Ep#86: Early Decisions That Define Your Startup Forever. With J.P. Morgan Asset Management

So number one, understanding where your cash is and what vehicle it's in. So for example, whether it's invested in the market or if it's in a depository account, that's kind of level one. But in terms of corporate governance, before you decide to invest in anything, even if it's just a money market fund that is technically a cash equivalent, it's very wise to have an investment policy in place so that there are some parameters around what you can and can't do with the cash you just raised. So let's say you've raised $5 million. Maybe you haven't had a conversation with your investor about what you can or can't do with that, but in a sense, founders are stewards of their investors' cash.

Welcome to Startups Decoded, the show that gets real about what it takes to build a successful startup. I'm Andy Walsh, 2x exited founder, advisor, and your host. Each week I talk with great founders and top investors. We unpack the plays that drive real traction. If you're building something bold, this is where you'll get earned insights to scale with confidence. Let's keep growing together. Hit subscribe and share with your community. It would mean the world to me. Hello and welcome to Startups Decoded. My name is Andy Walsh. Today we're doing a big event, big podcast in a new format. I've got myself and 3 amazing guests and all brought to you by JP Morgan Asset Management. I'm particularly excited about this because as a first-time founder, I knew nothing about the topics we're gonna cover today. I was lucky that I had an M&A lawyer who worked with Richard Branson doing global deals on my board. I didn't realize how important that was at the time and the impact it would make. And he helped me on my own journey and to be sitting here. So first I'll go around the room. Elizabeth, I'll start with you. JP Morgan Asset Management. What's your role at JP?

I'm a licensed financial advisor working with our asset management group. I work with startups, helping them, advising them post-raise on really what to do with their cash. So I Like to say, you know, you raised the capital, now we can help you, uh, can tell you what to do with it basically.

So.

People spend money.

Yeah, that's exactly it.

That's part of the job. Emma Usik, I need to get used to saying your new last name after a recent marriage. Congratulations on that.

Thank you.

Welcome. Uh, Girl Math Capital. Tell us about you.

So I'm one of the co-founders of Girl Math Capital. We're an alternative investing community for women. So we provide women with the education, deal flow access, community and events to get started with investing in startups and other private market opportunities. Our whole thesis is that who gets access to allocating capital is who determines what startups exist in the world and what problems get solved. So we're on a mission to expand who can allocate capital.

Perfect. Welcome. And Breen Sullivan, second time in. You're the first person to have a second spot.

Feel honored. And it's fantastic to be here again.

I have a longstanding relationship with The Fourth Effect. I love what you and Kat are doing. I help any way I can, but can you just tell us a little bit about you and The Fourth Effect?

Yes, absolutely. So my background is as a general counsel to high-growth tech startups. And in that seat, I did that for, uh, for about a decade. I really had a front row look at what was happening, or more often than not, what was not happening when it came to advisory boards, governing boards, that strategic bench that founders need to surround themselves with when they're building and scaling their companies. And really the headline, it boiled down to just kind of founders not knowing what they didn't know because of a missing layer of infrastructure and strategy when it comes to that, you know, those advisory relationships. And, you know, on the other side, all the talented people, like probably many in this room who want to take those seats as advisors, board directors, et cetera, there's no on-ramp. And that's a direct result of that same missing layer. And that's what The Fourth Effect is, which is my company and my co-founder's company who's here in the audience. It is that missing relationship and contract management layer to these advisory relationships. So we're helping companies know how to find the right people, how to, how to structure those advisory relationships and get value from them.

And my background's in music culture, but I had 2 music tech businesses that I exited. My day-to-day is an operator, but also brand strategy and storytelling, which I love, love working with founders on how they articulate who they are. Which I guarantee you, if I quizzed everyone in the room, I don't think many people would pass the test to articulate their own story in a short, succinct way. They could probably talk about their product for days, but their own story, most people struggle on. So that's one of my passions. But let's focus and start with boards. So just even something really simple. When you start a business, if you have co-founders, you're a director. And by default, as a director, you're on the board. Just straight up, people don't even understand the mechanics of some of the consequences of what you're doing from the start. I don't know if everyone in the room even knew that, but for me, some of those things dictate what happens in the future. Brynn, from day zero, let's assume there's 2 of you and you're setting up just operating agreements, getting a charter in place. What are the big ticket items that you should 100% cover in those first couple of weeks?

The point you made, I just don't know if we want to gloss over it, maybe take one second just to double-click on it. The second that you do incorporate, whether it's a C corp, it's an LLC, it doesn't matter the entity structure, there is a governing board and, and that's legally required. And so a lot of times it is the one founder, maybe there's 2 of you, maybe you have tapped the, your co-founder and, you know, that means then there's 2 executive director, founder directors that are part of that board. Even if nothing is actually happening with that board, it is happening. So I think that's now kind of the second part of your question, what you're getting at, whether or not the founders are aware and they're having scheduled meetings and then making decisions and ratifying the decisions. In fact, any decisions that are happening that are made by those people then are being ratified without being documented that it's being ratified. So, it, it's a little bit of a legal fiction, but it's also true. So, understanding that and understanding as a founder that whether or not you're writing these down as board consents that are signed, you are making decisions that impact the future of the company and, you know, whether or not you're aware that you're ratifying them. So I guess like to your question then, like what are those decisions? It's, you know, it's the material decisions that impact the future of the business. So, you know, this could be fundraising, this could be key hires, you know, certainly how you spend money if you have it, but a lot of times early days you don't.

And I look at the cap table as almost like a living, breathing representation of those decisions along the way. And it can be a great way to have a structured approach to thinking about who's on the board, who has equity, the type of shares, et cetera, and getting that in place. Emma, from your side, when you are looking at it from the investment standpoint, you invest pretty early into startups. What are some of the things you're looking at from their own compliance and board-level operations decision-making? In either straight up or through the diligence process? What are some of the green or red flags?

Because we invest as early as the pre-seed stage, there are kind of points where, to your point, there could be kind of an inform— there could, there is a board set up, but whether they're meeting on a regular cadence and documenting that, I think is something that founders underestimate the importance of. So When we're thinking about evaluating a board as early as the pre-seed stage, it's who are the board members? Who are you planning to grow the board into? A lot of times it's, it might just be legally the founder, co-founder, whoever it is at the start, but who do you want in these decision-making seats long-term? And how are you going to tap either current investors or future investors to And it's, it's so critical.

And again, I was lucky. I'd love to say that I planned it beautifully, but the person that I had on my own team was an M&A lawyer and the diligence that he instilled in us. And we basically had a data room from day zero. So we had a folder where we kept everything from a legal perspective, major decisions, all the things that you would build out. So when it came to exiting, we didn't fundraise. I bootstrapped my 2 businesses. But when it came to an exit, we went through that process so quickly. And the annoying part for us was actually the acquirer had a large investment that was a majority stakeholder. So the back and forth between the two of them was what slowed our exit down. Nothing to do with us. I'd be curious, Elizabeth, from your side, like when you are thinking about spending money, there's obviously a lot of decisions that happen prior to that, right? In the sense of board governance, who the founders are, how they're making decisions. What are some of the things that you would look at as a foundation to inform some recommendations around how they structure that spend after they close the deal? Because you are making big decisions early on and that can have an impact down the track that you don't even understand.

Yeah, definitely. And it's less about what exactly you're spending on and like where that cash is kind of living, so to speak. So I think number one, understanding like where your cash is and what vehicle it's in. So For example, whether it's, you know, invested in the market or if it's in a depository account, you know, that's kind of level one. But in terms of corporate governance, before you decide to invest in anything, even if it's just a money market fund that is like technically a cash equivalent, it's very wise to have an investment policy in place so that there are some parameters around what you can and can't do with the cash you just raised. So like, let's say you've raised $5 million. Maybe you haven't had a conversation with your investor about, you know, what you can or can't do with that. But I think in a lot, in a sense, founders are kind of stewards of their investors' cash in the sense, I mean, they're executing, right? But you wanna make sure that you're not losing principal on that. You're not putting it in, you know, maybe too aggressive of an investment vehicle just to, to inch out, you know, some more yield. So it's things like that where you wanna make sure there's like a documented framework. where you get something like that. I mean, shameless plug is JPMorgan. We help clients craft investment policies all the time. But I mean, honestly, there are plenty of AI tools out there that like, you know, I'm sure that any of them could give you a decent working framework.

Double-clicking quickly on that, I'm fascinated too. I'm working with a startup at the moment that closed $9 million and they're still pre-revenue, which is wild. But thinking about that amount of capital, we're looking at business modeling and cash planning. For how they spend that money, but they're probably sitting on, my estimate, $5 to $6 million still. It's a lot of money. Do you think many founders are actually thinking about making money off the money that's been invested without putting it into the business?

All the time. That's pretty much most of my conversations is I think there's so many things to be careful of. You know, I could, we could go down a rabbit hole with them, but I think that the number one thing is like to focus on is that the true ROI, like, is your company, your not day trading. There's also instances where I've seen some financial, you know, maybe fintechs or kind of neobanks as we call them, offering some investments that are not one size fits all. So it's important to also consider the tax implications of, I mean, I am not a licensed tax advisor, I have to say, or accounting, but that can have implications for when you exit. So if you're familiar with qualified small business stock, that is something many of my founders deal with and are eligible for. It protects them from taxes when they exit. But if you invest too much of your cash in something that's, you know, like a bond fund or something like that, you're actually getting disqualified likely from that tax benefit. So again, that's just what I see from my clients, but I think there are a lot of good reasons to maybe consult a financial advisor or, you know, even just your banker, I think should be able to opine on some of this stuff. But yeah, I think having some kind of corporate governance in place is is really important. Because as you know, once you're making decisions, it's happening like that. So you want to make sure that the foundation is there and you don't have to blink when you, when someone asks you about it.

Yeah. So the amount of agreements that I see that don't think about leveraging their capital outside of direct investment is fascinating. Bryn, from your side, in those early days, what, how do founders even start to think about fundraising decisions and whether or not they will fundraise or not? Because I've seen startups go down a path and and go, you know what, we won't ever fundraise and then get to a point where they need to and they don't have it factored in as far as the decisions that we're talking about now. How do you get out in front of that?

Okay.

Well, actually, one of the things I was dying to add on to the previous point, and it's kind of responsive to this question, is just some practical tips around the governing board. And it's really kind of related to part of what you're asking now about that decision you make, do I take institutional capital and what will that mean in terms of the control I have today and the control I'm gonna have down the road? So number one, there's a really big distinction between an advisory board or a bench of advisors and a governing board. And so we've been throwing around the word board so far in this conversation. We're referring to a governing board, and that means, you know, this one that's legally required. But really what makes it unique and differentiates it is that fiduciary duty of loyalty and care, which, you know, Elizabeth, you were alluding to.

Exactly.

Yeah.

And, and that's correct. Like when you are a director, you're part of that governing board, you have that legal obligation and that legal duty to the shareholders of the company. And there's also a couple of different categories of directors. So, you know, you were asking at the very beginning, okay, every single company, whether they know it or not, there is a director, at least one, and that director is typically the founder, owns the common stock, you know, has that fiduciary duty to the shareholders, but the founder is the shareholder. When the founder decides to take, or that startup decides to take institutional capital, typically this means it's a priced round. So now there's different classes of equity. So there's preferred equity in addition to that common equity. And that investor director is going to come in taking preferred equity, and there is not a bright line in the sand, but typically if it's between 10% and 20% of the fully diluted value of the company that that investor is coming in and taking as part of their investment, that gives them the leverage to negotiate for that fiduciary investor director seat. So now the composition of the board has changed because the founders are there, but now there's this investor director that's there. And what happens a lot of times is that the founder has not thought about this board at all, you know, so up until they negotiate that term sheet and now it's 10 to 20%, that investor's gonna take a seat. They've done nothing with this board, so it's just them. They haven't documented their decisions and This creates kind of a dangerous situation because that investor could have outsized influence, especially if there's only one founder director. Now there's one investor director, 50/50, you know, and not necessarily is that investor gonna vote the way the founder wants. This is why there, there is this third category of director called independent director. And what that means is that that director doesn't have a conflict of interest. Like the investor director does because they're gonna really care about their LPs and their fund. And the founder director does because they're the founder, so they really care. You know, they have their own agenda. So that investor director is a third category of director. And if as a founder you do nothing until you start raising your Series A and beyond, it's very difficult to have control of who ends up in that independent seat and making sure that the numbers, the votes around the table aren't quickly out of your favor as the founder. So, so we recommend just very practically at The Fourth Effect, a few things. One, thinking about actually seeding an independent director when you're at the seed or seed plus stage. So this is before you have had to let an investor director come into the boardroom. If you are not quite ready for that, you can look at your bench of advisors from your advisory board and you can tap or elevate one of those advisors to have observer rights. And that enables them to participate in your board meetings, help give your governing board structure, but they're not actually a fiduciary director. They can't vote. They don't have a vote. And you know, it's like less compensation. Last practical point on this. is directors and officers insurance. You don't need that if you're seating advisors, but you do need that if you are going to seat an independent director. So it's a good rule of thumb when you're a founder, you know, do you have this yet? Do you have D&O insurance? Could you talk to your broker? Would you qualify? Would a carrier underwrite you? If the answer is yes, then you're probably kind of at that stage where You might wanna get D&O insurance and you might wanna be ready to actually put an independent on your board. You can put an observer there first, and, you know, that might be someone you want to then make your first independent. So like in terms of the fundraising, you know, I think this is all very relevant because it's all too early until it's way too late, right? You know, to be thinking about this. So, you know, before You are giving away board seats and before you're listening to who the VC is recommending should join your board as an independent, you want to have thought about this stuff yourself, have your own strategy in place, have some advisors who are trusted, some of whom you can bring in as observers and be ready to seat an independent when you're, when you control the reins and you control the compensation that director gets. Did they get common equity? Did they get preferred equity? You control How long they have that seat, you control when they leave, all of those things. But the second the investor comes in, you don't have that control.

I'm always a skeptic if I have a VC recommend an independent person to sit on the board, and it's just common sense and not to throw VCs under the bus, but you need to think about interests, right? And Emma, from your side, I mean, Girl Math, I know how you operate. So for me, you're doing the right thing, but there's a lot of people that aren't doing the right thing from an investment level. Say someone is taking 20% in those early stages, pre-seed, seed, what would be typical from an investor on the VC side in a more formal establishment as far as taking board seat or having an advisory seat as well when you're investing into that stage of startup?

Yeah, I think as an angel investor, your goal should be to provide advisory capabilities regardless of whether it's formalized or not. So. If you are, if you wanna be a good angel investor, you should hopefully provide some connections for the founder, amplify their wins, find kind of holes in their operations and plug in or provide the right people to plug in. Um, I don't think that always needs to be formalized. I think an angel investor kind of can provide that without necessarily taking a board seat or asking for additional equity or compensation for that. I think regardless of whether it's an angel or a VC, to the point where they are kind of having repetitive meetings, they are consistently providing kind of a more kind of straight-laced advisor reports. I think that's when the relationship needs to become formalized. And I think as early as the pre-seed stage, it's really important to take a step back and think about what you want your board structure to look like long-term, because these are kind of permanent, relatively permanent decisions. And even if you're raising a small all round. Think about who you're bringing on and what capacity you want them to serve in.

It's so helpful. And if you separate the two from a governing board to an advisory board, advisory boards typically play a very practical role in the sense that they have a specific skill. Ideally now, like looking at an angel advisor, which I know you talk about a lot, it means that someone has some skin in the game. They're literally investing time and money to help you grow. It's really important. I'm curious from your side, Elizabeth, there's stages that it makes sense for me, early stage, having an M&A lawyer foundationally for the first couple of years. We had a 3-year vesting period. He got 1.5% because he probably saved us $50,000 to $75,000 on legal fees. From the finance side, if you are thinking about how you can get the right structure on how you manage cash flow to reporting, et cetera, at what stage would you typically see someone with that really high financial acumen joining And being an advisor in those companies to set up a conversation with you to be able to have that asset management done in the right strategy and approach?

That's an interesting question. So I would say at the Series A or Series B inflection point, I typically see like a CFO brought on or a treasurer. A lot of the times I feel like when I work with pre-seed, seed, Series A companies, typically it's the founder. And honestly, sometimes that's It's just me trying to help them navigate a financial, financially heavy world when their background is engineering and product, like understandably so, that's what they're building. So, you know, for me, I think it's more about just helping them know what to ask, like ask maybe just one more question than you normally would to make sure that, you know, your diligence is, is in a good place. Um, so I don't know if that, that really answers your question, but I think that's where, you know, I, I think. When they hire someone, when you would startups hire someone, I think at that inflection point, it's typically when they're a little bit more scaled.

And I just did an episode with a gentleman called Brett Turner from Trovata, and they manage treasury for typically publicly listed companies. It was fascinating, his background as a CPA and then worked for Amazon and just managing a lot of data. And he's now founder and CEO. He had 3 startups he worked for that all went under, but he talks about that as his MBA. And it's interesting, the early stage of cash flow and accounting and finding the right time to have someone run the books and doing that as cheap as possible.

Yeah.

But the CFO from a strategy standpoint can be critical in what you're talking about. So if you can find a CFO who can be an advisor, maybe there's some project-based work you could give them at the right time to up their commitment on what they're already doing.

Yeah.

Because it sets a strong path for the future to be robust and make quick, effective decisions.

Right?

Totally. And there's so many tools out there, I think from a technological standpoint to help you kind stay both educated, I think, and like accountable. And Trovata is actually one of like, we work very closely with them in asset management. So that's like a great example, typically a little bit more scaled oftentimes with Trovata, but, but yeah, that's, that's exactly right.

I want to pivot into fundraising and Emma thinking about preparation for fundraising, because for me it starts on day 1 and just doing some really simple modeling around path to revenue, operating costs and having some simple math on at what point you start to make money and where you need capital. It can be a really simple exercise. You could do it probably on a Claude project in 30 minutes. And the idea is, is to give yourself just a sense of where you're standing. For me, at that point, you're prepping to see whether you need to fundraise or not. What are some of the things that you'd put in place or recommend to a founder to get prepared properly, thinking about documents, relationships? How do you get that in motion?

What you just mentioned to me, I think is the most important thing to think about before you start fundraising. So rewinding a little bit, make sure kind of based on what we've talked about, you have a very clear cap table of who owns what, whether that's co-founders, early employees. If you have a board set up already, that's great. Make sure you are able to say exactly who owns what within the company. Also make sure you have historical projected financials because you will get asked for those. In terms of the pitch deck, and that kind of leads into exactly what you were saying, Andy, your pitch deck should really craft a story around what problem you're solving, why now, why are you the team to be solving it? And I think most importantly, or maybe equally as important too as the problem that you're solving is what is your current burn rate and why are you raising this money? I think that if you can't answer those 2 questions before you start making a pitch deck, it's not time to raise. You really need to have a narrative around why are you currently spending the money that you're spending? Where is it going? How, where, even if you're pre-revenue, kind of what, what does that look like? And then on the use of funds, what milestone is that getting you to? What are you using the cash for? Investors wanna know that you are making smart decisions with their money. And I think if you can't answer those 2 questions upfront, then take a step back. It might not be time to raise yet, but that is something that I think founders sometimes underestimate the power of a use of funds slide. Really make sure you are articulating that and also you have a path to putting that into action too.

And the thing that most founders don't realize on their first raise, if they're doing a formal, uh, VC raise, Is that the milestones they put in place and that allocation of capital is what's going to start a conversation with the next round of investment, right? So totally, they're gonna look at what you forecasted, how you spent it, where you got to, and can you actually spend that money in a way that is strategic? It has some metric and signal that allows you to double down on certain things. And going back to you, Elizabeth, I'm fascinated on that too. If you are working with a client and they're raising their first round, what are some of the things there that you would say from a metric standpoint or milestones? That they should focus on to be able to think about how they optimize getting to that next stage of fundraising?

Yeah, I think a lot of that is about, in terms of managing cash, that's just about sort of a checklist, I think. So priority number one, especially on the earlier stage, is preservation of principal. And what I mean by that is your investors invested, let's say, $5 million into you. They gave you that capital. Now don't go invest it in something where you're going to lose it. I mean, not actually lose it, but you don't ever want to be in a situation where you have to go to your investor and say, oh yeah, I actually just wanted, you know, maybe 50 more basis points on my cash, but the market took a hit. And so now that $5 million's really only like $4.7 right now, but I think it might go like, that's what we really want to avoid. And so that's number one. Number 2, and you know, that goes back to governance and of course communication, fiduciary responsibility. And then number 2, yield, sorry, number 2, liquidity, making sure you have the cash when you need it. If you're burning the uses of cash, that's basically just kind of trying to figure out your timeline of when you're gonna be burning that through and allocating it into appropriate buckets. And then that, the 3rd priority, and it's, it's not unimportant because every dollar counts, especially at a startup when you're burning. But that would be yield. I just think that the first 2 are so critical. I think from a risk standpoint that yield is definitely important, but just be really thoughtful about and ask questions about the product that is essentially giving you that yield, right? Like higher yield is always going to be something else, whether that's duration or credit risk or the volatility. So I think those things are things to think about and You know, for me it would be about risk management, honestly, especially foundationally.

And on the risk management, Brynn, I've seen this go south and we've all probably seen headlines where someone does a $10 million raise and goes all YOLO and starts burning money everywhere. I'm friends, and I think this is probably okay to share, I'm friends with a founder. They raised nearly $150 million up to Series C and they spent $900,000 on a brand update. And it melted my brain in thinking about what you could do with $900,000 and I worked in the creative industry for a long time. You could get something really beautiful for probably $100,000, $150,000 if you went all in and it felt obnoxious. And that kind of decision-making, in my agreement at the start, we had some filters around spend and I had 2 co-founders and some of the decision-making you can have, it's like anything under $10,000, up to $50,000, over $100,000. How do you start to get some formality around decision-making? Because you allocate a budget and that empowers you to spend money, but you also want accountability across co-founders and board in rationalizing decisions. Yeah. Are there formal things you can put in place to think about how you make those decisions? Because I've seen fights happen like brutally and separate co-founders over how they spend cash.

Well, okay, so there is kind of a general legal framework that's applicable to what you're asking. So, you know, number one, if you're raising on a SAFE, this is not a priced round yet, there's a valuation that you come up with as a founder. And it's, you know, more of an art than a science. You come up with a valuation you can defend. You really just need to be able to defend it enough to get a check. That's really, you know, what's at stake. Then what that means is that you can be taking in money on that SAFE. There's very little strings attached in terms of the rights, the information rights, or, you know, any sort of protocol or policy like you're alluding to in place. With regard to what you do with that money you take in under the SAFE. Also, it can be such a small overall percentage of ownership of the company that it, you know, that the investors don't have any sort of claim or any right to be upset about the fact that there is, you know, very little information or power they have to influence the decisions you make. So this is partially why the SAFE is very flexible. Founders love it. It, you know, it enables founders not to have to answer to the investors when it comes to the decisions they make, whether it's $100,000, it's a million, it's whatever it is. When it becomes a priced equity round, everything changes because now you have a preferred class of shares and there's all sorts of rights. That attach to that actual equity. And that's what's in the stock purchase agreement, the documents that go along with this kind of, of transaction. And in that setting, all of this is structured and it's mostly, it's a negotiation between you and the institutional investor. VCs tend to have like a playbook, a way they want this to go. So this is also very important practically because even if the VC does not take a board seat, That does not mean that they don't have total control over every decision you make when it comes to spending money, because they're going to do that through shareholder rights in that stock purchase agreement. So as a founder, you really do need to have legal counsel that you can talk to where you can really practically understand what you're giving away there, separate and apart from whether there's actually a board seat or not a board seat. Now, you're sort of, the way you're asking that question, Andy, it almost sounds like you're suggesting it's good to have that structure, which is fair. So, you know, that it can be a forcing function that now you have to put those policies and structures in place amongst you and your co-founders and the management team. There's a lot to be said for why that might be good, but, you know, it, it, everyone does it differently.

Yeah.

You know, the framework, if it's a priced round, Probably you will be forced to have some of those protocols and procedures in place. Raising on a SAFE? Nope.

I mean, there's so many headlines where you have one founder that just likes to spend money and it can be so contentious for obvious reasons. So just being proactive about it is smart. I want to continue on to asset management. So you go down the path of fundraising, you close, and you're getting capital in the bank. At this stage, you should well and truly have a plan in place of how you're going to spend that money, how you measure it, how you make decisions. From the next step about closing, getting money in the bank, from a responsibility standpoint, I'm fascinated on the investment part. Having someone who's qualified to help do this for you is good, but allocating responsibility between founders can also be something that's really important as far as, does it sit in one person's hand on how they invest? Are they getting buy-in? Like, how do you get a workflow between your team on some of those relationships and how you bring others in? Because you don't want to have everyone sitting on every decision, right?

Yeah.

So like, how do you empower founders to actually leverage your skills in what you're doing at JP Morgan?

That's, that's a great question. I think, um, it starts with frankly an investment policy and that's really gonna be what dictates, I mean, and a lot of times at seed and like super early stage companies, like an investment policy is gonna be doing more than necessary, but if you are putting your cash in something that's beyond or besides just a depository account, you're gonna want that structure in there. And so there's actually a section in many investment policies that delegates roles and responsibilities. So I think if you are a founder and you have a co-founder, you know, typically, I mean, sometimes I see one founder is maybe a little bit more creative and one's a little bit more on the execution side. Typically it's, I tend to work with, you know, more of the logistics and execution. And at that point, it's someone who's more of like in an operating capacity rather than like a, let's say, you know, boots on the ground building engineering. So, you know, ultimately I just try to equip them with the most important things to understand, you know, in our opinion. And it's those 3 priorities of principal preservation, liquidity, and then yield. But it's also about Making sure that you're ca— like aligning your cash with your timeline, right? So it's like really the, the key thing I would say is making sure your money's accessible when you need it for when you wanna spend it. So let's say 3 to 6 months of burn, put that between like a checking and a savings account. That's like truly instantaneous cash. Then maybe, you know, maybe that $5 to $6 million left over from that $9 million example, we'll put that in a money market fund, but let's make sure in, you know, 3 months, we're burning through the cash in the savings account. Like, so it's, it's, it is somewhat intuitive in the sense that it kind of reflects, you know, sometimes I say to my founders, like, it's kind of like personal banking. Like you have like your checking account, you pay your credit card out of, you have your savings account, that's your rainy day fund. Like if something goes wrong, you want access to that like that. And then your strategic cash, it can stay in something that's still a cash equivalent and still safe, but earning, you know, solid yield. you know, 3.5, call it, in something really safe. So I think as long as I feel like I can equip founders with like those primary principles, you know, from then it's, it's, I don't know what they do with it and how they, how they manage it, but, but how I interact with them, I think that, you know, just enabling and equipping them with those guiding principles, anecdotally it's been helpful for founders. So. Yeah.

It's one of the tension points I see is that Finance and legal are typically 2 of the larger costs that you have upfront as a startup, and it can feel like it's not getting you anything, which is why I see a lot of founders kick that can down the road and don't make a decision, which can cause a future problem, right? So it's hard to rationalize how much you spend and being smart about where you spend your money legally and financially can create future success. And we've, I won't go off on our side chat we had, but what we were talking about is All the things that can cost you down the track and simple things around capital gains.

Exactly.

Section 83s, the most simple template one-pager that you can do that people don't even realize that they have to do. So like getting in early actually makes you so much more money down the road. Yeah. It's just how you balance cash flow, right?

And something that takes you 5 minutes now can save you like 8 hours in the future, if not more. So, and costs probably. So yeah, I would just, I would totally echo that.

Emma, from your side, I mean, you are, you are seeing businesses pre-revenue and some revenue. How do you start to examine how they're spending money and making decisions as far as fiscal responsibility for them to be able to be a reasonable investment outside of everything else you look at?

So we, for kind of further background on that, that's exactly right. We look at Pre-revenue, pre-launch companies all the way through pre-IPO. So our investors, we invest individually or through SPVs. We don't invest kind of out of a fund structure. So our members kind of pursue where their interest lies most and what stage kind of fits best with their investment profile. So to your point on pre-revenue companies and kind of evaluating how cash smart they are, I think a lot of it comes into the financials that They provide you and looking at their customer acquisition costs, looking at their burn rate, looking at what they're spending on marketing. Is it organic? Is it paid? Honestly, sometimes for pre-revenue companies, if they are already spending on paid marketing, that is kind of a red flag for me. So, it's really kind of looking at where they are spending right now. And then kind of to what I was talking about earlier, the use of funds and really having a plan to put that into action, especially for pre-launch. A slide that I care a lot about is the product roadmap and what is kind of the next two to three to five years going to look like, and then connecting that to the use of funds and how are you going to get there. So I think kind of seeing, looking at the limited history that they have with cash management so far, and using that as a predictor of how they're going to spend the funds because with a limited history, that is really important to kind of have a really good narrative behind. Why is it what it is right now? And what is it going to look like going forward?

Such good advice. And it goes back to that cycle of planning budgets, thinking future state allocation of spend, pre and post fundraising, and then thinking about the next step. Like you need to be one step ahead in that narrative because it helps inform planning and decision-making. Add investor comms. If you've got angels through to more formal VCs, within that, you need to proactively manage that relationship too.

Exactly. And some of the best investors are the ones that can also help you with that. So we do, sometimes we invest alongside VCs, sometimes we're early enough where it's purely an angel round, but especially where we get to the point where a VC is leading the round, ideally you're a founder that's choosing a partner who is going to proactively step in and help you manage that cash, or you're working with a great partner like JP Morgan who, where you don't feel alone in All of a sudden you are burning this cash and your investor turns around and is going to freak out at you. Ideally, that should be more of a long-term kind of partnership where both your asset manager and your investors can really help step in and help you manage that.

And Elizabeth, from a JP standpoint, you're on the asset management team, but obviously you're such a big company and you have other skills. You've been chatting to the startup banking team.

Yeah.

Like you came from SVB when they went under, and I can't begin to imagine what that was like inside the walls. But coming out of that into JP Morgan, what are the ways that someone should think about a partner like JP Morgan? Because the breadth of skills that you have is so powerful and it's probably ultimately a cost-efficient way to think about it too, rather than going to a boutique consultant.

Ultimately, I think that, I mean, we hear all the time that, you know, when I go to events or conferences, they'll say, well, well, we're not ready for JP Morgan yet. We're like too early. And, you know, we're obviously trying to distill that as I sit on the couch with you here, but You know, it's, it, it does no harm to go in early to an institution like that. And I think what really is, holds the most, most truth that I've seen from founders who've gone from Series A with us at JP Morgan to like, you know, IPO and, and beyond is really that relationships often equal like resources, honestly. And so a place like JP Morgan, when there's so much Just make sure you know you want to have a great banker and an advocate there to help you navigate the firm because yes, it's a really big place. But by that same token, we can do everything. And from a cost standpoint as well, you know when I when we talk about risk and I see there's so many products and offerings in the market. But I think that you know when we when we talk about risk, you know JPMorgan is there in the good times, but we're also there in the bad times. Like we've You know, in those cycles, we, we tend to try to provide liquidity in the market. So I think that we've been, we've been riding a, you know, bull market for, for quite some time. And you want a partner that's going to be there when times are bad. And so my time as Telica, that's a conversation for another time. I jokingly say I hit the wrong button, but I, yeah, so it was, it was a wild time. But I think that's where, you know, you really need to understand the institution behind the product. Like that is really powerful and A bank's balance sheet is the first indicator of the health of that financial institution. So oftentimes we, if a bank's willing to pay you more on deposits, they want your money. There might be a reason they want your money. So relationships can mean resources, especially at a place like JP Morgan. And you're never too early to bank with us.

Awesome. We're at time. This has been such a big chat. We're actually going to to break out now and have a little workshop, but thank you everyone for coming along. Breen, Emma, Elizabeth, this has been such a fruitful conversation.

Thank you.

Yeah, how are you?

Thanks for listening to Startups Decoded. If today's conversation helped you think differently, share it with a founder in your network. And don't forget to subscribe for real-world startup insights every week. We really value your support. If you're interested in sponsoring the show, email hello@startupsdecoded.com. I'm Andy Walsh. I'll see you next week.