Equity is like toothpaste
A stranger asked for equity in my startup after a one hour meeting.
Hi, it’s Melissa, and welcome (back) to “your founder next door”, a weekly publication with stories and tidbits of my human journey bootstrapping eWebinar to $5m ARR. No BS, just straight-up truth bombs on what it’s like to build a company without an abundance of resources or friends in high places.
Last week, I went to my first in-person event in five years, a real estate conference in New York.
I spent the last five years intentionally building a business where we could sell 100% over the internet. That was a non-negotiable for my happiness when I started eWebinar. But as much as I hate to admit it, it felt really good to see people in person after so long.
I spent over a decade in real estate before eWebinar and used to be a regular at these events. It was nice to catch up with old friends, see customers, and have conversations with prospects face to face. There’s something about meeting someone in person that changes the relationship, even if you only see them once and every conversation after happens over Zoom.
Last Wednesday night, as I was walking out of a networking event, I met an industry veteran. A sales coach. Even though we’d never spoken, he knew about eWebinar and wanted to chat. We decided to meet for breakfast the next morning.
We had a fun discussion over eggs and coffee. He told me about how he started different ventures, the ups and downs, and the last couple years he took to figure out what he wanted next. A typical founder-to-founder conversation, the kind I love.
He was coming back strong this year with some big initiatives and eager to sell his offerings through live digital events and potentially automated ones too, which is where eWebinar would come in. He enthusiastically told me about how speakers like Tony Robbins are hosting multi-day online events, generating ten to twenty million dollars in revenue, and how an automated solution could help him continue selling on autopilot after the live event. Which is one of eWebinar’s primary use cases.
Of course, I was excited to be part of that journey.
He spent most of our time together talking about himself, so I only had enough time to do a short demo, and share a condensed version of my journey.
I thought the conversation went pretty well. There was no specific purpose going in, I thought we were just there to connect and get to know each other. He asked me what success would look like for me, and I told him that our goal was to make eWebinar the industry standard for training and onboarding in real estate.
He said he could help me get there and seemed keen to introduce me to people who could take advantage of our software.
I should mention that throughout our conversation, he kept making “jokes” about how when he works with people, “everybody pays him.” The customer pays him. The partner pays him. The vendor pays him. It was no secret this guy was transactional.
A few hours after we parted ways, I got a text from him that said: Send money!
I played along with the joke and Venmo’d him one dollar with the note: “Everybody pays you.” (Venmo is a payment app in the US.)
He responded: That made my day. That can be your first payment to me as your board member.
I raised one eyebrow. Is this a joke?
I wrote back: I’m a bootstrapper. I’m the only board member, and that’s how it’s going to remain.
He replied: Not only can I be on your board, I can help you build your board full of top notch people who can help you exit bigger and faster. I don’t want money, I want equity.
I told him I really enjoyed getting to know him, but if his help was conditional on equity, he should know it’s not on the table.
His response: You should think about what I’m saying. Of course, if I were to be involved, I would earn it. I’m surprised I’m even interested, but I listen to my gut and I know how to grow this type of business.
I read that a few times just to make sure I was interpreting it correctly.
Here’s the thing…
I just met this person the night before on the street. We spent a little over an hour together, during which he never really tried to get to know me and where I wanted to take this business. Had he been a good salesperson (which, ironically, is his profession), he would’ve spent 15 minutes getting to know me and my startup.
He would know that I’m an avid bootstrapper on my third startup and that protecting my freedom (and hence, equity) is something I’ve been very outspoken about. He would know that while we are an early startup, we are not a new startup, and that we have revenue in the seven digits. He would know that I’ve been through the trenches and back in the last year, and that I would not frivolously give away equity to anybody.
What gets me is that everybody wants a piece of what you have once it starts to look like a good business. Who wouldn’t? But anybody who’s worth their salt will not demand equity without first showing value.
A lot of people offer to be advisors because it looks good on their resume, and they can get some shares without investing any capital. I know so many founders, myself included, who have given advisor shares to people who never made a dent in the business. Who never even tried.
I told this story to a friend who said, “Did this guy just try to mansplain you because you’re an Asian girl?”
Let me get this straight. This situation had nothing to do with gender or race, and everything to do with someone who hugely overestimated himself and the impact he could have on an entrepreneur and a business he barely knows.
This is a vulture who preys on what he believes are desperate founders who will give in because they “need him” to grow and accelerate.
This is someone who lacks respect for the time and effort it takes to build a startup to this level. One that is bootstrapped, profitable, and has raving fans after years of iterations: blood, sweat, and tears.
This is someone who wants to take a piece of a shiny object that he believes someone will just hand over to him.
This is someone who behaves like a secondhand car salesman who is always trying to make the next deal, because if you don’t ask, you don’t get.
So, if you’re a founder, may this story be a reminder that you have worked very hard to get to where you are. You do not need to give anything away to someone who has not demonstrated immense value. The equity you’ve spent years building is not a gift. It’s the result of the heart and soul you’ve poured into your company over years of struggle.
Before you think about giving equity away, do the math. If you were to give away 0.25% of your equity and sell your company for $10 million, what is that worth? $25,000. Then ask yourself if you could pay that person the same or less to do a campaign together first. See how well you work before you get married.
In these situations, money is not the most expensive option. Equity is.
I have personally been in a situation where somebody owned 1.5% of my last company and almost stalled the sale because I couldn’t locate this person to sign the closing papers. Every person who holds equity in your company is a shareholder whose signature and/or approval will be required for major decisions. (Read that side story here.)
The best advice you can get is from people who have been where you are and gone to where you want to go. There are so many founders out there who are ready and willing to help at no cost because they’re eager to pay it forward.
Before giving someone equity, ask yourself: Is this someone you want beside you for the duration of your business?
Equity is like toothpaste. Once it’s out of the tube, you can’t put it back in.
Till next time,
— Melissa, your founder next door ✌️
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Adam Grant speaks to this type of guy in takers and givers. Not hard to figure out which side of he is on.
As an accidental founder (with a ton of questions, this was gold to read, thank you! As a REALTOR i feel like I know who you talked to. Thank you for being a bright light in the startup abyss.