Contracts First, Clubhouse Rooms Second - Prioritizing Legal Agreements

Startups Weekly: The Importance of Formal Roles

Welcome to Startups Weekly, offering a people-centric perspective on the latest startup news and trends. To receive this directly in your inbox, subscribe here.

Fluidity and Formalities in Startup Origins

During the initial phases of a company’s development – often beginning in garages or via Zoom – adaptability is crucial for generating ideas. The absence of strict contractual commitments is inherent in the narratives surrounding many successful startups. We often applaud swift pivots, favor minimal viable products (MVPs) over overly refined platforms, and closely observe serial entrepreneurs who secure funding for their next venture even before fully defining it.

Seeking advice from admired figures in the tech industry via platforms like Twitter can unlock entirely new approaches to building a business. A positive press mention might reveal the potential of an idea. The capacity to rapidly assemble a team and launch a product is undeniably central to the unique appeal – and the enjoyable nature of reporting on – the startup world.

Why Governance Matters, Even in Early Stages

Despite the energizing nature of a startup’s formative, unstructured period, a potentially controversial viewpoint is that formality is essential, even when large communities gather online – as seen with the ConstitutionDAO’s efforts to purchase a copy of the U.S. Constitution. Both startups and broader movements require the establishment of clear governance structures to effectively manage expectations from the outset.

Significant distinctions exist – in terms of both ownership and influence – between a founder, a founding team member, an advisor, an investor, an angel investor, and an early employee. These roles carry different responsibilities and levels of commitment.

Legal Disputes and the Clarification of Roles

As demonstrated by cases such as the Winklevoss twins versus Facebook, Reggie Brown versus Snapchat, and, more recently, Avi Dorfman versus Compass, recognizing individuals’ positions within a company isn’t merely a matter of semantics. It’s about proactively resolving ambiguity before it escalates into conflict.

On a recent episode of Equity, I discussed with my co-hosts the increasing number of lawsuits involving ousted founders and the companies they helped create, and the importance of establishing clear titles before publicly promoting a vision on platforms like Clubhouse.

Defining a Founder and Addressing Disputes

What precisely defines a founder? When is it appropriate to pursue legal action in a founder dispute? What commonalities link the experiences of the Winklevoss twins and Avi Dorfman? And can an individual legitimately claim co-founder status simply because their idea contributed to a successful business, or is sustained involvement required to demonstrate the ability to guide a concept from inception to implementation?

Exploring the Nuances of Startup Roles

These questions are addressed in my TechCrunch+ column, titled: Name your job title before you name your startup. I consulted with a lawyer who previously represented both the Winklevoss twins and Dorfman. I also spoke with Jennifer Fleiss, co-founder of Rent the Runway, about building strong co-founder relationships, as well as current founders and investors who are actively defining these boundaries.

Looking Ahead

This newsletter begins with a reflective look as the holiday season approaches. In the remainder of this edition, we will examine ConstitutionDAO, the Macro, and Zillow. You can always connect with me on Twitter @nmasc_ or via direct message on Instagram @natashathereporter.

An Attempt to Purchase the U.S. Constitution by a DAO

Only thirteen copies of the initial printing of the U.S. Constitution are known to still exist. Recently, a decentralized autonomous organization (DAO) revealed that its attempt to acquire one from Sotheby’s auction house was unsuccessful, following an intensely competitive auction that garnered significant online interest.

Despite not securing the purchase, ConstitutionDAO has demonstrably served as an entry point for a large number of individuals to grasp the potential of DAOs. Approximately 13% of those who contributed to ConstitutionDAO utilized ETH for the very first time.

Furthermore, 44% of contributors had previously completed fewer than 40 transactions with their cryptocurrency wallets.

The Growing Importance of Community

The year 2022 appears to be highlighting the increasing significance of community engagement within the digital space.

• The United States is emerging as a central hub for successful blockchain-based ventures as the number of cryptocurrency "unicorns" continues to grow.
• Clubhouse, the social audio platform, has now implemented live captioning functionality on iOS devices.
• A streamlined technology stack for growth marketing is becoming increasingly vital for lean startups.

Community is becoming a key factor in the success of many projects.

Spotlight on This Week’s Rising Star

This week, we’re highlighting Sudowrite! Haje’s coverage of the company might even be a contender for the best lead of the year. As someone involved in writing, I naturally gravitate towards technologies aimed at enhancing the craft.

However, Sudowrite presents a unique approach. Its purpose isn’t to automate writing or generate polished marketing materials. Instead, it focuses on aiding writers by providing tools to summarize, elaborate, or stimulate creativity when inspiration is low.

Key details, as shared by founder and CEO Amit Gupta:

Notable companies also making waves:

• Flytrex secured $40 million in funding to expand its drone delivery network to suburban areas throughout the United States.
• Kettle has raised $25 million to support its reinsurance platform, designed to mitigate risks associated with fires and other disasters.
• Mmhmm acquired Macro.
• Remojo is developing solutions to address digital addiction, beginning with a focus on pornography.

Was Zillow Overconfident in its Market Analysis?

This week on Equity, I participated in a discussion with Alex Wilhelm and Ryan Lawler concerning Zillow’s decision to discontinue its iBuying operations. While this development might not immediately appear to be a captivating topic, it involves significant complexities and points of contention. These include the challenges of housing valuation, the precision of Zestimates, and Opendoor’s conveniently timed financial reports.

A key takeaway is that simply possessing extensive data does not guarantee success in the real estate sector. The inherent volatility and lack of control over pricing dynamics present substantial obstacles.

Lawler maintains that the iBuying market remains viable. However, the implications of Zillow’s withdrawal are being closely monitored by both real estate companies and proptech startups. This situation differs from the case of Casper, and is expected to have a more substantial effect on the industry.

The Challenges of iBuying

The difficulty in accurately predicting housing prices proved to be a major stumbling block for Zillow. Fluctuations in the market made it challenging to reliably estimate property values.

Zestimates, Zillow’s automated valuation model, faced scrutiny regarding its accuracy. The model’s limitations contributed to financial losses for the company.

Impact on the Proptech Sector

Zillow’s departure from iBuying is prompting a reassessment of strategies within the proptech industry. Startups are analyzing the factors that led to Zillow’s failure.

Unlike some other business failures, this event is anticipated to have a broader impact. It highlights the risks associated with disrupting the traditional real estate market.

Looking Ahead

The future of iBuying remains uncertain, but the market is not necessarily doomed. Companies that can effectively navigate the complexities of housing valuation may still find success.

The situation underscores the importance of robust risk management and a deep understanding of local market conditions.

TechCrunch Community Highlights

Several individuals within the TechCrunch ecosystem are particularly noteworthy and offer valuable insights. Among these are Haje Jan Kamps and Ryan Lawler, whose work is highly recommended.

Supporting the Equity Podcast

For listeners who enjoy the Equity podcast, providing a rating and review on Apple Podcasts is greatly appreciated. This support is entirely free and significantly benefits our dedicated team.

Your feedback helps us reach a wider audience and continue delivering high-quality content.

Exploring the 'Found' Podcast

Consider exploring another excellent podcast, Found. This show, co-hosted by Darrell Etherington and Jordan Crook, delves into the experiences of founders.

Found specifically focuses on the challenges, pivots, and unconventional paths that founders navigate during their entrepreneurial journeys.

The podcast highlights the dynamic and often unpredictable nature of building a company.

Weekly Tech Roundup

As reported by TechCrunch

Elon Musk has announced SpaceX’s intention to initiate the inaugural orbital test flight of Starship in January.

Atomic has successfully launched 14 new companies within the past year, with these ventures also securing funding; their operational methodology is detailed below.

Lambda School is undergoing a rebranding effort, adopting a new name to distance itself from its previous image.

Mensa, an Indian direct-to-consumer brand aggregator, achieved unicorn status remarkably quickly, in just six months.

A virtual reality glove developer asserts that Meta’s recently revealed prototype closely resembles their own device in fundamental aspects.

Featured on TechCrunch+

Following Sequoia’s shift in its operational model, other venture capital firms utilizing a permanent capital structure are offering their perspectives.

A compelling argument is presented for the concept of an Initial Viable Product (IVP) within the context of IVP’s investment strategy.

The public debuts of Braze and UserTesting, both unicorn companies, are unfolding in contrasting manners.

Strategies for capitalizing on the benefits of distributed work arrangements are explored.

Three distinct methods by which fractional Chief Financial Officers (CFOs) can accelerate a startup’s progress toward success are outlined.

Wishing you a joyful start to the holiday season, and I look forward to reconnecting next week.

N ,

Editorial Correction: An earlier iteration of this article contained ambiguous source attribution. Clarification has been made – the discussion with Jennifer Fleiss pertained to the dynamics between co-founders, not disagreements among them.