Early-stage founders have been asking for advice about their fundraising plans lately. Many are planning to raise this year after avoiding a difficult fundraise environment in the second half of last year. Many of these companies don’t have runway past 2023. They’re looking to raise venture capital to extend their runway.

If last year taught us anything, it’s that the availability of venture capital funding isn’t a given; it’s heavily impacted by macro conditions. Venture capitalists themselves were impacted by macro conditions and had a difficult time raising capital from their limited partners in the second half of last year.

Raising capital isn’t the only way to extend a start-up’s runway. Increasing revenue and reducing expenses are also levers founders can pull to extend runway. Expenses can be cut only so much, but revenue growth is limitless (hypothetically).

In today’s environment, I’m a fan of founders with limited runway taking control of their destiny by trying to get their companies to breakeven. It’s not possible for all founders, but if it is a possibility (even a slim one), it makes sense to work toward it if you have limited runway. It reduces or eliminates cash burn, extending runway. If venture capital is still an objective, it puts the founder in a better position because they don’t “need” the investment to survive. This approach has its downside, too. It could negatively impact growth. That’s not ideal, but a slower growing company is better than a dead company. If a founder achieves breakeven and manages to show growth (even slightly), it’s a good signal to investors and could increase their desire to invest.

If you’re a founder running out of runway, consider the option of moving the company toward breakeven.

Two emerging venture capital fund managers shared their biggest learning during a session I attended today. They said there’s a difference between being a fund manager and being an investor. They spend more time than they anticipated managing their fund versus investing. Managing a fund means doing administrative tasks like working with the fund administrator, doing people related tasks, and managing limited partners. They underestimated the amount of energy and time these tasks require. These tasks also take away from the time they can spend finding great founders to back and supporting the founders they’ve already backed.

Starting your own fund is about more than being an investor. It’s more like being a start-up founder—wearing multiple hats and being spread thin. It’s also a decade-long commitment (assuming your fund is a ten-year fund). For those who haven’t worked at a fund before, it’s even harder as they don’t have a baseline for how a well-run fund operates.

Building a successful fund requires that the founding partners be good fund managers and good investors.

Today I participated in a mock negotiation session that was designed to mirror a negotiation between venture capital investors and founders. Most participants hadn’t negotiated an investment deal before, so I was curious to hear their takeaways.

One of the founders shared something that stuck with me. Their negotiation started off with aggression from the investors, which set a bad tone. And the investors were aggressive with terms throughout the negotiations. Toward the end, the investors realized they were running out of time to get a deal done and offered a better deal. The founder was so frustrated by the experience that she didn’t even realize they had offered better terms and walked out without a deal. She was stuck on the aggressiveness of the entire process and couldn’t bring herself to do a deal with these investors.

Venture investors and founders, when they come to an agreement, are planning to work together for many years. But at deal term negotiations, they have opposing interests. Today’s session was a reminder that starting off with aggressive negotiating tactics isn’t a way to begin a long-term partnership and can blow up the partnership before it even forms. The best deals are ones that everyone is comfortable with, neither side got everything they wanted, and they’re looking forward to working with each other.  

Some founders seed their companies with their personal capital in the early days. There are a variety of ways to handle this, with a loan from the founder as a shareholder being the one I’ve seen most. When a founder plans to grow their company quickly and raise venture capital, they have another option: they can classify their capital as an investment in the company. The easiest way to do this is through a convertible note or simple agreement for future equity (SAFE).

Why would a founder want to do this? For many reasons. One is that it helps to separate sweat equity from financial equity. If a founder must leave the company for some reason and their equity as a founder doesn’t vest, they still have their financial equity. The founder will own a percentage of the company based on their investment, regardless of what happens with the equity tied to their employment.

There are other benefits too, such as owning—for the financial equity—preferred equity versus common equity.

I listened to a spotter entrepreneur tell his story about his early days. He found someone who had potential and invested in developing that person. The spotter bankrolled everything himself. Things didn’t go well. He was down to his last two months of cash and starting to panic. If he ran out of cash, he’d have to fire everyone. He knew his reputation would take a blow.

He decided to stick with his plan and keep fighting. Then things started to work well, and his investment in the other person paid off handsomely. His big takeaway from that experience was this: success and failure live next door to each other. If you can still wake up and act, don’t give up. You’re closer to success than you know. The separation between success and failure can be smaller than you realize. Your chances of success increase when you keep fighting. Said differently, don’t give up. Keep going!

I’ve been thinking about “Spotter” entrepreneurs lately. I’ve been talking to them and trying to understand what traits make someone a spotter and especially what traits the top 1% of them have. So far, I’ve learned that spotters are gifted at discovery, thinking in probabilities, and evaluating risk and return.

Another trait is a burning desire to create their own path. Spotters are intelligent, and they work hard. This combination means that they usually have available a variety of paths for working for others. Sometimes they will work for others, but it’s usually to learn, establish relationships, etc. Great spotters ultimately want to build their own companies and blaze their own trails. Even if that means taking on more uncertainty and less pay. They know they can build a company that creates value for others and wealth for themselves. They’re willing to forgo the stable income they’d get working for someone else for the potential outsize outcome that awaits if they’re successful. Said differently, spotters want to bet on themselves.

Sidenote: Some top-1% spotters have ties to Atlanta or live in Atlanta. One prominent spotter who sold his company for over $1 billion got his start in Atlanta. More on this later.

I met with a “spotter” entrepreneur this week. I was curious to hear about the next opportunity he’s identified. As we chatted, I realized a few things about him:

• Discovery – He’s gifted at finding opportunities others haven’t found. He looks where others don’t look. He sees value in things others have written off by thinking about them differently. He’s good at keeping his finger on the pulse of what’s going on, broadly, to spot trends early.
• Odds – He understands that what he’s trying to do is very difficult and it’s not a sure thing. At the same time, he’s aware that the odds of success are in his favor because the dynamics of the market he’s entering favor him. He doesn’t realize it, but he’s thinking in probabilities.
• Risk and return – He’s done simple math sufficient to understand that the return could be material if he’s successful. He’s considered the return relative to the risk he’s taking on. And he’s thought about how to lower the risk but still realize a material return if all goes well.

This entrepreneur isn’t from a fancy school or anything like that. He’s just a hustler gifted with the above-listed abilities and a great work ethic. I think a lot of this type of entrepreneurs are out there. The top 1% of these spotter entrepreneurs have the potential to build large non-consensus businesses.

I want to continue talking to spotters to understand what traits the 1% have.

I recently caught up with an early-stage founder who’s building an interesting business. He had a setback recently and, understandably, is frustrated. Unfortunately, he publicly communicated his frustration with his business partner on social media. The partner was not pleased. The business is at a standstill.

Building a company is harder than most people realize. Setbacks are inevitable. Founders, like everybody else, react to setbacks emotionally—with anger, frustration, fear, etc. But those emotions can’t get in the way of the founder accomplishing their mission. Founders must figure out how to work around or through setbacks.

Over the years, I learned to acknowledge how I was feeling when I experienced setbacks. If I was especially worked up, I made a point of doing my best to avoid taking action until I’d calmed down. I found that talking the situation over with another entrepreneur—someone credible and level-headed—often helped, especially if they’d been in a similar situation.

This founder has put himself in a position where his mission could be jeopardized. His uncontrolled emotional reaction fractured a critical relationship. The emotion has dissipated and he regrets what he did, but he can’t take it back. He’s aware of that, and he’s trying to repair the relationship and overcome the setback. I’m sure he’ll figure things out, but this incident might materially slow down his execution and may have permanently weakened an important relationship.

I met with someone recently who’s a self-described contrarian. Contrarians go against popular beliefs, so I was curious to hear his views. As we chatted, I realized he takes the opposite side on most topics. He doesn’t have a strong belief in his positions; rather, he strongly values doing the opposite of what everyone else is doing.

Being contrarian—in a positive way—isn’t about doing the opposite of what everyone else is doing for the sake of being different. Just because everyone isn’t jumping off a bridge, that doesn’t mean you should.

The contrarians I admire go deeper. They understand what others are doing, but they don’t stop there. They try to understand why others are doing what they’re doing. Then they develop an informed position on what’s wrong with the action others are taking (i.e., why it’s incorrect). Then they figure out if there’s a better way. If they find a better way, they take that path, and they have conviction about their position because of the process they’ve followed, as just described.

Earlier this week, I shared a takeaway from an interview with the founder of Carlyle Group, David Rubenstein. I enjoyed that interview and had many more takeaways. Some of them were presented casually as simple, common-knowledge concepts that nevertheless take some people a lifetime to figure out. Understanding the power of some of the concepts David shared, and implementing them, can change your trajectory. Here’s another trajectory-changing takeaway: you can create your own luck.

When David was starting Carlyle, he didn’t want to build a firm that was all white males. He approached Gracia Martore, a female executive of Latino descent. She declined to join the firm but suggested he talk to Bill Conway Jr., who was transitioning out of a telecommunications CFO role. David had never heard of Bill, but he called him. They connected, and Bill became a cofounder of Carlyle.

The big takeaway from this story is that you can create your own luck. Luck is about the probability of a favorable outcome. You can increase the probability of good things happening, and create your own luck, by taking certain actions. In David’s example, he networked and chatted with people, which led to opportunities. Not the opportunity he was aiming for (Gracia), but a great one nonetheless (Bill).

If you want to achieve outsize success, you can increase the chances of it happening by creating your own luck.

Take a listen to David’s comments on creating your own luck here.