CM Weekly: Embedded Finance, Advisors, Naming Startups, SPACs

Welcome to this week's edition of CM weekly featuring stories I found interesting on startups, venture capital, and fintech.

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Written by Chris McCann, General Partner @ Race Capital, former Greylock Partners. More about me. 

Better Banking Business Models: Embedded Finance

The banking incumbents’ business model of net interest margin is shrinking, causing many players in the industry - especially on the infrastructure side, to change.

11fs put together a great presentation about banking as a service (BaaS) sector, including the core problem, opportunity, and technical architecture. 

This is a market sector I’ve been personally interested in, where I hope to see real meaningful change within the next decade. If you’re working on a startup (even if it's at a super early idea stage) within the fintech infra space, I’d love to hear from you > [email protected] 

Everything You Ever Wanted to Know About Advisors

In an early stage startup, having an early set of key advisors on the cap table is common (but not required). One of the best enduring guides on the topic is written by Nivi from Venture Hacks (the precursor to AngelList).

This two part (part 1, part 2) guide goes through the basics of who advisors are, what they do, and how compensation works. TLDR: Typically advisors get compensated via common stock options, with a range of 0.1%-0.25%, and vested over 1-2 years. 

Picking a name for your startup

Picking a name for a new startup is one of the most difficult and frustrating tasks. It’s a simple exercise but has lasting repercussions depending on how well (or poorly) you do the first time.

Rich Barton (the founder of Expedia, Zillow, and Glassdoor) wrote a great strategy guide back in 2009 on how to think about and create different brand names. It includes a few tactical tips on how to generate some names for your own circumstance as well. I found this quote a good one to highlight: 

“It is much more powerful long-term to make up a new word as the name of your company, so you can introduce it into everyday language and own it. A name could become a major differentiating asset that cannot be confused with anyone else or encroached on by competitors. This is especially so when creating a new category.”

SPAC SPAC SPAC

Special purpose acquisition companies (SPAC’s) seem to be all the rage in Silicon Valley right now, so it is important to understand them. 

Dan Levine of Bloomberg wrote one of the best introductory posts on the topic that explains the mechanics of SPAC’s in plain english. TLDR: SPAC's are blank check companies that raise money from investors in a public offering, and merge with a high growth startup, with the result of the company becoming public via this process. This whole process is very expensive where the startup typically pays premium fees + give away a portion of the startup’s equity to the SPAC itself (typically 20%).

If you’re interested in learning more about all of the details of how these work, I highly encourage you to read through the post in its entirety and some of his other articles on the topic as well (linked in the article). 

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