Early founder tips from General Catalyst managing director

This article summarizes an episode of TechCrunch’s video series featuring Yuri Sagalov, managing director at General Catalyst.

Image credit: Timmy Loen

General Catalyst has established itself as a premier venture firm, backing industry giants like Stripe, Snap, and Airbnb. Yuri Sagalov, a managing director at the firm, recently highlighted a framework for managing equity and investor relations, one centered on long-term alignment.

This advice forces founders to rethink how they construct their cap table, focusing on long-term alignment rather than just securing the next check. By strictly vetting investors and protecting ownership percentages, founders can focus on building the product rather than managing external egos.

The cost of the wrong check

Trying to raise capital without filtering for behavior is risky. Sagalov identifies three distinct archetypes that every founder encounters:

• The partner: Acts as an extension of the team, assisting with recruiting and strategy regardless of check size.
• The ghost: Provides capital and disappears, offering no help but causing no harm.
• The meddler: Demands constant attention and panics during downturns, draining the founder’s energy.

“The only one that I would truly avoid is that third category [the meddler],” Sagalov says. “They have an opinion on everything. They get stressed out when things don’t go right, which, at every startup, is always the case.”

Navigating investor behavior
Finding these meddlers before they invest takes careful research. Founders have to look past the brand name and find out how an investor acts when the business hits a wall.

Sagalov advises, “The best thing you can do as a founder is actually talk to portfolio companies. Ask how they were when things didn’t go right.”

He suggests digging for the specific examples. If a reference says, “I just couldn’t bring myself to call this investor,” it’s a clear signal to dodge the deal.

Structuring for longevity

Beyond investor dynamics, splitting equity with co-founders is also often where the first fatal mistake happens. Founders often focus too much on retaining control, creating an imbalance that breeds resentment years down the line.

“You just want to make sure that the person that you’re going to work with doesn’t wake up five years from now being like, ‘Man, I’ve put in as much blood, sweat, and tears into this business as my co-founder, and I have a fraction of the equity,'” Sagalov warns.

Because startups take years to mature, the equity split must pass the “five-year test.” Sagalov argues that generosity at the start is cheaper than a broken partnership later.

“Be more generous with your first two or three hires than it almost instinctually feels right,” he advises. “You really want them to feel incentivized, and you want them to feel like they got treated fairly.”

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