Differences between being a VC and a founder
Everybody knows there’s a huge difference between being an investor and a founder. Yes, it’s about personal involvement, commitment, responsibility, making tough decisions and all other words which sound cool. But let me give you a particular example of one thing which investors think they understand and I thought I understood as an investor and thought it was simple. Granting stock options to employees.
As a VC:
1) you say: “guys it’s time you give your key employees some shares in your company.”
2) you come to a board meeting, read the number of new shares, calculate how it dilutes you just for curiosity reasons, take a glance at the names list and put your signature under the doc.
Total time required: about 1 hour. The feeling of wisdom and superiority is a bonus.
As a founder:
1) you listen to your VC and spend 4 hours talking to your co-founders trying to come up with ideas of how many shares should you give to each employee to make it all nice and fair. BTW here’s a good read on how to decide how much equity you should grant. You create the list.
2) you call your lawyers and ask to draft a stock option plan and an RSU agreement for employees. Lawyers ask you questions, request documents and send forms to fill. You do all that.
3) you find and select an accounting firm to do a 409 valuation. You send them docs, you fill in their forms, you answer their questions. You ask your CPA how much taxes you’ll have to pay for your own ESOPs. You fight with the accountants over the valuation they’ve come up with to reduce taxes.
4) lawyers send you the 25-page stock option plan, a 10-page RSU agreement, and a monstrous BoD and shareholder resolutions to adopt the above mentioned + the valuation. You read, you write comments, you amend all these.
5) you chase after every board member and shareholder to sign all these docs. There’s always going to be one small investor who doesn’t reply to your emails, but you still need his signature.
6) you talk to every advisor, employee or contractor to which you’ve decided to give RSUs, explain what these enormous docs are, how these work, sign the papers with them and help them fill out their tax forms. Every employee asks how many shares did their peers get and tries to negotiate their vesting terms.
Total time required: about two weeks in addition to working on your product and sales. Feeling miserable, clueless and unfair is a bonus.
Important: This is all assuming that your lawyers were decent and you’ve got all docs which you would typically have at this stage, which is unfortunately not always the case. If some docs were missing, signed or dated incorrectly or refer to terms and docs which did not exist, you need to double the time required.
About Nick Davidov: Nick is both a Silicon Valley VC and a founder. He co-founded Gagarin Capital, one of the leading venture firms investing in early-stage AI companies and CherryHome.ai — an AI assistant helping care about the loved ones at home. Nick has recently participated in MSQRD (acquired by Facebook), Prisma (best app of 2016 on both IoS and Android with over 110M downloads) and AI Matter (acquired by Google) as growth hacker and advisor.