Six weeks ago the Calm Company Fund soft-launched by posing the question: could we build a funding model for bootstrappers? We had been working for months
on the technical details of an early-stage investment structure that aligns an investor with a founder who wants to build a sustainable, profitable, calm company and doesn’t want to raise traditional venture capital. Here is what we learned.
There is an unbelievable amount of interest in this. We received excellent, positive, constructive, and at times thoughtfully critical feedback in places like Hacker News, Indiehackers and even directly in the comments of the Google Doc of the draft term sheet we published
. We also received hundreds and hundreds of emails from founders, investors and interested bystanders.
Our small team is not set up to handle the volume of inquiries coming in and we needed a structured way for founders to reach out. You can now “apply” here and expedite the standard follow-up questions we would ask every founder via Airtable.
We needed to give this thing a name so people could talk about it
. Please meet the Calm Company Fund Shared Earnings Agreement.
We have to be incredibly transparent about how this new model works and give founders a way to crunch the numbers and run scenarios themselves. There is more coming on this theme, but we started with an open source simplified spreadsheet and detailed video walkthrough here.
People love pointing out when things are oxymorons. Yes “funding for bootstrappers” is one but we believe that bootstrappers has come to embody a broader set of goals, values, and priorities than the narrow definition of “never raised a dollar of capital.” Searching for a better term, that encapsulated those values, without the implications around fundraising or not, is actually how we arrived at the Calm Company Fund. Maybe we’ll just start calling them calm founders from here on out. Or we’ll just see what the founders want to call themselves.
I learned that I (Tyler) am going to need a heck of a lot more help with this thing. I’m extremely happy to welcome Ben Tossell, maker extraordinaire and former head of community for ProductHunt/AngelList, who will head our platform and build the connective tissue between our partners, advisors, investors and founders.
That’s what we learned broadly about the idea of the Calm Company Fund and funding for bootstrappers. Here are a few things we learned about the specifics of the funding model we proposed and how we have incorporated the feedback so far.
The big discussion, which was also the major outstanding question we posed, was whether investors should keep some kind of long-term stake after the Return Cap was fully repaid
. I was pleasantly surprised that the majority of both founders and investors had the same critique of the original terms, arguing that our default position should be some kind of long-term skin in the game, but let’s explore both sides.
The case against the Calm Company Fund (or other investors) having a long-term stake of some kind looks like this:
The case for the Calm Company Fund having a long-term vested interest in the companies we back goes like this:
Our response and resolution to this discussion
Founders really don’t want to feel like they are being nickel-and-dimed. Terms that were essentially boiler-plate from VC docs, like that the legal closing costs are paid out of the funding that is raised, really rankled founders. We heard you loud and clear and are reevaluating every term from first principles.
There are a lot of questions around “is this debt” and what happens if the company fails or doesn’t become profitable. The answer is that we view a Shared Earnings Agreement like equity. There is no personal guarantee, no fixed repayment schedule that forces you to pay even when the business is not doing well, and fundamentally no personal consequences if the business fails. We expect some % of investments will fail and that’s perfectly okay. In fact, you can count on us to be helpful and supportive with the process and figuring out your next move if the business fails
What’s up with salary caps? We really screwed the messaging up on that one. They are not caps. Founders can pay themselves whatever salary they want. There is a threshold of salary, below which Founder Earnings do not apply. So in the early days if you can only pay yourself a $20k salary from the business, we’re not going to take a % of that, only amounts that exceed the threshold that we agree on as part of the investment closing process.
We had hours and hours of discussions, pages of notes, and learned a ton more but we’ll leave it at that for now. In general we’re happy with the latest version of the Shared Earnings Agreement and very excited with the level of interest and discussion around it.
Thank you so much to everybody who has engaged in this discussion so far. Let’s keep the conversation going. Send us any questions, comments, critiques here or on Twitter.