Q&A: Founders "Showing Off", Fundraising Privilege, Board Accountability & Responsible Capital Deployment - E255

· Q and A,Southeast Asia,Founder,Start-up


“The difference between privilege and advantage is what you are doing with it. A lot of people have advantages but they just sit on them. They’re comfortable with it and some of them even squander it. We have advantages in different areas, so let’s be clear-eyed and realistic and build in those areas as much as we can. Let’s take a step back and respect those who want to make a difference regardless of their advantage.” - Jeremy Au


"The media really wants human stories. It’s interesting to know company stories about growth rates and how robust the business is, but they want to talk about classic heroes' journeys that came through, how they overcame obstacles, got advice, changed their lives, and built a business that’s doing well." - Jeremy Au

1. Why do founders "show off" in media? We discuss how press helps build startup legitimacy as customers want to buy from winners, drives top-of-funnel awareness across customers, investors and future hires, improves middle-of-the-funnel conversion (customers want to buy from "winners") and provides personal validation.

2. Individual founders have varying advantages in fundraising include prior financial resource (legacy or self-earned), social capital (relationship web across prospective customers, investors, and hires), education capital (intelligence, domain expertise and street-smarts) and many more. We debate how founders can improve personally or team up to sharpen their edge, as well as the difference between advantage and privilege.

3. Founders deploy capital responsibly through clear-eyed understanding of their business and growth levers. Structure spending as experimental milestones with key "to-learn" points to accelerate the learning curve while minimizing costs in the face of limited cash runway. Executives and board members have fiduciary, legal and moral responsibilities for investment capital to be spent well.

Read, listen or watch the full insight including the dissonance between VC and board responsibilities, good vs. bad-faith actors, and the value of narrative arcs in customer conversion at https://www.bravesea.com/blog/fundraising-privilege

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Jeremy Au: (01:43)

Hey, Adriel! Another week, another Q&A. So hit me with the questions.

Adriel Yong: (01:51)

Yeah, totally. So for today's listener Q&A, the first question is really on why do founders show off on PR, on lists like Forbes 30 Under 30. What are the benefits or, you know, are there just perceived benefits and no real benefits to it?

Jeremy Au: (02:09)

Yeah. I found her questions quite interesting, the four questions, and actually, I thought, thought this was the most interesting of the lot. Founders want to show off. I thought it was the interesting cause of the phrasing "show off", right? So there's a bit of a hero slash kind of like demi-god status that's there. Showing off. There's a bit of a value judgment obviously between a media feature versus showing off. So I'll talk about the positive stuff about why they want to show off in general.

First of all, there's a whole bunch of them. It builds the legitimacy of the startup. So no customer really wants to buy from some unknown, loser, no-name company, right? They want to buy from winners. They want to buy from companies that are hot, they're rising. They represent the future. So customers actually often search or find that these media mentions are quite useful for them in their buying decisions. So founders choose to be on Forbes 30 under 30 or wherever they are because they want to come to build that legitimacy.

The second of course is that the media really wants human stories. So the media doesn't want company stories about growth rates and how robust the business is. I mean, this, it's kind of interesting, but it's not the most interesting. The interesting stuff we want to do is the human interest story.

They want to talk about how this founder went through this adversity. Classic heroes' journeys came through, overcame some obstacles, got some advice, changed their life, build a business, and a business is doing well. Obviously, there's some risk in the future, but you know, the future is bright. This is a human story that's very common, especially if you read some of the articles. I, you know, maybe I'm like a cynical, skeptical person who likes reading too much and writing, but you know, you can see the narrative arc is very consistent because humans want that human interest story, and so, when they profile the company, they're not profiling the founder often because they need and want that human interest story.

Third, of course, is that it feels good, obviously for the founder. The founder has gone through a ton of rejection in the first year, the second year, the third year, fourth year. Now you're suddenly getting validated. You're suddenly getting some good press. You're suddenly getting media.

You sit down. It's exciting. I remember I was excited to go through my first TV interview across, you know, Southeast Asia media, Channels News Asia, and had to prepare. I was so excited and I was like, oh, finally. And then the best part is like my parents finally somewhat understood what I was doing at that point in time, because before that, it was like, oh, you're wasting your time. You're blah, blah, blah. And then I, oh, yeah, yeah. Channels News Asia. Okay. You also get some validation. Next is, of course, a lot of prospective employees, they want to know who their boss is. They want to know who the CEO and the founder is. And so, of course, they will be looking at Glassdoor where it's unlike this much. Obviously, they'll follow your website. But the truth is, you know, you want to see the visuals. The story, the narrative of who the boss is. Employees definitely often read this media, and of course, you know, they take it with a grain of salt, but they use that just to make a judgment and be like, do I trust this person? Do I like this person? And do I believe this comp person is very confident and professional and savvy to be able to take the company to the next level?

Another thing that's actually interesting is that investors actually also want to know who this person is. So investors are often trying to, you know, make a decision about the company, but they're also trying to get a quick sense of who this person is. Is this person legit? And so on, and so forth. And so this is a fast way for them to get up to speed on who the person is, their personal story. Eventually, it's sometimes helpful because they can build that internal story because every investor work as a team to persuade and make a final decision about whether the investment is made.

And so sometimes the media articles can be helpful to persuade internal decision makers to say like, okay, you know, the company is pretty good, but this founder is incredible because of these things, because they overcame A, B, C, and they have that experience. And you know, that's why this experience is totally relevant for this company.

Lastly, founders often think about it, is that it's good to attract new customers as well. That ties back to your earlier point. What I would disagree slightly is that I would say it's not really good from my personal experience for the top of the funnel.

The truth is that most people don't really read Forbes or, you know, Financial Times or Chinese News Asia. I mean, the target buyer is often much more in your industry magazines, much more in your industry conferences, much more at home, and often targetable by your ads, and your email list and marketing. So I would say like as a top-of-the-funnel way to get leads, I would say it's normally underperforming, but what I often speak founder is that this is actually really good for the middle of the funnel. This is a great way to improve your conversion rate because earlier, like I said, customers want to know that this is, not a no-name company, but it's a brand name company or has that upside, but also it's a good way for you to push out as content to them. As you know, as part of your monthly newsletter, as part of your quarterly conversation, maybe, to add it to your, you know, sales pitch deck, you know, you can add as a logo.

There are good ways for you to reengage the prospect and kind of like give them additional confidence as part of that movie narrative, right? For them to feel increased conviction in buying from a startup that is solving problems that they are facing and want to solve but are scared to invest the time and energy in onboarding for an unknown company. Overall, founders show off on PR because again, it builds legitimacy for the startup, for customers. The media wants human stories, not company stories. It is a feel-good moment in terms of validation for founders. It's good for employee attraction and conversion because employees want to know who their boss is. Investors want to know who the leader is, and so it does help improve fundraising. And lastly, it does help, the middle of the funnel conversion, especially for sales prospects.

Adriel Yong: (08:02)

Thanks so much for sharing, Jeremy. So I guess, the next time we see founders like posting on social media, it's not just about jumping to an immediate value judgment but also thinking deeper on the business drivers that sort of make the drive and search for publicity outlook.

The second question is really around accountability for startup use of funds. There have been multiple high-profile incidents, whether it's, you know, FTX, or Zilingo. So how should startups think about, you know, accountability for funds? Is there accountability for the use of funds, for outsiders?

Jeremy Au: (08:37)

Yeah, I mean, of course, the key point is that there is accountability in a sense that every executive, and that's not just the founders, but also the C-Suite, Chief Marketing Officer, the Chief Financial Officer, the Head of Marketing, or the controller, like the executive folks. Everybody has a fiduciary duty to the company. To the shareholders. What that means, of course, can be quite bivalent, can be quite, you know, scary. But what this means is that, are you doing things that are in the best interest of the company. The best interest of the company, for example, will be working hard, you know, being thoughtful about your experiments and not blowing it on personal expenses, right?

So these are all, fiduciary duties that you have, especially when you have external investors. So obviously, you know, if you are a single-person company like a sole proprietor. A company, then obviously, whatever business you do is very, with your personal requirements.

But the moment you have external investors, then suddenly, you're basically saying, I'm responsible for, let's say I own 50% and then three investors own another 50%. I actually have a fiduciary duty toward the four of us. To do what's best for the company to build that economic engine, because that's the promise that was made to bring that capital in, in the first place. So the fundamental accountability is really at the executive level. And you call it moral because that's the right thing to do. You can call it ethical because that's what you should do as a business office. Of course, it's legal because when you sign contracts and so, so forth, there's a fiduciary duty to do so.

Of course, the next layer, what people are looking at, what's the topic of the day is really about boards. How responsible are board directors? And the board of directors is people who are nominated by the shareholders. And they could be a shareholder, for example, by the individuals nominated by shareholders because the shareholder could be a whole company, right? A whole fund. It could be a whole syndicate, but a board director is someone, an individual nominated to take on that responsibility to provide control, oversight, and diligence and that's actually a really interesting thing because many startups don't have boards actually.

So you are angel round or you're even a seed round many startups don't have boards. So the truth is there's no board, therefore there's no oversight layer. The minority shareholders, for example, would have to trust the fiduciary duty of the executives. But if you are, have a board, and of course, the board theoretically has the power to ensure that the fiduciary duty is being carried out. So obviously that the power to approve budgets for the year ahead, they have the ability to veto and review excess spending across certain limits. And of course, they have to be, you know, updated on a quarterly basis on a key strategy and updates on that.

In practice, you know, there are bad actors as well, right? Especially on the fiduciary side. So, for example, in the FTX scandal, the truth is obviously there are multiple lapses in various bot control and oversight. But the truth of the matter is that there was backdoor code where, you know, the Head of Engineering and the CTO basically created a way for capital to be transferred that did not trigger the internal controls that they had. And so that obviously violated the transfer reporting requirements to the board. And so the board was unaware. So in that sense, the executives lied to the board and did not commit the fiduciary duties and so so forth. And this is all coming out to light. So again, I'm not saying that there aren't other issues, but I'm just saying that there is a core factor that was intentionally done. So the truth of the matter is that good faith founders and there are bad faith actor founders as well.

And also in practice, the truth is that boards are very detail-oriented, process-oriented folks. Obviously, there are public boards, there are private boards, you know, there are all kinds of folks. But in general, the best practice is that this board is very much focused on the details, willing to do the due diligence, willing to go into the details, and very focused on making sure that the right things are being done in the right process. Unfortunately, VCs are very focused on growth. They're focused on the future, they're focusing on the strategy, and so you have this two-hour quarterly board meeting and the VCs are spending one hour and a half right on the growth, the future, and that's what I think a lot of founders are buying VCs for? In the early Q&A, we said, you buy VCs to have better odds about the future. That approach obviously makes sense, especially when they're good-faith VCs and good-faith founders working together. And so they assume that the processes are being done well and they trust the thing and they kind of like approve what needs to be done and then they focus the time on growth, right?

The thing is, unfortunately, things can go sideways. There can be bad faith factors at the middle management layer at the executive layer, right? And then when the board is not focused on the process, not focused on doing audits and so, so forth, then that's when things can go sideways and that's when things go sideways, spiral out, and then we have this media and now we have this conversation and question from the audience about, is there any accountability for startup user of funds, and answers yes, there should be at multiple levels, in theory, and in practice for good faith actors. Yet things can go bad when they're bad faith actors or the board has lapsed in their process, due to orientation.

Adriel Yong: (14:02)

Thanks so much for that explainer on board responsibilities, and controls. For all of the people who don't have that sort of exposure to the responsibilities of board members, this is definitely very eye-opening. The next question, which I really thought was a good question from the listener, which is what's the privilege behind being able to raise capital and founder a startup, right? I mean, as a VC, we speak to so many founders and obviously, there's a certain segment of founders that often get ambassadors more than those that grew, those that don't. That's also been sort of proven by research as well, right? So from your perspective, what's the privilege that underpins it?

Jeremy Au: (14:44)

Yeah, I mean that's why I really enjoyed this, set of questions. Cause they're all quite spicy, especially the language here. Yeah. I mean there's privilege right behind building a startup, right? There are three major aspects that are there, and one other way of thinking about is these are advantages, right? And these are advantages that you have in building this company, that you may have earned or you may not have earned, right?

Obviously the first, of course, is being rich. And that doesn't necessarily mean that being rich enough to fund your own startup, although I've seen a few folks have done it. So I've seen founders who are rich enough to fund their own startup because maybe they earned it from before, right? Or maybe they come from money and so they're able to bootstrap for a good chunk of time, or they have enough capital and savings to eat ramen effectively and support a family for two years while they build a company. So just having the capital to be able to do a startup and not worry about eating, shelter, or your family, is an advantage, honestly. And you need to have that because you've got to focus on a company. There are ways around it. You can build a company's side hustle, and you can save in advance, but truth is, having the financial resources really do help like I said, a spectrum from how you earned it to how much money you have, but definitely it's an advantage.

The second advantage, of course, is you're rich in social capital, right? So people trust you. People trust you because they want to work for you. They want to help out on the side for you. They want to invest in your company, they want to buy your stuff. They want to introduce you to other folks. I mean, it's a big advantage to have. Right? And maybe, obviously again, maybe you earned it, maybe you didn't earn it. Maybe it's a long time, maybe it feels unfair because you're a fresh grad and you're fighting someone who's like 20 years experience and feels privileged to have that. But the truth is, yeah, having that advantage and social capital helps you accelerate the business very quickly because then, people don't spend time doing due diligence. People don't spend as much time, kind of like hamming and hauling and dancing around the bush. Just there's that.

The third thing is that building a company is really, really hard, right? So being educated and street-smart and savvy, is important to build a company because you have to do engineering, you have to manage sales, you have to get coaching. There's so much hard stuff about building a startup, so how did you get it? Was it because you were lucky to be in a good school, or you had hands-on training and whether it, maybe because you were born in the right country, you were born to the right parents? Maybe you were just lucky, maybe the government gave you a scholarship, or maybe you ran into the right mentor. You had the right genetic lottery, right? You had the right network that you, be able to come in. Like, those are all things that let you have the opportunity to get educated and get savvy, right? In terms of being rich, being socially capital rich, and being educated, these are all advantages to raising capital and finding a startup.

For me, I do think about that tone a little bit. The difference between privilege and advantage is “what are you doing with it”? Lots of folks have these advantages and they sit on it. They don't use it. They're comfortable with it. In fact, lots of folks squander it. So let's take a step back. Let's respect folks who want to make a difference, regardless of their advantage. Of course, if we don't have an advantage, (as we have an advantage in some areas and disadvantages in other areas), then let's be clear-eyed and realistic about it. Let's try to build our advantage in those areas as much as we can.

One thing that's underappreciated is that startups are all about teams. There's no one-man startup. The start is one person, but it's about the teaming. You can team with someone to cover, they have certain advantages. You have certain advantages. How do you team? How do you learn together? How do you grow together as a team and as a community? That's another approach to grow and think about.

Adriel Yong: (18:43)

Yeah, thanks so much Jeremy for sharing that. I totally think that there is the truth, which is life is unfair. Some people have X advantages, some people have Y advantages. The truth of the matter is, as a founder, you also have to focus on your own personal unfair advantages when you choose to build something out. That's also something VCs look out for, right? Like what is the underwrite that you have in building this company, in this market, in this geography? Tied to this question, this listener also gave another really great question about how founders deploy capital responsibly now that they have, exercised their privilege to go out and raise that money, right?

Jeremy Au: (19:25) So three key parts from our perspective. The first is, you have to know your business, what the growth levels are, what your strategy is, and what the return on investment of various expansion initiatives is. If you don't know this stuff, you can't deploy capital responsibility, right? Because the capital is to help the company grow. And so you have to know how much capital you need and you want to know how you're gonna deploy it because you actually know your business really, really well. So that's really fundamental.

I know it's pretty basic. People are gonna laugh a little bit, like Yeah, of course, the founder knows their business, but the level of detail is not like a ballpark thing. It's like you had to be very clear like, oh, I'm going to spend this amount of money, so so forth. Basics and fundamentals are really important, right? So that's key.

The second part is really about structuring the spending as experimental milestones. So what I mean by that is that obviously when you're building a startup, everything's a learning moment, right? It's like, can I build a technology? Does the customer want to buy this? What's the top problem? What attributes of this product are really important to them? What are the features to build? What the core metrics are? There are so many different learning moments that you're just building rapidly, and so you've already gotten to structure them as individual milestones. And all of them are like learning points, right? And you run the experiment and you're just gonna be like, okay, I ran this experiment on marketing copy. I did an A/B test for this, the marketing copy is like, it's really about being 10x better. Data copy is about 10x faster and more convenient. Which one's better for my customer persona? Well, the truth is, you could spend $1 million on experiments. You can spend a hundred thousand dollars, you can spend $10,000. You can spend $1,000 on experiments. That is really kind of like, how expensive was your learning rate? How expensive was it did it take for you to learn that?

And the truth of the matter is that if you run out of cash before you were able to learn fast enough, then you just die, right? As a company. So successful companies are the ones who are able to learn faster than the cash inflow is. So being able to structure experiments very aggressively and very efficiently so that everything's either a green light or a learning moment is really key.

The last thing, of course, is being clear about your business expenses and your personal expenses. So what that means is that, once you have capital, obviously you should pay yourself a living salary to support your family and lets you be your best at work. Next, of course, the layer will be that when you start layering benefits, it shouldn't just be personal, it should be, for example, health insurance should be fair and tiered with access.

So what I mean by tiered is that you may not be able for everybody, but it should be tiered to the class of employees. So, for example, it may not apply to blue-collar workers being applied for white-collar workers, for example. You may apply the huge queue, but not to satellite offices. Being thoughtful about that benefit and being able to articulate the value proposition is quite key cause otherwise, you can come across as unfair or, too personally motivated.

Lastly is that the truth of the matter is that a lot of founders are in salvation mode, right? And so you are very tight and capital in and then at some moment you can't hit that hockey stick movement and you start raising a ton of money with that growth and maybe get to do some secondaries as well. That's really the moment. Some stuff can really go crazy, right? Because founders can, for me, my personal theory is, for example, it's like when your body, if your parents, for example, go through famine, right? And you're pregnant during that time, then what happens is that when you grow up, your, your body is, your genes are much more programmed from an epigenetic basis to pack on a lot more fat, right? Because your body is like trying to say like, oh, salvation, more salvation. I need to pack as many calories in the fat just in case famine is coming. Founders, after five years of salvation, can say, oh, this is finally my moment. I can finally get back the money that I spent, implicitly by subsidizing the company, this is my moment to get back my foregoing and salary, right? This is my moment to enjoy a good life, right? There's some truth to that and there's a way to do that nicely, obviously. I have one founder who finally gave himself permission to, live on his own, to get meals prepared for him.

So he doesn't have to cook himself and everything and bite whatever. Finally, have enough money to go to the gym and get a personal trainer, right? So that's fair. But at some level, it can really go overboard. Like flights for personal reasons that are quasi-business expenses, right? All that stuff can honestly, it's rational for each founder because they did it and they're smart people and there are so many stories of bad-faith founders who just overspend the capital. But of course, from the public perspective, it's like they're going crazy. From the sun, from the media's perspective is just like a few days.

So for folks, you just have to be careful about business versus personal expenses and just be like, okay, does this pass the sunshine test? Right? If this was in the media, would I be happy to defend this moment? So overriding startup founders can deploy capital responsibility by, first of all, really understanding the business and knowing what the growth levers are about how they deploy the capital.

Secondly, structuring every spending quantum as experimental milestones with key learning points and accelerating that learning curve while being as cost-efficient as possible.

And lastly, be clear about the separation between business expenses and personal expenses.

Adriel Yong: (24:54)

Awesome. Thanks so much, Jeremy for giving such a thoughtful answer about how you deploy capital responsibly. And I guess that's especially true in this market where runways are getting tighter. You have to cut employee calls and all that, they do cut personal calls, right? With that, we’d like to thank this listener for the great range of questions.