The Exchanges

Q Can you make that tangible? Why is that? Like, what does that look like in practice?

A So I'll give you two very easy ones. This is just at the top of my head, which is just like, you're always better off as a business owner than not. One example is as a business owner, you get something called a QBI deduction, which is the automatic 20% deduction on your income right there. It's part of the Trump jobs act in 2017. There's some nuance to it, but 20% right off the top. Another simple one is if you If you live in a high tax state like New York or California or whatever, you used to be able to deduct your state taxes from your federal return. But if you're not a business owner, you're capped at only being able to deduct 10,000 dollars. So if you live in California, make half a million bucks a year, you're paying 50,000 to the state, but you can only deduct 10,000. But if that same income was business owner income, it would flow through your business return and you'd get the entire 50,000 dollar deduction. That's just two quick examples right there, both of which mean same exact setup, meaningfully less tax for business owners.

AI assessment note: “One example is as a business owner, you get something called a QBI deduction”

Q Signatures from every single person. How, if, let's say you want to involve a lot of people in a round now, how do you do that in a smart way as a company?

A Yeah, absolutely. So we did this, we did what's called an RUV on AngelList, but really just pools together all these small check investors into a single line on the cap table. And the best part is you control their voting interests. So they get the same economic stake, But from a voting perspective, all their votes are consolidated into one single entity that you can sort of run the way you want. And this is great for us because what we did is part of our first round of funding was done for my fund. The rest, we wanted to get other people involved. So we had 200 investors involved, each putting in about 10,000 dollars each, various two million dollars with 200 people. And it's one line on our cap table. So right now, if I want to do anything, all I need is two signatures, my fund and this entity, and we're good to go.

AI assessment note: “we did what's called an RUV on AngelList, but really just pools together”

Q Incredible. And then, I don't know if you want to briefly talk about it, because I feel like this is like QSBS Kung Fu, but like, there's this whole world of QSBS stacking as well, right?

A Correct. So now, let's level up, right? Next level, let's say you're, yeah, again, this gets crazy. Let's say you want to, you're going to make 20, 30, or forty million dollars. There's actually multiple strategies you can use to multiply your ten million dollar QSBS limit to 20, 30, or forty million dollars. The simplest of which is, honestly, if you have family members that you'd like to give shares to, the QSPS limit is per company, per shareholder. So what I've done this time around is given shares to my brother, my mom, my dad. So if the company were to ever have a successful outcome, each of them would have their own ten million dollar limit. So super powerful, super effective. Um, that's part one. Part two is you can Set up trusts, different types of trusts, each of which can serve as their own taxpayer that gets their own ten million dollar dollar limit. For instance, you can set up, I set up, I set up two trusts. I set up a trust for the benefit of my future children and family, and I made a gift of my shares to the trust, and as a result, that trust got its own ten million dollar limit, and then I set up another trust, which is called a charitable remainder trust, which works by Giving the share, giving the shares to this trust that does not pay taxes. It pays me out an income stream every year for 20 years, and what's left over goes to charity. And that got its own t…

AI assessment note: “There's actually multiple strategies you can use to multiply your ten million dollar QSBS limit”

Q Can you, can you just expand on that? Because I don't think until you go through it, I don't think people truly grasp when, when you add a person to headcount, what are all the downstream effects of that?

A Yeah, absolutely. So you typically will be like, hey, this role feels like it needs, it needs another person. You end up hiring a person, but soon the work, anyone who comes, the work expands to sort of fit their role. Soon the work expands where they'll want someone under them. And before you know it, you start building this little mini empire and Team headcount just explodes, and every single thing becomes harder. Communication becomes something that, instead of being a few people around the table, you have to be very intentional about. You have to spend all this time doing Fake work, like, you know, meetings on meetings and starting to like, just keep everyone on the same page. I started to find by the end of running my company, I had to spend so much time convincing people to do the thing that I thought had to be done. Um, and that's when I realized I would be terrible at politics because it was infuriating to spend all this time just trying to like convince someone to do the thing that has to be done.

AI assessment note: “You have to spend all this time doing Fake work, like, you know, meetings”

Q Totally. I mean, something, you know, as I went through your threads on this that you shared is like, You already talked about hiring fewer people. You also talk about paying them more. Talk about the part about paying people more. Why is that something that's important to you in this next step?

A Yeah, absolutely. So there's two levels of this, right? One is when I built a company, by the end, you realize as a founder, of course, you create this, but the early team does so much. And fundamentally, I do believe early startup employees, like the first few people are undercompensated in terms of what are like, like norms of how much to give early employees. Like historically, a lot of people, you know, would give First employee, one percent, and sometimes waterfall goes down from there. I think it should be two, three, four times higher because they're taking quite a large amount of risk as well. Um, and if the company becomes something and they actually stay for four years, five years, they've had such a big part to do with it. So that's part one of why I think people should be compensated more. Part two is if you're keeping the team small, the implicit understanding is everyone will is doing More work, slightly more of a job than they would in another place. So therefore it's fair to have fewer people pay them more. You still save money on headcount, yet you have a team of like motivated people. And finally, like hiring people is painful, right? Like if you can reduce your turnover and keep people longer, that's ultimately going to result in a better business.

AI assessment note: “So that's part one of why I think people should be compensated more.”

Q of founders who sold, uh, basically took a ton of secondary and then their businesses lost a lot of value. Not to say they're necessarily in the wrong. I think everything's on a case by case basis, but a question that I think a lot of founders ask is when is it appropriate to raise around and take some liquidity as a startup founder? What's your thought process on this?

A Yeah, it's a great question. I think you can always, always, always take a secondary if someone offers it to you with the caveat that you make the exact same offer to the rest of your team. I think that's a really important rule, but otherwise, I know a lot of investors are like, oh, you shouldn't take secondary. Bullshit. If there's a market for it, it's within your right, but ensure that every single person on your team with vested shares has the exact same opportunity. If you do that, I think, you know, power to you. Because a lot of VCs, frankly, are, they're the ones who Kept telling the founders to take secondaries because they wanted to buy into these companies that they weren't able to, and now they're upset about it. So I think if you, if you have a buyer for secondary, look, you already put all your eggs in this basket. So it's totally fair to be able to diversify some of it. Just take care of your team.

AI assessment note: “I think you can always, always, always take a secondary if someone offers it to you”

Q like, you can stretch this from a little bit to a lot of it. Like I've seen people move to a different state because a certain state doesn't allow for a certain trust structure all the way to people living in Florida for half the year. And there are people I know who live in Dubai now. Uh, what, what is your thought process on geographical location for tax optimization?

A Yeah. So I personally hate it. And like, even though I do a lot of, I mean, I literally live in the highest tax bracket possible, right? New York City and all. I, the expression I really like is like, look, we talk about taxes, but don't let the tax tail wag the dog. So I would rather live where I want to, and then figure out my taxes. Um, so again, to me, the whole point of having money is to be able to live where I want. I actually had a tweet go viral a while back, and this may seem like an attack to you, where I was like, what's the point of having money if you have to live in Jersey?

AI assessment note: “I would rather live where I want to, and then figure out my taxes.”

Q Makes sense. Okay. Anything else on QSBS? That's question one. Question two, is there, are there any other topics as it relates to thinking about your wealth and wealth planning as a founder that you think are really important for people to think about beyond QSBS?

A Another question that comes up very often is how much should I pay myself? And a lot of people aren't very upfront about it. Um, I've previously been public about what we paid ourselves. I, you know, living in New York City, I think we started at Ended up by the time I sold the company to a 150 K in between the sort of levels in between. But my thesis and what I tell all my portfolio founders is I think the goal should be to pay yourself enough that you're not worried about day to day expenses. You're not compromising your quality of life meaningfully yet. You're not getting rich off it. You're not, you know, like materially like saving a ton on it. And what that number is varies a lot by who you are, what your family situation is, where you live. But I think that's a generally a good rule of thumb for how founders should consider paying themselves. But I'm curious how, what you tell people when they ask you that.

AI assessment note: “Another question that comes up very often is how much should I pay myself?”

Q We're actually hiring the person who values a high growth startup may become impossible because they want to work at a high growth startup. The second piece to it is, okay, that's your, that's kind of your model for who you want to hire. How do you actually put that into practice? What do you, what are like the spidey sense or things you look for to get that person?

A So I actually think, and I saw someone say this and I totally agree. I think the movie social network kind of Changed the entire world of startups. Before that, right, like, when I graduated college, and I'm a few years older than you, startups were a slightly weird thing to do. It was kind of strange to want to go work at a startup. It wasn't a thing everyone did. At some point, I call it the social network effect, may be related, may not be related. Startups became trendy. They became cool. They became the place for random people to go, and a lot of people would approach a job search whereby, you know, they may work for Deloitte, They may work for Facebook, or they may work for a startup. Those are exactly the kinds of people I realized were not a good fit, because they don't specifically want all that a startup entails, which is, at times, it can be the most exhilarating work of your life, but it can also suck. And you want someone who really, really wants to be at a startup, because otherwise, when things get hard, they're not the people you want to be in the trenches with. So a great way of sussing that out is, whenever I'm talking to candidates, finding out Where else they're interviewing? Like, if there's an executive who is seriously weighing us versus Facebook, it's likely not a good fit. Like, we're not going to be able to pay anywhere near as much. We're, like, they'…

AI assessment note: “finding out Where else they're interviewing? Like, if there's an executive who is seriously weighing us”

Q I think my question is, is, um, how do you know if you have kind of like the right or a good lawyer that you're working with? Uh, and how early did you involve them in just say your new business with Carrie?

A Yep. It's really hard. I've also separated a different time tweeted about how The most frustrating profession to deal with in the world is, is, is high expensive lawyers, because the whole industry is, you know, predicated around sometimes what is, in my opinion, not the fairest billing practices. Um, so honestly, it's tough. I think it's important to not skimp on the things that are important. So for us during our, our acquisition, it was important to make sure we get that stuff right, because the difference is quite material. In terms of finding the right lawyer, I mean, I think it's, ideally, you want it to feel like a partnership, and you want it to feel like you, just because you text them, they're not gonna, you know, rack up a thousand dollars every time they respond to you. So someone where they're ideally bought into your mission, they believe you're going to be a large company, and they're, you know, biding their time to actually make their money later on. Like, I think what happened with our council at Teachable is, Honestly, we didn't pay them very much through most of the company building journey, but they received a fair amount at the end when they helped us through the M&A transaction, right? So it kind of worked out for both parties, and we're trying to do that this time too. With that said, not naming names, we don't love our current corporate council, so, you …

AI assessment note: “ideally, you want it to feel like a partnership”

Q Exactly. On the culture piece, just before we move on to the next thing, what does it actually look like in practice to codify it and to live those values? Like, do you have any examples, like even within carry right now, like how have you codified the culture and how do you incentivize based on the culture?

A So we're very customer centric. And I think that's something that we're trying to get every single person involved in either talking to customers directly and wherever possible, like it really does come down to you as a founder. Like I replied, I joke with people that I'm very, very bad at email. If you want to reach an email right now, you would struggle unless you emailed support at carry money.com. I see that. I see that all day and I'm replying to those tickets all the time, right? That is the, I use that email inbox more than anything. So that's a way of, if you do the thing, the team will do the thing. So there's no better way than by your own example to actually do that.

AI assessment note: “I see that all day and I'm replying to those tickets all the time”

Q has this extra levy on S corps. You would elect to be an S corps because you're going to end up saving money by electing as an S corp. The actual process of doing this, like one creating an S corp and electing to file taxes as an S corp. Who do you involve in that process? Like if I want to actually go do that, what do I do?

A Yeah, so again, the reason I pick a 100,000 dollars instead of, say, 80,000 dollars, the math actually may work out even at 80,000 dollars, but your savings aren't big enough, where I typically think you want to be saving thousands of dollars to make the additional cost worth it. Typically, an S-Corp entails payroll, so you would have to use a service like Guster or something to pay yourself a W-II salary, and based on who's doing your taxes, you want to get them involved as well. So it is More annoying, which is why, you know, a 100,000 onwards, you're saving enough money. It's definitely worth it. There are some, you know, Personal finance, thought leaders, and gurus that will say, at 70 K, you want to do it, 80 K, you want to do it. I tend to think, I tend to think the juice is not worth the squeeze at that point, but at over a 100,000 dollars, it's almost always, you know, a 5000 dollar-ish saving, which is meaningful enough.

AI assessment note: “use a service like Guster... and based on who's doing your taxes, you want”