Seed to Exit
Welcome to Seed to Exit, the ultimate podcast all about startups, scaling, and venture capital. Your host is Riece Keck: Startup veteran and recruitment entrepreneur.
Join us as we dive into the journeys of startup founders and venture capitalists who share their insights, successes, and lessons learned from seed stage to successful exit.
Each episode, we bring you candid conversations with startup founders, executives, and investors. Whether you're looking for inspiration, actionable advice, or a deeper understanding of the startup ecosystem, Seed to Exit offers invaluable knowledge and real-world experiences to help you on your entrepreneurial journey.
Tune in to Seed to Exit and get ready to be inspired, educated, and connected with the exciting and ever-changing world of startups and venture capital.
Seed to Exit
David Snider, Founder of Harness Wealth | Revolutionizing Wealth Management | Early Lessons from Scaling Compass
Ever wondered how visionary entrepreneurs turn their ideas into billion-dollar realities? Join us as we uncover the journey of David Snider, the mastermind behind Harness Wealth, and learn how he revolutionized wealth management by empowering advisors with technology. From scaling Compass to a $1.8 billion valuation to writing a game-changing book, David shares his secrets to harnessing an entrepreneurial spirit and strategic networking to build a standout career in finance and tech. This episode promises to inspire those eager to merge innovation with financial savvy.
Explore the crossroads of startups and corporate roles with David’s methodical approach to career progression. He reveals the criteria that guided his decisions, ensuring impactful contributions and growth potential in every role he undertook. We spotlight pivotal moments at Compass, where his strategic insight secured Series A funding and propelled the company towards a successful IPO. Listen to David's recount of the adrenaline-fueled excitement and challenges of steering a fast-growing startup and the invaluable lessons learned along the way.
Discover the intricate world of equity compensation and tax planning for startup employees and founders. David demystifies the complexities of stock options and shares strategies like the 83i election, designed to enhance ownership and financial decision-making. We dive into the nuances of exercising options and the often-debated fairness of standard exercise windows. Packed with actionable insights, this episode aims to equip you with the knowledge to navigate your own financial journey in the world of startups.
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This theme of tech-enabling advisors in spaces where clients still care about who they work with but perhaps aren't dazzled by the technology or the things beyond reach. The advisor's expertise was a big business opportunity that traditional venture-backed businesses across advisory spaces had generally focused in on how do we eliminate the advisor, rather than how do we superpower, supercharge or give the advisor superpowers in delivering that. So I think, thematically, harness came out of that insight that we had had in the pivot and building the business.
Speaker 2:Today I'm joined by David Snyder, founder and CEO of Harness Wealth, a platform helping individuals optimize their financial futures. David brings extensive experience from scaling Compass to a $1.8 billion valuation, as COO and CFO to making billion-dollar investments in bank capital. He's also the author of Moneymakers Inside the New World of Finance and Business. We'll dive deeper into David's entrepreneurial journey, his insights on scaling businesses and the future of wealth management. Let's jump in. Welcome to Seed to Exit, the podcast where we uncover the stories, strategies and insights that power the startup ecosystem. I'm your host, rhys Keck, founder of MindHire, a talent acquisition firm specializing in helping startups build exceptional teams. Each week, I sit down with founders, investors and industry leaders to explore the journeys behind iconic companies and game-changing ideas. Whether you're building, investing or just curious about what it takes to succeed in the startup world, I want this podcast to be your go-to resource for actionable insights and inspiring conversations. Now, if you enjoy the show, please don't forget to subscribe, leave a review or share it with your network. Your support means the world and really helps bring more incredible conversations to life. All right, david, welcome onto the show, excited to have you. Thanks for having me Looking forward to it Likewise.
Speaker 2:So we got a lot of interesting stuff to talk about today. You've written a book, you had an incredible career at Compass and now you founded your own technology company, harness Wealth. So there's a lot that I think we can get into, but I want to start at a little bit back into the earlier parts of your career. So you wrote a book called Moneymakers, which was relatively early in your career journey Because, I mean, you finished at Duke in 2007 for undergrad and you published the book in 2010. So when did you actually start writing it?
Speaker 1:I started writing when I was a senior in college and it was really a Trojan horse to be able to interview people. I thought I might wanna workjan horse to be able to interview people I thought I might want to work for, to be totally honest, it was one of these things where I was looking for something. I didn't find it and it was like hey, if I could actually put together a resource that'd be valuable for others like me who believe they want to go into business but have no idea what the subsectors of that really are, look like, how they differ, who thrives, et cetera. That could be really interesting. And I think that punchline of the overall experience is I was successful in that endeavor and that Macmillan published it. It was translated into two foreign languages but I still would have made more money bartending on a per hour basis than the amount that was invested in that book.
Speaker 1:And again, it wasn't pursued for the sense that this was going to be my retirement fund. But I think sometimes people ask me about I had this book idea. I'm thinking, I'm doing it. I'm like awesome If it, like it did for me, creates value for you in the process. Fantastic If it's a great calling card for your business or what you're selling, or validation awesome. If you're doing it, you know to make a ton of dough. You probably have a lot of other options that will get you there a lot faster on a risk adjusted basis, totally makes sense and that's it's.
Speaker 2:it's really funny you say that because there's a there's another popular podcast that I listened to called 20 VC, if you've heard of it. And yeah, so the the, the host basically has said in interviews he did the same thing in podcast form. He uses a Trojan horse planning on getting a job in VC. Clearly it worked out for him. I'm just curious how has that book affected your trajectory over the years?
Speaker 1:Well, I think it's been helpful in some of the key inflection points that it's hard to quantify definitively, but I would say that I graduated from Duke, I went to work at Bain Company, I moved over to Bain Capital on the investing side. There are a lot of people in private equity that apply to business school. I think it was definitely helpful in differentiating to some degree that I had had these great professional service experiences but also had demonstrated some entrepreneurial inclination, I think. Similarly, I knew the founder CEO of Compass through a nonprofit. In my second year at HBS for business school.
Speaker 1:I had been really interested in the prop tech space it wasn't called that then, but potential tech applications within real estate, either commercial or residential and he reached out to me kind of as potentially sort of a Trojan horse head of finance candidates, since they had a guy who was actually playing that role at this back in 2012, you know one of New York's most successful tech companies at the time and he wasn't totally sold on him and so he said, hey, come in. But really it's not about convincing me, it's about convincing my technical co founder, ori, and I think my having had an entrepreneurial experience. We started a tiny business that we sold during business school to transition from being a smart but still kind of clueless private equity professional service person and figuring out how do you get the most efficient, lowest cost PEO and hire a bookkeeping service and raise capital and other stuff that I definitely not formally done, albeit with some good talking points around, helping to take a Bain portfolio company, public or something else that I could speak to Makes sense.
Speaker 2:So in terms of the book, I mean you were able to interview some really major players like Jamie Dimon at JP Morgan, for example, david Rubenstein from the Carlyle Group. Are there any key insights or key learnings from those interviews that you were able to get in a relatively early stage that have stayed with you over the last 15 years?
Speaker 1:Yeah, I mean, I think in general, just understanding or having a sense of the breadth of career paths of people. The book covered venture, private equity, hedge funds, fortune 500 companies, management, consulting I feel like I'm forgetting one other category but by being able to invest in banking, by being able to speak to people from each of those areas, it gave a sense of, in some cases, a more winding path and you didn't have to start exactly where you thought you did to get to something interesting. There are a few specific anecdotes. I remember, like David Rubenstein was actually my first interview and I think, very critical in my having written the book, and then I sat next to him at a lunch for trustees at Duke where I was an undergrad. I actually thought I was sitting next to David Gergen because I was kind of like a policy guy. He was like a White House advisor to a bunch of presidents and started talking to this guy. I was like this dude is not who I thought he was and ended up having a great conversation and got his card and sent him a note and he was very kind and gracious to say, sure, I'll do an interview for this project you're saying you're working on, but I don't really know, and no interview was ever so easy to set up.
Speaker 1:John Mack moved or canceled at the then CEO, morgan Stanley, six times and called me at 7 am out of the blue and all sorts of challenges. But I asked David Rubenstein I was like, hey, putting compensation aside, what are some of the reasons that private equity resonates or draws talent or something else? And he's like, well, david, you know, asking the question that way is sort of like asking Mrs Lincoln how she enjoyed the play. You know it sort of misses the point. So there were, you know, stories like that where it sort of stuck with me of you know there's awareness in some of these areas of what you know, what value they can drive, the relative importance of impact scale, managing people. You know, compensation, et cetera. That definitely was, you know, helpful in formulating views for me I love that.
Speaker 2:So you had a good. You had a good, you know, couple of years at Bain and you eventually then made the jump to Compass, which you were the first business hire, and that was prior pre-series A, so seed funded at the time, I'm assuming.
Speaker 1:That's right. So they both based on Robert the CEO's network and Ori's success, having sold his last business to Twitter and a prior one to Google raised a very large. Really it was a seed round, but really a pre-seed round, like them with a deck. And then I joined a few months later as head of finance and operations I think I was like the 10th person there, but the first business person as a full-time hire.
Speaker 2:What made or what motivated you to make that jump, not only from a large institution to something else, but also to something that at the time was, you know, like you said, a deck.
Speaker 1:Yeah, I mean I think a lot of people went into business school not totally certain what I wanted to do, and I think not that you're asking this question, but folks that go in assuming they're just going to figure it out without a hypothesis, tend to find it goes by really quickly and you don't have an answer at the end. I think those that start with the hypothesis can quickly validate you know whether that's true in some experiences talks, cases you know, a summer internship, et cetera. I took a weekend, I think, at the end of the first year. Cases you know, a summer internship, et cetera. I took a weekend, I think, at the end of the first year and, you know, brought a few books that people recommended. This book that I still think is great, called Stumbling on Happiness.
Speaker 1:You know a few other books kind of along that vein to try to figure out hey, what are my personal criteria in selecting an opportunity? Because I was getting recruited by other private equity firms. Compensation is exciting if it works out. A lot of reasons why that, when you're being recruited by these big firms in the physical context seems exciting. Had some startup ideas, had some corporate opportunities. What was the right way to navigate that and came up with six criteria assumed a good opportunity before and if I was lucky I'd find one that was like five of six and the compass opportunity was six of six and so it made it pretty easy to say yes. Was not exclusively focused on kind of that very early stage opportunity, was looking at a lot of different stuff but checked all the boxes for me and obviously, you know, had a tremendous professional experience, learning experience et cetera, you know, and taking that path, Well, I love the thoughtfulness behind the approach.
Speaker 2:Can you share what those six were, or at least some of them?
Speaker 1:Yeah, if I remember, I'll happily give all six, Not in any particular order, but I think number one wanted a role where I would have impact on the trajectory of the business, so not feeling like sort of a cog in the wheel but being able to drive something from the seat that I was taking. Second, ideally either knowing someone in the place that I was going or getting to spend enough time with them during the interview process to feel like I was going to avoid working for someone particularly challenging. Three geographically, I was very focused on ideally New York, open to some other areas as well. Wanted a business that was on a positive growth trajectory, because I found that they tend to drive the most opportunity for upper mobility. Wanted industry that I had natural interest in and wanted compensation that was aligned to the success of the firm.
Speaker 2:So what were the first couple of days, weeks, months, like once you started at Compass? I imagine it was a fairly big culture shock and learning curve.
Speaker 1:Yeah, it was sort of like an anti-onboarding experience in the sense that I was still in my second year of business school. I started commuting. It was like Thursday mornings or afternoons. My schedule worked out such that I could be in the office like Fridays and so I didn't have to be in person for them and then to go back. Obviously, for graduation it was essentially working full-time equivalent starting in late March for the business and there was just so much to get done there wasn't a lot of time to sort of you know, think about the transition. I mean, obviously it felt very different.
Speaker 1:On that compensation note, like I signed on for a small fraction of what my comp had been, you know, pre-mba at Bain Capital, but was super excited to be in this environment where we were experiencing a lot of early growth, very bright folks. One of the early team members had a connection to Mike Bloomberg and he came and spoke in the office as part of a New York tech push very early on. So it felt exciting and the founders tasked me with raising a large Series A very quickly, which we collectively the three of us were able to do, and that's what really sort of catapulted, I think, my role at the company, from being a head of finance and operations to the COO, cfo and really kind of the third person in the room as we thought about building and scaling the business.
Speaker 2:For the time that I was there, Was there a moment and maybe it was this, you know when you signed the term sheet for the Series A? But was there a moment when all of the you know, those six criteria that you were looking for felt validated and you're like, oh shit, this is it. I made the right move.
Speaker 1:I, luckily, you know, a, I try to be a person where I make a decision and move forward and don't spend a lot of time dwelling on it.
Speaker 1:Okay. But B, you know, I think from the outset it felt like I was getting all the things that I wanted and in my mind. While it's obviously riskier to join early stage business, I was fortunate to have all these great logos on the resume. I was still, you know, not married, no kids at the time, and so, like, if I'm not willing to take a risk, you know, post great educational credentials and post some great firms, like when would I be? And it wasn't even like that big a risk. I wasn't totally going out for my own, I was doing something that I could at least speak to, where, from a narrative standpoint, these were really smart folks. Opportunity, you know, felt real and obviously great that it turned out, you know, to be a business with a successful IPO outcome, et cetera at the end of it. But I was prepared and okay if it was just, you know, a couple of years of tremendous learning, then parlaying that into something else business building, oriented, entrepreneurial, you know, tech intersecting, et cetera.
Speaker 2:Maybe I were to phrase it differently. Was there a moment where you hit an inflection point where, rather than thinking about it from a risk perspective, you felt like wow, this thing is really going to take off.
Speaker 1:Yes and no. I mean, we raised this series A on a original model that I think the three of us knew was not really working and going to scale super well, and so there was a window of time when we're still growing quickly. We got to sort of capture that momentum and move forward, and we're able to do that at a very high valuation, which was great, and then to have the resources and the time to transition the business this is really like the very end of 2013, beginning of 2014, very rapidly towards the business model the companies had for basically the last decade, consistently, which is similar thesis, different application. Residential real estate needs to get better. Early thesis being around hey. The way to real estate needs to get better. Early thesis being around hey. The way to do that is to change the role of the agent. What it evolved to is actually got to change the role of the brokerage. The good agents are very good, but they're not getting a lot from the brokerage that's taking a third of the economics, empowering them. We need to be brokerage 2.0 or this enabling platform for the agent with technology and other resources.
Speaker 1:So I think, once we got into 2014,.
Speaker 1:I give the CEO, robert, a lot of credit. He just hustled his way to the first group of deals to kind of prove that this was validated and then we were able in 2014 to raise a big Series B round and then to use that momentum and to sort of drive exponential growth very, very quickly during that time. So I think once you got in that motion, it certainly felt good as we scaled it, but it often felt scary because we were sort of driving the car against the rail of those highway protectors at high speeds as we scaled it. But it often felt scary because we were sort of driving the car, you know, against the rail of those highway protectors at high speeds. And it was sort of my job to make sure that we weren't grinding so hard that if there was a blip in fundraising or something else, that the car went off a cliff and you know it worked out. There definitely are other scenarios playing it back. You know where it may not have worked out as effectively, but the ground that it did obviously.
Speaker 2:So I'm curious you mentioned the original model and that it wasn't that scalable and something related to being agent-focused. So what was that model? And then what was the decision to?
Speaker 1:pivot was one where, rather than having a traditional commissioned agent, we would have a neighborhood specialist in many respects similar to sort of the Redfin model for those that are familiar with the residential market whereby making that a salaried and NPS bonus role and having some of the components of the traditional agent responsibilities scheduling, closing centralized, we could drive more efficiency. As long as you got to certain levels of deal density that that would make the model work better. Allow us to charge which we did out of the gate a lower rate than the New York typical fee and create scalable value in a different model of renting and then buying real estate. What we found was lots of people who think that they want to get their first apartment in Soho realize actually it's what you get for then $3,000 a month now, like $5,000 a month is not that exciting. And you actually want to be in wherever Williamsburg, or you want to be on the Upper West Side or something, and so no one wants to repeat themselves in their search every time, and so this model of concentrated neighborhood specialist was challenging in that regard.
Speaker 1:It was hard to interface with an industry that didn't really want a successful new competitor that reset people's expectations to a lower fee. So there were challenges with that coordination across the scheduling, showing, closing side, et cetera. And again this awareness that there are actually some very, very good agents A lot of them are incredibly hardworking and play a key role, but that there was a huge opportunity for technology to improve the way agents did their job, the workflow components of it, the way they interacted with clients and a whole bunch of value unlocks that we could hopefully create over time.
Speaker 2:Love that time, love that so, and I believe it's. It's larger now, but by the time that, uh, that you ultimately left, it was $1.8 billion valuation. Is that correct? Okay, what would you say from your perspective, or from from your role, was the most challenging aspect from going from that, you know, zero revenue or the original business model all the way up to the 1.8 when you left, keeping the car on the rails maybe, like you were mentioning?
Speaker 1:Yeah, I mean, I think any business that's growing that really well was trying to focus in on specifically what mattered most. In this case, it was hiring and retaining agents. I think there's a tension that comes especially in the role that I had of how early, how aggressively, do you need to think about economic scalability, et cetera, and the tradeoffs between those two, and so we got very fortunate. The macro environment stayed relatively consistent and positive during my time there. I, you know the company was fortunate that it raised a lot of capital in 2017, 2018.
Speaker 1:And so you know A it was actually a great thing for the business that we work ran into a brick wall when I tried to IPO, that the public markets had a different level of scrutiny and expectation. That, I think, helped even before COVID hit, which was the second massive sort of wave and wake-up call for the business, that there was a need to focus on some of those things. Then, getting that balance right of how aggressively to expand, how to think about the relative value of a dollar of revenue, of growth, et cetera, was definitely an area of tension. That then trickled down into whether you thought about staffing, building capital raising, operating efficiency et cetera. That is like an important tension, but still a tension and challenge for scaling a business.
Speaker 2:Any key leadership lessons that you learned there that shaped your approach to then founding Harness lessons that you learned there that shaped your approach to then founding Harness.
Speaker 1:I think there's a combination. Whenever someone is a operator and then goes to become a founder, I think there's some things that I took away and said, wow, that was such a great insight. Number one this theme of tech enabling advisors. In spaces where clients still care about who they work with but perhaps aren't dazzled by the technology or the things beyond reach the advisor's expertise was a big business opportunity that traditional venture-backed businesses across advisory spaces had generally focused in on how do we eliminate the advisor, rather than how do we superpower, supercharge, you know, or give the advisor superpowers in delivering that. So I think, thematically, harness came out of that insight that we had had in the pivot and building the business. I think on the flip side to that there are things you're like oh my God, that was messy or hard. Definitely don't want to do that again.
Speaker 1:And so Compass was a business that, because of residential real estate, we felt like we had to. I think we probably did open very localized offices and build share distinctively in Washington DC proper and in LA, and even in LA it's different in Brentwood versus Malibu versus Beverly Hills, et cetera. Very operationally intensive, capital intensive, et cetera. So when I started Harness it was a pure play services marketplace and then I think we saw some limitations in that and then Evolve. I've built over the last few years a pretty exciting end-to-end software solution that's SaaS, for the tax advisors to be able to create this great experience for their clients, but was willing to roll up the sleeves, be a little bit more operational to test out, understand all that workflow to bridge. So you sort of run towards certain things, you run away from other things. You realize you got to kind of balance and find something in the middle on some of those attributes as you scale your own adventure.
Speaker 2:So, before we get too deep into H, I am curious because obviously things it sounds like we're going fantastically well at compass. You left. You had a stint, looked like back to bane as an eir. Was the? What was the inspiration for starting harness? Did it come out of bane? Was it something entirely separate? What did that transitional period look like?
Speaker 1:yeah, I mean, I um, there's sort of arcs of expanding and contracting opportunity and I think you know, in 2017, I felt like there was a path of business being imminently ready to IPO.
Speaker 1:There's a sense that that, you know, made more sense for everyone's leadership team.
Speaker 1:Much further out, I'd been playing the COO, cfo role that was going to have to kind of probably narrow as we continue to scale, and so I was excited, you know, excited about a different opportunity and challenge, was fortunate that I had the opportunity to go back to Bain Capital where I'd been in a new role there, this sort of executive in residence role, to think about either building or joining, and I was open to both of those opportunities. But I think when I got that light bulb moment of there was hey, something that thematically felt very similar, I thought I had a unique advantage having built or helped build one business in that kind of tech-enabled service space successfully, of doing that again. To run out this as a second chapter, there was also a scenario where I became an investor, but that always felt like a much smaller, less interesting opportunity, because I felt like I could probably do it, but I wasn't sure that I would have some significant edge relative to where I felt like I was perhaps more differentially positioned to operate or build, at least for another chapter.
Speaker 2:And so in this second chapter, with Harness, how has that evolved from the starting of the company to today?
Speaker 1:Yeah. So, as I mentioned, you know, our business model has expanded. I would say, you know you could call it a pivot, but really it's just added more and, I think, a more nuanced strategy. So we started as a place for nextgeneration business owners and equity holders to navigate financial complexity with tax advisory for both individual and businesses, financial planning, holistic wealth management, trust in the state to help people with service discovery, advisor pairing and some data enablement.
Speaker 1:What we found was that tax tended to be the most demanded service and it was also the one where the supply was the shallowest in terms of advisors that had the expertise that our clients needed.
Speaker 1:The basic tech enablement in cybersecurity to create an experience we thought made sense. Capacity to take on new clients at a price point we thought was reasonable for the demographic that we sought to serve, generally this kind of emerging wealth demographic in their 30s, 40s or maybe early 50s and so we saw an opportunity, after looking at the problem from a few different angles, to develop software that would allow both breakaway or small solo practices, as well as boutiques, to be more efficient in the way they serve clients and create capacity for themselves, have a better, more secure digital experience for their clients and that we could also be a conduit for this next generation clients looking for great tax advisors to really have a unique value proposition on both sides of the marketplace versus just a traditional third party intermediary. And that has proven to be very successful thus far in expanding the reach of what we're able to do and, I think, the positive impact that hopefully we're driving for our end consumer clients and tax advisors as well.
Speaker 2:Love that. So, on the tech side, I want to switch gears a little bit and really talk about how both founders and startup employees should be thinking about their finances from a tax and equity perspective as they move throughout their journey. So, given how much work you've harnessed has done with founders in the past, what would you say some of the biggest or most common mistakes that you're commonly seeing from founders when it comes to tax and financial planning for themselves?
Speaker 1:Yeah, I mean I think the most important is understanding the equity that you hold, as well as sort of what the options are and whether you need to proactively make a decision. In some cases, advocate for yourself. You're a founder with your board, if you're an employee, with the management, et cetera. I mean, I spoke to someone this week who's a director level person at a company doing incredibly well, director-level person at a company doing incredibly well, raising more capital, who hadn't gotten great advice along the way and all of a sudden feels like he's got 40 hours to make a decision on whether to exercise his equity because this is likely the last opportunity to qualify for Section 1202 QSBS, where the proceeds, given that he's a California resident, would be federally tax-free. There would still be some state implications, but would have been in a much better position if he had known all the opportunities much earlier on.
Speaker 1:Companies can, though a lot don't give employees the opportunity or founders to exercise through a promissory note where they're not outlaying cash. Companies can, though very seldomly do, offer the opportunity for employees to exercise through what's called an 83i election, where they transition options to stock but don't have to pay for a number of years for that transition to encourage the ownership, et cetera. So there's a lot out there. It's very confusing. It's much easier to not worry about it, hope for the best build and feel like, hey, if we get a great outcome, that's great Nine times out of 10, when someone gets there, they're like, oh my God, you mean I could have done something different and saved 22 million.
Speaker 1:That's insane. So it generally is second-time liquidity. Beneficiaries, whether they're founders or something else, that are much more proactive of you know, want to get my options into stock as soon as possible, want to think about you know when liquidity opportunities are coming, what are the right way to generate tax offsets through parametric funds or charitable giving or moving stock into trusts or other activities that are much more nuanced. I think there are opportunities for people at a minimum understand what they have, understand what you know they could be doing, to navigate these pieces. And then it's much easier, when you already have a good amount financially, to do some of the fancier stuff that people get excited about but may incur significant costs to create that out-of-state trust or to have a trustee or to do advanced planning. That doesn't have value if that stock doesn't end up being liquid down the road and worth a lot, but it's still worth knowing about much earlier on in the journey.
Speaker 2:Yeah, and a lot of what you just said is probably gonna go over a lot of people's heads, because I mean, ultimately a lot of startup employees or even founders. To an extent they have a general idea of how options work. If they're working in a startup, they generally know strike price, number of options, a percentage of company if it's earlier stage. But very few that I have ever talked to you know know the difference between, like an NSO or an ISO or really how equity works beyond that, that basic level. And I'm not suggesting that everybody should become a deep tax expert. But how should employees think about that equity comp, both as part of their overall package and also just from a tax planning perspective? A?
Speaker 1:few things I'd say. Number one, when you're thinking of starting something, taking a new job, et cetera, is when it's top of mind, and so that is generally when it's best to make sure that you're doing enough research. That's obviously your business and understanding, whether it's from the recruiter or from other resources like hey, how much information can I gather? How can I then do some research around it? Our philosophy at Harness Wealth has always been give as much away as we can to help people get up to speed on some of the nuances, and if and when they actually need to talk to someone, there's a cost for that. But how do we scale it appropriately? So there's a whole bunch of free tools and content around these topics.
Speaker 1:I found it surprising that in the tax industry there was really no personalized, live, bite-sized way to get an understanding of specifically what do you hold, what are the implications, et cetera. So we pioneered this concept of a one-off, one-hour equity planning session with a real equity comp expert that someone can understand what they have wherever they are in the journey. It ought to be probably earlier than it generally is, which is people kind of imminently thinking about an exercise, alternative tax implications, a move, liquidity, et cetera. And then when you're making decisions that have real complexity to how you then actually execute your tax compliance, those same advisors and a broader base of others can actually do the return for you once you've graduated from what the TurboTax DIYs can provide seamlessly. But there's definitely no reason that someone should run out and try to get an Anderson tax CPA for $25,000 to understand their 10,000 ISO grants for the Series A company that they're joining.
Speaker 1:But the sooner the better in just knowing what you have and how to think about it. I mean, a lot of these issues are ones where there is a risk-reward benefit Option is what the name suggests. There's a cost to exercise it. If you exercise it when there's no tax implications, you're still outlaying capital in most instances and so you've got to wait the capital outlay relative to the potential return and stuff like that. So there's some no-brainer answers and things and there's some that are just about you know making a calculated decision with your capital and your equity and you know what you think makes sense for your overall portfolio.
Speaker 2:What are your thoughts on the 90 day exercise window? That's fairly standard after someone leaves a company. Do you feel that's fair? I feel like a lot of people don't even realize that that is the requirement when they take their first role at a startup is the requirement when they take their first role at a startup.
Speaker 1:No, it's not fair. I mean, I think it's an information asymmetry arbitrage where companies, if they do really well, it either becomes a golden handcuff retention thing that employees didn't appreciate because they thought just by vesting that was what they had to do to capture value, you know, or become so price prohibitive in the potential tax and exercise implications that people just give up the equity and the company gets the benefit of people that probably ought to have taken that equity value with them. Just don't do it, you know. As a result of that, we implemented a promissory note program. It's something that got a lot of coverage for a very short minute because Ryan Breslow at Bolt talked about it like he was the first person to ever create it encouraged employees at a very late stage to use it.
Speaker 1:The company then faltered and so I think that was reinforcing for someone that's not necessarily like an unequivocally good tool. But, yes, I think longer exercise windows, which companies absolutely can do. Yes, after 90 days it automatically goes from ISO to non-qual. But it is the election of the company and not any regulation of saying, hey, you've got 90 days to exercise or it's forfeited First. You have 90 days to keep it as an ISO at exercise, versus to have a longer period of time to make a decision around it.
Speaker 2:And how did that become the norm? Was it just somebody started doing it and everybody followed the herd? Was there some?
Speaker 1:Yeah, I mean big corporate. There are a handful of firms that work with the vast majority of the mainstream venture-backed companies and it's to the benefit of the company and, by proxy, typically the founders who have outright shares or did a 83B election or something at a minimum cost up front to keep as much of the equity pool population whatever as they can. So, yeah, it's to the benefit of the decision maker. The law firms work for the company. The company is some combination of the board and the management team, founders, et cetera, so that tends to be self-fulfilling unless founders feel like that's just not a policy or the approach. I would say that there's definitely some incremental visibility, that it can make a difference when people are recruiting, but it's still pretty limited, I think, relative to the wider population as to what the implications are of a standard four-year vest, one-year cliff, nine-day exercise versus something more employee-friendly.
Speaker 2:Well, and typically employee option pools are 10% right.
Speaker 1:I mean it can vary widely, but yeah, I would say that's the most, anywhere from 10% to 20%, depending on how many people there are and what is being set up for. But then you'll often have equity pool refreshes after every price round and those can be refreshed back to 5%, 10%, you know, or higher, depending on how aggressive the investor is being to try to minimize future dilution.
Speaker 2:So if I get my options from the employee option pool and I leave the company and I choose not to exercise them for whatever reason, do those options then go back into the pool, which are then given to another employee, or do they go back to the larger group?
Speaker 1:The former I mean again mechanically. A company could obviously retroactively change the way that their option pool is done. That's less common, but no, it's largely recycling. That then inhibits having to expand the pool further down the road.
Speaker 2:Super interesting. Okay, all right, before we get too technical, I want to ask you one final question, just to circle things back to business a little bit. Just to circle things back to business a little bit. If you were to go back in time and talk to the younger David that was writing Moneymakers, with the experience that you've gotten in this 15 plus year career so far, what would you tell him?
Speaker 1:Well, I would say I feel very fortunate that I've had a great mix of professional service experiences that were immensely valuable, learning for me.
Speaker 1:Like both Bain and Bain Capital consulting private equity, I think, do an incredible job of giving you exposure at a very young age to challenging business problems in a way to hold yourself professionally and analyze problems that have served me very well.
Speaker 1:Certainly there are some people that if you go back in time would be accretive to have known to interview or focus on 15 years before, maybe in that population of folks worth working for because of the success that they've had in their businesses. But I think overall I try to continue learning from peers content people far smarter, more successful than I am, to even for our business, which is less than 50 employees, to have both self-directed learning through a learning and development incentive program that people can take advantage of and also to have guest speakers every couple months. Today we've got a former colleague of mine from Compass who's been a super successful marketing executive coming in. We've had CEOs of AngelList and Greenhouse and others to give our team a perspective on different journeys and things to learn that hopefully is helpful for them in the work that they're doing for Harness today, but also how they think about their broader career journey and what they can be learning day-to-day as well.
Speaker 2:Cool Love that. Well, you've dropped a ton of knowledge, both on the business side scaling and the equity component, so really appreciate the conversation and thank you for coming on.
Speaker 1:My pleasure. Thanks for the great questions and having me.
Speaker 2:Thank you for tuning in to this episode of Seat to Exit. I hope you found today's conversation insightful and valuable. If you enjoyed the episode, please take a moment to subscribe, leave a review and share it with your network. Your support means the world helps us continue to grow and bring more incredible guests onto the show. Now for more content and updates, follow me on LinkedIn or Twitter, or you can check out MindHire, where we help startups build exceptional teams. Thanks again for listening and I'll see you in the next episode of Seed to Exit.
