Hey Grove readers,
QSBS just jumped from $10 million to $15 million tax-free on exit.
How many of you have even heard of that? The clock only starts if you set your company up the right way from day one.
This week I spoke with Kim Klayman, who chairs Ballard Spahr's national emerging company and venture capital group, and Charney Robinson-Williams, founder of Noire Impact.
Kim spends her time helping founders build companies, while Charney helps them find capital. Both doing rockstar work in our home of Philadelphia!
Let’s dive in.
Don't miss this incredible group of speakers:
In this week's issue
- The expensive kind of cheap
- Handshakes don't vest
- A deck built for the wrong room
- Where the money actually comes from
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The expensive kind of cheap
Kim is a partner at a law firm. Her clients are hers, she tracks her own revenue, and she thinks about profitability. Sounds like entrepreneurship to me.
These days, you can form an LLC online for fifty bucks. Kim has nothing against that, she just thinks it skips the more important question:
“what kind of business are you actually building”?
For example, a lot of those companies qualify for QSBS, but it’s only available to C-corps, not LLCs. It also only kicks in after a holding period (3 years minimum, 5 for the full benefit).
You pay more overall by forming an LLC & converting to a C-corp later. If you'd considered ever qualifying for something like QSBS by just asking yourself that question, you could have been better off.
You'll see in the episode, this to me acts like a prenup. Forces you to ask the hard questions that could set you on a better path.
Handshakes don't vest
Make no mistake, equity can die.
You hand a co-founder 25%, they drift away, and now a quarter of your company belongs to someone who isn't around anymore.
Kim's solution is putting vesting schedules in place from the start.
If someone leaves early, the equity comes back and can go to the people still pushing the ball forward.
Paperwork won’t save you from a fight with your co-founder, but it can make the aftermath a whole lot easier to live with.
A deck built for the wrong room
If Kim's job is getting the structure right, Charney's is helping founders tell the right story.
She never planned on working in impact investing. After spending 10 years running global science symposia, the pandemic pushed her in a different direction.
She landed a job in place-based impact investing in Philly and realized her own community had been doing a version of it for generations without the words for it.
That gap ~ vocabulary ~ is what she believes kills founders.
Most people think about capital the way they see it on Shark Tank. They build a VC deck, tell a VC story, and lean on growth, ROI, and the numbers.
VC math is brutal.
Most pre-seed and early-stage companies aren't a fit for it and never will be.
If you're pitching an impact investor, your deck needs an impact thesis, preferably tied to 2 or 3 of the UN's Sustainable Development Goals.
Say something like "SDG 13" out loud to the right investor and they immediately know where you fit.
Where the money actually comes from
One raise might combine a grant, a traditional investment, and money from a donor-advised fund, all mixed together.
Family offices and foundations are also where a lot of it hides. Plenty of them keep capital set aside specifically for impact. Unfortunately, it almost never shows up in the fundraising advice founders get.
Charney's grandfather, John Gray, never made it past the fifth grade, but spent the rest of his life building businesses. More than anything, he taught her that knowledge is meant to be handed out, not hoarded.
Things like QSBS, impact thesis and family offices aren’t a secret, they just don’t always reach the founders who'd get the most out of it.
Feedback
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With love, Blake
See you next week!
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