What's Below in Issue #83:
📰 - FF Stock- the pros and cons
📊 - Startup Salary Gaps
🎙️ - Podcast #51 w/ Akaash Shah- getting capital without VC
🆓 - Free startup resources
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The team at Carta found that salaries jump about 20% between companies worth $25 million and companies worth $250 million.
Understandably, in a tech startup, engineers get the highest salaries, averaging about $201K, while CS and marketing salary averages are on the other end of the scale.
Are you ready to increase these costs as your startup grows?
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Are FF Stocks For You?
So, you've launched your startup and poured your heart, soul, and sleep into it. Years go by, and your company grows. But let’s be real, living/working out of your parents’ garage indefinitely isn’t glamorous. If you want to cash out a bit by selling shares during the next financing round, some of your options include Secondary Purchase plus Exchange and FF Stocks. I want to talk about the latter today.
What is FF stock?
In a nutshell, FF (Founder's Fund or Founder-Friendly) Stocks are a hybrid between common and preferred stock that give founders special voting rights that let them maintain more control over their company even after getting investor funding.
Picture this, you want to take a little money off the table by selling shares at the company’s next round of financing. Here’s the snag: you don’t want to sell your shares at the 409A valuation (if like me, you don't speak tax codes, you can see a simple explanation of this here). They produce an intentionally deflated value. As a founder, you want the same price for their shares as the shares being sold in the current preferred round.
But investors aren’t thrilled about this. They don’t want to pay the preferred price for common shares. And if the company buys back common shares at the preferred price, the difference between what’s paid and the 409A value of the common is likely taxed as compensation. It's a tax headache nobody wants.
So, years ago Sean Parker (you might know him as the co-founder of Napster- remember those glorious days of free music?) and Founder’s Fund (yes, that’s what the FF stands for) had an idea. Why not grant a special class of stock to founders that converts into preferred stock at a future financing round?
These founder-friendly stocks can offer a middle ground, balancing the interests of both founders and investors. So why aren't FF Stock deals more common?
I recently spoke to a tax attorney, Mike Baker, about FF Stocks for his take on why more people don't use them. Here are some pros and cons I got from our chat:
So, are FF stocks a founder’s best friend or your potential downfall? Like any tool, it depends on how you use it. If you’re a founder who values control and long-term vision, FF stocks can be great. But tread carefully—alienating investors or misusing this power can spell trouble.
And remember, in the words of Sean Parker: “Sometimes you want to give people the illusion of being in control.” But with FF stocks, you don’t have to settle for the illusion—you can have the real deal.
Cheers to Mike Baker for all the info on FF Stock. Check out his website here for more, especially tax law here: https://mbakertaxlaw.com/
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In this episode, I'm joined by Aakash Shah, founder and CEO of Wyndly, a healthcare startup revolutionizing allergy treatment. Akash shares his journey from personal allergy sufferer to innovative healthcare entrepreneur and reveals how he navigated the challenging waters of fundraising without relying solely on traditional venture capital.
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