1/ How I CEO (part #4): Why I don't believe in cash bonuses.

At my pervious startup we had a sales bonus driven culture and it sucked.

We have avoided it at Mercury and here is why 🧵 2/ There are three main categories of bonuses, and I think all of them are bad ideas:

1. Company-wide bonuses: This is basically that everyone gets a fixed bonus — let’s say 20% — and it's just a thing that the company does (often but not always tied to company performance).
2. Performance-based bonus: This is usually something that’s happening on top of a company-wide bonus, so maybe it's 20% for everyone and then another 5% on top of that based on a great review or something like that.
3. Role-based bonus: This a bonus that’s tied directly to the nature of a particular employee or team’s function, like a sales bonus, or maybe a project bonus.

1/ Early founder who are not already wealthy should probably take early acquisition offers.

In my last startup we started in 2009 and could have sold in 2011. Instead we decided to go for a “home run”.

Took us another 5 grueling years to get an exit only 2x bigger. 2/ The valley glorifies making a unicorn and going big. But the first $1m can make a huge difference to peoples lives.

Once you have that first exit under your belt it’s easier to go for more ambitious ideas and raise money.

You also give yourself time to try more startup ideas

1/ Heard this sentiment from entrepreneurs thinking of launching new companies twice this week:

AI is changing so fast that it’s hard to come up with an idea in it and it seems pointless to do a company outside AI.

Some tips I gave: 2/ instead of trying to come up with the perfect AI idea that stands the test of time, I would recommend focus on using this as a learning opportunity.

AI is not going anywhere. Anyone who starts today is going to be an amazingly early adopter in 5 years time.

1/ A lot of advice I give to entrepreneurs recently is around unlearning lessons of the 2021 fundraising bubble.

I wrote a Techcrunch op-ed about the lessons and here is the summary 🧵

techcrunch.com/2022/08/31/we-… 2/ Don’t fundraise in the summer or winter.

June to sept has been an awful time to raise. Expect the same mid-nov to mid-jan for winter.

Investors are taking more time in DD and its hard to build momentum or meet everyone during breaks.

1/ Is your burn too high?

As the 2022 fundraising market is turbulent I have heard a lot of founders asking this question.

Here are some frameworks I use:

A. Runway
B. The Rule of 40%
B. The Burn Multiple 2/ A. Runway

If your runway is <4 months and you don't have an upcoming imminent cash infusion then you should be doing whatever it takes to decrease your burn today!

It's better to make deep cuts early and extend your runway, rather than wait till you have no room to maneuver.

1/ Is your startup on fire?

A big investor says no, a big customers is churning, an important employee quits, a competitor raises a big round!

Often it can feel like your startup is in existential crisis. Here are some techniques to deal with the situation: 2/ “Dont react immediately”.

These things rarely need immediate responses. Go for a walk, have a coffee, sleep on it. Things won’t seem as bad after some time and your reaction can be more reasoned.

1/ “How do I start angel investing?"

Someone recently asked me this & I thought I would tweet my answer.

3 main reasons to invest:
1. For fun+learning
2. To make money
3. To become a VC

For this thread, I will assume it's mostly for reason 1 (fun+learning.). 2/ Step 1 is having money.

Most companies have a $5k-10k investment minimum & you need to commit to investing in >20 companies over a few years to really learn.

You also need to be accredited (though you can somewhat “hack” that by having equity in a startup worth $1m.).

1/ My favorite reads of 2021.

3 main categories of books I read: a) business books, b) sci-fi books, c) intellectual.

(sharing this so that other people also share and I get good book recs for the holidays 😀)

🧵 2/ Business:

Barbarians at the Gate by B Burrough + J Helyar
Working Backwards by C Bryar + B Carr
The Cult of We by E Brown + M Farrell
Amazon Unbound by B Stone
Private Empire ExxonMobil and American Power by S Coll
Liftoff by E Berger
The Smartest Guys in the Room by B McLean

1/ It's essential to have good traction graphs in your fundraising decks (for post launch companies).

Sounds simple but it's surprising how often entrepreneurs don't include them or get it wrong.

Some tips... 2/ If you have a live product in market you should normally include at least two graphs:

1. Your monthly revenue for the last 6+ months (assuming you are monetizing)
2. A key engagement metrics in a non cumulative form for the last 6+ month (e.g. DAU)

1/ “How to judge a startup?” is the winner of the poll I did yesterday on angel investment topics.

This is a complex topic and deserve multiple tweet storms.
Let me first start with deciding what spaces you will invest in: “your investment thesis”.

https://twitter.com/immad/status/1462178103350861832

2/ With a thesis you: a) develop an expertise in judging startups in that space, b) can talk to multiple entrepreneurs and iterate your ideas.

I tend to have a combination of broad + very specific theses that I adapt over time.

1/ I received a lot of questions on why/how @BankMercury did the crowdfund.

Here's a thread for people who are thinking of doing a crowdfund to give ownership to customers.

tl;dr: if you have a strong customer following, I think the pros far outweigh the cons. 2/ Why we did it:

- It's aligned with our mission and brand, to give customers ownership and be part of our success
- Most of our growth is word of mouth. We felt that ownership would super charge that

Over the years, I have tried to share learnings from my startups and seed investing.

Decided to combine my startup tweets+tweetstorms into a tweethurricane.

Here are my learnings + advice, from pitching investors to getting through the journey: 🧵 Identify the nucleus of your startup story

https://twitter.com/immad/status/1365726650608934913?s=20

1/ Fundraising is a bit of a chicken and egg process, where once you get momentum it's easy and before that it's almost impossible.

Closing a funding round requires momentum, and there is an art to "creating" FOMO in a genuine way.

Here are some do's and don'ts: 2/

Don't: try to create pressure before the investor is excited about your startup.

Sometimes entrepreneurs will say things like "the round is almost closed", "we need a decision this week" etc, before they have met the investor.

You need to first get buy in from the investor.

1/ Before writing a startup deck or pitching investors you should identify the nucleus of your story and how it could be a $1b+ company.

This should be a two sentence story that you then build the rest of your pitch around.

And you should truly believe in your story. 2/ When I started @BankMercury in 2017 our story was:

"Business banking is a $300b+ market, but banks aren't technology companies. Tech companies will disrupt all of banking as seen in consumer. Serving startups 1st allows us to grow with them and they care most about product"

1/

The first “Future of Fintech” Clubhouse is going to cover challenger banks with:

@pitdesi at BTV
@arampell at @a16z
@patrickmro_ at @pointapp
@maiab at @Chime
@immad at @BankMercury

Tuesday, Jan 26 at 6:00 PM PST.

Save the date here: joinclubhouse.com/event/gPvj4KRP 2/

We are going to try to make this a fast paced convo that skips the basics and goes deep on the subject.

Some subjects:

- why did European challenger banks fail on their US expansion
- will the big banks be able to keep market caps as fintech continues to grow exponentially

1/ As an investor you are often making very quick decisions about startups.

Here are some questions I think about:

Team:
- have they built something impressive before
- have they thought about the problems deeply
- have they shown perseverance
- do they care about the problem 2/

Market:
- could this be a $10b company if things went right
- if in a pre-existing large market a) are the incumbents old/un-innovative, b) do founders understand customers enough to find a wedge
- if new market a) how big can this grow in optimistic case, b) why now

1/ On enjoying the journey:

In winter 2009 Paul Buchheit (@paultoo) gave a talk to our YC batch.

He said if you want money you should go work at Google/Facebook instead of doing a startup and you should do a startup if you enjoy the journey.

I thought he was crazy at the time. 2/ I thought:

A) I wanted the end result and didn’t care much about they journey
B) Startup founders seemed to have such great exits
C) It seemed like doing a startup was pretty hard
D) I didn’t think people got paid that much at big cos

1/ My fav "how to sell" book is "Never Split the Difference" by @VossNegotiation

One particular technique in it has come in super useful as an entrepreneur. It basically talks about never accepting the first "No" you get and ask 4 times in different ways

amazon.com/Never-Split-Di… 2/ As an entrepreneur you hear "No" a lot. From sales, investors, potential recruits. You have to come up with good mental models on how to handle it.

This technique is helpful because it helps you think of "No" as a point of learning and gives you concrete steps to take.

1/ Excited to unveil Mercury Raise today - a program to directly connect our early-stage startups with top investors.

We have 40+ investors in the program including @eladgil, @alisonbarrallen, @shl, @ryanhoover, @a16z, @sequoia and @crv.

mercury.com/raise 2/ We at @BankMercury always want to help entrepreneurs succeed and one of the biggest asks we get is startups wanting to connect with investors.

Instead of trying to accommodate these asks on a one off basis we decided to productize the process.

1/ After you raise a seed round the main thing you should focus on as a founder is hiring a team.

a) do a budget to see how many hires you can afford based on your raise.
b) get those hires done before doing (most) other things.
c) stop when you hit your budget. 2/ After our seed round at @BankMercury, we spent 6 months hiring a team of 8 (4 eng, 1 design, 3 founders). We launched 1.5 years after the round and had 9 in the team at the time.

Also, of course you should adapt your initial budget/plan based on growth and market conditions.

1/ One of the trickiest parts in a fundraising pitch is what to say when investors bring up an issue that is about a fundamental, unavoidable risks.

Every business at every stage has them, things like “what if Google enters your market?”, “what if CAC goes up”. 2/ My initial instinct is to turn these into discussions. “Great question, that would be bad, what do you think we should do?”.

I have noticed that devolves into a long, negative conversation that doesn’t resolve the issue and makes it seem like an even bigger deal than it is.