challenges for young entrepreneurs

dear young entrepreneurs:

how has the entrepreneurial journey been for you?

nice to meet you. i’m currently cofounding a biotechnology company called OCTAVE Pharma that focuses on developing novel treatments for alzheimer’s disease and other neurological disorders. i recently turned 25 years old, and have 2.5 years of experience across three seed-stage startups, as well as 1 year of experience in the family office industry. i wanted to vent a little about my experiences as a younger entrepreneur.

also, please hang tight. if you can make it through my (rather) negative authenticity first, you’ll find a bit of optimism after. it’s my hope that what i write resonates with you, and reminds you that you’re not alone on this journey. please reach out if you wish to connect.

“i am an entrepreneur”. this title, so far, has largely been associated for me more often with dread than pride. i am one of the people with aspirations of starting a _______________ business, with an indiscriminate number of years before i find myself worthy of the title. consider the cliff period in a vesting stock option agreement: you ask yourself if it’s worth working at a startup in the hopes that your stock options pay off at a valuation inflection point several years down the road. is it better to take a bigger salary now from a large company, or should i take a shot at getting rich while i am young?

deciding to found a startup is in some ways similar to making the cost-benefit analysis of deciding to be an early startup employee, when you weigh startup stock options vs. a larger salary from an established corporation. instead of a 1 year cliff period before your options vest and you have the chance to exercise them, in the case of founding a company, it can take 1 or 2 or even 3 years before your startup even has a valuation at all. during those first 3 years, you live off savings, or in the case of many, debt. and even after a large amount of work, including the investment of your own savings into your idea, there’s a strong likelihood that you don’t successfully raise a seed round. it’s not an easy thing to do. and even if you do succeed at that, it likely only gives you the ability to operate for ~2 years. on top of that, every dollar you take out of that seed capital to pay yourself a salary decreases the likelihood that you advance to the next stage.

so, you raise a successful seed round. you work your ass off over the next two years, doing what you can to generate some sort of positive data validation for your hypothesis. if that validation comes, you then try to convince investors that you need even more money to get to the next stage. (warning, very generalized algebra ahead) at this point, you’ve handed off ~20% of your company to seed round investors, you’ve split the difference with your cofounder, and you’ve no longer got a year’s worth of salaries in the bank account, so you have to raise another round, which dilutes the ~30% you have even further. while your investors’ shares are preferred, yours are common stock so you are diluted much more severely during the next round.

here’s an obvious aside that i think must be said: there’s no argument about it–you need a good law firm to draw up founders’ agreements and to incorporate as/before you go through the process of talking to investors. most law firms will have a standard deal where they collect billable hours after you’ve raised some money. all professional investors will be represented by a law firm so that they can secure the greatest possible value for their investment–investors may offer the lifeblood needed to move your business forward, but they protect their own interests. you need to protect yours.

all this means that by the time you’re ready for a series A, you have spent somewhere between 3 and 5 years on your idea, with fewer years paying yourself a small salary, on an idea that may have the potential to become what we loosely imagine as “a big success”.

there’s an amount of irony in being both extremely career driven but in lacking the usual bells and whistles of having a productive career. i think a small dose of self-deprecation and a large dose of humility is critical to getting your mind through this period. other early challenges of this process, for me, have included:

  1. having insufficient savings/financing to get myself to a seed round.
  2. an inability to effectively sell/express my analysis of a market opportunity, and a lack of confidence in communicating to others that i am capable of tackling a problem much larger than me.
  3. receiving no response for things you desperately need, and, receiving surface-level interest that ultimately culminates in a dead-end. this is especially disappointing when someone’s time is hard won.
  4. a network not suited to drive my business’s success.
  5. a loneliness juxtaposed against the backdrop of career-advancing friends with salaries.
  6. finding and connecting with potential cofounders.
  7. building up an amount of expertise that allowed me to operate. if you’re younger like me, everyone you need to talk to will be more qualified than you to take on the problem.
  8. best for last: guilt of opportunity/cost analysis of everything. i often feel guilty if i’m not working or if i’m spending money to enjoy myself with a loved one. i often unsuccessfully attempt to rationalize myself out of this guilt, with thoughts such as “only working is not sustainable” or “life is about having good times with friends” or “you’ll likely be more efficient if you schedule off hours to relax/reset”.
  9. but really, most importantly: building a product that a market wants and that is capable of generating revenue.

and yet, i can’t get over the fact that all the wins and successes that i have had feel so rewarding. if i’ve gotten better at a sales process, or if i’ve taught myself how to conduct user research, or if i’ve just gotten better at networking in a particular industry, i can sleep soundly knowing that i’m creating value for myself. when you work at a company, your success drives the success of the company. you can make an argument when you go for promotion or when interviewing for why you’re more competitive than others vying for your role, but at the end of the day, you’re making money for someone else. every minute of every day, every action i take, i strategize so that i am most efficient in creating value for myself. it’s not about “being your own boss”. it’s about having the chance to create value for the world, and in return creating value for yourself.

and some will say you’re always making money for someone else. that’s true–when you’re an entrepreneur you’re creating value for your early shareholders. but at least you’re the biggest shareholder.

there’s a steadiness in my heart that helps me sleep at night. i can’t say that i’ve felt that as a result of anything else i’ve ever done. i feel really happy with the work and the learning that i’m doing. getting this right requires most everything that i have to give. but it’s a labor of love, and i’ve never felt more whole than i do now.

you really do learn a lot. there’s no company to fall back on, so it’s just you. the rewards for your successes and losses for your mistakes are all on you. there’s nothing like figuring out a process for yourself. you can read and learn as much as you want about how to do something, to try to do it right, but at the end of the day you create that process by doing it. not thinking about it, not asking questions about it, but doing it.

planning looks like this:

  • by june, draft an agreement with a technical cofounder

executing looks like this:

  • no one in my network makes for a suitable cofounder, so what do i do?
  • attend lots of events, ask for a lot of intros, cold email/call a lot of people, use any and all resources available, and yet, still no luck
  • continuing doing this until you’re successful because it is the key rate limiting step
  • finally having a potential partner, and then, after working on something collaboratively, leads you to realize they really aren’t the right partner
  • somehow find someone who you can work with and (critically) really enjoy spending time with
  • spend an inordinate number of hours researching how to draft a founder agreement, only to eventually pay a lawyer to do it

but all this leads to having a partner. and having that person makes a big part of the mental hurdle go away. and that’s worth smiling about. just like all the other wins.

okay, break time’s over. time to get back to work :)

kindly,
eric tam

footnotes

  1. unfiltered criticism of my thought process is wholeheartedly welcome. i’m happy to receive advice. happier to receive a mentor. tell me i suck, please, but also tell me why.
  2. there is so much noise. millions of pages filled with subpar advice (including, perhaps, this one). how do you filter this noise? i think that fewer words are always better. do you have any thoughts?
  3. i have a fear of being misquoted in the future. i would like to publish without worrying about my words being misconstrued, while feeling open enough to put my heart out there. hence this attempt.
  4. how do you figure out what conversations are worth having with someone important? how do you ask the right questions? i would reference Ray Dalio’s Principles.
  5. i am based in the san francisco bay area. here’s my linkedin. always seeking friends, future cofounders, mentors, investors and opportunities

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