How to Get Me Involved in Your Smartup
By Jeff Sayre
I receive six to eight requests for help from startups each year—from angel investing, to advising, to consulting, to joining as a founder. To date, I’ve never accepted a single offer. Recently, however, I was very intrigued by one startup’s vision, so much so that I spent a significant amount of time exploring that opportunity. In the end, it did not work out. A few of the reasons why this opportunity did not pan out will be encapsulated in my below set of guidelines.
Below you will find what I call my 7-by-7 rules. Whereas this is my current set of criteria, I believe this list is useable by anyone seeking to attract talent or looking to start a smartup. Please feel free to adopt, modifying, or expand upon this list and use it as you see fit.
I’ve created this post for one purpose. To help alleviate the emails, requests for Skype convos, and PMs that I periodically receive. I’m guessing that I’ve spent 200 hours this year alone rehashing, justifying, even debating to the point of arguing, some of the items below. This post will serve as a one-stop-shop to learn about my requirements. If you read this and still think that we should talk, then contact me.
First an important note. I have my own nascent smartup that requires most of my time. I also have a number of other projects and responsibilities that use up any remaining time. I am active on three W3C standards groups, closely work with a few open source projects, and spend as much spare time as possible with my family.
Thus it will be very difficult to get me to bite on your project. But if you want to maximize your chances of success, here is how.
- Your startup must be in the Web-based or mobile-based Internet space. In other words, it is a technology-obligate Internet company. Although in the not-too-distant future, my horizons will broaden to include nanotech and biotech startups as well.
- Your startup must be a smartup. I am not interested in stale Web-2.0 startups.
- Your smartup must be looking to build, or at least contribute to, the Social Web
- Your smartup and its founders must be proven participants in or at least supporters of open source projects and principles
- Your smartup must primarily use open source tools and technologies to build its technology platform
- You understand, believe in, and adhere to the practices and principles of lean startups
- I will not sign an NDA. In 2009, I signed a few and requested a few others to do the same. In 2010, I requested zero NDAs and only signed one. Now, I will no longer request nor sign NDAs. To learn why, see this good read on the topic.
Note: If you are at the earliest stages of your smartup–having yet to incorporate–and are interested in coaxing me to join as a founder, then I will help you address each of the below points assuming that I agree to come on board.
- The smartup founders must be pre-aligned on exit valuation and have a written exit strategy that all founders have signed. Why? See this great resource.
- You must understand startup valuation and its impact on future employees and future investors. See this interesting link for one way to assess your smartup’s current value. If you think that your smartup has a current value other than zero, you must be able to justify it. Although your sweat equity and early accomplishments of course add value to your smartup, you are initially being compensated for your contributions by receiving a large chunk of very cheap stock. If you are a pre-profit, pre-revenue, pre-product smartup that has yet to cut a single line of code or have yet created a prototype product, please don’t overvalue your contributions at this stage. Outside investors will certainly not make that mistake.
- With respect to point two above, you have a well-reasoned and modeled capitalization table (cap table). This may not seem crucial right now, but it becomes essential if and when you seek outside investment. Creating, understanding, managing, and periodically updating your cap table early on is key to making better business decisions. Remember, you are starting a business, not a charity.
- Your smartup must know when to think outside of the box factory and when it must view the box from within. As a founding team, you will meet some very fascinating, talented, and inspiring people as you promote your project. Don’t get too caught up in wanting to hangout with inspiring people all day long. We all want to do that. What matters right now is laying a solid technical foundation for your smartup (see point 1, General Requirements, and point 5, Specific Requirements). Properly allocating scarce resources to accomplish that crucial task at inception is essential to your long-term survivability, investor suitability, and future success.
- You firmly understand and agree that at the early stages of your smartup, tech is at the core of your company. To that end, your smartup has an internal technical founder. Whereas having a strong business foundation within the core team is fine, even desirable, not having any technical expertise in the core team is detrimental. See this article section for an exhaustive reasoning for this requirement.
- You have sufficient in-house engineering skills to begin the process of building out your technical platform, of creating and iterating your MVP. You do not plan on using contract coding firms or overseas hacking sweatshops for building your platform. If you are a nanotech or biotech startup, you have the proper in-house (biochemical, electrical, materials science, etc) engineering skills to build your product. Don’t be penny wise and pound foolish. See this article section for a story behind this requirement.
- With rare exceptions, I have no interest in becoming a basic employee or a non-founder-level executive. By and large, if you want me to be part of your smartup, I’m interested in a founder’s position with a healthy ownership stake. I must have the opportunity for significant reward with the opportunity costs that I will incur. If a founder’s position is not possible, I may consider an advisory or outside board member position for the right smartup.