In today’s rapidly changing culture, it helps to get the advice of a seasoned startup expert. TechUnited:NJ CEO, Aaron Price, sat down with one of his first NJ Tech Meetup community growth champions, David Sorin.
David, former partner at McCarter & English and participant in hundreds of startup deals, gets into how to avoid making common legal and financial mistakes, and the recent increased interest in SPACs, NFTs, and other emerging economic trends enabled by technological advancements.
The number one issue startup founders face is equity allocation
When it comes to startup equity allocation, “Equality is not always the right answer,” advises David. Consider relative contributions: what does each founder bring to the table, and how can they be properly compensated for it? This is also an important strategy to ensure investors that the most valuable players on your team have the incentive to stick around for the long run.
Another conversation founders should have ASAP? Vesting. A vesting schedule is a way to distribute equity in your company among employees and founders using a time-based system. This protects your business from losing harmful amounts of equity in the event of a team change. It assures both current and potential investors that your startup has all the protections in place it needs to thrive. It also leaves enough equity to offer to new talent or founders.
Cryptocurrency is the future, but more specifically the distant future
Elon talking about Dogecoin on SNL was only the beginning of cryptocurrency’s entrance into the public space. Cryptocurrency, along with NFTs (Non Fungible Tokens) have been major hot topics in the finance world and beyond in 2021. But according to David, it will take a lot longer before crypto and blockchain technology become ubiquitous.
Cryptocurrency, in the long term, is expected to make a major disruptive splash in how people trade and raise capital. That excitement, though, should be tempered by remembering how young of a technology it is.
NFTs occupy this similar place of excitement and risk. They are blockchain empowered marketplaces for digital assets. This ensures that each piece of digital property can be properly authenticated. This helps solve the problem of monetization in the digital space, where it is difficult for creators and artists to gain revenue in the highly democratized space of the internet. According to David, “Owning a Picasso is not within the financial wherewithal of most investors, but NFTs allow people to play in an asset class like fine art.”
But ultimately, is crypto worth investing in?
A well-diversified portfolio should include cryptocurrency. Bitcoin, Ethereum, and other altcoins are easily accessible to the average investor through platforms like Robinhood and Coinbase. But just because they are accessible doesn’t mean they should be traded without consideration; crypto is highly volatile and risky. How much you include in your portfolio should be proportionate to how much of a percentage loss you can afford to take.
Now what is a SPAC, and why should I care?
A SPAC is a Special Purpose Acquisition Corporation. It’s a group of investors and sponsors specifically formed to do acquisitions of a company. As a new startup, it’s important to be well-versed in the modern investment climate: SPAC funding has increased by four times since 2016. SPACs are so attractive to businesses because they can expedite the process of gaining an Initial Public Offering (IPO).
Not all SPACs are created equal, though. There are SPACS that have a “blank check” to acquire whatever business it wants, which causes insecurity and structural issues.There are also SPACs that have a specific industry sector that they focus on, which are much more dependable.
Because they are a relatively new phenomenon, SPACs face the similar issues as cryptocurrencies with legitimacy and regulation. The market tends to correct itself when there is overexuberance. Those who are less adverse to calculated risk will tend to draw back from the hype around these types of investments once there is a big crash.
Tough times have proven startups’ resilience
Within the uncertainty of the COVID-19 pandemic, event-oriented sectors like travel and hospitality suffered tremendously. But these uncertain times also showed that other spaces persevered within tough circumstances, including technology.
The increase in remote work and the changing of business norms became hypercharged during the pandemic. “All the negotiations and documentations and diligence meetings occurred [online]. It’s a whole new world.” While David believes remote deals aren’t a permanent change, and that in-person meetings have their importance, it will definitely change in frequency and increase general productivity.
This presents opportunities in New Jersey to leverage technology and make local collaboration more possible. “The opportunities are limitless,” says David, “place matters less than ever before.” New Jersey’s highly-educated workforce and technical capabilities will attract investors in a way never seen before.