Continuing on posts from earlier this week (see here), I’m still riding shotgun for the founder of a company who raised VC funding while negotiating a sale. Most things have been agreed upon, with a noncompete agreement still outstanding. A noncompete is just what it sounds like, a contract that prevents a former employee from working for a competitor or starting a similar business for a specific period—and sometimes within a defined geographic area.

It makes sense for a buyer to ask for a noncompete. You don’t want to purchase something and then see the seller start a competing company that reduces the value of the one you bought. Warren Buffett learned this lesson the hard way with Rose Blumkin (see here).

The downside is that it’s a legally enforceable agreement. Translation: you can be sued for breaching it. From a seller’s perspective, not having a noncompete is ideal but unrealistic in many instances. If a seller has to sign a noncompete, good strategies are to make sure it defines competition as specifically and narrowly as possible and covers as short a period of time as possible. The goal is to reduce the risk of breaching and being sued. Broadly defined (or undefined) competition is risky because it doesn’t set clear expectations for the buyer and seller, opening the door to disputes down the road. And the longer the agreement period, the longer the founder is limited in what new ideas he or she can pursue.

Noncompetes make sense, but founders should aim to use them to set crystal clear expectations. Murky expectations can lead to avoidable disputes down the road, which isn’t good for anyone.

I’ve been trying to convince two friends to start businesses related to their professional training. Neither was interested for over a year due to the startup costs and the effort required to build a proper website (neither of them is technical). But recently, one friend decided to give it a shot. We met a few weeks ago, and she didn’t know where to start. The idea of starting a company seemed daunting and overwhelming. I suggested she create a simple website and see if she could get a handful of customers. Baby steps.

I told her not to waste money hiring someone to build a site. Instead, she should use an AI tool to create the first version of her site. These tools allow her to test her idea with zero upfront money—just time and energy. She wasn’t aware these tools existed but was curious to try them out (mainly because it was so much cheaper than hiring a developer).

Fast forward a week, and she’d completed the first draft of her site using an AI tool. She was surprised by what she was able to do with the tool in such a short period. She no longer felt overwhelmed or unsure where to start; she was motivated and energized. The tool lit a fire in her belly and gave her confidence. My other friend looked at her site, and it motivated him to launch a site using the same tool. Fast forward to today, and her site is done and launching. She’s got a few early customers lined up and is excited to test her concept. She’s incorporated her business and feels like she could really be an entrepreneur.

Watching my friends’ experiences has helped me understand the power of AI website builders like Lovable and the impact they can have on non-technical, early-stage entrepreneurs. The ability to take an idea and turn it into a product without hiring a developer or spending much money is so powerful. The need to hire someone technical or understand technical details has been a significant obstacle for many founders pursuing ideas. These tools remove that obstacle and allow non-technical founders to hack away and create whatever they have in mind. When more non-technical people who are considering entrepreneurship become comfortable with these tools, the number of entrepreneurs—and the pace of simple products coming to market—will increase.

I should note that tools like Lovable aren’t perfect. Any developer will tell you that there can be issues (scalability, security, etc.) with apps created by non-technical people using these tools. I agree with that. If someone can validate market demand using a Lovable-built website, it will likely need to be enhanced to meet the demands of a steady stream of paying customers. But that’s a high-class problem. In my opinion, these tools are great for testing an idea at low cost and low risk to validate if it’s worth pursuing.

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Continuing yesterday’s post, I’m still riding shotgun for the founder of a company that raised VC funding as he negotiates selling his company.

Competition usually leads to higher prices. It’s the law of supply and demand. If supply is fixed (or limited) and demand increases, pricing usually increases too.

When a term sheet or letter of intent (LOI) is presented to the selling company, an exclusivity clause may be included. This usually means the seller can’t negotiate with another party until a defined date has passed. This clause comes in many flavors, but you get the gist.

The upside may be that the seller is serious and wants to complete the deal quickly, so it wants both sides to be fully focused on closing. The downside is that the seller may not be fully committed or may not have secured the funds to close the sale, and the clause gives it time so it doesn’t have to worry about the deal being snatched from under it. The clause also reduces the likelihood that the deal price will increase due to a competing bid from another suitor.

Exclusivity clauses show up in lots of other types of contracts and agreements, too. Still, it’s a clause that entrepreneurs should be aware of and discuss with their legal counsel before signing an LOI.

I’m riding shotgun for the founder of a VC-backed company as he sells his company. The process has been fun, tons of work, and highly educational. Selling a VC-backed company is different than selling a non-VC-backed company. The cap table is more complex, and many rights related to the sale of a company are embedded in the terms of VC-led fundraising rounds. Because of this complexity, more review is needed to make sure everything is in order. Cue the lawyers.

A big takeaway is that legal fees can be a material percentage of deal size, regardless of the size of the deal. As one lawyer put it, M&A legal fees don’t scale down well unless the buyer is willing to accept potentially material risks—IP isn’t cleanly owned, liens exist, pending litigation, etc. It’s not uncommon for each side to get a $30k–$50k bill for a small deal (think more than $100k but less than $500k). Deals over $1 million can involve legal fees for each side that easily exceed $100k.

One of the founders I know is in the process of getting acquired. I’m working closely with him to help get it over the finish line. Lots of moving pieces and parties are involved, which makes it interesting. It feels like putting together a puzzle. I’ve learned a good bit so far, and I’m pretty sure I’ll learn a ton more before this is over. I’m excited for the founder and what awaits him on the other side.

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A friend shared Stripe and OpenAI’s new Agentic Commerce Protocol (ACP) with me. ACP is an open-source interaction model and an open standard that lets buyers, AI agents, and businesses complete purchases. Translation: ACP will enable buyers and sellers to complete purchases, using AI agents, within an “AI surface” (think apps like ChatGPT).

As I understand it, when a buyer wants to purchase within a chat app, an AI agent works with them, showing products, offering checkout, and collecting payment. The business receives order details and payment information from the AI agent and can accept or decline the transaction. The AI agent facilitates payment via the business’s payment provider and sends payment details via a secure token (I assume after the buyer accepts the transaction), which the business can use to charge the buyer. If all goes well, the buyer can check out instantly via an app like ChatGPT without ever leaving it. It’s a seamless experience.

This is interesting stuff that could really change how commerce is done. It’s brand new, and I’m curious to learn more about it and follow its development. If you want to learn more, you can read Stripe’s blog announcement here and visit the ACP website (which links its GitHub) here.

This week, I caught up with a founder who’s out of runway. He raised several million dollars from VCs to fund the company for four years. After several pivots, they found a product that customers love and are paying for. But they don’t have enough cash left to accelerate the search for enough customers to reach cash-flow breakeven. Investors aren’t willing to invest additional funds.

He shared with me his biggest learning from his four-year experience:

Bootstrap as long as possible before raising venture capital. Being low on funds forces you to be laser focused on problems customers are willing to pay to solve. After you build a solution and customers are paying for it, raise capital to scale it. Raising a ton of cash too early increases the risk of building nice-to-have solutions rather than solutions to truly painful problems. A nice-to-have is like a faulty foundation under your house. You’re constantly trying to fix it, but that’s hard to do because of all the stuff on top of it.

Every founder’s situation is different, but I do agree that too many resources too early can lead to a lack of focus. When resources constrain you, you’re forced to focus only on what truly matters and what customers will actually pay for. Focus fixes everything, and constraints force you to focus.

This week, I had a conversation with an entrepreneur who’s considering closing his business. The business breaks even or runs at a slight loss most months. When someone is considering closing a business, I wonder why, so I asked.

This entrepreneur has had his business for about a decade. He’s no longer excited by it and hates the thought of going back to being involved in its day-to-day operations. He’d rather spend his time on new entrepreneurial pursuits, which he’s already doing. This makes sense to me. Around the decade mark with my company, I began to lose enthusiasm and remove myself from certain aspects of the operations. I’ve heard other entrepreneurs share similar experiences.

Next, I wanted to understand the issue with the business. Why wasn’t it generating a profit? Operationally, it’s running smoothly with a small team. The work gets done as expected and customers are happy. But they’re not getting enough customers through the door to generate the revenue needed to turn a profit. I asked how they acquire customers and let customers know they exist. It turned out that the entrepreneur hasn’t done any marketing in a few years. He did big marketing pushes years ago, which were successful, and he’s been coasting on word of mouth ever since. But word of mouth is dwindling, and the result is fewer customers.

Marketing is just like other business functions, with one important difference. When you stop operations, you notice immediately because the work isn’t getting done and customers are mad. When you stop marketing, you often don’t see the impact right away. Awareness of your business gradually declines. Revenue gradually declines. One day, you realize you don’t have enough business.

I told this entrepreneur that it seems like he’s got a marketing issue. If he can dedicate himself to a few months of restarting his marketing function and incorporating metrics that quantify his return on marketing spend, he’ll likely see a profit again in a few months. Instead of closing the business, he’ll have a good shot at getting marketing running smoothly without him—just like the rest of the business—and then selling the business. Instead of getting nothing and walking away, he may be able to sell it, get a nice chunk of change, and pursue his new entrepreneurial ideas with a clear mind and capital to fund them.

Today I read an article (see here) about James Dyson’s annual dividend from the namesake company he founded decades ago. He reportedly owns 100% of the firm and received a 2024 dividend of $303 million (converted from British pounds). He received a $1.5 billion dividend in 2022, and over the last four years he’s received a total of roughly $5.39 billion. That’s an astonishing amount considering that he still owns his company, Dyson, outright, and that ownership is worth well over $10 billion.

I read Dyson’s autobiography last year (see here), so I know that his journey to building his company was anything but smooth. What stands out to me is that after all these years, he hasn’t sold it. He created and continues to own a valuable asset that generates substantial annual dividends, which he invests in diversified assets.

That’s very unlike today’s entrepreneurial culture, which celebrates exits (i.e., selling a company). When you look at the entrepreneurs who’ve created the most wealth for themselves, they didn’t exit. They built great companies that are wildly profitable, and they continue to hold significant stakes in them.

This week, I caught up with a founder from SF. He’s building an AI-based solution in the HR space. Several ideas he’s tried haven’t worked, but this one is gaining traction rapidly. He told me his failures made him reflect; he wondered what he was doing wrong compared to other founders.

He asked one of his old professors (he has a graduate degree in computer engineering from an Ivy League school) why he’s having a much harder time than his peers getting enterprise companies to try his solutions. The professor didn’t mince words; he told the founder he wasn’t leveraging his network. He was reaching out to large companies cold and getting the door slammed in his face left and right. No one would listen.

Armed with this new idea, the founder leveraged his school’s network to get warm intros. The results have been drastically different. Large companies are not only excitedly listening to his pitch, they’re trying his product as early users.

I asked the founder what his takeaway is from all this. He said he believes that getting decision-makers in large companies to try technology from start-ups requires warm intros, and to get warm intros you need a strong brand name or a good network.

If you’re a founder thinking about selling to a large company, consider who in your network can make a warm intro to decision-makers. If the answer is no one, ask yourself what you can do to build your network.