June 4, 2021

#36 - Sharpening your fundraising axe: Jason Yeh, Adamant Ventures

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“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” This powerful quote by Abraham Lincoln is often shared by our guest.Jason Yeh has spent a lot of time both fundraising and analyzing fundraisers. After working as an investor at Greycroft, starting a business and being acquired, he became Silicon Valley Bank's go-to Executive coach around fundraising. And too many times, he saw the negative impact that lack of preparation has – not only for the business, but for the founder's confidence and ability to deal with rejection. A lot of them needed more effective processes.

That's why last year he launched Adamant Ventures, a firm dedicated to making fundraising easier and accessible. Today, he shares concepts like calendar density and purity of motivation, besides actionable tips to help you sharpen your axe.Stick around to learn:

  • Some intricacies about investor psychology
  • Guidelines to develop your narrative
  • How to rebalance the power dynamics between investors and founders
  • And his views on pre-money vs post-money SAFEs


Brian Requarth

This is fun. I guess we're podcasters, apparently.

Jason Yeh

Yeah! Podcasting bros.

Brian Requarth

Not sure how that happened.

You've been a great supporter of our community and one of the more popular sessions that we've done. You definitely blew some minds with your session on fundraising. And you've talked to our Latitud Fellows a lot about setting up a fundraising process that includes lots of preparation. I think there's a quote that you have from Abraham Lincoln. Talk about calendar density and why it's important.

Jason Yeh

Sure. I think the quote I love sharing, and it's pretty funny to be sharing an Abraham Lincoln quote with a Latino/South American cohort of entrepreneurs.

But the quote is: "given six hours to cut down a tree, I would spend the first four hours sharpening my axe." I like applying that to fundraising because I think too many founders, when they start getting into fundraising, believe they understand the concept of fundraising funds is: it's asking people for money.

What they don't realize is that when you start peeling back the layers around startup fundraising, it's this network of interesting terms that don't make sense to processes, to people that you have to meet. And by jumping into a fundraise without preparing, you really set yourself up for if not full failure, at least extended pain.

And what I tell people is: half of what we're trying to do when we get ready for a fundraise is get comfortable with what you're about to do, and really build up a level of confidence that gets supported by doing a ton of work ahead of time, making sure that you have a lot of options and then creating a set of circumstances to optimize your chances of closing a round.

And one of the concepts that I'm always preaching about and certainly did with your community, was this idea of doing all the preparation you can to drive towards something that I call calendar density. So we're glazing over a lot of details, but essentially – people will have heard different ways of describing this, but – people are trying to set up first meetings where there are a bunch of meetings all scheduled within the same one or two weeks on a calendar. And I call that achieving calendar density.

There are a lot of reasons why this is really powerful. One is: you are trying to create a situation where investors can feel the fact that they're not the only game in town. I think where the power dynamic shifts, or the power dynamic is imbalanced in favor of investors, is when they believe that they get to evaluate you on their own terms and wait for more information. So what I tell people is that given the chance, if an investor has an opportunity to see the next card, – in a poker analogy of seeing the next card, – they'll always wait.

They will always ask "it looks like you're doing well, but let us know when you hit this, let us know when you hit that." But the moment they feel like there are other people that could take the deal away from them, the dynamic really shifts. So calendar density gives you an opportunity to shift that dynamic.

And the second thing that I really like pointing out is: fundraising is a confidence game, right? We are trying to project an understanding and a belief in yourself that investors pick up on so they believe that you are the person to actually bring this to the promised land. And one of the more difficult things can be dealing with rejection and nos during the course of a fundraise.

If you set up meetings where you have one meeting this week and the next meeting happens next week, when you get rejected, as you probably will in that very first meeting, Brian, that's going to feel really bad. And you're going to spend the next week thinking about "why did the VC reject me? What should I do differently?"

And then by the time you get into the next meeting, you're in your head and you're trying to fix things that probably don't need to be fixed. Whereas if I help a founder set up calendar density and they have three or four meetings a day for the next five to 10 days, that first rejection, you won't even have time to think about it. And you won't care. Cause we'll talk you through it.

Rejections mean nothing. I got 30, 40, 50 rejections before getting my term sheet. I'm sure you went through many rejections before you got your investing rounds. When you have that calendar density, you can go into it confidently being like "that investor Jason said 'no', he had no idea what he was talking about. His loss." And then going into the next one, because the next one is coming up in one hour.

So anyways, lots to talk about around calendar density and the different dynamics there. But yeah, those are the first two that come to mind when I try to set people on the right path.

Brian Requarth

Just I was at a little event. I went to a little party in Miami recently and a founder came up to. Because I had quoted your calendar density thing. And he came up to me, it was a Colombian entrepreneur and he's "man, calendar density. This Jason guy. He's got a good way of describing things."

It's important to have those concepts that allow founders to really latch onto it. And when you mentioned the confidence factor, you mentioned the 'nos,' I had over 30 'nos' also. You start the mental game, right?

If you think of sports, you're playing tennis, you're playing basketball. It's like when you think "I'm going to miss this next shot"– at the moment you have that doubt... Steph Curry, he thinks he's making everything. There's just no doubt – fill in the blank, the athlete top of their game. And having that ability to put that next shot on goal and having that option, it'll give you that confidence. And so that totally makes sense.

So how did you deal with the 'nos' in the past? What's the recommendation there when you do get a 'no'? Cause you start doubting yourself, which is what you don't want to do.

Jason Yeh

Yeah. I think I had an irrational confidence in my ability to get stuff done. Looking back on it, I'm like, "man, I really should not have been that confident."

Whether it's an irrational set of confidence or just the preparation and the iteration around your own story to know "look, there is a reason my company exists and I know why I'm the founder to do this."

So really touchy, feely, crystally self work that you have to do around why you started a company. I usually set founders on this path of doing this worksheet, which I'm happy to share with your audience. I call it my purpose and drive worksheet where you're asking yourself the hard questions.

Why are you doing this business? Are you doing it for the right reasons? Are you ready to go and get this done? Is this a company that you're doing because of external validation that you want to be a startup founder, because people think that you should be a startup founder? Or is it something that you really want to do?

And if you can come to terms with that, I think that confidence starts generating itself and feeding off of itself. So that's the first thing I would say.

And then the second thing I'd say is understanding that you have a very specific narrative and you should have a very specific narrative that won't be for everyone. I think that's something else that I tell people.

I want you to have a very specific story that won't be for everyone and that's okay. It allows you to go into meetings and hear 'nos' and be like "that person didn't get it. That person wasn't for me. All right. Let's move on to the next one."

And that realization is really powerful because one of the mistakes I see founders make a lot is that they want everyone to love them. They want everyone to like them. And so the mistake you'll see is that they will start with a story and start modifying the story to try to make it slightly interesting to everyone.

They might take a meeting with Brian and Brian's "you know, I kind of like what you're doing, but really the subscription model is what you should be thinking about." So they step away from that, they're like, "oh the next time I pitch, I'm going to say these things and maybe I'll throw out subscriptions. Because Brian said he would like subscription."

And so you tell this variation of your story, that adds subscription and the next person's "oh, that's kinda cool too. But you're going full B2B – have you thought about B2C at all?”

Okay. So you start frankensteining this diluted version of your story, because you want to lay traps for people that get slightly interested. And what I tell people is: by trying to be everything to everyone, they water everything down. You become lightly copacetic to every investor that you see, but you become not that interesting to the investor that has been looking for a very specific vision.

So I actually tell people, the other way to get confidence is that you're looking for the investor that is trying to think like you, you're not trying to be everything to everyone. And that means you're going to go and run into a lot of 'nos' and that's okay. I think building yourself up and getting ready for 'nos' is one of those ways that you generate the confidence that is necessary to get through it.

Brian Requarth

I love the fact that it's authentic too, right? What do you really believe? Where's your conviction lie, right? Because the investor can smell from a mile away when you're just going to serve them up something. In Portuguese, they say "brilho no olho." You can see the sparkling eyes of the founder that is like "this is what I'm doing, I'm going after it." And then there's just this deep conviction.

I think if you're trying to adapt… of course, there are certain things that you say that might resonate and you can take note of those, but I think there's a difference between a thesis on how to build the business and statements that land. So I totally agree with that.

Jason Yeh

Yeah. I'll say two quick things: part of trying to figure out if you have the confidence in your business might lead you to not do your business. And that's happened before with me and some other founders.

I think that's the best thing that could happen to somebody. They start doing this work and trying to prepare and they're like, "am I doing this for the right reasons? Is this something that I have the conviction that is necessary to get through a fundraise?" So that's one thing.

And then two: you spoke about the Portuguese term. We actually had a live session for my class and a guest speaker came on, Sarra Zayani, General Partner at Global Founders Capital. We were talking about this concept of the passion that she's looking for in founders. And she shared this term that I'm going to start using all the time. And I hope you can use it too, attributed to me. No, but as Sarra actually said she heard it from another investor.

The point of view from the investor she talked about is they're looking for purity of motivation.

And I love that term. They're looking at the founder and looking for that brilliance in their eyes, or purity of motivation. Why is Brian doing this business? Do I believe that he's doing it for the reasons that will push him through the hard times, that will make them figure out the answers, that will have him continue going?

Purity of motivation to me is the way investors see this idea of passion. I describe passion to a founder and I want them to be passionate the way it's perceived by investors. I think a lot of times it's like looking for that purity of motivation.

Brian Requarth

It's a very concise way of describing the true purpose. From the investor side, there's a lot of ways to make money. And it's going to be hard no matter what. If you have the purity of motivation and you come across something difficult, you're going to climb that wall. You're going to scale it, or you're going to find a way around it.

I was talking to a founder today and he's wrapped up in this really interesting fundraising process. He's building a bank, kind of FinTech, for the Latino market in the US. He comes from this community. He grew up pretty poor and not with a lot of resources. And he's extremely motivated to build this next generation company that's gonna empower financial inclusion for that segment of the population.

And you can just see the fire in his eyes. That purity of motivation I think resonates with investors because they know that you're going to keep charging no matter what.

Let's switch gears a little bit and get to the tactics. You'd mentioned a little bit of the sharpening of the ax. So let's go into a little bit more about the first steps of having an effective fundraising process.

Jason Yeh

I think about three phases for any sort of fundraise that people need to focus on. I added this fourth one.

So preparing, I talked a little bit about purpose and drive, but standing back and understanding why you're doing things is really important. That can be done as solo work, I think, in your own self-reflection. But also it can be done – I encourage people to have conversations with people that have been there before, mentors like yourself, Brian, and just picking apart why you're doing this business.

And once you can get to that answer, we'll then go into really developing your narrative. I think there's a lot to be said about working in iterating through narrative. But the thing that founders need to know is that the story is everything. What I tell people is: whether you're on the back of a napkin or your series C company with a few years of numbers… numbers are interesting but none of the numbers you tell me can be extrapolated to infinity and forever. So everything that wraps around the story is super important.

A few tactics I'd share specifically around narrative development is: I think less is more.

You'll see a ton of different things on the internet, around the perfect number of slides, decks and DocSend. And actually, DocSend, who I partner with on a lot of their things and are very data-driven, they will tell you the perfect deck is something like 18 or 19 slides. That's what the data tell them. I believe that founders should try to go for 10 slides or less as a goal. It doesn't mean that you're going to get there, but I really encourage founders to try to tell your story in a way that gets you around 10 slides.

If you had to add to go to 11 or 12, that's fine. But have the goal of getting to something like 10 slides. A red flag for me is if a founder can't tell their story in a compelling way in 10 slides. It kind of means you're overselling, you're reaching. You're trying to describe every little interesting thing about your business to catch someone's eye when, if you really know why you exist in this world, if you really know why your company is important, you can do that in 10 slides. So that's one thing.

And then the other tactical thing around the deck that I'll share – we could spend five hours on narrative and deck –, but the other thing I'd say is: people will read about the 12 slides you need in a deck, or the things you need to say. And you'll see problem, solution, why now, vision, business model... a lot of different things. I cringe at very prescriptive directions around narrative and deck creation because I just think every story is different.

Every story requires a different lead in to how things are presented in a way that an investor will really consume. And so what I challenge people to do, I call it the four features of a deck. There are four things that I think you really need:

  • I think you need to describe that there was a problem or a need.
  • I think you need to describe this solution.
  • I think you need to describe that this is a big idea.
  • And I think you need to describe that you are the team, that your team will be successful in doing those things.

Now, those aren't four slides. Those are four things that need to come across in your deck. It could take you three slides to describe your problem. It could take you three slides to talk through a solution. The idea that there are things like 'vision' and 'why now'... Those are interesting slides. I'm not saying those shouldn't be there, but It doesn't have to be so prescriptive as long as you're able to cover in some sort of organization of slides those four features.

The fifth optional one that I tell people about – this is just my pet peeve, it doesn't need to be in there, I don't need to call it out but – I hate when I read a deck and I actually don't know what stage of the company is.

I'm like, okay, this is a really fancy deck. Have you been around for 10 years? Did you even launch this product?

I really hate that. So don't obfuscate where you are, and that's just my personal pet peeve. I'll pause right there so we don't overtake the whole podcast just talking about narrative and deck, but those are two tactical things you can do.

Brian Requarth

No, we can always have you back, man. You got a lot of knowledge. I like going deep rather than wide.

A pet peeve for me is seeing a big list of advisors, right? That's like to me as an instant "do these people invest in your company, are you just handing out equity? What's the deal?"

That's a classic mistake, a rookie mistake.

Jason Yeh

Yeah. Don't hide behind names. Don't hide. If you have an advisor there, they better be able to jump on the phone with me tomorrow.

Brian Requarth

Yeah, exactly. And they better be world-class. I love the advice on the slides. Let's just summarize: Simple is better. Less is more. Try to distill it down into a balsamic reduction sauce.

Jason Yeh

I kind of point people to YC, which has some materials on how to create a deck. I actually think it's a bit misleading because YC talks about how they create decks and how they push their founders to create decks.

If you've been to the YC demo day, Brian, you've probably been to a couple, I've been to a few. Their decks are like one word per slide. They have this framework where you need to be able to communicate to the people in the back of the room. So there's nothing on the slide. I think they go a little far.

I think they go a little bit far in simplicity because they can. And by the way, your community probably will be able to draft off of the brand of Latitud, if not already, very soon. But when you read YC's description of how decks are, it is so bare bones simplified, because if you are a YC company, you can do that.

You get to draft off of the brand value of YC and people will then lean into it, wanting to learn more. So that's something that they do get right that I share with people.

And the other thing is that people make the mistake of thinking that their deck is going to close the investment. Like it needs to show every little thing because they're going to look at this and then invest. The deck is really just the tip of the iceberg. It's the first thing, it's the entree into who you are, so that they will spend more time with you and then make the full decision to invest.

That's what you'll see with YC these incredibly simple decks. "Well, it's YC, and the basic story was interesting. I think I'm going to spend more time here." I'm babbling on about simplicity, but simple is better.

Brian Requarth

It's worth emphasizing, man. I see decks that come in just like this crazy monster of slides of text all over the place. I don't get through it.

You look at DocSend's data, I'm sure people are just like next, next, next. They don't spend the time on it.

Jason Yeh

Three minutes a deck, that's the average.

Brian Requarth

That's nothing, right? And something to your point is: a lot of inexperienced founders think that you're walking into VC or on zoom, and you're walking them through each slide. I've never closed a deal where it's me presenting the deck. It's always a conversation. Give me your thoughts on that. Is that just me or is that what you're seeing in most cases?

Jason Yeh

There's a lot of conversation around that. A lot of founders will come to me and they'll say "I don't like decks. I don't present well around decks." And I'm like, "okay, let's still create a deck." For a couple of reasons.

The deck is also the slide by slide representation of your narrative, which I've told you is what you're selling. There are a few points about the deck that make it valuable, whether or not you hit hate decks.

The first is that it can be sent around. I'm always trying to drive towards meetings without sending the deck in the first place, because it means that the investors have some other reason to be spending time with you. But you will always get some investors that need to see the deck. So we want a great deck that you can send out.

Second: I think a lot of founders' belief in their ability to pitch without structure behind them is way overblown. "I don't do well presenting against the deck. I'm so much better naturally." I'm like "okay, pitch me," and we start going through it. Then I'm like, yeah...

Brian Requarth

Not following you.

Jason Yeh

Yeah. You're rambling in this direction. You're not driving towards points that are going to be important. I think you should have some structure around you.

What I tell people is: you don't need to be like, "all right. Slide one. Let me tell you about slide one. Slide two. Let me tell you about slide two. Let's go through this deck together." But it can be really powerful to have the deck. Some great founders have said "I send a deck, I want them to read it beforehand and then I want to have a conversation about it. And when I start my presentation or when I start my pitch or our zoom meeting, I'm like, 'Hey, do you have the deck up? Okay, good. I just, I want to make sure that you have, in case we need to refer to it, but let me just tell you a little bit about Adamant ventures. I want to tell you about where I came from and where it started.'"

And the fact that the deck exists or that the deck could be screen-shared when you need it to, or that you could say, "hey I don't know if you have it in front of you, but slide four, where we have the market that's what you really need to focus on."

There's something really powerful about having the organization structure of a deck around a pitch that allows you to, if you stumble, – because you're just like, oh my God, for whatever reason starstruck by talking to Brian – you can look at the deck and it'll set you back. It'll snap you back. And I think having that crutch... no matter how good you are, you're going to have bad days. You're going to have days when you have five back-to-back pitches and the fifth one is going to be terrible, or it's going to be much worse than your first, and you're going to need a crutch.

And the other thing is: I'm a big fan of appendices. Five meetings in, you'll probably get 80% of the good, hard questions that you could get in a pitch. And I always want my founders, after they have a really tough question, to come back home and be like, "all right, how do I answer that question?"

In fact, I want you to create a slide that is my perspective on this question, and that's going to go into your appendix. And so the other enhancement part of a deck is it's good even if you're not presenting against it. Let's say they ask Latitud "I don't know how Latitud compete with YC when YC is going global, or On Deck."

And you're like, "oh, that's really interesting. I have a slide that I want to share." If you just go to this, it will blow people's minds that you've been so thoughtful about these things. So five pitches in you'll have covered like 80% of questions. And honestly by eight or nine, you'll have 95% of all questions you will ever get that are worth spending time on.

So a few thoughts on decks, and I'm a fan.

Brian Requarth

Couldn't be more spot on. I just went through a fundraising process with another company that I co-founded. I'm kind of in an executive chair role, we did a bunch of pitches and it was exactly what you said. Literally all the same questions, they all surfaced in the first week. We sat down, then crafted responses to those questions that we got, multiple repeat questions. And then we just tighten up the narrative so that we were more concise.

People don't treat it like a sales process, but you should. There's questions and answers and you get objections and you get people with perceptions about where you're doing.

So tightening this up is so important. And I love what you say because when an investor asks something and you're like, "hold on, let's actually check out this slide, cause this kind of response to your question." It's respect, because you're also caring about their time, you're showing how thoughtful you were.

I think that's really good advice for founders and you get this with calendar density, right? Cause then you get really good and you get better at the process when you're pushing it all together.

Inevitably, oftentimes founders have certain skill sets. Is this like a divide and conquer situation? Is it the CEO's job only? Should you bring your co-founders when you're pitching? How do you think about that?

Jason Yeh

I'm glad you didn't say what your thoughts are, cause I don't know where this lands with most investors. But I believe that the CEO's job, of the main jobs of a CEO, a start-up CEO in particular, is to keep the company capitalized.

That is a skill set that is super important. And so by and large, I think it's the CEO's job. There are co-founders to a business, for sure. Being a really successful team is dividing and conquering around everything that happens within a company – fundraising being one of those things. And then having both the humility and confidence in each other to let people lead and let people do the things that they're supposed to do.

I would say in most cases, not all, when you see teams of co-founders coming to pitch meetings, it's an ego problem. It's people feeling like they're part of the story too, they want to be there. Broad strokes descriptions, I mostly think it's the CEO's job and that the CEO should be doing it mostly on her own.

There are situations where there's a really complimentary dynamic that is worth sharing with the founder and that dynamic needs to be brought up to the forefront. That's a case by case basis. I can't really give you a rubric or description of what that is, but in those cases I get why that happens.

And then, sometimes deeper into a process when you need a more technical point of view or due diligence is being done live, where you need your technical co-founder... that thing makes sense. But I think from the start, it should be the CEO doing it. And by the way, that's the CEO protecting her co-founders' time.

Fundraising takes so much time to do well. And the company still needs to be run. Product needs to be put out, stuff needs to get done. So a CEO needs to be shielding her co-founders around stuff like fundraising, which is just super time-consuming and doesn't move the company forward.

All it does is move capitalization forward, which is, his or her job.

Brian Requarth

In my book, I wrote the number one job as a CEO is to not run out of money. That's your number one job. This is a big part of it and not to be boring here, but I agree with you.

I think that there are circumstances where you may, depending on the type of company, if there's some very deep technical thing that is an absolutely critical part of the business. And there is a sequence of things, right? If it's a second or third meeting, maybe you might bring in some kind of deep reinforcement and eventually the investor's going to want to meet all the founders. But you've got to line up everybody first. You've got to get that initial interest and then there's going to be deeper diligence.

The only thing I would disagree with is maybe for a pre-seed company, where you don't have a product yet. You probably want all the founders pitching because you need the money to build the product, so you might as well put yourself to good use.

That's the only kind of difference of opinion, but these are all stage-oriented questions. So it's hard to have a circle of all scenarios thrown into one.

Let's talk about psychology, because this is a fascinating topic for me. I feel like the best entrepreneurs and founders that are successful, they oftentimes just deeply understand the investor psychology.

I wish founders had a better grasp of that. What's our kind of psych 101 for the investor world?

Jason Yeh

It's why the first session in my course is founder mindset and investor psychology. I think they are the first principles that drive everything tactically that you do as an elite fundraiser. So I'm glad that you pointed this out so that it doesn't feel so hand-wavy.

What I would say is Brian, you've been in sales... I assume you've been in sales?

Brian Requarth

I was 19. I had a six-month job as a telemarketer.

Jason Yeh

So you've probably gotten some of this sales pitching, but yeah. When I'm going through the module, I'll bring someone on stage or I'll bring someone up to talk to me. I'll say "have you gotten the sales interview question, 'sell me this pen?'"

Brian, here's a pen. Sell me this pen. What would you start doing? I want to run you through this. See what you'd do.

Brian Requarth

Wow, it's been a long time. I would definitely talk about the output of the pen versus the features of the pen. I would describe the beautiful letter that it writes, and this is a perfect pen for calligraphy.

Jason Yeh

I'll pause you there because you missed something – and most people miss this. What great sales training does is: if I were to sell you this pen I'd be like, "oh, okay. So this pen, tell me a little bit more about Latitud. What does Latitud do? How are you guys taking notes at Latitud?

Start asking questions because elite salespeople understand the buyer psychology. They understand why buyers are making decisions and they get into the mind of the buyer. And the buyer in this case is the investor. The investor is buying the product, which is the narrative, which is the investment in the company.

It's really hard to do as a founder because the only way to really know it really is if you were an investor yourself. So we spend a lot of time trying to unlock that understanding of what are the motivations of an investor.

And, if I were to give someone, whoever's listening to this podcast, some homework, I'd say: go to Bessemer's open-source memos. Read those memos. Disregard everything that has to do with numbers and just read this sort of subjective, qualitative stuff that they write about how they make decisions. Some of that is really interesting.

But yes, at the end of the day, you really want to get better at understanding the motivations of investors so that you can more creatively problem solve, when it comes to engaging with investors, communicating with them, planning things out.

Tactically speaking. I would say the two biggest things I always drive towards that I like to share with founders: there are two bits of psychology, two feelings, that drive almost everything that we do in terms of tactics. The first is the idea of how powerful it is to feel like you're catching a deal as an investor and missing a deal.

Those are the two things that drive almost everything. And what I tell people is "we understand that there are some investors that are driven by the crowd, that are "ambulance chasers." They'll go where everyone's going and those people can be manipulated way more.

Then you'll look at the top tier of conviction-based investors. You look at Sequoia, Greylock Benchmark. Those investors don't need to hear from anyone else and they will make a call. They won't look if Brian is investing, if Jason is investing. If they're investing, maybe I'll invest. They will make a call based on their own conviction.

That said, they're still human.

They are still human. It doesn't matter how elite you are or how top tier you are, it's the same investor psychology around seeing things or hearing things that make them feel like they caught a deal early – because by the way, the top tier is still competing against the other top tier funds. So if I'm Sequoia, I think "is Greylock looking at it, is Andreessen looking at it, did I catch a deal before them?"

And the other one is: am I missing a deal? I'm talking to this company and if I say no to them, other people want them. That feeling is so powerful. So if you can really deconstruct that and understand those two things, it will lead you in the right path for most of the decisions around how you engage with investors.

Brian Requarth

Catching a deal and missing a deal.

So since we're talking about psychology, would you break this down to fear and greed?

Jason Yeh

I think it's mostly greed. I think it's greed.

The other thing I do is I walk people through an investor one-on-one basics, because I want them to know what the business model is, why investors make decisions, how they make decisions.

And when you realize that this is a home runs driven business, they don't care if it's a pretty good deal. I need to catch the one grand slam, the one crazy outlier. And you're looking at every deal and "oh man, is it Brian's company? Is it Jason?"

Every deal, it'll eat you up alive if you're an investor. Saying no is painful because you're like, "oh man, I could have maybe I said no to the next XYZ unicorn." And once you know that, that's what you're going to start really leaning into.

Brian Requarth

The cost of missing the big winner is infinite, right?

Jason Yeh

Right. Versus the cost of investing and missing. As an investor, you need to be super comfortable swinging and a miss. Swinging and a miss fully whiffing, just so you can get to that. That grand slam.

Brian Requarth

There's a founder that I spoke to the other day that said he started changing his pitch to instead of reducing certainty on the opportunity to invest, increasing the possibility of a home run. I liked that because it's counterintuitive, right? As an entrepreneur, you wanna say there is a good chance that it's going to work out. You know what? It's not a huge chance going to work out, but there's a real chance there that this is a grand slam.

I liked the way he framed that, I thought that it was a smart way. Entrepreneurs intuitively don't do that because they want to reduce risk for the investor, but investors want to invest. They want to take a swing at it and they know that not everything is going to pan out.

Jason Yeh

I haven't thought about that a lot. I love that. I need to spend more time thinking about that.

Brian Requarth

Yeah. So you mentioned these two things, it's catching a deal and then not missing a deal.

You wrote something recently that got a lot of attention about this shift to post-money caps since YC introduced post-money SAFEs. Expand on that because this came up with me yesterday. We have a term sheet and the investor flipped it from a pre-money to a post-money, and then you did the math on it and wow, this actually changes things. So talk about the post that you did and then share your perspective on things.

Jason Yeh

Super interesting. So I was an investor, a full-time investor at Greycroft partners in Los Angeles from 2012 to almost 2017.

During that time, I went from mostly equity investments at almost any stage to then the rise of the convertible note, until the end of my time, YC came up with their SAFE – Simple Agreement for Future Equity. That was game changing for founders. It really was.

It fixed all the problems convertible notes had. I thought it put a lot more power back into entrepreneurs' hands. I thought it was a cleaner way to get things done more quickly. And then I went away. I kind of stepped away from the investing game for a while and the fundraising game for a while.

I did two tours of duty, being early or a founder of a startup. And when I got back and decided to spend time, essentially helping founders with fundraising, it was the first time I started to hear this concept of a post-money SAFE and post-money cap. And it was just really interesting.

First of all, the first thing I noticed was that people would just say "X dollar cap, $10 million cap, $15 million cap." And then I started looking at the docs and reading this idea of a post-money cap. The first time I saw it, I thought I actually thought an investor was trying to really pull one over on a founder.

And I was like, "oh, F this. Don't let this happen. I see what they're trying to do here." And they're like "no, it's standard. It's from YC." And I was like, "no way this is standard from YC." Because YC has been such a champion for founders. And that's why they've created the original pre-money cap SAFE. But sure enough, it was at YC's website and now they push the post-money cap safe.

My thoughts on it are a couple of things. I had this back and forth with a very close investor friend of mine who really took the opposite side of things. It was really like post-money caps were great, it provides clarity. So the main thing that a post-money cap does, that the people in support of it want to really champion, is this idea that if you're investing $2 million on a post-money cap of $10, two things: one, you can do really easy math – 2 divided by 10 is what you own. And that you know you own 2 divided by 10, no matter what happens leading up to the first equity round that's raised. So a lot of different things can happen. Other notes can be raised, different caps, etc. But the way the post-money cap is written, you will always own 2/10 until the next equity round is.

And as an investor, that is great. If you raise one post-money cap and then you go raise an equity around, everyone knows exactly what's happening. Both the investor and the entrepreneur are happy because it's clear that thing got done. But that's not what's happening today.

What's happening today is that people are raising an initial friends and family round on a SAFE, and then they're raising a pre-seed round on a SAFE. Then sometimes they'll raise their seed round on a SAFE. And they're not gonna raise their first equity round until their series A.

And what founders don't know is that every note that you raise, subsequent to an initial post-money cap SAFE, effectively makes the dilution of that first cap greater and greater. The terms become more and more punitive because you're upholding this post-money cap equation, essentially, for each note.

I think it's just really misleading. I'm actually almost always encouraging founders: if you have the leverage to quote in a pre-money safe, at the end of the day, to me pre-money cap SAFEs behave like multiple rounds of equity.

If you were to raise one round of equity and then another round of equity, at all step-ups, the dilution happens in order. And everyone knows how the dilution happens.

The same thing happens with the pre-money cap note. If you're doing X, Y, and Z, and each gets stepped up, the dilution happens the way you would expect equity rounds to happen. I don't know, we could go on forever, but there are a few misleading things about it.

One, founders aren't told what happens when multiple post-money notes get raised. And the fact that the headline number of a post-money cap note is higher, is super misleading. You could see some people saying "oh, I want a $10 million pre-money cap." And then an investor says "why don't we do 12 million post?" You want from 10 to 12? Amazing. Yeah, I just won.

I see that happen and I'm like "ugh." Anyways, I think if you were trying to be fair about it, great. Then everything will work out. But I would just say: if you can do a pre-money cap note, do a pre-money cap note.

Brian Requarth

Yeah, I guess the other argument is that I don't know,... this is a weak argument, but valuations have gotten pretty high. So at the end of the day, if it's a pre-money or post-money, and it's a super high valuation... but I do think it's misleading from the standpoint of: I looked at the spreadsheet the other day of the round we're doing. And I was like, "okay, if we raise at another post-money cap after this, the share price goes down over here. Founders don't do the math.

Jason Yeh

They don't understand it.

Brian Requarth

Is there any online calculator for this?

Jason Yeh

I have a simple one, but anyways. I haven't seen one. It's really important for people to know this stuff.

Brian Requarth

That's really insightful. And it's important to empower the entrepreneur to understand these things, because when you're a first-time entrepreneur or even a second-time entrepreneur, there's an asymmetry of information and you're not expected to understand all this stuff.

When I first got my term sheet, I went to Wikipedia and I started looking up all these different terms. Cause I just had no idea.

Jason Yeh

The other thing is we reference first-time founders all the time. Actually more of the founders that I spend time with are repeat founders, second time founders, because they did it once and they did it really badly. And they're like "I don't want to do that again!"

The other thing to note is that whether you're a first-time founder or a repeat founder, you do the fundraising thing for THAT amount of time, right? Everything else is about getting better about operating your company, managing a team, recruiting, all the things that matter for eternity. And you get this one little rep.

I draw the sports analogy around fundraising, which is – I think you would appreciate it – fundraising is not meant to be this adversarial thing, or a competition or whatever between founders and investors. It's not a sport like that. But if it were, the analogy would be this: founders are like "you know what, I'm gonna play this game called baseball. I'm gonna read this blog post. Oh, that's how you did. Okay, cool. Awesome. I think I can do that." Stepping up to the plate to a major league all-star pitcher that spends all day training on how to pitch and to beat batters essentially. And they train with other elite players all day, doing the same thing. And this one founder is "yep, I read a blog post, let me go hit a grand slam now."

That is exactly what happens. That asymmetry is just mind blowing to me.

Brian Requarth

No, that's a great analogy. I need to come up with one for football, a soccer analogy. Or for the Caribbean founders, baseball heads out there. I love that.

Let's transition to Adamant Ventures because I really love what you're doing. This is a great connection that was made through a mutual friend, right? We connected, I guess it was like last year or something. And I was like, "man, this is a guy that I'm vibing with," because we have similar missions to democratize more access to information.

I've gone a little wider and you've gone deep on the fundraising. I think that having someone like you in their corner is super valuable because you were on the investor side, you're on the entrepreneurial side, you were a founder. And there's just so many angles to this. There's all these other things you have to learn. You can't just become this ninja on everything and just know every single detail. So the fact that you specialize in this – tell me why you decided to start Adamant Ventures. How would you describe it? What's your pitch?

Jason Yeh

Yeah. Adamant Ventures is a firm that is dedicated to making fundraising easier and more accessible to as many founders as possible.

And I do that and a lot of different ways. I do it through free content. I do it through inspiration on my podcast Funded. I do it through cohort based courses. But look, I started this, it wasn't like this big grand master plan where I'm going to build a big business to do this one. I had just exited my last company and I was trying to figure out what I wanted to do next.

You know the struggle of being a startup CEO, you're doing all these things you've never done before. I just had this feeling that everything I had been doing as a startup CEO, I either hated or sucked at, or I hated it and I sucked at it.

It's a lot of PTSD when I was going through this, but it was a grueling period of time. And I was like, the next thing I do I kinda just want to have expertise and feel like I'm making a difference every day.

I didn't know what that was going to be. And I didn't actually think this was going to be it. I actually just started by taking more meetings with founders because I still had remnant deal flow. I had respect in the industry. Founders would have problems and people were like "oh, you should meet Jason." It's happened since I left Greycroft.

But it was the beginning of the pandemic. I couldn't do anything. I was in a room, locked in a box and I was just very open to taking calls with founders. And whereas I used to be super busy, running startups and stuff, I'd maybe take a call, not prep for it and spend 10 minutes with you and be directionally helpful, or send in like a two-line email that again was directionally helpful.

I just started being like "well, I have nothing else to do. If Brian wants to talk, I'll do a little bit of prep. I'll read about his company Latitud and then when we get there, I'm going to be really intentional about seeing how I can help founders.

And honestly, after five calls I just kept getting the same sort of consistent perspective on some of the biggest challenges founders have. They almost always started with fundraising and it was almost always a really simple fix, at least to put them on a better trajectory around unlocking some understanding around fundraising.

I think once I saw that I was like, "man I think I can fix this with this small product." So then I was like, "oh, let me just build this tiny little spreadsheet that will at least structure people's thinking about what it means to prepare for fundraising."

As I just started spending more and more time in one space, I really –I get a kick out of it is not the right phrase but – I'm really energized by helping people. And without being overly altruistic about it, I also just like being good at things. And being good at helping people feels better than being good at I don't know, just making money.

It's been this now 18-month journey, about a year to 18 months, where I've just spent time focusing on one thing, trying to get better at it, trying to make the concepts that I have in my head more understandable to more people. That's why I break down things in analogies, illustrations frameworks. So yeah, it's been fun. And I think that's the passion that's driving me and it's making me build this into something bigger and more impactful.

Brian Requarth

That's awesome. I like the feeling useful for founders. It's motivating, right? You talked about the importance of why you're doing things. It feels good, man, to help people and see the impact. Someone probably calls you like "Jason, I got the term sheet!”

Jason Yeh

Ah, that's the best feeling. They come away from it and you know exactly the stress they were going through. To be able to lead them through a hard time to give them the support to unlock more than they maybe could have done on their own... Yeah, it's the best feeling. Such a high.

Brian Requarth

That's so cool. Let's wrap up here. I want to ask you, last but not least: I heard through the grapevine that you have this Taiwanese scallion pancake recipe.

Over here at Latitud, we do our research here, right?

Jason Yeh

I'm impressed!

Brian Requarth

Howard Stern investigative team, that's what we have. So tell us about that. And given that you're only 26 minutes away from me right now, we gotta have a beer in person, at least a very minimum. So close out with this, with the scallion pancake recipe, drop it on our audience here.

Jason Yeh

Alright. I'll let you know that I'm Taiwanese. Out of college, I moved to Taiwan for six months to essentially avoid starting the real world. And while there, I discovered a version of something that probably people have eaten in many Chinese restaurants, this little flat doughy disk called scallion pancake.

But the Taiwanese version of it is different. There's a street version of it that's super fluffy. It takes on closer to non qualities. Anyways, I get obsessive about doing things and making things better sometimes. Part of it was a quarantine project that I just wanted to tackle. And I'll tell you this: the ingredients through scallion pancakes are stupidly simple. It's like flour and water. Literally. That's the main thing, flour and water. But there are these variations on the temperature of the water, the amount of kneading, and how much water, and all this stuff that results in crazy different outcomes.

Long story short, I solved the problem. I've made an incredible scallion pancake.

So Brian, if you or any of the listeners can nail me down one of these days, I will make an amazing scallion pancake and blow your mind. Blow. Your. Mind.

Brian Requarth

I love that. You're a man of many recipes – fundraising recipes, deck recipes, scallion pancake recipes... I will say at the end, here, just to give a nod to my father who grew up having pancakes every Sunday… they're not the fanciest pancakes, just banana pancakes, whipped cream, walnuts, blueberries, strawberries, of course maple syrup – because you can't have the fake stuff. So I have an appreciation for pancakes, but I like exotic nature of that, the way you describe it. Because similar to you, I spent six months avoiding real life and traveling to another country. That had a huge impact on me. I think it's an important thing for anyone who's young, that's out of college, just to experience life. It's cool that you came away with that amazing recipe and you keep on passing these other recipes out there.

Jason Yeh

I appreciate it. I'm happy to always share my recipes. I am doing my best to open source what I can, but yeah. Find me anywhere, hit me up and I'll share that recipe and others.

Brian Requarth

How do people get a hold of you?

Jason Yeh

All over the place. I think on social media, if you find me, my handle is @jayyeh, pretty accessible on Twitter.

And then my company is Adamant Ventures, adamant ventures.com. And my podcast is called Funded. You can find it all on all the platforms or fundedpod.com. Appreciate your letting me plug that.

Brian Requarth

It's definitely worth it. If you want to take your game to the next level, this is the guy that has a lot of concentrated knowledge here. Thank you for making the time, I really appreciate it.

Gabriela Levy

Head of Marketing at Latitud

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