Cap Table Red Flags: AI Rewriting Startup Investing, SaaS, Solopreneurs, Founder Splits & Vesting

[00:00:00 -> 00:00:04] and i think most people now are pretty familiar with this because most lawyers will encourage us [00:00:04 -> 00:00:09] and do it but every once in a while we see deals no i would say even every cohort when we teach it [00:00:09 -> 00:00:14] someone says oh i didn't do this yeah oh yeah there is well our cohorts can be 30 people so [00:00:14 -> 00:00:19] yeah five or six of them five out of the 30 companies have no founder no founder vesting [00:00:19 -> 00:00:23] and that's that's horrible because if you assign that to your co-founder or to three co-founders [00:00:23 -> 00:00:29] one of them takes off and they're sat they're holding 25 a third or half of your company [00:00:29 -> 00:00:59] without doing any daily operations what's up founders we are back welcome back to the startup [00:00:59 -> 00:01:05] ignition podcast i'm your host tyler richards this is john richards over here it's just me and my dad [00:01:05 -> 00:01:13] today we have no guest uh no fluff uh we just want to give to some startup truths and talk about a [00:01:13 -> 00:01:18] couple of topics that we've been seeing as kind of things we've talked to other teams about seen come [00:01:18 -> 00:01:23] up in our daily conversations whether that be pitching or mentoring or advising or whatever [00:01:23 -> 00:01:27] we're doing in our weekly and daily conversations we're seeing some trends and we have a couple of [00:01:27 -> 00:01:33] cool topics that we want to talk about today but first before we do it just to give you a maybe a [00:01:33 -> 00:01:38] little bit of a time stamp and let john speak for a second we just it's it was the day after master [00:01:38 -> 00:01:45] sunday did you watch the rest of the masters yes you did did you watch rory basically implode and then [00:01:45 -> 00:01:50] come back and then win everything again and then do back-to-back wins at the masters which is super [00:01:50 -> 00:01:55] rare so that was a cool moment to see the fourth person history to do it yeah and we were huge [00:01:55 -> 00:02:00] golfers we love we're not great golfers but we like to golf uh i'm a pretty high handicap and my [00:02:00 -> 00:02:05] dad's a high handicap but we like to golf and we like and really enjoy watching the masters which is [00:02:05 -> 00:02:11] a cool time um so rory won his second jacket congrats to rory that was fun i like to see scotty [00:02:11 -> 00:02:15] sheffler come back up up the ranks he was down at the beginning had a horrible first round and then [00:02:15 -> 00:02:19] worked his way back to i think he got second i can't remember but i think he was even second [00:02:19 -> 00:02:24] scotty's one of my favorite golfers but also in other recent news just again to time stamp this [00:02:24 -> 00:02:30] episode it might reveal how much we actually delay that the the episodes there's so many new things [00:02:30 -> 00:02:37] happening in ai and i i i kind of wanted to kick off the episode with what my dad and i are seeing [00:02:37 -> 00:02:43] with all the recent updates in ai we have been seeing so much progress being built and maybe we [00:02:43 -> 00:02:49] save this for a little bit later in our discussion in in the podcast but i just feel like ai is changing [00:02:49 -> 00:02:54] everything with startups i was at a at the gym last week with a friend and we were having a [00:02:54 -> 00:02:59] conversation about how it's impacting what sass is and i know that you're under the belief that sass is [00:02:59 -> 00:03:05] still not dead but i still think it's making its way it's really creeping into even what we do [00:03:05 -> 00:03:10] internally at startup ignition and the products that we're building and what we're seeing teams that are [00:03:10 -> 00:03:14] what they're able to accomplish and i i don't know i i don't know if you have any thoughts on it but [00:03:14 -> 00:03:20] every single pitch that i'm seeing like my instant reaction is oh my gosh like we that could be built [00:03:20 -> 00:03:25] in a weekend with you know the tools at everybody's disposal i don't know if you're still feeling that [00:03:25 -> 00:03:31] way yeah but that's not all that a sass company is right sass company is expertise and service and [00:03:31 -> 00:03:37] product that you know you know if you're a golf course you're not gonna have somebody at your [00:03:37 -> 00:03:41] golf course building a software for the whole golf course to run the point of sale inventory [00:03:41 -> 00:03:48] and all that you gotta have the devil's advocate we are going to start seeing tech companies build [00:03:48 -> 00:03:56] internal tools that are analytical or data driven that are just whipped up in a day or two how is the [00:03:56 -> 00:04:02] counter person in the pro shop going to look up a member and how much credit they have from winning [00:04:02 -> 00:04:08] tournaments and what they can spend at it and what they can do in terms of sign up for foursomes and [00:04:08 -> 00:04:12] and buying stuff and then food and beverage and how much credit they have left on there i mean [00:04:12 -> 00:04:17] there's so many things about companies and what runs you have to have a piece of software built by [00:04:17 -> 00:04:22] an expert company that focuses and makes a piece of software that thousands of golf courses can run on [00:04:22 -> 00:04:28] you can't have 25 000 golf courses each with an ai expert person making their own custom software and [00:04:28 -> 00:04:33] that's not efficient for that market and think of this think of the security breach on all that too [00:04:33 -> 00:04:38] yeah of course coders and software companies are going to be building product cheaper and faster than [00:04:38 -> 00:04:44] ever yeah but that doesn't mean golf courses are not in the business of creating software they're in [00:04:44 -> 00:04:49] the business of running a golf course yeah i guess i i guess i was just saying that it really does [00:04:49 -> 00:04:55] diminish the value of a product a little bit though like you know five years ago three years ago when [00:04:55 -> 00:04:59] a team came to us with a full-fledged built product that was working in a lot of bugs and kinks were [00:04:59 -> 00:05:03] worked out like that was pretty valuable i just don't know how valuable there's still a lot of bugs [00:05:03 -> 00:05:08] that have to be worked out by a good team when you whip up something in vibe coding i'm just saying [00:05:08 -> 00:05:13] that the putting out a software product and having a complete company that can take care of [00:05:13 -> 00:05:20] 2 000 concurrent golf course customers that's a company that needs much more than just being able to [00:05:20 -> 00:05:26] whip out features and does the market matter does the customer matter like the user so for example in [00:05:26 -> 00:05:33] your example of golf's core golf course management software yeah sure a golf course pro or manager is [00:05:33 -> 00:05:38] not going to whip up something on his cell with himself but will a tech company you know instead [00:05:38 -> 00:05:44] of buying a sass say i can build that i can do that and internalize that myself i can take my dev [00:05:44 -> 00:05:50] teams 10 of my dev team's time and dedicate it to that rather than spending two five thousand dollars [00:05:50 -> 00:05:58] a month and who you know who i don't what dev team so i i'm saying the customer so you're saying [00:05:58 -> 00:06:04] the customer and your example is a golf course yeah so my customer what if it's a sass company selling [00:06:04 -> 00:06:11] to other sass or tech companies that are already very tech oriented that have developers on staff that [00:06:11 -> 00:06:16] you mean like you're talking about a big company like divvy or podium here in utah that they would [00:06:16 -> 00:06:22] just whip up all their so like let's say they need something to calculate commissions yeah would [00:06:22 -> 00:06:28] the company spiff which sold for 400 million dollars to salesforce yeah would would they build their [00:06:28 -> 00:06:35] own custom yeah yeah yeah and they might but so are they going to be able to take care of all the [00:06:35 -> 00:06:40] systems and make sure it's right and accurate that's that one might be but i i think it's again [00:06:40 -> 00:06:47] horizontal maybe will be threatened yeah but highly verticalized no i don't think so yeah but i do [00:06:47 -> 00:06:52] think it's it's market dependent too i think it's because that what you're saying is the more [00:06:52 -> 00:07:00] horizontal and needed the maybe that is but i like i use the golf course or just a plumber or you know [00:07:00 -> 00:07:05] is a you know whatever software i'm using to run my plumbing contracting business maybe i use [00:07:05 -> 00:07:09] six different pieces of software yeah am i going to build all those and not buy those software [00:07:09 -> 00:07:14] is that really going to happen i don't think so not for a long long time and what why would a plumber [00:07:14 -> 00:07:19] want to do that a plumber makes tons of money by going into people's homes and businesses and fixing [00:07:19 -> 00:07:24] their plumbing yeah so so a lot of these ai i'm just saying i guess my whole point of bring this up [00:07:24 -> 00:07:29] before we even get into the podcast was just about ai is it's amazing it's impacting a lot and even [00:07:29 -> 00:07:36] there i don't know if you saw this video online either but uh open ai um just created a new voice ai [00:07:36 -> 00:07:44] as well that can mimic a voice within 15 seconds of video so like people are taking people's voices [00:07:44 -> 00:07:51] mimicking it just from any kind of clip and it's just you know people could i guess founders utilize [00:07:51 -> 00:07:58] that to call venture funds or call prospects themselves and task them to do that all day around [00:07:58 -> 00:08:02] the clock all day so i'm just saying there is a lot of ai technology that's coming out that is [00:08:02 -> 00:08:09] impacting startup life i i'm just wondering at what point are we going to teeter over to oh my gosh [00:08:09 -> 00:08:15] the sass world the tech sass startup world is really going to be replaced i think this is all in its [00:08:15 -> 00:08:22] infancy though because i also just saw over the weekend that you know sora which was open ai's [00:08:22 -> 00:08:26] video they just shut it the whole thing down oh they did oh yeah i saw that actually yeah the whole [00:08:26 -> 00:08:32] thing shut down so literally you're going what the heck because when it came out it was revolutionized [00:08:32 -> 00:08:36] everything right and they just literally shut the whole thing down and they found out here's the [00:08:36 -> 00:08:42] problem they were spending 15 million dollars a day for people making goofy videos yeah negative [00:08:42 -> 00:08:48] cash flow yeah so i mean 15 a million a day and so they just shut the whole thing down and so that's [00:08:48 -> 00:08:54] what happens when you raise however many billions they've raised a lot of ai companies mark my words [00:08:54 -> 00:09:01] here a little bit are sustaining themselves from venture and investor money not through profitable [00:09:01 -> 00:09:06] offerings right so right now the question i'm wondering is are these llms and these core [00:09:06 -> 00:09:13] ai products artificially low cost right now for their use of tokens and they're going to go up [00:09:13 -> 00:09:19] dramatically capture users yeah it would the minute they have to be profitable on a p l statement [00:09:19 -> 00:09:24] versus just spending investor money oh my gosh i mean and we are all going to be so hooked [00:09:24 -> 00:09:31] that are we going to pay orders of magnitude more for that now we are we just last week we upgraded all [00:09:31 -> 00:09:37] of our accounts on every single thing yeah we're like even to us internally at startup ignition would [00:09:37 -> 00:09:44] we rather hire someone who is a video editor or someone who is doing calculations or doing analysis [00:09:44 -> 00:09:49] or are we going to pay 200 bucks for quad code yeah so in other words it was this we were loving it at [00:09:49 -> 00:09:55] 20 a month but now that they're saying you don't get this much features or you don't get that much [00:09:55 -> 00:10:00] capacity or tokens and we're saying man with our usage dependency even at 200 a month though which [00:10:00 -> 00:10:05] is a huge 10x increase to them in revenue we're sitting here saying well that's a few thousand [00:10:05 -> 00:10:11] dollars a year compared to an employee that cost 80 to 120 right exactly yeah exactly exactly so this [00:10:11 -> 00:10:16] is a it's an amazing time and what we've seen tyler you and i uh running a venture fund and running [00:10:16 -> 00:10:22] our boot camp and everything it's fascinating since december of 2025 and it's now april of 2026 [00:10:22 -> 00:10:31] it's the impact of ai i believe has gone up 10x yeah it has yeah just the year of 2026 yeah yeah and [00:10:31 -> 00:10:40] and in in but that does not mean that sass and software companies are not going to be valuable a lot [00:10:40 -> 00:10:44] of people to some of the smartest investors in the world have recently put out incredible white papers [00:10:44 -> 00:10:49] and articles that they think sass is going to be better and bigger than ever but is it going to [00:10:49 -> 00:10:54] morph and change yes yeah okay but gun to your head and then we can close this conversation gun to your [00:10:54 -> 00:11:00] head how far away do you think we are because i think you can even see it even though you're saying [00:11:00 -> 00:11:05] sass is not dead i think you can see the point at which sass will be dead where i do have you not [00:11:05 -> 00:11:12] seen it all the yc companies right now what yc's mandate is for is for custom personalized software [00:11:12 -> 00:11:17] so what happens is is you're building out your platform but code is so easy to build that they [00:11:17 -> 00:11:23] build to one-on-one users so they say after time the analytics say you're using this feature more [00:11:23 -> 00:11:27] you need this to be built out for more for your workflows and they're automatically building out [00:11:27 -> 00:11:35] one-on-one versions off of the code base for individual users okay so they say that's the future [00:11:35 -> 00:11:40] so gun to my head when is ignoring it's ignoring the re i don't know if there's a tipping point [00:11:40 -> 00:11:46] it's ignoring the reality of the physical world in other words i'm going to use since we start off with [00:11:46 -> 00:11:54] the masters today i'm going to go on golf courses again a golf course it does not exist in a virtual [00:11:54 -> 00:12:00] world you cannot make that business run any faster or change that business in the physical world it is [00:12:00 -> 00:12:09] what it is yeah okay so also it's not efficient if all 25 000 golf courses in the world had their own [00:12:09 -> 00:12:15] piece of custom software written just for their specific needs yeah because the industry will be [00:12:15 -> 00:12:20] hindered and hurt by that you want people that have been in the golf industry to be able to move [00:12:20 -> 00:12:25] from golf course to golf course from golf company to golf company and have some familiarity with a common [00:12:25 -> 00:12:30] language we talk all the time about the beautiful thing that lean startup has brought to the [00:12:30 -> 00:12:35] entrepreneurial world is a common language that we can all understand the same thing and what what a [00:12:35 -> 00:12:44] word or a piece of data means right this is really important and if everybody was running on on their [00:12:44 -> 00:12:50] all 25 000 golf course in the world were running on their own custom piece of software built just for [00:12:50 -> 00:12:56] them by them the industry is not going to be able to have people move about in the industry and they [00:12:56 -> 00:13:02] won't have a common language the whole industry were inefficient what do we call this oh at my golf [00:13:02 -> 00:13:06] course where i just came from we called it this why do you call it that that doesn't make sense you [00:13:06 -> 00:13:11] know i mean and we stored our data this way and this is how we did and process things the the ability to [00:13:11 -> 00:13:16] have one or two big leaders for vertical sas software that creates kind of a standard for the way [00:13:16 -> 00:13:22] companies operate so that uh the industry can be efficient i just have questions on how inefficient [00:13:22 -> 00:13:29] 25 000 different custom pieces of software to run the golf industry will really be well that's my [00:13:29 -> 00:13:33] that's a big question and maybe i'm not smart enough to understand it but i just i i know what [00:13:33 -> 00:13:38] it's like to and i've you've heard me say this to so many people over the years tyler is that your [00:13:38 -> 00:13:45] software to run a verticalized business has to be easy enough and common enough for the lowest paid [00:13:45 -> 00:13:51] worker at that in business to run so for instance think of the person who makes 12 an hour working at a [00:13:51 -> 00:13:57] golf course or 15 an hour that is a very low level worker at that golf course but they've got to [00:13:57 -> 00:14:03] interface with a mobile an ipad or a pc or laptop somewhere on a piece of software and it's totally [00:14:03 -> 00:14:07] custom and they've got to learn it and then when they go to the next place they work at it's totally [00:14:07 -> 00:14:11] new and different again and they're gonna go this is crap my last one was better and they're gonna [00:14:11 -> 00:14:16] complain about their new company because their software sucks yeah and that's not good for an [00:14:16 -> 00:14:21] industry that's all i'm saying yeah so imagine that happening already in the sas world right where a [00:14:21 -> 00:14:28] company employees moving from you know hubspot to salesforce as they switch jobs right yeah now [00:14:28 -> 00:14:33] imagine that 100x right that happening all the time that many different pieces of software so it's [00:14:33 -> 00:14:38] not just hubspot or salesforce it's hubspot salesforce and 200 other custom built things [00:14:38 -> 00:14:44] that new employee who is a onboarding specialist or sales pro or whatever has to go and relearn every [00:14:44 -> 00:14:49] yeah it's just yeah so there there's issues there that are how that's gonna happen i think it has to [00:14:49 -> 00:14:54] do with the practical real world i mean that's just an interesting thing we'll see where it comes down [00:14:54 -> 00:14:59] to but i i i'm did you answer my question though what's what's the time i i don't i don't see a time [00:14:59 -> 00:15:08] right now i lean towards the fact that elements of sas software will change but the core offering and [00:15:08 -> 00:15:13] purpose of having software as a service i don't know if it will change yeah so maybe that i can boil this [00:15:13 -> 00:15:19] down to and it comes through a conversation we had and you were actually out last week and i had this [00:15:19 -> 00:15:23] conversation with one of our top prospects that we want to invest in in the venture fund and i had a [00:15:23 -> 00:15:28] phone call with him and i just said you know what we're close to investing in you we really like your [00:15:28 -> 00:15:33] opportunity we really like your market we like your product but i think it's just unfortunate timing [00:15:33 -> 00:15:41] for you to be in this era of ai and product building and sas where product is so easy it's [00:15:41 -> 00:15:46] not a moat anymore it's not something you can show on a silver platter to a vc and say look what i [00:15:46 -> 00:15:50] built that that's not that's nothing that's one out of a hundred how many customers do you have [00:15:50 -> 00:15:56] using it yeah and so that's what i had i broke him the news and i said look really what it's about [00:15:56 -> 00:16:00] is we love your product and we see the problem that is solution that and the solution you're bringing [00:16:00 -> 00:16:06] to that problem but the issue is you need more customers your pipeline show me your full pipeline [00:16:06 -> 00:16:11] show me show me who's paying show me how many customers are paying what they're what the revenues [00:16:11 -> 00:16:16] you're making from them on a monthly scale right you need to 10x what you have right now and then [00:16:16 -> 00:16:21] that becomes investable so the product is not the investable thing anymore it's now who's the customer [00:16:21 -> 00:16:26] in the market and what's the demand you're getting and and showing it in in dollars so all right that [00:16:26 -> 00:16:31] was a long conversation for just uh talking about the recent news in ai but we get we get passionate [00:16:31 -> 00:16:35] about it because this is our job this is our career we're in the trenches of this every single day we [00:16:35 -> 00:16:39] talk to software company tech companies every single day we're tech investors software investors [00:16:39 -> 00:16:44] three to six a day every day yep and it we're we're just in the thick of it so we're very opinionated on [00:16:44 -> 00:16:49] it okay i was going to do an icebreaker um and just with me and you and i i thought it was going to [00:16:49 -> 00:16:53] be a good one but maybe we could skip it but or or give it a little bit of time and attention [00:16:53 -> 00:16:58] give it a little time okay they like icebreakers okay so what i'm doing is overhyped or underhyped [00:16:58 -> 00:17:04] i i do feel like 20 piggybacking off of this ai conversation i do feel like 2026 has been like [00:17:04 -> 00:17:09] the overhyping and underhyping like era like everything is so overhyped and everything is so [00:17:09 -> 00:17:14] underhyped and it's just like everybody doesn't know what to pay time and attention to okay go for [00:17:14 -> 00:17:19] it and so i got a couple of things here um that i'm gonna read off to you and i want you to tell me [00:17:19 -> 00:17:26] with as much words as you want this is not a quick action or reaction thing it's just what do you feel [00:17:26 -> 00:17:37] is this overhyped or underhyped okay all right ai co-founders is the ai cto a real thing or is it just [00:17:37 -> 00:17:44] like people jumping on social media and trying to overhype this ai building process and vibe coding [00:17:44 -> 00:17:51] overhyped i 100 agree people are going on to social media and saying i have an ai co-founder [00:17:51 -> 00:17:56] and i think that is complete bogus and completely overhyped ai is a tool just like all other tools [00:17:56 -> 00:18:03] that come before it that humans use to do cool things okay now that i agree with you overhyped [00:18:03 -> 00:18:12] or underhyped now the flip side of this solopreneurs that are scaling to seven figures or more on their [00:18:12 -> 00:18:18] own is that overhyped is that is that a reality that a solo entrepreneur can really get to those [00:18:18 -> 00:18:22] revenues build that kind of value on their own i don't know if it's overhyped or underhyped but i [00:18:22 -> 00:18:28] think it's real but it's also they're creating small businesses not scalable ventures okay so i i [00:18:28 -> 00:18:34] you can do small vent a small business is great have a one to two or three or four million dollar [00:18:34 -> 00:18:39] business then you pay yourself half a million dollars a year and you're doing fantastic that's a great thing in [00:18:39 -> 00:18:44] life but you're not going to create a scalable venture that is going to make investors a lot of [00:18:44 -> 00:18:49] money that's going to be sold i mean so your opinion is is that you can't really go the distance solo [00:18:49 -> 00:18:54] no you can be a small business and if you run it for 20 years make half a million dollars a year [00:18:54 -> 00:19:00] that's a great life that if you can no but i'm saying to an an acquirable exitable no startup [00:19:00 -> 00:19:08] yeah the goal of a scalable venture is for the founders to create a company where they work [00:19:08 -> 00:19:13] themselves out of a job and they have non-founders running the company so a bigger company where they [00:19:13 -> 00:19:18] replace themselves yeah and a bigger company can come buy that company keep those employees the [00:19:18 -> 00:19:22] founders don't go along with the company when they sell it obviously they do sometimes but that's not [00:19:22 -> 00:19:27] the purpose the idea is to i'm going to make a company and i'm going to get non-founders coming in [00:19:27 -> 00:19:32] and running that company i'm going to be wealthy because i own most of the stock and i'm going to [00:19:32 -> 00:19:36] sell it to a big company and it's got a complete team that knows how to run a business take care of [00:19:36 -> 00:19:42] customers and is in it for the long haul a solopreneur by definition is not very sellable because it's so [00:19:42 -> 00:19:49] dependent on the solopreneur if he's made a product that's him and the ai have custom made a product [00:19:49 -> 00:19:55] how is another human going to step in and use that and be that same thing and is and how's it going to [00:19:55 -> 00:20:01] be of any value to a big company i mean yeah so you're just you're saying that you can start a [00:20:01 -> 00:20:06] business and get to seven figures and all these influencers that are touting these one person [00:20:06 -> 00:20:12] businesses sure maybe they're doing it but it's not a true real scale i can also be a plumber yeah i [00:20:12 -> 00:20:17] could start a plumbing contracting business and get to three million dollars in revenue having four [00:20:17 -> 00:20:23] apprentice plumbers under me and a team of people a receptionist and somebody working my office and just [00:20:23 -> 00:20:28] have a great lifestyle that's called a small business lifestyle business it's not something [00:20:28 -> 00:20:33] though that you're going to sell for 10 times its revenue right if you're a solo entrepreneur and [00:20:33 -> 00:20:37] you're building up to those revenues you are responsible for those revenues yeah and it just [00:20:37 -> 00:20:43] it's impassable again this is purchasable this is back to the fundamentals of business there are [00:20:43 -> 00:20:49] different types of businesses there are small businesses lifestyle businesses social ventures [00:20:49 -> 00:20:56] scalable ventures right different types uh one to four million dollar business that you build [00:20:56 -> 00:21:02] as yourself because you're using i is a great life though having a two million dollar business [00:21:02 -> 00:21:08] that nets eight hundred thousand before paying its owner and the owner takes out six hundred thousand [00:21:08 -> 00:21:14] is two hundred thousand profit left after pay that's a great life but it's not something that [00:21:14 -> 00:21:21] you're going to sell you know for 50 or 100 million dollars right okay uh i okay yeah i agree with that [00:21:21 -> 00:21:29] i i'm on that same side of the fence okay another one underhyped or overhyped the remote only startup [00:21:29 -> 00:21:39] culture so despite the early trends in 2020 right a lot of people went remote work the 2026 data is [00:21:39 -> 00:21:43] coming back and it's showing that a lot of startups are shifting back to like a hybrid or in-person [00:21:43 -> 00:21:50] model again so now i'm not asking if the remoteness of 2020 was under overhyped i'm asking right now in [00:21:50 -> 00:21:57] 2026 is it the route shift backwards into in-person overhyped or underhyped do you think that's the trend [00:21:57 -> 00:22:04] or do you think it's not actually happening underhyped it's underhyped so you think that the in-person [00:22:04 -> 00:22:11] trend in 2026 is actually going to be bigger than it's even hyped right now it should you've seen it [00:22:11 -> 00:22:15] yourself i and you've had to kind of learn this yourself coming over the last six years of us being [00:22:15 -> 00:22:20] really intently working together is that you've seen every one of our portfolio companies that hits [00:22:20 -> 00:22:26] about 500 000 or revenue or more says all this remote stuff sucks yeah i'm getting rid of remote [00:22:26 -> 00:22:30] workers we're not going to have any remote workers the one of ours that's about one and a half million [00:22:30 -> 00:22:35] dollars in revenue now he's preaching this all over the place and he came and told us he had a great [00:22:35 -> 00:22:40] worker that was moving out of state and that that worker wanted to stay remote working for the company [00:22:40 -> 00:22:45] and he said nope we don't do that yep and he had to let him go yeah yeah and so and he and [00:22:45 -> 00:22:54] 99 plus percent of every ceo i know when they were remote and then go to saying we're not going to do [00:22:54 -> 00:23:00] remote anymore they say they get more done in 30 days than the previous year that's how i that's [00:23:00 -> 00:23:07] how the it comes it's just the way it is so um i agree i think there's going to be a huge shift [00:23:07 -> 00:23:12] towards the end of 2026 and throughout the whole year it's back into humans need to work together and [00:23:12 -> 00:23:18] be together and it's just it's the the nuances and the subtleties of the problems that creep in [00:23:18 -> 00:23:24] for remoteness are are they pile up and there's a big tax on the company from that yep okay another [00:23:24 -> 00:23:33] one overhyped or underhyped more venture firms and are running incubator incubator type styled programs [00:23:33 -> 00:23:43] like come build a company with us um but results are mixed so studio born startups um are they glorified [00:23:43 -> 00:23:49] do they have an unfair advantage do they work or do they not work so startup studios and like founder [00:23:49 -> 00:23:56] and residence programs that these vc and venture studios are popping up overhyped or underhyped [00:23:56 -> 00:24:03] i'd say slightly overhyped i agree and here here's what's important any accelerated incubator whatever [00:24:03 -> 00:24:10] we do a boot camp knowledge and education and mentorship super important it's a way to um save [00:24:10 -> 00:24:16] time don't need to repeat all the mistakes that you know i'd say 80 plus percent of the mistakes you'd [00:24:16 -> 00:24:20] make as an entrepreneur can be avoided by having a good mentor and having good knowledge and education [00:24:20 -> 00:24:28] but at the same time um it is highly dependent on who's teaching and what's going on here one of the [00:24:28 -> 00:24:34] disappointing things i've seen from many of the accelerators incubators etc where we meet with [00:24:34 -> 00:24:39] these companies coming out of them is that they're really poorly trained and educated on even the [00:24:39 -> 00:24:45] fundamental principles of business fundamental principles of lean startup and how to do validation [00:24:45 -> 00:24:53] work um they're just you ask them basic questions and i go who is teaching you you're not understanding [00:24:53 -> 00:25:00] the basics of basics and that's a problem um it's not enough just to run an accelerator and have people [00:25:00 -> 00:25:07] come into a common office and have a centralized support system they have are they really learning [00:25:07 -> 00:25:12] what they need to learn and being mentored in the way they should be mentored and i think there's a [00:25:12 -> 00:25:17] wide variance and this is i'll give my tip i love to give people if you're being accepted into an [00:25:17 -> 00:25:24] accelerator or a similar type program you need to go talk to the ceos of the last cohort and ask them [00:25:24 -> 00:25:28] if they would take that do it all over again and you'll be surprised how many times they say no [00:25:28 -> 00:25:34] i gave up equity or i spent three months or whatever and we didn't get anything out of it right [00:25:34 -> 00:25:40] right okay thanks for playing my overhyped and underhyped game and i know we're really far into this [00:25:40 -> 00:25:45] episode already but hopefully there was a lot of value there for the viewers viewers and listeners [00:25:45 -> 00:25:50] um we're very opinionated and we have a lot of methodologies and strategies that we've developed [00:25:50 -> 00:25:53] over the years obviously my dad's a little bit older than me we love to hear from people that [00:25:53 -> 00:25:59] disagree with us yeah we do write comments if you disagree we will change our minds i've i've been an [00:25:59 -> 00:26:05] educator for 25 years in entrepreneurship i loved it when i was at the university and about i can [00:26:05 -> 00:26:10] remember probably about four times in particular where i was dead wrong on something and a student [00:26:10 -> 00:26:16] corrected me and he was right and i admitted to the class and it was awesome yeah but i my point in [00:26:16 -> 00:26:22] saying that is just because a lot of this just comes from a lot of experience and pattern recognition [00:26:22 -> 00:26:26] that we've just seen over the years because we deal in such high volumes of founders and startups and [00:26:26 -> 00:26:32] investments we can you know boil that information and data down into these strategies and opinions right [00:26:32 -> 00:26:38] um but again yeah if you feel differently let us know shout it out and we would love to have a [00:26:38 -> 00:26:42] conversation if we're seeing something wrong um we're just trying to provide as much insight as [00:26:42 -> 00:26:46] some of my favorite ones of all time are remote like remote has been a huge conversation for years [00:26:46 -> 00:26:53] hasn't it is remote in yeah remember nfts yeah okay i used to lambast nfts when they were the hottest [00:26:53 -> 00:26:59] thing in the world and uh we had i had strong opinions that uh sometimes even made you cringe because i was [00:26:59 -> 00:27:05] making young guys really upset with my opinions on nfts but that's how i felt at the time yeah here we [00:27:05 -> 00:27:14] go so so today we wanted to talk about a topic that um is super crucial in the early stages and [00:27:14 -> 00:27:19] throughout the whole career of your startup the whole life cycle of a startup but we're seeing a [00:27:19 -> 00:27:26] lot of people mistreat or on uh i don't know not the word on uh i want to say they are not [00:27:26 -> 00:27:35] taking care of and building it and structuring it properly which is the idea and the whole concept [00:27:35 -> 00:27:40] around capitalization tables or cap tables as they're known and which is the underlying structure [00:27:40 -> 00:27:47] of who owns what in your startup we see so many messed up cap tables that we come across and that's [00:27:47 -> 00:27:51] the word there's clean cap tables and messed up cap tables if you're going to go raise money [00:27:51 -> 00:27:56] from a pre-seed a seed or a series a fund you have to have a clean cap table [00:27:56 -> 00:28:02] if you don't have one it needs to be cleaned up and we spend a lot of our time cleaning up messy cap [00:28:02 -> 00:28:07] tables yeah so i okay maybe we just start the conversation because that's what i wanted to [00:28:07 -> 00:28:13] have the conversation about today was about how to build a cap table how to structure a cap table [00:28:13 -> 00:28:18] what are the do's and don'ts and or maybe just what makes for a messy cap table yeah what is a good [00:28:18 -> 00:28:22] cap table and what is a messy let's go over the messy yeah because we we have we teach these [00:28:22 -> 00:28:28] concepts within our curriculum and our content and our boot camp uh we do a whole day almost on [00:28:28 -> 00:28:34] capitalization tables teaching how to structure it properly going through all the different rounds [00:28:34 -> 00:28:39] of financing and how it works and what what that looks like after let's just jump into it so let's [00:28:39 -> 00:28:45] let's number one well number one what is your number one number one 50 50 or even capital splits [00:28:45 -> 00:28:54] between founders okay the worst 50 50 25 25 25 25 25 um just to let you know we say this all the time [00:28:54 -> 00:28:59] face all the time and it's a huge mistake um uh we went through a long period where unfortunately [00:28:59 -> 00:29:05] why commenter which is an incredibly excellent organization in so many ways was preaching that [00:29:05 -> 00:29:11] founders at a startup should have even splits and i very much disagree with that at least on a lot [00:29:11 -> 00:29:16] of problems there's ways to fix it we don't have time to go in on this podcast and ways you can be [00:29:16 -> 00:29:20] creative and figure out how what percentage everybody should have but the bottom line is [00:29:20 -> 00:29:28] don't go raise money with a 50 50 or a 25 25 25 25 cap table you need to have it set up to where [00:29:28 -> 00:29:34] there's a distinct leader in the company um for instance like if i see two founders and they [00:29:34 -> 00:29:40] come to me 50 50 that's an absolute automatic no for investment if i see them come in and say [00:29:40 -> 00:29:46] it's 70 30 i go this is awesome yeah just on that one topic yeah okay and i i think that just stems [00:29:46 -> 00:29:54] from you know misalignment and resentment and you know the actual effort that's being put in on day [00:29:54 -> 00:30:00] one versus what you're you know splitting the pie on day one over time that's going to change [00:30:00 -> 00:30:06] contribution levels will be discovered over time but the the main founder the ceo whose ever ideas [00:30:06 -> 00:30:11] wherever the makeup is um we can situationally talk about lots of different things but the bottom [00:30:11 -> 00:30:19] line is is even equity splits are not the way to go and another thing that we see a lot in not only [00:30:19 -> 00:30:24] just pitches to our venture fund and to startups that we're talking to for potential investment but also [00:30:24 -> 00:30:29] within our boot camp um you know we hold a startup boot camp when we see a lot of ventures go through [00:30:29 -> 00:30:34] that program and a lot of them have another problem that relates to this 50 50 which is [00:30:34 -> 00:30:44] fixed equity issues or fixed equity given on day one without any kind of vesting schedule so yeah if [00:30:44 -> 00:30:51] you are giving out equity and allowing splitting it between co-founders and splitting that between [00:30:51 -> 00:30:58] co-founders it has to come with a vesting mechanism founder vesting uh-huh yeah and for those who don't [00:30:58 -> 00:31:04] know what founder vesting in is basically over time is that that equity is not assigned and given it is [00:31:04 -> 00:31:12] earned over time usually it's a four-year period where one quarter of that is vested each year the [00:31:12 -> 00:31:17] first year you don't get anything on a monthly basis you get it at the one year mark and then after that [00:31:17 -> 00:31:22] the remaining three-fourths of that the same vesting schedules we use on an option plan and i think most [00:31:22 -> 00:31:27] people now are pretty familiar with this because most lawyers will encourage us and do it but every once in [00:31:27 -> 00:31:33] while we see deals no i would say even every cohort when we teach it someone says oh i didn't do this [00:31:33 -> 00:31:38] yeah oh yeah there is well our courts can be 30 people so yeah five or six of them five out of the [00:31:38 -> 00:31:43] 30 companies have no founder vesting no founder vesting and that's that's horrible because if you [00:31:43 -> 00:31:47] assign that to your co-founder or to three co-founders one of them takes off and they're sat [00:31:47 -> 00:31:54] there holding 25 a third or half of your company without doing any daily operations it's it's a bad [00:31:54 -> 00:32:00] mess never ever ever never never ever ever never be involved in a startup without founder vesting [00:32:00 -> 00:32:07] right exactly all right to protect yourself and and the others so okay another thing about cap tables is [00:32:07 -> 00:32:13] uh to be careful on is when the investment world or you know whoever you're dealing with asks you to see [00:32:13 -> 00:32:19] your cap table don't just show them the outstanding or issued shares on the cap table you need to show [00:32:19 -> 00:32:23] them what we call a fully diluted or as converted cap table and what that means why don't you explain [00:32:23 -> 00:32:30] that all okay outstanding and okay so diluted so first of all let's take a c corporation in a c [00:32:30 -> 00:32:34] corporation you tell the state where you register what's the maximum number of shares you can have [00:32:34 -> 00:32:39] in the company that and if you go over that number you have to tell the state you're going to increase [00:32:39 -> 00:32:43] that number that's called authorized shares they have the authorized shares have nothing to do with [00:32:43 -> 00:32:49] actual ownership we when you have the ability to issue shares up to that authorized number when you [00:32:49 -> 00:32:55] issue shares those become what we call outstanding or issued shares and that's the true owners people [00:32:55 -> 00:33:01] that hold those are co-owners in the company and those are called issued and outstanding and so a lot [00:33:01 -> 00:33:07] of times when a bank or somebody asks you i want to see your capitalization table your list of owners [00:33:07 -> 00:33:15] and you if you only show the outstanding or issued ones and don't show what we call contingent shares [00:33:15 -> 00:33:23] shares that don't exist or are not held by anybody yet but are a potential promise in the future like [00:33:23 -> 00:33:28] options or warrants and we don't have time today to talk about all of that but they're called contingent [00:33:28 -> 00:33:33] shares if you give a cap table to an investor for instance let's say tyler and me and you say here's my [00:33:33 -> 00:33:38] cap table and we only see four people on it and we see they have outstanding shares we're going to [00:33:38 -> 00:33:44] assume that's your complete fully diluted cap table but if you sold have sold safe notes or issued [00:33:44 -> 00:33:51] convertible debt or issued options to people we want to see all of that too so in the venture and [00:33:51 -> 00:33:58] startup world we deal in fully diluted cap tables where all types of stock actual held beneficially [00:33:58 -> 00:34:05] owned stock and contingent stock which again contingent stock is safe notes that could turn [00:34:05 -> 00:34:11] into stock in the future convertible debt which could turn into actual stock and held by somebody [00:34:11 -> 00:34:18] in the future options warrants those type of things stock appreciation rights which actually don't even [00:34:18 -> 00:34:24] turn into stock but they take a piece of the liquidity event in the future so that's a contract where [00:34:24 -> 00:34:30] you've given the amount of money as if they had owned the stock if the company sells that's called [00:34:30 -> 00:34:35] the stock appreciation rights all of this needs to be disclosed to investors you are very responsible [00:34:35 -> 00:34:41] for security laws and if you tell an investor this is my cap table and it doesn't have every contingent [00:34:41 -> 00:34:49] possible ownership or share of the pie on a liquidity event issue displayed in what you've [00:34:49 -> 00:34:56] represented you're committing securities fraud and you need to really be careful with that and so a lot [00:34:56 -> 00:35:02] of times we have people that don't understand this and they misrepresent and one of the things that [00:35:02 -> 00:35:09] sometimes they're not you know knowingly misrepresenting is even um like the uh employee [00:35:09 -> 00:35:16] stock option pools yeah a lot of times uh they'll show us a full cap table and we'll think that's the cap [00:35:16 -> 00:35:21] table and then they say oh yes actually there's these shares that are saved for the the the employees [00:35:21 -> 00:35:26] the employee pool yeah or sometimes they don't even have one done you know yeah so even if you [00:35:26 -> 00:35:32] haven't granted stock options to somebody you've set aside 500 000 shares for a pool all that has [00:35:32 -> 00:35:38] to be represented on the cap table and and so quick note about that we do like to see the employee [00:35:38 -> 00:35:45] stock option pool that set aside share pool amount made before an investment is made by us right that [00:35:45 -> 00:35:51] that needs to be done and squared away yeah we don't like option pools being issued after we've [00:35:51 -> 00:35:55] yes to dilute our investment we would actually be quite upset with that yeah by the way on the [00:35:55 -> 00:36:02] option pool let's talk about that uh 10 to 20 percent of what the founders received is a good startup [00:36:02 -> 00:36:09] option pool so for instance let's say that the founders received 3.

4 million i'm using that number [00:36:09 -> 00:36:15] because i like that number 3.