How to Make Sure You Pick the Right Investors - Advice from SaaStr CEO Jason Lemkin

And if you do get in a term sheet, it will be, they'll be tricking you. Non-Silicon Valley VCs sometimes like to invest in tranches. Like they'll say, we'll give you a million today. And then if you hit a million in revenue, we'll give you another million. That sounds great. It's a ripoff because it's a one-way option. You have to take their money if you hit it at the same price as before. Like tranches are a terrible deal. If it's the only money you can get on planet Earth, then yeah, take it, but run from tranches if you can. But you can't get the opposite. You can't, you have to earn it. And so the real question isn't, can I get this in my term sheet? The real question is, do you do second and third checks? Great. And what typically speaking, what would it take to earn it? What would it take? That's the right way to ask. What would it take to earn it? Welcome everybody. We are continuing to re-kick off our Workshop Wednesdays after SaaStr Annual. So this week we're going to do a very niche topic. But then we'll take questions on VC financing, bootstrapping, and there's almost, there is a surplus of content on venture capital on social media, mainly because a subset of VCs are, are so active and sharing so much. And I think it's great. When I was a founder the first time, there was no content on venture capital. It was all a ripoff industry. And it is great to have a lot of transparency, but everyone, if I could give you one bit of advice from the content from VCs, It's that everybody's talking their game from the earliest stage folks, which I love, like YC, to the latest growth stage folks, like great ones like Vista or Iconiq, incredible content, incredible advice, great stuff. But everyone's talking their game. They're all biased from pre-seed to B to C to IPO. So I put together this list a little while back and then wanted to do it live and we can talk about it. Some hard-earned lessons on an 8-part test to identify bad investors before signing a term sheet because people get this wrong. Founders get this wrong. Founders think their guts tell them what a good investor is over the long run, but I've found over the years their guts are generally wrong. Most founders have a lot of life experience with their products, with some, with their industry, with selling, but you just don't have a lot of life experience meeting investors and venture capitalists. And so people make decisions based on guts, based on celebrity, based on vibes, and that's all fine, but it's not enough. It's not enough. Because if nothing else, you're literally just trying to get a little bit of capital into your startup. And we forget that our investors, we're stuck with them for decades. Like they don't come off the cap table until you sell the company or years after an IPO. And so much happens that next decade. So much will change. You'll probably have to hire 3 or 4 management teams. It's possible one of your co-founders will leave, always rough, but the cap table. You can't get rid of the VCs on your cap table. You just can't. So I want to do an 8-part test. Maybe it'll spur a little conversation, a little thought. And when you go to raise capital for the first time, the second time, the next time, maybe dust off this 8-part checklist. It's also on saster.com. And if you have options, think through this. If you don't have options, if you need the money and only one person will give you the money, 95 times out of 100, not always, 95 times out of 100, take it. But if you do have options, here are 8 things to think about. Okay, so this first one sounds as blindingly obvious as it could be, but I'll tell you the mistakes founders make. The first one is so blindingly obvious, and then we get into some after this that are a little bit less obvious. Talk to as many founders they've invested in as you can. Do reference checks, and you will see this advice on Twitter from a lot of folks, but I think the advice they, they give is just slightly wrong. First of all, some folks say don't talk to their successes, talk to their losers, talk to the founders that fail to really get to know VCs. And, and by all means do that. If you can find someone they invested in that absolutely failed, go talk to them. But I find no matter what advice there is on TikTok, you don't learn much from failures and founders that never got anywhere, that never got any revenue, that never built anything. They don't even really know what to look for in an investor. And when you fail, I'd like to tell you that most founders ethically, that they act their best when their companies fail. And some do. One of my very favorite stories You can see it on the Andreessen Horowitz blog. When Slack, before Slack, it was a gaming company and it was failing. And Stewart reached out to Andreessen and said, I want to give you the last money back. I've got this chat app. I've got this business chat app. We're calling it Slack. I think it might make it. We've got no revenue and I'm giving up our game company. It doesn't work. Tiny spec. And they said, nope, keep the money, Stewart. Keep going. We're fine losing the rest of the money. We think you're a great entrepreneur. I'd like to tell you that I've heard that story. From the handful of founders I've invested and worked with that has failed, but I often haven't. I've often actually heard founders maybe not handle the situation as well as they can, and I get it. As a founder, I almost failed every single time. I get the stress. But my only point is I'm not sure you learn too much from the failures. You probably learn from the folks that went the distance and the folks that went the distance know the VCs that invested in them and on their board the best. So in any event, talk to, if you really aren't sure whether you want Lemkin on your board, Or whomever, or Byron Dieter or whoever. Lots of great folks. Keith Rabois, Eileen Lee, all these great folks. If you're not sure, talk to as diverse a set of founders they've invested in. And just two notes on this. Don't expect all the founders to love them. If all the founders love them, you have what I call, there's no gender attribution in this. I should have come up with a gender-free term. The good guy. Everything's great. Everything's great. Now you could do worse than the good guy. The bad guy, of course, is worse. The one that sort of tries to destroy your company, but That's less common than the apocryphal stories say, but the ones that are really engaged, the ones that are there, there may have been some frictions. Don't expect every single founder they've invested in to love them to death, but get as many stories and most importantly, listen, don't listen to how good they are, how nice they are. Oh, Amelia was such a good person. Ask how supportive they were. This is the question that matters. How supportive were they? And how supportive There aren't— your investors are not that important. They don't work there every day. They come and go, but they are one of the few people that will be there the entire journey. You're stuck with them as we talked about. So ask how supportive they were and find out. That's the number one way you can reference check your investors. Okay. This one is something that almost no founders understand, and it is so important when you go to raise money. It is so important when you go to raise money. Ask how many investments they wrote, they write second and third checks into. Ask how many investments they write second and third checks to. The reality is, if you read the stories of a lot of successes, almost all of them had patches where as mediocre as the growth seemed, there were patches when growth slowed, when things were harder, when they needed more money, when they almost ran out. And never expect an investor to give you more money. That is one of the top, if I, if this presentation was the top 8 mistakes founders make after they raise money, Number 1 or number 2 is never expect anyone to give you any more money. That's not how it works. But when you're in the middle, when you're doing okay, but not great, some VCs will give you more money and some won't. And there's some judgment calls here. There's some other reasons, but the other fact is most smaller funds are not wired to write these checks. They're just not wired to. And ask how many checks they write into. The nerdy question is how many reserves do you keep per investment? Like how much extra money Do you hold back? You'll find that large firms, that the multi-billion dollar firms often have a 1 to 2 ratio. In other words, for every dollar they put into you initially, they earmark another $2. They might put in more, they might put in nothing, but they— of their pool of capital, they might earmark it. So a billion dollar VC fund, which sounds large and it is large, but of that, maybe only $200 or $300 million might go into first checks and the rest might go into second checks and expenses. But just ask. And what founders get wrong these days is a lot of both new funds, smaller funds that have cool VCs and cool social media personalities running them. They don't have any money for second checks. And look, that's not all bad. Number one is find the people that are supportive and will help you. But I'm just going to summarize with this first line. VCs that don't write second checks are less valuable to you because you will probably need one. VCs that write second checks are less valuable. So for me, All things being close to equal, if I liked Amelia and Jason, if they both gave me a term sheet, but Amelia has reserves and writes second or third checks, and Jason's so great and he has that cool SaaS thing and he does those Workshop Wednesdays, but he doesn't write second or third checks, I would go with Amelia, right? And when I invest, I've got about 1-to-1 coverage. I save a dollar for the next check versus the one. But I would say most folks that invest in my stage, which is late seed, they don't. So something to understand that I've literally never seen a founder ask about, that every single founder should ask about. How often do you write second and third checks and what are your criteria to do so? Because you're probably going to need one. You're probably going to need one. Okay. Third one, and this has changed a lot over the years. Control is not as big a deal with VCs as it used to be. If you talk to folks that have been around for 10 years or longer, 15 years or longer in startups, they'll tell you some horror story about how some old fuddy-duddy VC pushed me off the board, some old VC, fuddy-duddy VC pushed me out of my own company that was so great. That stuff did happen, but, and it still happens today, which we'll talk about, but it doesn't happen like it used to. Like the, this in some ways it ended with Google and when Kleiner and Sequoia invested in Google, they forced the founders to give up control of the company and bring in Eric Schmidt. And obviously Google had a good run. Okay. It had a good run. But that was about it. After that, founders that had a hot hand were like, nope, the next Larry and Sergey, we're just going to run it ourselves. And there's a great SaaStr post if you look at it about how many SaaS companies when they IPO are run by their founders. It's 90%. It's 90%. And you can look through all of them. And I think of the 10%, most of those founders said, hey, it's not for me. Like I want to bring in a professional CEO. So it's pretty rare. This drama that you hear on in old movies and from folks. It's just not the vibe. What's more common today is that VCs just check out when they think you're not doing well. They just ghost you. We could talk about why they just move on to do another deal. But control is still an issue for a variety of reasons and what you don't want. So I would worry less and we'll talk about this. I would worry less about whether these VCs are going to push me out or take control of the company. Nobody wants that. Nobody has time anymore, but you don't want them too controlling. And there's a rough metric. Just rattle around in the back of your head. This is a rough metric. For each 10% of your company you sell, roughly, you're going to give up a board seat. So if someone buys 10%, 15%, 20% with a big check in your round and they ask for a board seat, like you can argue, but it's pretty accepted, right? If you think about a pie chart of 100%, let's say you sell 3, this is very rough math, but let's say you sell 3 chunks of 20% and each of the founders own 20% each. 5 times 20, there should be 5 board seats. The founders each get one and, and the investors that buy 20 each get one too. Think of it as roughly proportionate to your cap table, roughly. So I think the biggest flag is when someone that doesn't buy double digits asks for a board seat, that's a problem. And that does happen. And I think when someone that buys enough of your company for one seat asks for two, that's an issue too. That's when you should push back. And if you push back, if they ask for a little bit too much control, I don't know that I would take it too seriously, but if they do, just push back once if they ask for too much. And if it's an issue, I would move on. I would move on, but don't expect— if you have nobody on your board, if you have nobody that cares, sometimes that can be great. Like it does. It's sometimes very great in a very capital efficient company. If you're just going to raise a little bit of money and you're already profitable, You don't need to give up a board seat or much, but if you want to go big, what you will find is someone on your cap table has to care. And there's no matter what it looks like on social media after a big exit, everyone patting themselves on the back. I found usually there's only one investor on your syndicate that actually cares. That's actually there for you in those tough times. It actually will write that second or third check when others won't. Someone has to do the work. And I used to think that this idea that VCs did any work, I used to laugh. I'm like, what do you mean work? You don't build the company. You don't go out and sell to customers. You write a check and pop over to a few meetings and read some emails. And that is true for the, that's frankly, that's probably what the majority of VCs do. And it's not bad because you need the capital. It's risky capital. It's hard to make money in venture. But at the end of the day, when things are tougher, when you need help, when you need more money, when you need to recruit other executives, I find only one of them really does the work. It's usually someone that's going to be on your board. So I wouldn't be totally, I wouldn't read all the stuff on the internet and say nobody should be on your board if you're raising tons of money, but make sure it's proportionate to your cap table, to the size of your cap table. Okay. Number 4, this is another one that nobody asks. These are the 2 things you got to ask investors today that nobody asks. The one I talked about is how much do you keep in reserve? How many second and third checks do you write? How much do you keep in reserve? Just ask. No one asks that way. That way, you know, the odds that they will write you another check. This one is accelerated. Ask them if they're going to be there in 10 years. Ask them if they'll be, you're going to be there in 10 years. Probably it takes 10 years to build something big in SaaS. Aster is 10 years old. We're just getting going. We're just getting going. It takes 10 years and you will find there was a great fund of some incredible investors just today raised their own fund of $350 million, but those are 3 partners from other funds. They don't work at that fund anymore. No, not judging. I get it. But there is a lot of turnover in venture and there are, there's 2 reasons there's turnover in venture to learn. The folks that maybe are not great investors get fired slowly. Usually don't get fired in a month or a year, but after 2 to 3 years, 4 years, 5 years, if you can't, if you can't get any good ones done, you'll be slowly moved out of venture funds. And also maybe after 8 or 10 years, if you used to have a hot hand and your hand is decayed, you will be slowly moved out. And what happens is when it typically happens when a VC firm raises a new fund, fund 10, fund 12, and you'll see a nice article in TechCrunch. Jason and Amelia have moved on from big venture fund when we raised a new fund, but really we got fired or moved out. And it's part of, as it should be, investing is about returns. If you can't deliver the returns, ultimately you should be moved out. It's not a charity. Which let me tell you, it's not a charity, which we can talk about. It is a brutal industry. But what it frankly means is if you don't run the place, you may not be there. You may not be there if your returns are mediocre. And also, if you're a, if you have a hot hand, if you're the hottest person at a VC fund and they don't treat you well, they don't cut you in properly, you'll just go raise your own fund. You will just go raise your own fund, right? There is no economic reason to sit around at a large fund with a tiny amount of economics when you're bringing in all the winners, when someone will give you your own fund and you can keep all the economics going out on your own. If you have a hot, if you're a good investor, can be 10, 20 times more lucrative than working for somebody else. So whether you're the VC that you really love, that good guy, no gender here, good guy, but woman or man, that good guy that you love, maybe a mediocre investor, or they may be so hot they're going to leave if they, if their name isn't on the door, right? If it's not Lemkin or Ibarra Ventures, ask if they'll be there in 10 10 years? And you will, if you will probably hear a hesitation. Yeah, of course, Darryl, I'm planning to be. Darryl, I might be. Ask. And does it mean you shouldn't take their money if you don't, you're not sure they're going to be in there in 10 years? No, but I got to tell you, all things being equal, you are so much better off if they're there the journey. Imagine you need that second check or your third check. It's hard enough in general if you're only doing okay. What if your partner's gone and they bring in this new guy, new person, Tricia, who's never even heard of you? You think Tricia has any juice at the fund? You think Tricia's going to put her neck on the line for you to get that extra check? No chance. When I've invested and I see this happen, someone leaves and someone new comes on the board, they're always very nice people, but they don't stick their neck out for the company. So it's a big negative when the investor that invests in your company leaves, it is a big negative. It is a big negative. You're stuck with a placeholder for years and years. So ask. And that's why if you can, the person that's running the place, they may not have as much time. They may have more on their plate, but boy, I'd rather have someone that's actually there with me on the journey. Okay. Five, if you really want to learn what it's like to work with a VC sitting there in their fancy office, driving their new cars, getting really fit, doing a lot of lunches and dinners and meetings. Just got back from Cotton Lions and then off to somewhere else, Tokyo SaaS Summit, where we'll be in November. Come see us. It'll be great. This is one that you ask and then, because they won't, they never, they won't be ready for them. Ask them what's the toughest founder VC experience they've ever been through and what they learned from it. Ask what it is. No one asks. You're going to get an honest answer. Are you going to get a perfect answer? Are you going to get a slightly political answer? Yes, but just ask. Ask ideally at a meal, like always before you sign a term sheet, have a meal with this person. VCs used to always have meals with founders when they gave them a term sheet to get to know each other. But you should, it's a great way to do reverse diligence. And when you're waiting, when you're waiting for the tiramisu to come, just say almost just like a A casual question out of nowhere. Hey, what's the toughest experience, Amelia, you've ever been through with a portfolio company? What'd you learn from it? They're going to take a beat. It's going to be awkward, but you're going to learn a lot from that question because there's always frictions. See what they learned from it. Okay. 6. This one's a niche one. This one's a niche one. Actually going to my prior point, I actually don't think this is important, but I think it will allay your fears in some cases. Ask when they've brought in outside CEOs to run their startups. Ask when they brought in outside CEOs. Ask one. And as a rough rule, the bigger the fund, the more often they are able to bring in outside CEOs because at big funds and they have benches, like they're grooming these benches, bringing in ex-CEOs, ex-CROs, ex-CMOs that they know in case they need one to run one of their portfolio companies. At an extreme, the huge private equity firms that buy SaaS companies, the Vistas, Tomo Bravos, they explicitly have these networks because a lot of times the CEOs don't stay with the deals after they buy the company. So the bigger the funds, the more they groom these networks of outside CEOs. A small fund doesn't do this at all. I don't know any seed fund that has a network of outside CEOs to run their companies. It's not their business model. But again, as we talked about in the beginning, it's pretty uncommon these days that unless there's fraud or mismanagement or you run out of money twice after, if you burn that second check and you run out of money, people get stressed, but it just doesn't happen that I just don't see that anyone's asked to step down for their company, but ask what, but it does happen. So ask what happened, ask when they brought in outside CEO and what happened. So if this is something you're anxious about, and I find a lot of founders are still anxious about control, just ask when it hap— when it happened at their, at when it last happened. And it, again, maybe at between tiramisu and coffee, or I don't know, maybe when the salad comes in a, in an ungaro, just ask when it happens. And you'll find out, like, I've never done it. I've never even, not only have I never considered doing this, 'cause I don't care. I wouldn't even know somebody like, I think virtually I wouldn't invest in a founder that I didn't think was better than me and go the distance. And I don't know any magical outside CEO that doesn't know the product that didn't work on the code base that hasn't visited 1,000 customers. I don't know anyone that I would trust to go in and run a startup. In fact, I've had the few times in my career I've seen outside CEOs brought in by other VCs. I've fought it pretty hard. Once I asked for all my money back from that VC. I said, if you're gonna, if you're gonna get rid of this founder, I don't believe in the company. I believe it's this product's too complicated. I believe that yes, the growth has slowed, but I believe in this founder. I just want my money back. I didn't get my money back, but, but just ask this question. Okay. Here's number 7. What was your worst investment and why? Okay. Now this one is a friggin great question. It's a great question. And, and you might not get it. You might think this is a throwaway question. Okay. You might think, oh, worst investment. I want to hear about how you made all the money in WhatsApp and how you were the first investor in Canva and Samsara and Toast. Those are good stories. But the worst one, the worst, because I will tell you a lot has changed the last 4 years in particular. Every investor that has been around for a while has fraud in their portfolio. It is not just FTX. It is not just fast. There is micro fraud. There is fraud on a $2 million round, a $10 million round. It's all over. And there is bad behavior all over the place on these imploding startups. And if you want to know what it's like when the chips are down with the VC, just ask what they'll all know this question. What's the worst investment? I know mine. It's the biggest, the investment I lost the most. And I know why. And if you ask me, I would tell you, I would tell you, I would tell you why it was ethical lapses, why it was other issues. but you will get, no one asks this. And if you, again, if you ask it in an unguarded moment, they're going to instantly remember. They're going to instantly remember the one where the behavior was problematic and tell them, and you'll just learn a lot about them as a human, what their values are, what they care about. I think it's a great one. And again, I've basically never seen this question asked and it's a gift to hear the answer to just listen. And the flip side, and this is the final one I'm going to have for your little cheat sheet. Because people ask, what's your favorite? What's the favorite? What's your best investment favorite? Blah, blah, blah, blah. Everyone that was early in Slack will tell you how great Stewart was. And he is great. He is great. I'll tell you how rewarding it was to invest in Figma in the early days when Dylan was still an intern at LinkedIn. It was so rewarding. So great. Of course, Figma's worth $20 billion. They're going to tell you these great stories, but this one is a better one. If you want to get to know this investor before you're stuck. Stuck for a decade on their cap table. Ask what CEO they've invested in that they respect the most. It might not always be the biggest exit, and you'll learn. And this is what they want from you. This is what they, when you hear what they've invested, what they respect the most, this is what they value. This is what they value. And if the more you're like that, whatever you hear, the better you're going to get along. And yeah, this is my cheat sheet. Ask them these questions, make sure you find out if they save money for a second check. That is so important. And, and the other one is just ask if they'll be there in 10 years. No one does this. Okay. With that, we'll open it up to questions.

So the first one from David, I'll ask for him. Given that money is loath to sign blank NDAs, are there any other strategies or tools to avoid copycat behavior? The stocky answer I've gotten is just to run and run fast, but that's less ideal.

And this is something that I think a lot of founders still worry about, but maybe a tiny bit less than in the past, but it's a big issue. Look, no, why, why no VCs will sign an NDA. Some like these late stage private equity firms, the Vistas, the Tamara, those are not relevant. They will actually sign NDAs. They have the capabilities to thoughtfully sign them, but no VCs will. And The simple reason is they see, not only do you meet hundreds of startups a year, but you get like thousands of random inbounds. And like, how, I can't even tell you, I, I, I don't, I must've gotten 100 emails from folks making an AI SDR app. If I signed an NDA, like I can't even tell the, I can't even tell the difference anyway. I couldn't sign an NDA. You just can't, you just can't. So that's the practical reason, but Here's the thing back. So just get over it. It's the reality. The thing is, look, most VCs don't care. They don't care. They just don't care. They're not going to steal your ideas. Most VCs are not founders and creators who come in and they hear your amazing idea. Then they whisper to their 20 engineers in the back of the office, let's go copy Alan and Bob's great application. It has happened in the history of mankind. But it almost never happens. They just move on. They just don't care. They just move on. And the third point is, and this is my advice to you at any stage, including in potential acquirers and everything, like a lot of the crap ain't confidential, man. Just go on Google. Go on your website. Could I figure this out on your website? Could I figure it out by using your app? Is it really so confidential? I think that the amount of stuff that actually is confidential is about 5% of what we think it is. There is some secret sauce in our apps. Don't share it, but share. You will gain so much in this world if you share the stuff that people think is confidential, but it's not really that confidential. It builds so much trust so quickly. I share so much stuff all the time. What are Saastr's numbers? How many people came? How many sponsors do we have? What do they pay? I share everything. You can see it on our blog. Like there's a couple things about Saastr I don't want to share. But you wouldn't even know because they share so much. It's like a, such a great tactic to share stuff people think is confidential. It, it does, it, it should build trust. It's genuine because people don't do it. But calm yourself down. There may be a few things like what it really is, your special feature where you beat the competition, whether you want to share that or not, I don't know, but get over it. Almost nothing's actually confidential is my final bit of advice. So thanks for the question.

Great. That's a good one. Ash, you've had a few comments.

I don't know if you have a question you want to ask.

How does somebody think about, so if somebody's always bootstrapped, always bootstrapped, made the companies, and I think it's really helpful to hear from people who are making this transition from this bootstrap mode where you're like always capital constrained, always resource constrained, and just like talking to other founders or people who are like, thinking about making this leap to a venture model, what's your sort of advice for maybe either talking to other founders or talking to VCs? Because it's like a very different, this is a very different thing.

It is. I think everyone gets this wrong. Everyone gets this bootstrap discussion wrong. A couple of things. One, it all normalizes around $8 to $10 million in revenue. By the time you get to $8 to $10 million in revenue, if you're doing software, we have 80% gross margins, 90% gross margins. One way to think about $10 million in revenue is it's $8 million of cash to invest each year, each year. So that's like raising a $16 to $20 million round. So what you will find is outside of frugality and other things, there's not a lot of difference between a $10 million bootstrap company in most cases and a $10 million ARR, $10 million ARR, one that raised $20 million. There's just not a lot of difference. So it does normalize. And I remember we did a couple years ago, we did, I did a great interview with Ben Chestnut right after MailChimp sold for $12 billion. And you can watch this one. It's great. He's like, yeah, we, in the early days, no one wanted to give us any money. We had, we were another, yet another email app. We had high churn, we had this. And then by the time the VCs finally wanted to give me money, I didn't need it anymore. We were so profitable. So that's a, that's an example of the crossover line where it doesn't, doesn't make any difference. Or today, the more subtle point is after $8 or $10 million, you could, a lot of times you could raise the capital, but you don't have to. So a lot of times we're asked like for SaaS or annual and other things, why don't you have more bootstrap content? And we have done that, but what I've found is that it's not as useful as you think because of this crossover, because of this crossover. Now, having said all And so, and then the second point I'll make is, and this also goes to the Ben Chestnut story, it's rarely a choice. No matter what the internet says, no matter how many people selling their courses and hawking things say, most folks, 99% of folks cannot raise venture capital. It is a niche asset class. It is a tight, no matter how it looks on the internet, the venture capital isn't tiny portion of private equity, which is a tiny portion of investing. It is not for everybody. It is a small, no matter how it looks with these unicorn rounds, it is a small amount of capital in absolute terms designed for a very small subset of companies. And that means that 99% of startups can't even raise venture capital. They just can't. So like this idea that it's a choice that I get to choose, oh, should I take $4 to $5 million or $8 million or keep going? There are some startups that do make that choice. But it is so uncommon that it's almost, there's almost too much breath wasted on this as a choice. Like you have to brute force it. You have to be founder mode. And then at some point, like you will be able to raise capital or you won't. And it may be when you need it, or maybe like Mailchimp, when you just don't give a rat's ass anymore, or Atlassian because you didn't need it. So I think these differences are overstated. Is it harder to do it with less capital? Of course. Right. I wrote up a post a couple of years ago in the, in the Bessemer Cloud 100, the average one raised, I think over $300 million and only 3 out of 100 were bootstrapped. So it's hard. Capital helps. There's no question. But at the end of the day, I think the real, and this is my, I know it's a long answer. I think the real answer is that bootstrapping takes longer on average. It took Atlassian 4 more years. For most folks, it takes longer. That's a reality. And it forces you into business models where you have to focus on where you always win. One of the best parts about capital, really, if you can piss it all away, that's really surprisingly easy to do. But capital really lets you do a couple things. It lets you hire more executives earlier, and that's a big benefit, no doubt, if you do it well. That's the number one thing. And the second thing it lets you do is it lets you compete in areas where may— this is subtle, where maybe you're less competitive. If you're bootstrapped, you basically need a $0 CAC. You could do one or two things in marketing. You basically either need to be insanely good at outbound or you need to be insanely good at inbound. And the CAC is always almost nothing. And you just can only compete in the categories where you, for some quirky reason, you have a competitive advantage, a 10x feature, a niche thing. Capital lets you expand at the periphery in areas where you have more competition, where you're less competitive. And so those are negatives. But just stick to your lane, right? And hire sequentially. That's life as a bootstrapper. It's hiring sequentially and sticking to your lane and then suck it up until 8 to 10 million. And if you get to 8 to 10 million and you're growing even 40%, 50%, you will find you can hire all the people you need. That's the thing. If you get to 10%, you're growing 40%. That's another $4 million of cash next year. You can afford to hire a VP of sales or a CMO or whatever you need. The excuses end at that point. That's why I think it normalizes and it's not really a choice for almost everybody, but thanks for the question. Okay.

Last one is from Tana.

Hi.

Yes. Uh, so my question's around the second check during these initial conversations.

Second check.

So if they're open to it, that's fantastic. But how detailed do you go in terms of locking down the terms of that second check in terms of do you lock the multiplier down?

Good question.

And what are considerations around how detailed you go?

I was, I was too inside baseball on my point. So let me step back for a minute. You, there is no venture is a series, at least for slightly bigger funds, it's a series of measured risks. And if you talk to super successful funds that manage more, that first check, sometimes they even see it as an option. Okay. I'm going to give Tanis $1 million now. I'm going to see how it goes. If it goes great, then I'll give you $5 million. If you're a really big fund, then I'll give you $20 million or $100 million. These Lightspeeds and Andreassons, they can fund them. Infinitely. And you look at Thrive Capital just led OpenAI at whatever, $140 billion. And I think they're one of the lead, they were the Series A investor because they just keep putting money and money in. You cannot lock down the terms in any way in the beginning. And that's why you have to ask this question in an unguarded moment just to learn how they think about it. It is an option. You will not, you cannot get it in a term sheet. And if you do get it in a term sheet, it will be, they'll be tricking you. Non-Silicon Valley VCs sometimes like to invest in tranches. Like they'll say, we'll give you a million today, and then if you hit a million in revenue, we'll give you another million. That sounds great. It's a ripoff because it's a one-way option. You have to take their money if you hit it at the same price as before. Like tranches are a terrible deal. If it's the only money you can get on planet Earth, then yeah, take it, but run from tranches if you can. But you can't get the opposite. You can't, you have to earn it. And so the real question isn't, can I get this in my term sheet? The real question is, do you do second and third checks? Great. And what typically speaking, what would it take to earn it? What would it take? That's the right way to ask. What would it take to earn it? So sorry if I misspoke or was less clear, clarify it more, but it's more, what would it take to earn it? And it's just a fun question to have. What would it take to do? And they're like, oh, we love to support our companies. No, just push a little bit more. Great. I love to hear you say that, but honestly, You're investing today, we're at $50K MRR growing at this rate. And you're in that, what would it take to earn a second check? And if you, if it's an unguarded moment, that's why I used to hate these dinners with VCs, but now I realize they're great because you need an unguarded moment in one of these very structured relationships. You do need an unguarded moment. It doesn't work over Zoom. Fly there, whatever, because you want this off-the-cuff moment, maybe a glass of wine after a glass of wine and just ask, what would it take to earn it? That's the way to ask it.