
Earnest Capital Trailhead - sahillavingia
https://earnestcapital.com/trailhead/
======
arvidkahl
I really appreciate how this is an inversion of the "time-honored tradition"
of making founders do loads of extra work within arbitrary deadlines in
addition to growing their company. Too often, this is more a one-sided
scramble (resembling an "audience with the king") than a mutually respectful
conversation.

It's really promising to see that you value the time of the founders you fund
so much that you are ready to talk to them in a way that suits them, not just
you.

I like this.

~~~
tylertringas
Thanks! The gate-keeping / "kiss the ring" approach to raising money has got
to go.

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gumby
Investors need companies but often don’t act like it.

I go to LP meetings from time to time and it’s fun to see the inversion.

~~~
scopendo
Reminds me of the way many landlords seem to treat their tenants.

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edoceo
Tenants much easier to replace than finding a good company to invest in.

~~~
spurdoman77
There are maybe millions of companies in line looking for funding, and they
all say that they are good.

~~~
koolhead17
But will it fit traditional VC model? :)

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tylertringas
hey folks, I'm the founder of Earnest Capital and love to hear questions or
feedback. The gist here is I think the way we make founders pitch investors is
pretty lame and we can do better. Definitely a v0.1 of our thinking here and
would love suggestions for how to take it further.

~~~
EGreg
Tyler, this is really innovative. The VC model needs rethinking, aligning more
with founders, and along the lines of what you're doing here. Your mentor
model works great also.

As a founder of a company that has gotten to 8 MM users across 95+ countries,
and $1M in revenues, and there is a lot more I can tell you in a private
conversation. We've applied to VCs along the way, but the model is not always
aligned with companies like ours, which make revenue from the beginning rather
than hockey stick growth and zero revenues.

One of the major reasons is that these kind of startups often need small
amounts to get to the next level, but the due diligence of a VC sometimes
costs more than that amount. If there was a "roadmap" model that VC would
fund, say, $10K to get to the next level, then $20K, _etc._ and if it falls
short, then they have to seek another such VC and syndicate. A bit like taking
on lenders except it would be more along the lines of your Shared Earnings
Agreement + Equity. Everything would be clearly spelled out, and rather than
spending tons of time on due diligence, it would just be about a history of
execution.

 _PS: We filled out your "regular" application in early April, please check
email from @qbix.com ... would love to talk next week._

 _PPS: If you 're a startup founder chime in and add your 2c, does your own
experience in early stages resonate with what I've said? That if you were able
to break down what you need to get to the next level, in $10K and $20K
increments, with a second or third chance on slightly worse terms, you'd be
happy to be funded in that manner, and work hard to make serious progress and
document it._

~~~
loceng
It's likely not worth the time investment to them for whatever return you'd be
offering them for each $10k to $20k increments.

~~~
EGreg
Under the current model, that is correct.

That’s like paying a UBI of $300 a month vs paying a whole department doing
means testing for $100/month and then paying $300 a month of welfare to those
who qualify.

May as well do something more automated and send the money. Like what Tyler is
doing here — collecting info over time. Make the entrepreneur spend most of
the time providung the due diligence in the format you want. They have the
time not the money — and it is reusable for other investors too.

It should be a portal. Like the “Prizes, not Patents” debate. Same thing.

~~~
loceng
Another thought I had: they don't want to help you succeed in small increments
because then you're 1) not likely to need their help any longer (they don't
have you on a metaphorical leash), and 2) the more successful you are the more
leverage you have in negotiating and could find other suitors to fund you at
better rates.

~~~
EGreg
Well, I think there are different kinds of VCs. And anyway, as usual there is
a way to address this... they can just get options (but not obligations) to
have preferential rights in follow-on stuff, such as right of first refusal.

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joekrill
I hate when things pop up when I select text, because I have a tendency to
randomly highlight text as I'm reading it.

This little speaker pops up, so I clicked it out of curiosity, and it started
to speak the text. The icon choice is a little unusual (I'd expect a play
button or something, but that icon is typically used to control volume). But
then I couldn't get it to stop playing. I even closed the tab and it was still
playing. And for some reason Chrome doesn't show that tab as even playing
audio so I could mute it. What the heck is going on there?

~~~
ccheney
I tend to do the same, clicking, right-clicking, and highlighting text. Very
likely using the Web Speech API[1]. I was able to reproduce your report of the
audio not stopping when closing the tab so I dug a bit and found this open
bug[2] in chromium.

[1] [https://developer.mozilla.org/en-
US/docs/Web/API/Web_Speech_...](https://developer.mozilla.org/en-
US/docs/Web/API/Web_Speech_API)

[2]
[https://bugs.chromium.org/p/chromium/issues/detail?id=517317](https://bugs.chromium.org/p/chromium/issues/detail?id=517317)

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loceng
I'm curious if any firms will be created where they're happy receiving 2-5x
return after 5-10 years, the terms of these novel investment firms - arguably
better than traditional VCs - are still trying to get extra icing from the
cake and not just happy with the icing on their own slice.

Re: [https://earnestcapital.com/shared-earnings-
agreement/](https://earnestcapital.com/shared-earnings-agreement/)

"One reason for wanting to handle every possible outcome is that we are
committed to a SEAL not having any control over the business: no equity, no
shares, no board seat, no preferred voting rights." isn't congruent with "...
there is a residual Equity Basis that remains after the Shared Earnings Cap is
fully repaid" \- I'm not sure if I'm misunderstanding or you're first saying
there is in fact an equity-like function but in the conclusion claiming "no
equity" taken?

Also, anything regarding to the value of the mentors-investors that they claim
will help out an investment (because they're incentivized) is all just ear
candy and hype without evidence that they'll actually add any value or give
useful direction for whatever business model(s) you implement.

Maybe earn trust with founders before asking for or expecting extra icing?

~~~
tylertringas
investors like me are at a basic level middlemen. We have to raise capital
from other sources and then invest it in founders. So it's not so much a
questions of what kind of returns we're 'happy' with as it is, what kind of
returns will enable us to keep collecting more money that we can turn around
and use to back founders. If I was already a billionaire deploying my own
capital, it would be a different story (and I'm actually a big proponent of
folks investing with lower return expectation because I think entrepreneurship
is an inherent social good) but that's not our situation.

> is all just ear candy and hype without evidence the only evidence i can
> think of would be reviews from other founders who've worked with us. They
> are a super nice bunch and are generally happy to have a chat if you're
> curious. Here's one founder quoting another on the non-cash benefits of
> working with us:
> [https://twitter.com/_rchase_/status/1233074457406771208?s=20](https://twitter.com/_rchase_/status/1233074457406771208?s=20)

>Maybe earn trust with founders before asking for or expecting extra icing?
100% Agreed.

~~~
loceng
What I dislike most is the unlimited extra icing. The first part with the cap
is nice because the return is measurable. The unlimited extra icing required
to be given on the tail end (based on negotiated %, whatever that range may
be) is however not measurable, nor is what value the network may actually
bring even at a basic level - and assumption is generally bad. If it was a %
up until a cap of $ then arguably that's more digestible, more tangible,
because it allows weighing of a reciprocal relationship within a best or worse
case scenario; and of course you think that extra payout on selling company is
nice but that is weighted towards the investors. A different mechanism does
introduce an issue with figuring out how to implement follow-on investment
agreement if future funding is a loan with 2-5x return with % equity until a $
cap; not explaining myself so well here.

I just don't like uncertainty and I like measured fairness. I understand the
excitement of getting an extra payout if there's a big exit but I feel 2-5x
return on investment is already a great payout - and I don't like the VC
justification that a higher return is aimed for to diversify risk because
that's just an excuse for VCs that are making bad investments in an unskilled,
inexperienced way, hoping for a few unicorns of 100x+ return that cover the
losses of bad investments + that provide all their profits.

Ultimately my goal, if I ever raise any outside money, is to retain as much
equity as possible, for myself and for the team - especially early on so then
later at higher sums of money are necessary for expansion then equity is more
likely to be necessary to be part of the equation but the company being in a
better position allows better leveraging.

I'm not trying to disparage, this is much better than traditional VC already
and I also like what Indie.VC is doing - the flaming unicorn in the hero of
their landing page is a nice Minimum Viable Personality touch too. Just used
this opportunity as a thought exercise, I appreciate your responses. Maybe the
timing just isn't right for me to be able to as reasonably consider this model
until I am certain I would continue on the external fundraising path.

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embrassingstuff
There is no such thing as bad capital.

But looking at the web site, over approx 2 years, 15 investments, I presume
low-6-figures.

So out of 1000s online applications of "self builders" u have a 1 in 1000
acceptance rate?

This statistic is just as important as being "founder friendly" or "no song
and dance needed".

~~~
tylertringas
i hear you. not enough. we're scaling up as fast as we can!

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jkarneges
Great to see innovation in the fundraising process. As a founder, the things
that bother me the most about fundraising are:

1\. The experience imbalance. VCs do pitch meetings every day for years on
end. Founders, not so much. No wonder the expectations mismatch.

2\. Wildly unpredictable outcomes. Early stage fundraising is more like
working a fuzzy strategic partnership than applying for a loan. The same
inputs probably don't produce the same outputs.

~~~
tylertringas
Yea, for founders going down a traditional VC path, there is some what weird
but actually sensible logic to the idea that "being good at pitching VCs" is
actually a useful skill to filter for. If I'm a Seed VC, assessing how well
the founder will do at raising from Series A-F investors is actually part of
the game.

We do "funding for bootstrappers" so most founders that work with us don't
really plan on needing to raise more capital (it's not prohibited or anything,
just not Plan A). So we and they don't really care about how "good" they are
at playing the game of pitching.

~~~
jkarneges
> for founders going down a traditional VC path

Has this been much of a choice? I figure most tech founders either get on the
VC track or don't get to have a company.

"Funding for bootstrappers" seems like a relatively new concept. Good to see
another option!

~~~
tylertringas
I'd say the number of non-venture-backed software businesses exceeds venture-
backed by at least 20:1. See also "patio11's law"
[https://twitter.com/mmcgrana/status/1260250538299408387?s=20](https://twitter.com/mmcgrana/status/1260250538299408387?s=20)

~~~
jkarneges
Assuming that's true, it would be interesting to know what the alternative
funding sources are, and whether they're appropriate or accessible to non-
wealthy first timers building product companies.

VC is ostensibly generally accessible. Even accelerators like YC are VC-track.

~~~
tylertringas
the untold secret of bootstrapping to date is that is has often been done from
positions of privilege: family money, savings from a very high paying career,
spouse's salary, inheritance. Very hard to make broad generalizations since
the companies are often privately held and under the radar (so no
statistically significant data) but my experience is that the case far more
often than you would think.

On the other side, I see many many founders essentially twist their business
plan into something VCs want to see because accelerators/VCs are the only
source of capital for early stage tech companies.

Funds like Earnest trying to change that.

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burlesona
This looks pretty cool. The experience of doing this sounds very similar to
participating in YC Startup School.

> You can leverage the Founder Summit forums for feedback from the Earnest
> team and our broader community of awesome founders and mentors (a free trial
> is included for everybody on Trailhead).

I’m not familiar with the founder summit forums, but this sound sounds similar
to the community aspect of Startup School.

You mentioned that people get a free trial, but it sounds like someone can
sign up for trailhead and stay in it for the long term without ever deciding
to raise the earnest. What do you guys do in that case? When does someone get
kicked out of their free trial? :)

~~~
tylertringas
Thanks! Definitely pulling on the same thread as Startup School (though I've
never done it myself). Some structural differences might be

1/ this explicitly designed to be a replacement for the application process at
Earnest. Over time you build up a profile that contains most of what we need
to make an investment decision. We'll still need to chat and do diligence, but
we're trying to remove a lot of the uncertainty around what should be in a
pitch and when to time the pitch. Basically pitching is not a skillset we
optimize for at Earnest (since most of the founders we back not intend to
raise continuously more rounds of capital).

2/ This is explicitly opinionated in structure. Everything will intentionally
skew towards our "funding for bootstrappers" strategy vs being generic advice.
This should help founders decide if they are a fit for working with us long-
term.

3/ This is not a "how to build a business" process. It's much closer to "here
is a bunch of questions and prompts that we have found valuable to strengthen
founders' thinking and strategy + some resources"... we're not here to _teach_
you how to build a business with this.

> You mentioned that people get a free trial, but it sounds like someone can
> sign up for trailhead and stay in it for the long term without ever deciding
> to raise the earnest. What do you guys do in that case? When does someone
> get kicked out of their free trial? :)

good question. this is subject to experiments/change but the way we're
thinking about it now is 1) Founder Summit remains a paid community (we are
still a small fund and this allows us to hire an awesome team + pay people for
workshops, etc) 2) We want to avoid a "pay to pitch" scenario so Trailhead
folks get a 3-month free trial. 3) At the end they can choose: don't apply to
Earnest but stay in the community and pay, apply to Earnest (portfolio co's
get free access), or decide they've gotten what they need and move on from
both.

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koolhead17
Love what folks at Earnest are doing. I was reading one of the draft LP
documents, I am assuming it was shared here.

Keep up good work, we need a different route/way of building business as well.
:)

~~~
tylertringas
thx! probably this one: [https://earnestcapital.com/investment-memo-
fund-2/](https://earnestcapital.com/investment-memo-fund-2/)

~~~
koolhead17
Yes yes. This is the one. :)

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guptaneil
Congrats on the launch! Both Trailhead and SEAL are very interesting ideas,
and I really hope they take off (read: get copied by more investors ;)

As an early stage bootstrapping founder, I'm curious to see how Trailhead
works in practice. But regardless of whether or not it works, thanks for
thinking like a founder and being willing to experiment.

btw small typo: the link to 1 Second Everyday in your portfolio actually
directs to yac.chat

~~~
throwaway243711
The SEAL is basically debt with a super weird equity kicker that could
completely ruin your cap table if you need to raise before paying any debt
back, so hoping nobody copies it.

~~~
guptaneil
It reads like debt funding that turns into a SAFE if you decide bootstrapping
isn't for you after all. That sounds reasonable to me, but the devil is in the
details.

As a founder, it's nice to have options though. Fundraising is a series of
pros and cons. As we're seeing in this downturn, SAFE's aren't that safe
either, but I'd still choose that over the hassle of a priced seed round.

Ideally investors would provide multiple options, and one could choose the
vehicle that aligns with your goals the best.

~~~
throwaway243711
Reads like, but isn’t anything like a SAFE. A SAFE converts at a discount
(20%?), a convertible note converts including an interest rate (7% annually?),
a SEAL converts at 3-5x investment amount.

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pcmaffey
One concern with this kind of model is the potential for it to become a
honeypot for widespread data collection (eg. Startup School).

Any thoughts yet on how to address that?

~~~
tylertringas
Can you say more? We explicitly do ask, at the end of each section, if
founders want to (optionally) send us the results to build up their
profile/"application"... so there's some above board data collection
happening.

What's your main concern re: data collection with SS and/or trailhead?

~~~
pcmaffey
My concern is the moment when the question arises: "what else can we do with
all this data co's are sending us" besides form a relationship with that co?

At your scale, it's not much of an issue yet. But at larger scale, like SS or
with what Social Cap's Capital-as-a-Service program was trying to do, founders
are freely contributing their co's data to unknown investment algorithms, in
exchange for ??. .ie a honeypot.

That's not really different from how it is now (giving your data away to VCs).
But rather than solving the asymmetry problems between founder / investor, my
concern with any kind of VC platform model is that asymmetry will be magnified
at scale.

(All that said, I think Trailhead is a great approach to invert the standard
process based on how things stand today.)

~~~
tylertringas
Ah yes, fair. I'm not sure there can be a true _solution_ to "we have to see
your data before know if we can invest or not"

Our approach here is 1) we always give value before we ask for anything. Some
strategy, resources, writing prompts, and anything else we can think of on a
topic.. THEN we say "hey if you want to share your thinking on this here's
how" 2) it's 100% optional. Founders can go through the entire process, get
feedback from the community, hopefully improve their strategy, without ever
sharing anything with us.

But good points to consider and thanks.

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jrenshaw
Looks interesting, but curious about the name. Trailhead is a fairly well
known trademark of Salesforce:

[https://trademarks.justia.com/865/88/trailhead-86588816.html](https://trademarks.justia.com/865/88/trailhead-86588816.html)

~~~
apetresc
It's also just a generic term for a guidepost at the beginning of a journey –
which is a perfect symbol for the product. I don't think there's any risk of
confusion with a vendor-specific training portal.

~~~
tylertringas
+1. Let's hope

