Some founders seed their companies with their personal capital in the early days. There are a variety of ways to handle this, with a loan from the founder as a shareholder being the one I’ve seen most. When a founder plans to grow their company quickly and raise venture capital, they have another option: they can classify their capital as an investment in the company. The easiest way to do this is through a convertible note or simple agreement for future equity (SAFE).

Why would a founder want to do this? For many reasons. One is that it helps to separate sweat equity from financial equity. If a founder must leave the company for some reason and their equity as a founder doesn’t vest, they still have their financial equity. The founder will own a percentage of the company based on their investment, regardless of what happens with the equity tied to their employment.

There are other benefits too, such as owning—for the financial equity—preferred equity versus common equity.

I listened to a spotter entrepreneur tell his story about his early days. He found someone who had potential and invested in developing that person. The spotter bankrolled everything himself. Things didn’t go well. He was down to his last two months of cash and starting to panic. If he ran out of cash, he’d have to fire everyone. He knew his reputation would take a blow.

He decided to stick with his plan and keep fighting. Then things started to work well, and his investment in the other person paid off handsomely. His big takeaway from that experience was this: success and failure live next door to each other. If you can still wake up and act, don’t give up. You’re closer to success than you know. The separation between success and failure can be smaller than you realize. Your chances of success increase when you keep fighting. Said differently, don’t give up. Keep going!

I’ve been thinking about “Spotter” entrepreneurs lately. I’ve been talking to them and trying to understand what traits make someone a spotter and especially what traits the top 1% of them have. So far, I’ve learned that spotters are gifted at discovery, thinking in probabilities, and evaluating risk and return.

Another trait is a burning desire to create their own path. Spotters are intelligent, and they work hard. This combination means that they usually have available a variety of paths for working for others. Sometimes they will work for others, but it’s usually to learn, establish relationships, etc. Great spotters ultimately want to build their own companies and blaze their own trails. Even if that means taking on more uncertainty and less pay. They know they can build a company that creates value for others and wealth for themselves. They’re willing to forgo the stable income they’d get working for someone else for the potential outsize outcome that awaits if they’re successful. Said differently, spotters want to bet on themselves.

Sidenote: Some top-1% spotters have ties to Atlanta or live in Atlanta. One prominent spotter who sold his company for over $1 billion got his start in Atlanta. More on this later.

I met with a “spotter” entrepreneur this week. I was curious to hear about the next opportunity he’s identified. As we chatted, I realized a few things about him:

• Discovery – He’s gifted at finding opportunities others haven’t found. He looks where others don’t look. He sees value in things others have written off by thinking about them differently. He’s good at keeping his finger on the pulse of what’s going on, broadly, to spot trends early.
• Odds – He understands that what he’s trying to do is very difficult and it’s not a sure thing. At the same time, he’s aware that the odds of success are in his favor because the dynamics of the market he’s entering favor him. He doesn’t realize it, but he’s thinking in probabilities.
• Risk and return – He’s done simple math sufficient to understand that the return could be material if he’s successful. He’s considered the return relative to the risk he’s taking on. And he’s thought about how to lower the risk but still realize a material return if all goes well.

This entrepreneur isn’t from a fancy school or anything like that. He’s just a hustler gifted with the above-listed abilities and a great work ethic. I think a lot of this type of entrepreneurs are out there. The top 1% of these spotter entrepreneurs have the potential to build large non-consensus businesses.

I want to continue talking to spotters to understand what traits the 1% have.

I recently caught up with an early-stage founder who’s building an interesting business. He had a setback recently and, understandably, is frustrated. Unfortunately, he publicly communicated his frustration with his business partner on social media. The partner was not pleased. The business is at a standstill.

Building a company is harder than most people realize. Setbacks are inevitable. Founders, like everybody else, react to setbacks emotionally—with anger, frustration, fear, etc. But those emotions can’t get in the way of the founder accomplishing their mission. Founders must figure out how to work around or through setbacks.

Over the years, I learned to acknowledge how I was feeling when I experienced setbacks. If I was especially worked up, I made a point of doing my best to avoid taking action until I’d calmed down. I found that talking the situation over with another entrepreneur—someone credible and level-headed—often helped, especially if they’d been in a similar situation.

This founder has put himself in a position where his mission could be jeopardized. His uncontrolled emotional reaction fractured a critical relationship. The emotion has dissipated and he regrets what he did, but he can’t take it back. He’s aware of that, and he’s trying to repair the relationship and overcome the setback. I’m sure he’ll figure things out, but this incident might materially slow down his execution and may have permanently weakened an important relationship.

I met with someone recently who’s a self-described contrarian. Contrarians go against popular beliefs, so I was curious to hear his views. As we chatted, I realized he takes the opposite side on most topics. He doesn’t have a strong belief in his positions; rather, he strongly values doing the opposite of what everyone else is doing.

Being contrarian—in a positive way—isn’t about doing the opposite of what everyone else is doing for the sake of being different. Just because everyone isn’t jumping off a bridge, that doesn’t mean you should.

The contrarians I admire go deeper. They understand what others are doing, but they don’t stop there. They try to understand why others are doing what they’re doing. Then they develop an informed position on what’s wrong with the action others are taking (i.e., why it’s incorrect). Then they figure out if there’s a better way. If they find a better way, they take that path, and they have conviction about their position because of the process they’ve followed, as just described.

Earlier this week, I shared a takeaway from an interview with the founder of Carlyle Group, David Rubenstein. I enjoyed that interview and had many more takeaways. Some of them were presented casually as simple, common-knowledge concepts that nevertheless take some people a lifetime to figure out. Understanding the power of some of the concepts David shared, and implementing them, can change your trajectory. Here’s another trajectory-changing takeaway: you can create your own luck.

When David was starting Carlyle, he didn’t want to build a firm that was all white males. He approached Gracia Martore, a female executive of Latino descent. She declined to join the firm but suggested he talk to Bill Conway Jr., who was transitioning out of a telecommunications CFO role. David had never heard of Bill, but he called him. They connected, and Bill became a cofounder of Carlyle.

The big takeaway from this story is that you can create your own luck. Luck is about the probability of a favorable outcome. You can increase the probability of good things happening, and create your own luck, by taking certain actions. In David’s example, he networked and chatted with people, which led to opportunities. Not the opportunity he was aiming for (Gracia), but a great one nonetheless (Bill).

If you want to achieve outsize success, you can increase the chances of it happening by creating your own luck.

Take a listen to David’s comments on creating your own luck here.

David Rubenstein is the founder of Carlyle Group, a publicly traded private equity firm in DC. The firm has about $373 billion in assets under management as of this writing. David is a good example of what I call investor entrepreneurs—investors who have an entrepreneurial spirit and found their own investment firms rather than work for someone else. I’ve been learning more about David’s outsize success and the founding of Carlyle. I listened to an interview he gave recently at Wharton’s Private Equity & Venture Capital (PE/VC) Club.

David believes that culture is one of the most important things in an organization. He was purposeful in crafting the culture of his firm, and it’s been a competitive advantage and part of Carlyle’s brand. David was asked what’s needed to build a great culture. He shared something I didn't anticipate: persuasion skills. He went on to say that life is about persuading others to do what you want. Family, coworkers, friends, spouses, everyone—if you can persuade people you’re right and get them to do what you want, it’s an advantage in life and helps build a great culture.

He explained how to persuade people:

• Writing – Effective writing is important because it helps you communicate your point succinctly, which can persuade others.
• Talking – Oral persuasion is about making your case by speaking. If you can speak clearly and succinctly, that will help you be persuasive. Practicing helps.
• Actions – Leading by example is an effective way to persuade. Do what you want others to do to set an example that they’ll follow.

David is right. Persuasion is an important life skill that can be a superpower for entrepreneurs who lead other people. Culture is about how people act while they execute the company’s mission. Effective leaders are good at persuading their teams to act in a manner that aligns with the company’s core values.

A founder asked me for some feedback because he’s not sure what to do. He has a team member who isn’t pulling his weight. If he keeps the team member, a critical part of the company will continue underperforming. The team is small, fewer than ten people, and everyone, including the founder, is stretched thin. If he parts ways with the team member, he will have to do this person’s work until he finds a replacement.

After more conversation, this founder acknowledged that he’s wanted to let this team member go for some time but has avoided it. He isn’t sure how he’d manage his current workload, do this team member’s work, and recruit a replacement simultaneously.

This is a common early-stage founder dilemma. The founder knows what he needs to do but isn’t sure how to do it. Said differently, the decision is easy, but the implementation is hard. I was in this exact same position as a founder. I learned that it’s better to rip the Band-Aid off and deal with the pain than to let the problem linger and turn into a bigger one. Taking on the departed team member’s work wasn’t ideal, but it better prepared me to train the next person and motivated me to get the right person in place so I could reduce my workload.

When faced with an easy decision but onerous implementation, I learned that delaying the decision isn’t feasible and can make bad situations worse. I needed to make the tough decision and view its implementation as a learning experience. Just as I’d figured out other seemingly impossible parts of entrepreneurship, I could figure how to navigate the side effects of decision-making too. Ironically, when it was done and I was on the other side of it, I realized that anticipating going through with decision had been way worse than doing it. I always wished I hadn’t waited so long (especially with personnel changes)!

I had a chat with a friend and fellow venture investor recently. He’s raising a fund and pitching lots of limited partners (LPs) to invest in it, which got me thinking about what LPs want.

In general, there are various types of limited partners: high-net-worth individuals, family offices, corporations, pensions, endowments, and more. LPs are motivated by different things. To understand whether your fund strategy is aligned with a particular LP, it’s important to understand their motivations.

In my conversations with LPs, I’ve noticed that returns matter to all LPs—but not always cash returns. Most people think that when a fund makes a distribution to its limited partners, it’s in cash. This is often the case. But general partners (GPs), who manage venture capital funds, can choose to distribute stock in a company to their limited partners. This is called an in-kind distribution. For example, if a company has an IPO and goes public, the GP can give the public shares to the fund’s LPs. The LPs can then choose to hold the stock or sell it based on their objectives.

Some LPs want their returns paid in equity. They want in-kind distributions. If a GP invested in a great early-stage company that will produce large profits and distribute dividends to equity owners, or that will continue to grow rapidly and increase in value, these LPs want to go along for the ride. They’re less interested in companies that have no clear path to profitability because they want to own assets for decades.

I’m not sure if this type of LP is in the majority or the minority. I suspect that most GPs target cash distributions (for a variety of reasons). If GPs target investing in companies that LPs can own for decades, I imagine that changes what companies GPs invest in and how they want the companies’ founders to grow their companies.

Imagine if the venture investors who seeded Apple or Microsoft distributed securities to their LPs and the LPs still held those shares today. Between appreciation and dividends, the returns would be amazing. So would the rate of compounding from the initial investment by the GP until today.

I wonder how many venture funds target in-kind distributions so their LPs can own the companies they’re investing in for decades?