software?
I like I think I think it's, you know, I haven't worked at a real company ever. So it's hard for me. No, but I've heard other people say when they go in for interviews, they show them a sheet you know, they say Oh, this is what your equity could be worth. You know, like, our last round was this a Fournaise this and here's some numbers and look at that big numbers not great. This is why you want this low salary right and like, that's kind of what gets presented, but they fail to tell you like, Oh, you're never going to be able to sell it. Like you can't, can't sell it. That's that's less known to employees, even folks even working in companies for years. And so I think, you know, I just think that like creating some kind of a program around it, right, like finding an investor that wants to come alongside you that's going to periodically want to keep continue to size up and be kind of either referring transaction so exercising your right of first refusal and directing transactions to a preferred investor to keep your Captiva clean or just having this program again, this is a champion problem. You can't do this a series a you have to do this when you've when you've created tremendous amount of value for your business but but it is a way to it is a way to retain staff because then when you're when you're interviewing new people, you can say hey, here's your equity and not only that, but every quarter you can sell this much and this is the history what we've been doing and here's where it's at and it's also good price discovery in a lot of cases you can kind of figure out what the markets telling you and you don't have to you know, Instacart did like some foreign on a markdowns where they marked down their internal valuation a couple of times during after the pandemic. And you know, we were tracking things in real time in the secondary markets, and we knew it was way lower, and they lowered the foreign on a and then like two months later lowered again, and that's just, that's not a good look. You know, I think it's good to be out in the market and really know what's happening so that you can be more precise about things. So I would say don't be afraid. And secondly, market if you're a founder, don't be afraid of it. It's the truth. You know what's happening don't and don't the lawyers tell you can't do it and just tell them to figure it out. Like that's, that's the key
is that they're trying to figure it out. Yeah, other people do it. Why can't we do it? Just figure it out?
I think that the the elephant in the room is that we're talking about this world where people can sell something but the truth is that 55% Historically, 55% of the options are not even exercised. And you will be surprised in bad times are not surprised. But in the last year it was 72%. So many people that have a significant contribution to building extremely successful business basically finished this journey without what they deserve. And I think that that is what needs to be fixed. And this is the motivation to be fixed. And I don't know if you'd like equity be in forward contracts is the way to solve it. I don't know. If there is another way maybe brokers is what you need to work with but as an industry, it seems to me like really, right? Wrong, that people are not getting a fair value for their contribution.
And sort of building off of that, how transparent or how should companies and founders sort of set expectations for their employees because I know we all know the story. You come in, you take a lower salary, you have these big potential upside for these employee stock options. But then what if the company sells in two years a 250 million, you saw the pricing laid out for a huge exit IPO. And that's just not the reality. And how can founders when they're setting these things? Up? How can companies kind of set the right expectations with these employees stock options while still making them a benefit at the end of the day?
For me, me so I think the only thing that we can do is be completely transparent. So sometimes I interview people and told me about other offers they're getting and the company is refusing to say what was the last share price they're refusing to say how many options how many shares the overall and it's kind of stupid, so I asked like, how are you going to evaluate this package if you don't have this basic information? So I think that, again, the best approach is to be completely transparent, but also to be careful not to set expectations and no indication of what the future value is going to be because honestly as founders we have no idea. It can be anywhere from zero to the moon so like give people all the information that they need to put their assumptions, make their calculation and a couple with their value, future value number
what we've seen, but that's again, it's a pm perspective, which perhaps is a more sort of a nice on that aspect is a less mature market. But what we've seen is that the more courageous CEOs will gather the interest from their employees, especially from their valued employees, who is likely to want to sell and why what is the reasons what are the reasons behind it? And in the first available opportunity that will create a sort of the the opportunity for for for liquidity. So we had fathers in our portfolio, who when one of their employees wanted to sell or pick up the phone to the existing investors to investors that they wanted to come in and the last round and said would you be interested, this is the opportunity here, this is what this is what we would like to happen so proactively they went out of their way to help the C level executives to to get some liquidity out of their investment options. Yes, it takes some legwork, but it shows courage. It shows commitment. It shows sort of a conviction in in your ability to use your stock to keep your mouth you're more your most valuable employees.
And since switching gears of X we've talked a lot about employee liquidity but looking at founder liquidity to me I know your fund beacon cap does some fun things around founder liquidity. So when you guys are working with potential companies, what are you guys looking for when founders approached you about potentially taking some liquidity off the table?
There are a couple of things in terms of the liquidity itself the parameters first of all, do we as a fund like to invest in a particular sort of particular state is when the business will have reached 5 million arr. Typically we call that series B at least in Europe again, nomenclature can differ from depending where you are in the cycle. So where's your arm around? How much are you growing as your valuable sort of business in our eyes? are you likely to go for sort of a supersize exit? And then we're looking at the founder and a couple of things there. The founder and the founding team needs to have served time so to speak. You're gonna have a founder who started yesterday and a year later to be seeking liquidity. You want to have seen a sort of five, six years into the business, you have to sweat it you have really worked for the business. You want to see sort of a relatively modest liquidity at the level where we are coming in again, this is Europe and this is series B. So you don't want the farmer to start taking 10 million off the table when the farm that to ask for one to 3 million why? Because this is how much this is the cost of living essentially getting a property in London is the cost of putting the kids through the schools just to feel comfortable enough get their wives get their mothers of their bikes. Imagine founders who have been through university have racked up costs and then they started their own their own startup. Imagine what they feel when they compare with our peers who went to investment binding and they make 234 times its money. So what we want is to remove any doubt that what they're doing is the right thing, and that they should want to continue doing that for another seven years to get a big exit for everyone. So that's why I say that we want to give liquidity when it is of strategic reason and it solves a problem in our case. It solves the problem of accepting a suboptimal exit.
There any red flags you guys look out for from founders can founders try too early? Can they ask for too much? Have you seen weird structures? How can founders approach this without making themselves come off as a red flag?
To this panel whenever it comes to talk, I would say the business needs to be back to your your point Tyson needs to be well funded. So as a founder you cannot be asking for liquidity when the business is starving of capital and is having a sort of a runway challenge. It is not the right time to open up this conversation and probably you will get enough from your existing investors will will block it. So the business is to be on Stable footing needs to be growing aggressively. You need to have shown that you're able to secure the capital required to fuel this growth. And the Ask needs to be proportionate to where the business is how much time you spend investing in this business. And that's why I'm saying well, we're talking about a couple of million at Series B rather than 10s of millions. That's what the biggest red flag also, when in our case when we're giving founder liquidity, we did due diligence. So we want to feel with the founder that we are entering into a partnership. Essentially we want to feel that we're becoming part of his or hers inner circle. That will open up the books will allow us to appraise the opportunity and we will enter into long term partners who will be there for him or for her until the exit and this is a trusting relationship that is built not overnight. It takes it takes some time in the same way they did it will take time to raise around it takes time to secure founder liquidity.
And I know may not be super surprising for some of us in the room. But that strategy is pretty unique. A lot of VCs especially in the earlier stages early even being Series B Series C aren't a huge fan of founder liquidity. And I'm curious sort of how you mentioned split backstage how you guys can do this and sort of offer funder liquidity without stepping on the other VCs toes or sort of making the other investors not want to work with you and I know America ready I'll be asking you about the same thing.
Okay, how many of you see us do we have in the room so by now how many people are pissed off now All right, okay. When we defined the liquidity, especially when we will do it what we call off cycle not as part of a funding round. We have three stakeholders, the founder, the shareholder base, and the board, which typically will be managed or controlled in a way because of the investor director rides by the most powerful investor in the last round. So you're trying to create a scenario that is win win for everyone. Once you have the sponsorship from the founder. You could play the founder against the VC Good luck. That's a losing strategy because all you're doing is you're dividing the very broad and the very, very sort of relationship and you want to work well in the future. So what do you use? What we do is get sponsorship from the founder to float the idea to present the idea to at board level and you want the cash from the investment director from the lead investor in the in the last round. Now, if the investor sees that the founder is asking for too much liquidity, he will try to block it he or she will try to block it. So everyone needs to play good in the sandbox. Everyone needs to play friendly and we need to remember that the reason we're doing the founder liquidity is to remove financial concerns financial risks for the founders over the founder can focus freely on their 1 billion plus exit and places our our line of argumentation is it always accepted. Not always, but when the the most sophisticated of the investors they actually like it, they see us as a solution to to the problem rather than something that they would worry about. Just one final thing. Also, we don't play big discounts. We don't play into situations where there will be 6050 60% discount on the pricing, which again, alerts the existing VCs on what's going on here. What exactly are you playing? Because they will then have other issues of how they carry the value on their books. But also because simply because you're offering liquidity doesn't give you the right to apply a 60% discount on the previous around, especially if the business is doing well.
And I'm curious if you've run into any pushback over the years or thinking of these different both thunder liquidity as well as employee liquidity that you've heard from investment conversation
that we had a great description from Maria about the process just illustrate for everybody how difficult really it is to get those kinds of deals or where they are. And I think that is the honest situation. And that is I want to see more companies that are creating basically an overall program for employees to take advantage of deals like this and less to make it like like an a privilege that really is available only to the founder of the company like it is there is no reason if the founder is so incentivized to do it. They're probably few other employees that are in an equal situation. So as I said, I've seen only a few deals like this every time it was something like Maria described. So yeah, it's pretty sad, but it's gonna it's the last session of the day so you can go and drink later.
Tonight. One thing, what's your one thing? Great. Yeah, the one thing I will also say is, you know, we're talking about liquidity in different ways. Some of it's kind of like company sponsored liquidity. So a group comes in like beacon and says, we want to do this thing. And you talked about the board and you kind of agree to it. There's also the secondary market, which people will talk about and that's individual investors. And I mean, I don't know if you play you probably go direct to the company, but there's some groups that will actually reach out to a founder or an early employee that's still there, or maybe his left and they will want to buy shares from them directly in the secondary market. And that's where brokers get involved and there's, there's lending platforms like equity B and others, and there's kind of all different structures that are out there. And, you know, I think that ultimately like what I would say and as a broker, I saw this a lot and I even see it now with our with our platform is, you know, when liquidity is is approaching you, you're it's very it would be very good if you took some because I think everyone wants to believe that oh my gosh, we're a rocket ship. We're killing it. This is always going to be available to me. I'm gonna wait until it doubles again. And it's like, it's kind of like the eye of Sauron. You know, the market sees you and they want you and then they just want something else and liquidity can evaporate immediately and within a month sometimes and so when you do get opportunities as a founder or to to do something more programmatic for your for your employees, I would say, even if it takes some pushing internally like really pursue that because became may want you today, you may miss some milestones, and then, you know, maybe it's maybe it's they're on to something else. And so, don't think it's always going to be there because it unless you're Space X or one of these companies, it just isn't always there. It's episodic and just you should know that as a founder. And anyone tells you different they're not telling the truth. So
the best advice of the day.
In reminder for the folks in the audience, if you guys have a question, definitely approach the microphone. Flag your hand so I can see you. Yep, go ahead.
Hey, everyone. So what would you recommend for the precede startups how to allocate shares for team members and how would you structure like overall if you have like a two three main founders and how many shares you should allocate for the team members?
So the question from the audience is as a precede founder, how should you approach this how many shares should you issue etc? Yeah,
so they're pretty well known standards on what should be the you're basically asking about the size of the pool that is available for options and every company is different and depends on how many founders you haven't what kind of round but I my experience, I found that I do need about 15 to sometimes 17% of the company available over time it's getting it depends again on the situation and what kinds of functions your co founders actually cover how many senior executives you will need to bring to the room but you need to do a budget just like you do for money you need to do a budget for options.
And bear in mind that in every round, the investors will top up the optimum spooler. So in every round, typically until Series B at least, the investors will say let's stop at the options pool to take it back to 10%. Because the whole point of the round is to do recruit talent and talent will need to be incentivized with options so you have to bear that in
mind. I've heard people set aside 10% as like series FF shares or something that can you know, convert and be sold in future rounds just in case. Thank you.
Can we can I have a question? I would like so sorry. I'm I would like to know what advice you would give like there's power dynamic. I mean, I work for a nonprofit and you know, there's always power dynamic with funders. And through the years I have learned that there is nothing better than always speak with the truth. It's the best thing but when you're new in the field or you are there for the first time, you know, in front of an possible investor and and when you are meeting someone, you want them to be very transparent, but what what have you learned as a strategy for you to break that barrier that sometimes might interfere with you seeing the real person?
So the question from the audience is sort of how can you break down the power dynamic and sort of find that transparency with who you're speaking with?
So first of all, I disagree with the power dynamics, like if I read between the lines, when like the, the VCs have some amazing power over the founders and so on. I actually think it's the reverse. I think there are very few great ideas and great teams that can execute on them and this is, this is memory a really are giving you the absolute most commoditized so I think that first of all, you should go with this approach. You have something unique, you're working on something great, you have the potential and Sandhill Road is full with with VCs. So that's first of all the approach then you need to understand, okay, what are they looking for and what they're trying to do and basically, they're trying to minimize risk and your job is to help them understand a little risk there is in your venture and that can be technologies, market rates, the timber is different kinds of risks. And be proactive about this. I don't think the thing is to be, you know, overconfident or overselling is just to be very specific about your plan. And also being proactive about talking about those challenges. If you think that the VCs are not going to ask you the right question, it's usually not the right tactics. So be upfront. Talk about all the challenges ever plan to mitigate each one of the risks and find the right partners.
Remember guys, the the VCs have power until the write the check and then we are the most exposed party you can possibly have in your organization because there's very little we can do. Yes, there are all these terms and concerned mothers and control mothers. So BS, we can't do nothing. The moment we're handover the money so it's but to your point, it's not the power is on the other side. Definitely.
We have the best job in the world. Let's admit it founders. No seriously, we do what we love there. We're getting paid for this and we still have a massive upside. Like be a founder start a company. That's my advice.
My name is Irish. My question is kind of a follow up from the previous question here. As a precede, I don't even know if I'm precede pre something founder. I'm not focused at all on these questions. I'm just focused on building. And so at a high level, should I just when I raise trust my VC to kind of help me solve these problems, and I just try to pick a VC who has a good track record, or do I trust my lawyer for him to do this for me, or do I just read the entire internet and figure it out myself? How intense you should
trust the VC? Yeah.
Yeah, so yeah, pretty something. I don't know.
I think if you go with a lawyer, it's specialized. It's like a Gunda or something like that. They're going to be able to give you a range of a kind of a range of where people are typically landing right now something that's defensible you can take to your investors. And you can say, Well, look, you know, go under says this is fine, or this is within the reasonable allocation, but you should ask about a lot of the things that we talked about today, I think you should ask about, do a little bit of research, a lot of it's coming driven by you. If not, they're just gonna give you the stock documents. You're not going to read them who does and you're gonna go forward and later on, you're gonna say, Oh, I really wish I'd taken a few more minutes to look at that and be asked a few more questions. So I think if you get the right lawyer, you can you can rely on that. After all, you're their client. I wouldn't ask the VCs what they think. I mean, I love them. They're great, wonderful, but you're gonna get a very different answer.
I've seen like a whipping boy.
You can ask her I know other VCs.
Also think that people have questions. Okay, what's the brand value of the VC like how much should I prefer? A brand name VC. And I think that when you look at the term sheet, the most important thing is not the other of the letter but but really, what are the terms while you're signing up for what kind of preferences and rights this specific investor is looking for? And then after that, I will ask who is the partner that you're actually going to work with? And how much this person specifically is a good fit for you and your company? And then go into some can definitely help you get
ever get a VC unless you speak to one of their portfolio companies. Guys, you reference the hell out of us in the same way we reference you. You need to know how do we play when things are not going well? Yeah, that's that's the most important question. I would ask. If I wanted to work with a VC would be showing me a situation where things were not well, and given me the company name, and the number of the CEO, I want to talk to them.
Thank you. This is very helpful.
So I have a question that lends back to the employee liquidity you mentioned in 97 your exit was only a 3 million now we're raising rounds that friends and family and precede and the trigger points on these qualified rounds even entered that 409 A that you know, the valuation set, the strike price is kind of like $10 million raises. So it's pushing that out years, you know, to raise a friends and family to go into a precede to go into a see before you even series in the round, that a employee would even have the ability to even go to a secondary market. Do you see value in lowering down those qualified round trigger points to maybe converting people into a 409 like way quicker, having that series round faster, or just still kind of follow that cookie cutter, you know, five $10 million trigger before a qualified round happens.
We have 30 seconds.
That's for the experts.
I would say that I would not I would not optimize for that. I would do what's best for the business. First and foremost, ultimately, a secondary market is going to cover is going to be built around your company because you're doing very, very well. Oftentimes, it's a little bit later, and so precede very often. There's no unless you're the hottest thing ever. There's no market anyway, so I wouldn't worry about that. I would I would think about that a little bit later. So some of the things we talked about today. So you're ready for it, and tell your team you know how you're gonna approach it. And then if you're lucky enough to build a business that's doing well enough to have a secondary market emerge, you know, you'll be ready for it.
Perfect. And unfortunately, that does put us at time I know it looks like some people still have some questions. So hopefully we can answer those outside of the stage. But please join me in thanking the panelists today you.
We have so much fun we're gonna come back and do it again tomorrow at 9am You're gonna kick off with a recording chain reaction. TechCrunch is crypto focused podcast right here on the building stage. But if you are thirsty tonight, there is a FinTech meetup at the house of shields. I love that bar and a sustainability meetup at bear bottle. So go forth, have fun. Don't drink too much. And we'll see you back tomorrow morning. Bye.