Hey, everybody, this is Alex. lovely to be here. Very excited to talk to Sarah. But I have to start off by saying that that's a terrible picture of me and we should never use that again. But what can you do? Sarah? Hello, thank you for coming and being with us today. I'm very excited to have you here. Um, a couple of notes for everyone about Cleo Capital. Before we jump into hearing from you, you guys invest around half 1,000,002 million at the pre seed stage. We'll talk about what that means in a little bit. And according to some SEC filings, you raise a second fund, you probably can't talk about that. But I did find that beforehand. And you recently had to deal in Tali is it Talia Telly? I can't tell Kelly, Telly. And you've also had capital into cameo style seat masterclass and some other companies. So one, thank you for being here. I hope all things are good. And you were in New York, where there's weather I hear
I am there is weather you forget about that in California until you're in the middle of a forest fire.
Yeah, well, all that's to say that if you hear a loud crack of thunder, and boom, that's what's going on. It's not the end of the world. It's merely nature, just trying to tell us what's going on. So I think we're going to go ahead and start by having you riff for a little bit, I'm gonna be keeping an eye on questions as they come in and taking a note or two, and then we have a lot to get through. So I will let you just take it away, and I'll be quiet.
Yeah, well, I'm super excited to be here. It's always super fun to come talk to TechCrunch about my favorite thing in the world, which is people starting companies. And so you know, today, I think it's awesome, because we're going to talk a lot about sort of, you know, the end goal, which is, hey, Sarah, here in my wire instructions, send me a million dollars, thank you very much. We will talk more about kind of what I invest in, in the stage and all of that. But, you know, the The reality is, you know, you have to usually do something before you get the the funds hit your account, right? Unless you get really lucky on dos or something. So the reality is, you know, if we back up a bit, the end goal is, you know, money in the bank. How do you get there? Right, so, so let's just talk about, you know, how do you raise money? How do you raise money for a startup? Right? You want to fundraise. So the first thing is, did you did you pick an idea? Is it is it a good idea? Right? And I'll talk to people sometimes who come to me and say, I'm so excited, I want to be a founder? And like, what do you want to found in there like a company? And I'm like, No, no, no, no, no, right? Like, that's not how it works, you have to say, I am excited about x problem, I can't sleep because x problem exists, right? Ideally, it's a problem that you have, you know, personally experienced, or that you have a lot of career or academic expertise. And it certainly doesn't need to be all three. But what you know, I generally caution people away from is what I call kind of MBAs in search of a problem, right? Or PMS, in terms of a problem, you're a smart person, all your friends, you know, who didn't go get their MBAs or who are, you know, leaving leaving their MBA program, they've started companies and, you know, you think it looks cool to go to Sun Valley and be a billionaire, or you hate billionaires, and you want to, you know, you want to do something about that. So you should start a company. And you don't really have an idea. But you know, you read something kind of interesting in the Wall Street Journal or on TechCrunch last week, about the rise of XYZ. And so maybe, you know, you look, it's a pretty big market, and you say, I'm gonna make the Warby Parker of archeology, you don't really know what that means. But it sounds good. And then you went a pitch contest, at your business school, and then you get into, you know, yc, your tech stars, and then you raise some money, and all of a sudden, you're off to the races. But it's still really hard because raising raise running companies always really hard. And you wake up one day, and like two years, and you're like, Oh my gosh, I thought the worst thing that could happen to me would be failing at this. Turns out the worst thing is happening right now, which is I'm succeeding. And I don't even like dinosaurs, right? And so like, if you don't like dinosaurs, don't start an archaeology company. Because you think it's a white space in the market. If you know a lot about dinosaurs, and you want to tweet at me about how that's not what archaeology is. please tweet at someone who cares. I'm I'm not Sarah Kunst, I love interaction, but tweet at somebody who cares. So you know, you need to pick an idea that you're personally passionate about. And then you need to validate that other people are passionate about it, too. Right. I am a big Kardashian watcher. And I was like, you know, I was telling I was telling my business partner is like, you know, I think that
surrogate gestational carriers, huge, huge market, like huge market. He's like, really, Sarah was like, Yes, it's a huge market. And he said, how many how many people a year. Do you think he's gestational carriers? I was like, I don't know, millions, like 30,000. Right. So So is it an interesting market is a is a complicated consumer problem to solve, which is an area that we focus on. Yes. And yes. Is it a big market? No. Does that mean that if you've like, lived and breathed this for years, and you're passionate about it, you shouldn't go find a company to build in that space? No. But you do want to sanity check and say, where are we at? Right? Is this market as big as I think it is? And how crowded is the market, right? So you go through that process, find something you're passionate about, that you know something about, that you're credible about. And that's a big enough problem. In a market, that's not kind of so incredibly crowded, that you can really make a difference there. And then you probably have a good idea. So great, now you have a good idea. You're gonna need people to help you build it right? So then the question becomes, how do you find co founders and, you know, in general, the way that I think about co founders, you don't have to have a co founder, but it certainly makes life easier, because it is great to have somebody who wants to work for free with you, for at least a little while. And when it comes to co founders, you know, in general, what I encourage you to do is, is make a list of kind of your qualities, and then make a list of what you suck at. Right? And like, it's only for you, so you can be brutal about it. But be really, really honest with yourself, and say, I'm not great at XYZ. And so because I'm not great at XYZ, I should probably find founders who are really, really good at these things that I'm not so great at, right. And sometimes you see founders were like, We're best friends, you know, we grew up together, we've done everything together forever, same jobs, same schools, and it's like, I feel like I'm buying one for the price of two, right? And what you want is two people where one plus one equals you know, three, not where one plus one equals one and a half. So like, find people you really, really like and not like in a Hey, they're fun to hang out with way. But you can have hard conversations, you respect them, you know, they have a lot of integrity. And then also find people who are different enough from you that you know, we all know that diversity drives amazing returns in business, find some diversity with your within your own team write in literally, if your co founders all look exactly like you write on paper or like IRL, then that's probably a sign that you might have a little too much overlap on the founding team. So go out and be really thoughtful about that. It's okay to start a company on your own. But you are going to need to find people to get on board early. And often it can be great to have a co founder. The next thing is sort of how to incorporate right. So
can I catch up if we have a question from the audience on the co founder point. So I figured just while we're here, um, someone asked, quote, I have a great idea and need a founder who is technical to support me, I've heard that before. Is their passion critical to the success if the commitment is there? So I guess the question is, like, if you bring on someone else to help you build the thing, do they have to have that same burning passion that you described, to really make it work?
I'm glad you asked about the fair. So I went to the fair the other week. And I love the fair. I'm from Michigan, my first two dogs were on a farm. I love the fair, my friend that I was with had never been to a fair. And she did not understand what the fair was. She did not get it. She was very concerned because like everyone says, I'm gonna get sick at the fair. We're like, No, no, that just means if you like, eat 10 corn dogs, and then go on like seven Ferris wheels you'll throw up. But that's not like getting sick. It's like a party favor. So she didn't understand anything about the fair. We convinced her to go to the fair. Once she's at the fair, but she's bought in she's like, Sarah, it's a Friday, we're hanging out. What are the fair, once she's at the fair, she's on the Ferris wheel. She's like winning count, you know the game, she has a giant stuffed animal, then another giant stuffed animal, because her husband's very good at winning stuffed animals. She loved it, right. And now she's like, Queen of the fair. So the reality is, if somebody is willing to show up with you, and trust you, and is willing to take the ride with you, in this case, a ferris wheel, then it doesn't nest, they don't necessarily have to have the exact same amount of understanding and passion, whatever, for the core problem, right? They do have to have passion for wanting to be a co founder wanting to be your co founder wanting to build a company wanting to solve the tech problems in it. Right? If you're both obsessed with e commerce, but one person wants to build like super deep back end data architecture, and you're building something just using Shopify, that's probably not a great fit for a technical co founder versus somebody who's, you know, more excited about what they have to build than maybe the product itself.
Okay, that's great. And we actually the second question on a similar topic, from the founder, who is working in the virtual reality area, a question kind of about where to find these co founders, like if you were out there networking, and you have this burning passion, and you want to find the right collection of people to build it with maybe one person maybe three? Where do you tell people to go to go hunting at the pre seed stage?
It's a couple of things. I think one is is like really looked back through everybody, you know, and this is sort of the same when we get to the friends and family party fundraising. Really kind of go back and say, like, who do I know? Right? And not like who are my best friends who was at my wedding? Whose wedding was I at? Like, take a much broader look. And think about when you were an intern, you know, the intern you always sat next to who is an engineer? What are they up to now, right? Your college roommates boyfriend or girlfriend who is a great console major. What are they doing now? Right? Like, like tweet about it, reach out on social media reach out on LinkedIn. I'm obsessed with LinkedIn like I am the probably the biggest fan of LinkedIn. It's bizarre how obsessed I am with LinkedIn. And and like, if you keep your network up to date, you can literally go search Who do you know, who's a computer scientist on LinkedIn, right? First Degree, second degree connections, and then just reach out to people and say, Hey, we'd love to chat with you. We're an investor in a company called lunch club that literally does this as a service, right? And we'll, we'll have a link because it's still invite only so so everybody can get on it. But you know, it's a great thing where you go on and say, Look, I'm building XYZ. And this is the kind of person I'm looking to join me. And they'll help you with that. And so you know, and also, don't be shy about just sliding into people's DMS companies. I've invested in people I've become friends with, there is nothing you can't get done in the DM.
We got we were talking via dm literally, before this chat, to make sure we were on the same page. Apparently, this theme is huge. If you have another question about this. Someone wants to know how late is too late to find a co founder, they're about a year and a half into their company they're about to launch? Should they bring someone else on and kind of a co founding role? Or is it a bit late in your view for that company to do so.
So co founder is a pretend word. Right? So there are real words that you find once you start a company, someone legally has to be the CEO and president of your company. If you want to be a C Corp incorporated entity, which you do. We'll talk about more about that later. So like president, CEO, legal terms, founder pretend term that is made up, right, you can be anything you want. So it's never too late to be a meetup title. Right? Usually, would you do that? 10 years in right is Andy jassie going to be the co founder of Amazon at this point? Probably not. But there's literally no legal reason that the board couldn't tell him it is perfectly okay to use that title. So you know, certainly if you haven't even raised money yet, it's not too late to do that. And it can be a very, very enticing carrot to get people to come join you. And if they're going to come in and build and really give it their all and you're giving them serious equity and you think they're going to be around for a long time, then, you know, I think it's certainly appropriate even a year or two and it to think about that.
Okay, let's, let's keep moving here. We're gonna talk about incorporation quickly, and I want to get to the deck discussions. We had a couple questions about that. So Sarah, I'm gonna shut up back to you.
So So how to incorporate this one's really easy, and we're gonna have lots of links on my Twitter and Alex is going to share as well later later about this how to incorporate, you know, be a C Corp be a C Corp be a C Corp, if I could get that tattooed on my forehead. I guess I could, but I won't, because that'd be terrible. But I would for you guys so that you know, to be a C Corp. You can't be an LLC, why can't you be an LLC, because LLC is have flow through tax benefits that every single venture fund investor, myself included, legally cannot invest in, because then the people who invest in us get like tax bills about your company, even though it's like five times removed, and they cannot do that we've promised them 100 page legal document, we would not do that. So like sometimes I'm like, I don't like x kinds of companies because I'm in a bad mood. When a VC says they don't like an LLC, they literally mean they are definitely allergic to peanuts, and you are a bully nuts, right? Don't do it. Don't do it. Be a Delaware C Corp. You can use stripe Atlas, you can use clarkie. There's tons and tons of great documents around this cool ego is another great resource. But be a Delaware C Corp. I just saved you so much time, energy and stress. You're welcome.
I'm just amazed at how that little bit of advice hasn't changed in 150 years It feels like and yet, it is something that's very important to keep in mind. Don't Don't reinvent the wheel here. Just be a Delaware C.
Corp. Don't be an S corp, C. C's get degrees friends be a C Corp.
Okay, let's talk about decks. We had some questions about this. People are very curious about their place. And so can you talk about this from kind of the pre seed perspective? And then also maybe a note on how decks fit in for founders looking to raise slightly later capital?
Yes. So here's the thing about decks. Don't be ugly. Don't be ugly. Don't be ugly. The good news is it is free and easy to make a non ugly deck it is not 1999 you do not have to use clip art. You can go to Canva. Right, you can go to plenty of websites that give you very basic, very cheap, if not free, very simple decks, just use one. It doesn't have to change the world. But it can't be ugly. No Comic Sans font, unless you're like a deeply ironic like meme driven company. And even then the odds of that joke will land are infinitesimal. So so just don't have an ugly deck. What should be in your deck. Again, this will be a link that we'll have later but I love for really early stage companies. Guy Kawasaki is 10 slide pitch deck format. Do not send me something that is a video do not send me something that is a one pager do not send me something that's 100 pager 10 slides Don't make me download anything attached as a PDF for you know use doc. Send us Some of the other tools out there one pager.vc. And effects has a great solution for this. Make it really, really, really simple and really easy to read and digest who you are, what the problem is, what the solution is why you're the right team to do it, what your traction is how much you're raising, like maybe a product slide. That's it. That's all I need to know. I'll take the meeting. All right, well, and I say that on behalf of like, every other VC and angel in the world.
So I'm going to ask a question that actually hasn't come up in the the questions that I'm getting, but I know someone out there is, is kind of thinking about this. Can I ask investors to sign an NDA before I show them my deck?
No, you want to know why? Because one, it makes you look like you just fell up off a turnip truck. And two, don't ask because nbas would be functionally unenforceable, because to prove an NDA, you have to prove that somebody learned something through you that they would not have known or learned otherwise, it is my job to look at pitches all day, look at 3000 pitches a year, you are a startup founder who hasn't even raised any money, the odds that even if I took your idea, ripped it off completely and went and built it, you could actually prove especially in California, which is very much which is where I live in. So it's where you'd have to sue me, which is very much you know, not into NDA is non competes all of that stuff, the odds that you would be able to prove even if you had unlimited resources, which you don't because you're watching this, that, you know, hey, you stole my idea. It's zero. Right? So all that happens when you send any VC an NDA is they tell you no thanks. And then they don't invest in you.
Right. Okay. So now I'm back the question about decks, thinking about the slightly literatures companies, let's say you're raising a, how does the advice change for catching the investors attention with that kind of early cold or warm pitch deck?
Yeah, I mean, I think as you go further on, you really just need to tell them what you're doing. Right? The early story is all about, here's my vision, here's what I want to build. As soon as you I've launched as soon as you start to have revenue is, you know, the one metric that matters, right? And, and it's not, you know, x is the one metric that matters, you get to pick the metric, right? It better be broadly in line with with reality is our friends that we work could tell you. But the reality is that you pick a metric, and you say, here's the thing that matters, here's a graph that goes up into the right, that means that it is going up. And this is exciting. Here's how much we're raising, here's approximately how much of the company we want to sell. Right? And you really have to strip away the bullshit, which I don't know if I'm allowed to say here, but Okay, good. As somebody who loves to bullshit, it is awkward to all this. I didn't say Wait, I just have to, like, show you the numbers. But like, Don't you want to see my song and dance? Like, no, no, I just want to see the numbers. Right. And so and the other thing is, you know, at that point, you probably series A investors are very smart. And and you've been in the, in the market for a while. So they probably already broadly know kind of what you do who you are, they want to know, is the business as good or better, as it seems when they follow you, you know, when they check out your app, or when they follow you on social media. That's what they want to know.
Okay, I don't want to hold us up too much. Excuse some other questions coming in, that are on different topics. But before we get into finding investors, I know there are groups of people out there who specialize in helping founders and CEOs who are non founders put together more attractive pitch decks, to better present their vision model stage, whatever, what's your general take on those groups worth it not worth it avoid?
Um, I think that it's a question of how much money you're paying, and how much anxiety it causes you, right, you get massive writer's block, and it's gonna take you days, one, I would suggest handing it off to somebody else in in, you know, maybe on your team, you have to write the content, right, there's two pieces of a deck, there's how it's visually presented. And there's like, the, the kind of ipsum Lorem, right, the content that actually goes in it. And so you as the CEO, the founder probably are going to have to own the content. But definitely, you can work with somebody be a copywriter or a duck designer, but like, if you're kind of if you already have a landing page, or a splash site, or social media, like you already have a logo colors, like a general kind of brandy those so you know, broadly with the deck should look like, right? Are you have some preferences, everybody has some preferences about color. And then you know what goes in it, that's really where if you just go and like read like a 10, you know, the Guy Kawasaki format or whatever, you know, you can do that. And even the best deck designers are still going to need your input. So you can't totally you know, kind of pawn it off in somebody else. And then the other piece of it is just look in your bank account. How much money do you have? If it's not a lot, then like, you should probably just do it yourself?
Yeah, yeah. And if you want to know why your debt doesn't have to be the slickest thing in the world, go back and look at like the LinkedIn pitch deck for like their series A, and you'll see that numbers are much more important than style. All right. Um, let's talk about finding investors. I'm sure this is what everyone's really excited to hear about. And I know that Clideo is a is a preceded company, but if you could talk to us from the perspective of like, I don't know proceed through a That'll be lovely.
Yeah. So how to find investors, my favorite thing to tell people about how to raise money is make a list of every rich person, you know, and then ask them for money. And if they give you money, you have money, right? And if they don't, then you got to make a longer list. And so and, you know, often the pushback is, well, I don't know any rich people. And it's like, well, I mean, one, if you're talking to me, I'm not rich in like, the global sense. Sure, but not at all in a literal sense. But, you know, I run a fund, so I have money to invest, right? So you found me, you can find other people and then to, you know, this isn't again, your best friend, the person you grew up with your aunt, your uncle, most friends and family round, do not have very many family members, right? And it's not your best friends. It's, Hey, remember that Professor, you know, that adjunct professor at your university who taught intro to real estate because he was a successful real estate developer, right? Remember, you know, the girl that you went to school with, who went on to like, invent, post it and now she has some money and you weren't close, but like you still like her Instagram photos, right? Like, it's a very loose ties thing. Again, like LinkedIn, social media, your best friend here, like, follow people, like stay active, right. And it doesn't mean you have to post all the time. But if you keep a robust network, you can see who's spent COVID on a yacht, and you can see who just got promoted. And those are people to go to and say, Hey, you know, we'd love to talk to you, right? So so there is a list making part of this. And this kind of gets into how to run a process as well. There's a list making part of this. I get inbounds all the time. Anyone can pitch us at Clio. cop.com. Yes, that will be in the links. But you know, I get in moms all the time because I am consistently raising my hand online and being included in Roundup. So hey, you're a pre seed investors to pitch right here a pre seed investors pitch I post every month about that on LinkedIn, and Twitter, you know, and, and so and so do a lot of my colleagues. So, you know, there are at the earliest stages, make a list of all the rich people you know, and then ask them, right, make a list of all the startup founders, you know, and ask them who invested in them. And, and, you know, especially as the world kind of comes back online, like go to meetups, go to things in person, and be very clear, like, Hi, I'm Sarah, I run Cleo Capital and fundraising right now, do you have any ideas or people for me to meet? Note, the SEC, that was an example not me soliciting people to invest in me, but it's illegal to do that if you're almost everything so but you guys are not on TechCrunch Disrupt. So it's fine. But so so the early stage, so the the the thing to do is to let people know, your fundraising, and then go start to find people who might be able to invest and ask people for intros. This is a great time to cash in all the favors you've earned, right? Build up over the years. And then the next thing is just do research. It's just open up Google. Let me Google that for you. Who are pre seed investors who invest in AI who invest in consumer tech who invest in thumbtack, who invest in whatever it is that you're doing, right, richest people in Omaha, why not? If you're from there, or you live there, why not? Right? So so just go out, you know, reach out to your university, if you went to college and say, Hey, you know, do you have an Entrepreneurship Center? Who are the you know, Google your university, most successful alumni cold, email them and tell them hey, I'm, you know, I have a startup, I would love to talk to you, right? Rich, people expect you to ask them for money. Ask them for money. When it comes to other things, you know, accelerators. There's all the big obvious ones, Y Combinator, TechStars apply to all of them. If I had $1, for every time I heard somebody who had not even a pitch deck yet told me that they'd only go to only do y, z. It's like, what if people only went to Harvard? Right? Like, oh, I'm only gonna go to Harvard, otherwise, I'm just not going to go to university, right? Like, no, like, go apply to lots and lots and lots and lots and lots of accelerators. The best tip I can give you about accelerators are anytime you have to fill out a long of noxious form to apply for something is save every answer in a Google Doc, because over time, you won't actually have to spend that long of a time doing it because you already have all the answers and you just cut and paste, right and so so like, just do that. Pitch contests are a great way to raise a little bit of early money. I judge pitch contests all the time. Most of the people who enter them are not that great, because a lot of times like founders who are a little bit further along think it's beneath them. $30,000 for free is not beneath anybody. I guarantee if I walked up to Jeff Bezos right now and said, Jeff, here's $30,000. Free he built Okay, I'm not going to turn that down. You know,
I will also take $30,000. If anyone's offering that any interest add Alex on Twitter? Yeah, you can feel free to send a check on now I know you're going to talk a little bit about running the process. But I wanted to kind of loop this into a question that we had from someone earlier on, who was very curious about the international perspective about fundraising. And to me, there's a bit of a link there because in today's zoom friendly investing world, who's around you locally is a little bit less important when you're raising from professional investors. So running a process within the zoom world. How is that different from before and what should people have in mind when they're out there actually hitting the road with their their deck?
Yeah. So there are two reasons why people don't invest in countries outside of into teams that are outside of their own country. One is like a whole ugly bag. of In a phobia that I can't really fix for you. The other is that every startup lawyer, every tech lawyer in America can recite Delaware law and California law to you by heart, because that is where 90% of the companies they have to deal with were incorporated in Delaware, and disputes have to be resolved in California. Now, when you go to another state, or another country, and they're like, oh, IP, we don't we don't have IP protection here. Oh, we don't we don't we don't do that. No, actually, if you had, you know, a date wrong on that one document, then you can sue somebody for billions of dollars, or you can you can actually be in prison, whatever it is, right. So the biggest reason increasingly now in this very global world, that investors are going to be incredibly hesitant to wire money to bank accounts, not in the US is because legally, they might not be able to get the okay from their lawyers to do that. Or they have to go, especially if they're an angel investor, earlier stage, you know, smaller fund, they might have to go pay a lawyer $20,000 for $100,000 investment to tell them if they can actually do it. And that is a cost of capital, that's just too expensive. And so if there's a reason you need to be based in another country, right? If you're doing something, you know, you see this sometimes in crypto, where it's like, oh, we're in Malta, because we can't do this legally in America. Okay, great, go do that. But if you can be a US based entity, and you want to raise from the US long term, there's a couple countries where it's a little bit easier. Singapore, Singapore, Canada are two examples where the laws are pretty similar, but it's still harder. And the other thing is, every four years, we have a different person at 1600, Pennsylvania, that's the White House in America, who can decide who we can and can't trade with or what we can and can't do with other countries. And and so in the same thing happens on the other side. So it's not just laziness on VC parts. It's often real material questions that we have to answer because we go and raise money from people. And if we mess up, and we give a bunch of money to a company that becomes You know, this next juggernaut trillion dollar company, but oopsie, you know, it's actually based in a country that says, No, you can't take any of the money out of the country ever return it to your investors, we will also never work again and not like the good way like we're rich, we mean, like people will never give us money again, it will be poor. So and it's literally my job. I'm a capitalist, a venture capitalist. It's literally my job to not be poor.
Yes. If you were, if you're a VC for a while, and you're poor, you're probably not the world's best VC. So anyways, Sara, can we dance through a couple of questions that are more tactical from the audience? Okay, so I love this one, I think you should have the answer for it. I have an LLC in Delaware. Don't boo, give me give me a second. Can I can I transform that into a C Corp? That's the question.
You can do it as soon as possible, because it's a huge pain. And the longer you wait, the harder and more expensive it is to do it, literally depending on the intricacies you need. I am not a lawyer, that depending on the intricacies, you literally might just end up kind of abandoning that LLC and starting from scratch with a C Corp. But do it as soon as possible, particularly if it's before you fundraise. Do it, do it, do it, you will not regret it because it's just incredibly hard. Functionally impossible to raise money from institutional VCs if you're not a C Corp.
Got it. Another one here. Were a three year old startup run by a solo founder contemplating bringing on a marketing head slash co founder how to decide equity. This is a famous question that everyone loves to talk about. Maybe just general tips for breaking up equity between founders would be best.
Yes, equity is relatively easy, because it is a math problem. Everybody invests into equity you're like, but I'm this little founder, I own 100% of the company. That's just because you don't have investors. Yet, once you have investors, they will make you put 20 to 30% in an options pool for future employees. So if you're a single co founder, you're now down to let's call it 75%. And then they're going to want to buy on average quality 20%, around that you're going to be selling that gets diluted primarily out of your equity. And so if you're thinking about bringing it in, and by the way, they're going to tell you that your equity is actually vesting, you know, and they might give you credit for some of those three years of vesting, but in general, they want you to have to stick around. So your equity is probably going to start vesting over three to four years. So if you bring on a co founder, any employee, their equity is also going to vest we'll call it over four years, usually with a one year cliff, which means you have to work 366 days to get the first 25% of equity and then it invest monthly after that. And so with that co founder, right, they are going to be investing and so are you how much should you give them? Probably not half, but also probably, you know, if it's under 10%, then as an investor, I would say, I'm not really sure how much you value this person, right? So So, you know, between 50 and 10, there's there are about 40 points of equity there. And so it's just really kind of understanding, you know, how valuable Do you They are and it's perfectly fine to to they're investing into it. So if they only work for you for six months or a year or two years, like, you're not losing that much equity, right, you're losing equity at a rate that should be commensurate to the value they bring in. And if they don't bring in any value after two years, then you should actually have a much more serious conversation with yourself about why you let that happen for two years than the equity they have.
I agree with all of that, and was very succinctly put 10 points as the only answer to that question I've ever heard. That wasn't bad. Thank you, Sarah. A couple more quick ones here. A VC speaker earlier today, you mentioned quote, don't send your pitch deck in an email because the VC will make a decision before even meeting you. What's your take on that?
So um, we we look at decks before we take meetings. I have the same amount of hours in the day as Beyonce on and she and I both need a lot of beauty sleep. So like I can't be on back to back falls all day with people when I have no idea what they do. Hey, Sarah, would love to chat with you. You know, I've been following you for a while building something really cool in the creator space with defy. Here's my calendly
Yeah, cool. Good job.
You ever calendly like Brad's I too love Kobe. Right? But like, the reality is that I need to know what you're doing. Right. And and so, you know, do you need to send me like, you know, reams of data? No, do I want to see, you know, again, my 10 slide pitch deck? Do I want to see a few slides understand who you are, you know what you're building? Do you have a space for it. Also, by the way, if I just wrote a check into something that is almost identical to it, right? If you're launching a cameo competitor, it's just a direct cameo competitor, and you somehow didn't notice I was an investor in cameo, then that's a hugely wasted amount of time, because we get on the call and you're like, Hey, we're cameo, but it's better. And I'm like, cool. I'm an investor in cameo noble, I don't want to talk to you. And I'm like, Why don't want to talk to you. All of this could have been avoided with like a five or 10 slide pitch deck that you send over. And I look at it, and then I tell you, right, and and this isn't like some game of keep away. This isn't some trick you're playing. It's like, what's your elevator pitch? Tell me what you do. Tell me who you are and what you do. And like two paragraphs in the email, and then like a five to 10 slide attached deck. And I should be able to decide if I want a meeting or not.
So I'm pretty sure you just answered this question, but it just came in. So I'm going to go out and throw it at you anyways. Do you recommend sending a two or three page teaser instead of the full deck and an initial email?
I mean, so literally, if I'm taking you at your word, if a deck has an intro slide and an end slide, and it's a two page teaser, then like this is a sandwich with no meat, right? nothing in it. This is a nothing burger. I would like a grilled cheese, send me a grilled cheese. And then when we sit down, I want a club sandwich at eating carbs breads on my mind.
Yeah, I'm also very hungry right now. So this is actually this is perfect for me, I would kill for a really good grilled cheese. It was in tomato soup on the side, it'd be delightful. Um, so another question. We have been changing our decks to cater to what we think the firms want to see and know do VCs compare notes on pitch decks? And is there any concern of having different versions?
No have any versions you want? VCs? We are a board petty group of people, but we're not that bored and petty? Like No, no. Oh my god, did you see what she put on her fifth slide? No, that's not what she put on the fifth slide to me. Wow. Like, no one's got time for that. What I will say though, is when you think about why your version controlling or a B testing, like have a reason to do it, right? If you're spending tons of time, like making new versions of your doctors to do it. Like especially at the pre seed, you're probably over optimizing. Right? The big questions are, are people excited? Are people taking the meeting? Are people you know, wanting a second meeting are much more interesting than like, you know, should we spend hours every night tweaking the deck so that it says like, sometimes I'll get decks that like in the example page, they'll say like, you know, the like do a mock up that's like Cleo Capital and like this is a terrible use of your time.
So, Sarah, we only have six minutes, I'm going to kind of jump into a couple more of these two questions about accelerators that have come in. One is when are you too large to join an accelerator in your view? And then another one, I'm just gonna read this one. Do you recommend joining an accelerator for a startup that has an MVP and is at a market ready stage?
Let's play my favorite game called Open your banking app. How much money is in your bank account? Do you need $100,000? That's on average, what accelerators give you? If you need $100,000 and you get into an accelerator, you should take it also did you get into an accelerator? It's okay, I'm single and I do this on dating apps all the time. I'll be like reading a guy's profile and I'll like Oh, he knows a friend of mine. I'll text a friend. I'm like, What do you think about this guy? The guy hasn't even swiped yes on me yet. We haven't even matched we haven't even talked right but I need to know if he is gluten free. What does that mean for our wedding cake? Right? Like let's slow our roll a little bit. any single guys listening? I'm not actually This crazy, but let's slow our roll a bit, right and say, Okay, um, if you've been doing a good job of like putting all your answers every time you have to put answers somewhere, but you always have to for company stuff. In a Word doc in a Google Doc, it takes you 10 minutes to fill out an application, right? If you get really good at doing the video application part, and you can even like reuse that, then like you're really really like, onto something, right? And so why not take 10 minutes, right? There's an entire genre, I don't know if this still happens. But there used to be an entire genre of startup founders who were like, you know, I got into Harvard Business School, but I didn't go because I wanted to launch my company. Who knows why they didn't go, right. But it cost you what, like 50 bucks to apply, and then you get in. And then you can always say that you got in, right. And so to some extent, and research shows that getting into Harvard, you're likely to have the same outcomes in life is actually attending whether or not you attend, but that's a whole separate thing about class and access in America. And we only have four minutes. So the reality is that, you know, if you are thinking about an accelerator, apply, get in. And then if you have enough money in the bank that you don't want to go then don't go, right. If you don't have enough money in the bank, and you get in, you should go if you don't apply, you can't get in and then you don't have that optionality and we love optionality.
Amen to that. I know the answer to this one, but I'm just gonna throw it to you anyways, because I want you to say it. Are you saying that we should not approach VCs who have investments in the same or similar space?
It's, there's a question around this, right. If it's like an accelerator, like a really spray and pray model, it probably doesn't matter. If they're on the board of x company, and you are doing exactly x, but you think it is better, they are likely not a great fit, right? For all the obvious reasons. It doesn't hurt again, because you've done such a great job of prepping your materials and you're ready to go at a moment's notice. You have your blurb, you have your link to your deck, it doesn't hurt to ping them. But if you know that they're in something competitive, then I would explicitly say in the email, you know, by the way, I saw your an X, let us know if that's too competitive. But you don't even really have to say that because they know what they're in, right? most part. So if they're the partner on a deal, they're gonna say, Oh, this is too competitive, or, you know, actually, that was like a partner who left and like, we don't even have the board seat anymore. You know, we haven't invested in the last three rounds. It's it's sold last year, you know, it's kind of out of our hair. Sure, we can take the meeting.
Okay, and then we only have a couple minutes, I'm going to throw in a couple of mine that I wanted to that I wanted to know the answer to, which is one is about safes and well safe. If you don't know it's a simple agreement for future equity, a very popular way that people have been raising pre seed and seed capital. My question for you, sir, is are safe as standard as they felt maybe like 12 months ago, and Is that still the most common way that seed and breezy companies are raising money today?
Yeah, safes are easy. The reason safes are better is because a convertible note which is functionally the same thing as a safe, a convertible note says, Hey, I'm giving you have a very low interest loan like basically a prime like basically a free loan, you know, for called $100,000, whatever the investment amount is, and then in two years, it either converts to equity when you raise a round of equity financing, like a series a or a proper seed round, or, you know, you owe me interest in technically after paying me back. And the reality is, nobody really pays back convertible notes. You can but but generally speaking, which is a tolling problem, but that's an investor problem, not a huge problem. In general, nobody expects you to pay the note back, you either go out of business, and that two years, and there's no money and there's nothing to pay back, or you you you raise more money. The problem is, if the note gets a little bit longer past the maturation date, then you actually have to go and do some legal paperwork, so that it's like to extend the note and it's just a pain. And then for investors, we have to chase it down, safes are a lot easier. Y Combinator sees a lot more deals than almost anybody else in the world at the early stage. And so in general, if they put out a financing Doc, it's because it's going to make their lives easier and more streamlined. And the reason why you care about making investor's lives easier, and more streamlined, is happy, lazy, VCs are lazy, we're happy when we don't have to work hard, and we don't have to work hard, we're more likely to give you money.
And that's also true by journalists and covering your company, by the way, so just keep that in mind. I'm going to shut up and give the last question to our friends in the audience. I like this question. So how important are stories indexed to you and your decision making? You mentioned earlier that numbers are important and not the song and dance?
Um, so all the time all the time all the time, my business partner and I will be looking to pitch decks together and one of us will say we have seen this company before and the other will say No, we haven't we'll say yes, I remember this story. No, just somebody else. There's like 1000 billion people in the world. So no matter how unique The reason that you started building a dry cleaner for your dog's closes, there's someone else with the same story, right? And so you know, it's not bad, but it's certainly not the differentiator that I think people think it is. I want to understand where you're going to succeed a lot more than your backstory.
Got it. Sarah, we are right at time, I have to say this was incredibly both informative and entertaining. And I've had a delightful time. And I want to thank you from behalf of TechCrunch. We're coming on, and people want to find you. What's the best way to do so.
At Sarah Kunst, and at Clio cap on Instagram, Twitter, and my favorite LinkedIn.
I think I think if you don't picture on LinkedIn, you're making a mistake, given how much he's interested today. I'm sorry. Thank you for your time. I'll see you on the Twitter's and everyone else. Thank you for your questions. We'll be back. Bye. Thanks, guys.
