This is Andrew Gunderman’s weekly newsletter, a place to find his upcoming events, news, and to read about technology, business / startups, economics, and investing.

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👀 Who is Andrew Gunderman?

I am a young entrepreneur who raised venture capital for the first time at 21 and dropped out of college that same year. I sold my first company at 23.

I also host both private and public events for celebrities, professional athletes, influencers, elected government officials, business magnates, and more. Many thousands of people have attended my events all over the country, and I've raised hundreds of thousands of dollars in sponsorship.

I was named on the Inno 25 Under 25 list for 2023. You can find me in Entrepreneur, Forbes, Inno Magazine, and more.

🎉 My Upcoming Events

• The Quarterly Penthouse Series is the premier private event in Chicago aiming to be THE event for the most accomplished people in the city. Featuring professional athletes, celebrities, influencers, business magnates, high ranking and elected government officials, and more. These events feature guests worth billions of dollars and who have millions of social media followers.

  • Mid June - For extremely accomplished individuals in any field

• Renowned Chicago is the premier private community for established influencers & content creators in Chicago with Madison Jade. Our community represents a membership with a cumulative 80 million followers on socials.

  • Late April - For established influencers or content creators making any type of content (30k minimum followers or some major accomplishments)

That’s it for now! If you’re interested in attending an event just respond to this email and let me know. However, all of my events are curated for specific groups of people, so if you’re not in an event’s target group don’t expect an invite.

😀 What does it mean to raise Venture Capital?

To begin, it’s important to start by defining some terms along with the rules that come with them. Venture capital is a type of capital that entrepreneurs can raise for their businesses. However, it is a specific type of asset class that is reserved only for certain types of businesses and should only be considered if you have a business that makes sense for venture capital. While it may not seem like a big deal, raising the wrong type of capital CAN kill your company and I’ve seen it be a direct cause of founders walking away from years of company building with nothing.

How does venture capital work from the VC perspective?

Something many entrepreneurs don’t seem to realize is that venture capitalists also have to raise their own capital. So when you’re complaining about having to raise a $1 million pre-seed, just keep in mind that the venture capital investors that you are pitching probably raised 40-1000x what you’ve raised - and it was probably way more difficult for them to raise than it is for you. They raise capital from people called LPs - or limited partners, which are usually pension funds, family offices, high net worth individuals, and others.

Venture capital investors invest into a sizable number of companies. Their model is analogous to a lottery in some ways. They’ll invest in 100 companies, 90 of those will fail, they won’t make much money on 5-6 of those, and then maybe 1 or 2 of those companies will do so well that the venture capitalist returns all of their money. Their business model entirely relies on finding a few outlandish returns while expecting that most of their bets will fail.

😄 What does it mean to Bootstrap a company?

Bootstrapping a company means building a company without any venture capital funding. In some cases it might mean raising a small amount of angel funding, but the definitions vary. Bootstrapping is often known for its difficulty with scaling and most large businesses are typically venture backed or took on some type of significant funding, something that doesn’t happen when bootstrapping.

How to think about raising venture capital versus bootstrapping a business

To me, I’ve always thought that this was inherently a personal decision. While the type of company you’re building matters here; this ultimately just depends on what you, as the founder, wants to deal with long term.

With raising venture capital, at some point you can expect to likely lose control of the company; although that will often be after years (and if you get to that point you probably have a pretty sizable company). There is also a component of how big you want your company to be. It is admirable to say you want to build a billion dollar company, but its important to know what comes with that. To build a billion dollar company you’re likely going to need to raise venture capital. Part of raising venture capital is the idea of liquidation preferences.

Liquidation Preferences

Liquidation preferences are one of the most overlooked, but important pieces of a venture capital deal. An important note here is that when a company is acquired, the money from the exit is paid out to outstanding debt providers first, investors second based on their liquidation preference (I’ll get to that in a second), and the entrepreneurs & employees last.

Liquidation preferences are the concept of a certain multiple of an investors initial investment that they will get back first in the case of a liquidation (exit, IPO, etc). For example, if a venture firm invests $5 million into your company with a 1x liquidation preference and you sell the company for $5 million - assuming you have no debt, the investor would be guaranteed to get their $5 million back, and you (the entrepreneur) and your other shareholders (employees) would get $0.

Liquidation preferences are often at least 1x. Sometimes, they can be up to 4x or higher, especially depending on how much risk your business seems to be as an investment. In that case, if you sold the company for $20 million after raising $5 million, you’d get $0 from an exit. If people reading this are interested, for the next newsletter maybe I’ll release an in depth look into an average funding deal or SAFE. Let me know if you’d like to read more about that.

Final thoughts

Personal Decision

Raising venture capital or bootstrapping is a largely personal decision. If you raise, you have the responsibility of dealing with other people’s money. You will likely have a much larger company, or you’ll need to, and the effort of raising capital becomes an entirely new part of your life beyond just building a business. You will constantly be dealing with investors & outside pressures / expectations. It is much higher pressure in many cases than bootstrapping. There is also a large focus on growth and speed, which you may not have with bootstrapping, where you can afford to take your time a little more.

Exit Considerations & Personal Outcomes

If you’re dead set on building a billion dollar company, raise venture capital.

If you want a lifestyle business, or just something to make a solid amount of money on, bootstrap.

A fun fact that people don’t seem to realize is that the US’ definition of a “small business” is up to $40 million in revenue a year. The definition of a High Net Worth Individual (HNWI) is investable assets of $30 million. If you sell a “small business” making $20 million a year in revenue you are probably pretty likely to end up as a HNWI. It’s still a great outcome, even if you bootstrap or build a smaller company.

I would also argue that you’re more likely to build a smaller company if you never go the venture capital route, but you’re also far more likely to have a positive personal outcome and walk away with cash if you bootstrap. Many companies raise with large venture backed valuations and can never make enough revenue to justify their valuations. They turn into zombie companies and ultimately fail. Think carefully about this choice because it really does matter.

🫠 What I Need Right Now

• Nothing!

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