What Are Venture Capitalists Really Looking For?

Serial Entrepreneur – EP60: What Are Venture Capitalists Really Looking For?

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I am so excited. We have Sheel Mohnot today on online with us. The last time I think I saw you Schiele was about 10 years ago when we were fighting to win an auction for.club.club, as an alternative to.com.net.org. And that domain extension, went up for auction and Sheel had managed the auction process for us.

And we ended up winning that company. We raised $12 million. We did a private placement memorandum and a reg D filing. We did not go down sort of the VC route. But today we’re talking about just that we’re talking about. Seed funding. And the first question I have for you is Sheel. First of all, please introduce yourself for 30 seconds, maybe a minute.

And then let’s just ask my first question for you is like I’m a confused there’s pre-seed funding, seed funding [00:01:00] series, a B, C, and D. And then IPO. I mean, can you just tell us a little bit about when a startup needs to raise money at what stage should they be looking for each of those? Sure. Hey guys, uh, Colin, it’s great to, uh, great to be reconnected with you.

Um, so quick background on me, I started a venture capital fund a few years ago, called better tomorrow ventures. We are a FinTech focused fund, typically invest in at pre-seed and seed. Um, prior to the. I’d been investing, uh, at another fund. And before that I was investing my own capital. And before that, as you know, I, uh, ran an auction business, uh, which is when you and I first met.

And, uh, prior to that, I was an entrepreneur, uh, running a, uh, helping run a payments company. And, uh, that company was acquired in 2012, um, at our, [00:02:00] at our fund. Uh, BTV we currently are investing out of a total of a $225 million fund. And, uh, typically as I said, leading pre-seed and seed rounds of FinTech companies.

Now your question about when should you raise money, uh, and at what stages typically, you know, if you are building what is or should be a venture scale business, and that typically means a business that we think has the potential to be a billion dollar plus outcome, um, If you’re building a business like that, that requires capital to scale.

And it requires capital to get off the ground and get to a point where ultimately at some point in the future, there will be profitability. Then venture capital might be the right path. And you know, the way to do it is to, uh, go through your network and get introduced to [00:03:00] pre-seed or seed investors like myself, investing in the category.

That makes sense to you. And, uh, as things go on, typically historically, it’s been something like every 18 months or every 12, 18 months, you go out for a new round of funding and that’s where you, we said the seed a, B, C, D, et cetera. And then at some point, eventually in an ideal world, You are at a scale at which it makes sense to go IPO and it’d be in the public markets or exit, right.

I mean, that’s, that’s, that’s what you did, right? Uh, I tend to story from the.club days when I first met you, we actually ended up selling to GoDaddy last year and it was, uh, you know, it was good timing, you know, given where the world’s at right now. Um, you know, that’s, that’s, uh, that’s another, we’re going to open it up and if you’re in the audience and you want to ask Sheila question, please raise your hands.

This is what it is. We’re all, it’s an open [00:04:00] conversation and we really want to make an interactive. Uh, so my next question to you is, you know, given the current environment, I mean, Sequoia two days ago, came out with a memo that basically, you know, startups to cut costs or face a death spiral. And it was like a little bit of a shock, you know, hearing about this because we’re seeing the public markets get hammered.

But we often don’t hear a lot about the window for startups to raise money. Is that window closing or is there still opportunity for startups? Yeah, it’s gotten a lot harder. And the main thing that is related to this is interest rates. If interest rates are very low, that means that you can, you’re basically buying growth instead of profitability, because if interest rates are low, then you’re willing to value something at what it’s worth way in the future.[00:05:00] 

And when interest rates rise, which they have been doing and are going to continue to do this year, um, you tend to, to value profitability more. So what that means is if you look at all the companies out there, the most unprofitable ones are these venture backed startups. So that means times get a little bit tougher.

I think, um, in terms of like what we’re seeing in the market, things definitely are changing. Um, it’s gotten a lot harder for folks to raise that series. A, B, C, D rounds. A lot of folks are raising less money than they expected. And there’s a trickle down effect from that. If you wanted to raise a, we have the case, one of my companies, we wanted to raise a $250 million round.

We ended up at less than half that. And in that case, um, what you’re doing is cutting costs. So we have to cut costs and guess what a lot of our vendors are other startups. So they’re going to face the pain as well. So there is a [00:06:00] trickle down effect of this, and I think it’s going to be a tough time in the, in the startup market for a little while.

Yeah. I know in my particular case, uh, I just, uh, completed, uh, a investments about a week and a half ago and I said, okay, that’s my last one, because I have to look back at my. I’ve got about 15 companies in my portfolio and it’s a family business. We’re in a family office. It’s not a BC. Um, but quite frankly, a lot of them are struggling.

And that means I may have to, um, continue to fund these companies. I don’t want them to go under, so I may have to continue to fund them in that takes money away from potentially from new startups who are coming in the marketplace. Absolutely. Right. And it’s the same thing for us. And, you know, in many cases we are reinvesting capital into our existing portfolio to, you know, there are some good ones out there that have just struggled to raise a little bit.

And so we’re giving a little, a little bit more runway. Great. Do [00:07:00] we have any other questions from the panelists? And then we can start to bring, um, some of our great audience onto the stage and ask questions about this topic. Yeah, I was just curious, first of all, shale, great to hear you. I was going to say see you, but I can only see your character.

I still, um, relish in the wonderful vegan sushi meal we had together a few years ago. Um, but I’m curious cause you’re, you’re very focused on FinTech and I think in this kind of tricky economic time, do FinTech startups see a different position that just general startups, like, is there more pressure on things trying to be innovative in the financial markets since it’s a weak market right now?

Yeah, we’re seeing, um, you know, I think the effects are yet to be felt. I think there definitely are different types of businesses they’ll get funded in this environment than others. An example would be. Yeah. One of our companies, [00:08:00] uh, when a company’s invested in it’s called mercury, it’s a bank for startups, a great one, by the way, if you’re, if you’re starting to start up and are looking for a banking partner, use mercury mercury.

Um, but, uh, what has changed for them in the environment is, um, they’re sitting on a bunch of deposits and for the longest time they made no money on these deposits, but now all of a sudden we’re making a bunch of money on these deposits are sitting on. And I think that means, you know, their business model is fundamentally different now in this higher interest rate environment.

And I think they’re a bunch of other companies for which that’ll be true as well. And we’ll see a lot more innovation in, in these kinds of businesses. Interesting different effects for different companies. Thanks, I shell, uh, this is Michelle. I have a question. We have a lot of members. At the startup club that really are at early [00:09:00] stages of their startup.

So I’m wondering if you could give us a little bit more insight into, you know, what a VC such as yourself are looking for. Like what stage, like, what would I need to have in place before you’d even like really have, you know, a semi-serious conversation with me, what would I need to be able to prove to you?

Yeah, I would say, you know, it’s not, it’s not necessarily one thing. There’s a bunch of things. I would say. The things that we look for are, you know, number one, the team is a team that people can get behind and are they able to very clearly articulate their vision? Um, it’s that’s I think probably the thing we look for most and that clear articulation of the vision means that.

Typically a good salesperson. You have to sell us on investing [00:10:00] in you. You have to sell your future customers on investing in you. You have to sell your future employees on joining you and you have to sell potentially future investors on continuing to fund the company. So clear articulation of vision, I think is very important.

So that’s team. I think, you know, we look for technology companies that have a significant advantage. We look for, you know, traction of some sort. It may not be traction in terms of revenue. It may be other forms of traction. And in FinTech, you know, there’s often some regulatory hurdle, you have to get over some partnerships.

Um, and, uh, and then, you know, we want to make sure that the terms make sense for us. Uh, and then of course at the back of all of this, we’re always looking for businesses that we think will be profitable and. Significant profits and in the distant future, but what pops like, so you, you know, you’ll receive like 50 requests to have a, [00:11:00] um, a meeting or for someone to make a pitch.

Is there something that someone can do should the color of the, the, uh, font being green or, or is, is there some trick that pulls you in, is it, is it, is it how authentic? I don’t know. I mean, I, I, I, I’m not a VC, you know, I’ve been pretty critical in my past around VCs, although I’ve used VCs for some of my companies, but, um, but what’s the trick.

What is it that can get you in the door? Yeah. Um, I think it’s much more about, um, the story that you tell than anything else. Um, you know, of course you want a deck that looks nice and, and all that kind of stuff, but it’s really about authentically telling a compelling story. That is something also, it has to be something.

Like, there are a lot of great businesses out there they just don’t care about. And so there’s, there’s really no good way to know that, you know, anyone that you’re pitching, you should try to get to know in some ways, but there’s no way that you’re going to know everything that I’m interested in and things that I’m not, but there’s certainly [00:12:00] very good businesses out there that just don’t interest me by any means.

Yeah. We talked about that on a prior show about, you know, basically knocking your head against the wall when it comes to trying to raise money from particular investors, if they’re just not in your space. And I use the example of my IPO when we went public in 2006 and it was a Canadian company, but we didn’t ask one in the U S and I had, um, 30, some odd meetings in Canada and I had six in the United States.

I’ve managed to close three institutions in the United States and three in Canada. So clearly I was pitching to oil and gas companies that didn’t really care about. And then when I went to the U S I was able to find the right investor. So, you know, I think that’s one of the things that I learned from that experience.

And what you just reiterated today is that we really need more time to raise money, you know, try to find the right type of investors. And I think if you can do that, that’s half the battle. [00:13:00] Yeah, that’s absolutely right. Is that, is that story from, uh, two cows? That was Hostopia actually two cows was from, uh, two cows.

We never took public that one, um, uh, went public after I had sold it. Elliot nostril, Rhonda today. Yeah. But, uh, that was an interesting story, but, well, let’s not digress. Let’s not go back into the nineties Sheels later, 20, 20. So interested in learning about you. All right. We have ads you’re onstage. I don’t know if ed, you have a comment on this topic.

I know you started startup club ad with this vision of an ecosystem, including, um, startups, but also the investors and VCs and angel investors. Ed, if you’re there, did you add anything at, and I go way back to the early days of clubhouse we met, uh, I think we both started on clubhouse around the same time and had many late nights in here with, with a group of other folks talking about silly [00:14:00] stuff.

So this brings me that yeah, such, such awesome memories that, that. That era from long ago, what two years ago, but, uh, good to hear your voice and a good to check your profile or relive some memories of the video and PTR games and all that stuff. But, uh, the more serious question is you kind of danced around it.

What is it that you are looking for these days? Uh, you know, what is the ideal startup opportunity looking for? So maybe there’s someone in the room is that opportunity that, uh, if they know more looking for, maybe we can make that connection. Yeah, sure. It’s interesting. I wouldn’t say there’s a particular thing I’m looking for.

There are investors that are thesis driven and investors that are opportunistic investors, and of course there’s a hybrid. Um, some investors are thesis driven and that they have an idea of how they want the world to. [00:15:00] And they want to fund companies that are build that. And so they might have a specific idea.

Uh, I’m looking for a bank that serves the gay population in America, and I’m just gonna look for companies that are doing well. Um, and then there are others who are opportunistic to be opportunistic. Ones are folks that just see what comes in front of them and picks the best one. And I, I fit into that latter category where I am just looking for, you know, folks, folks, uh, pitching me all the time and I’m just looking to be compelled by the pitch.

Not necessarily looking for it to fit something that I’m already looking for. And within that, a lot of different investors will take different types of risks. Where are you like more looking for the technology, the team, the market opportunity, or [00:16:00] what kind of combination are the things that you, whoa, that makes you stand up?

We can take really take notice. Yeah, I think it’s a combination of the above. Um, I would say more, more teen focused than anything else, but it’s re it’s a really a combination of.

And since, uh, Colin already said he didn’t want to revisit the non-use let’s revisit nineties a little bit, because you were, you were both in the ecosystem of the early like.com alternate, uh, oh, sorry. The, the alternate, um, domain name, registry extensions, and that got the terms of messed up. What was that process like?

You know, you, you were seeing different aspects that you saw part of it feel, I guess from oxen side con was actually creating one of the domain extension of what was that like from your end? W w what’d you see back then? And is there anything that, you know, any lessons learned from that era? So. Not early, like calling.

[00:17:00] I was a late comer to the, to the business. Uh, we started out in, in 2012. So there was the domain extensions when, uh, I can, uh, which inner corporation presenting names and numbers decided to add new top level domains and call in, uh, had the foresight to apply for duck club. And, you know, I met Colin and Jeff early in their journey.

Uh, but you know, not that early, they had already applied and, and come through the process. And then there were multiple competitors for.club and, um, Colin and Jeff, uh, you know, participated in our first auction. So we were a baby company, uh, and they put a lot of trust into us because they had to send us, you know, millions of dollars.

And, uh, and, uh, that, that was in 2013. Was it. I remember correctly calling June, 2013, June, June of [00:18:00] 2013. Yep, exactly. That’s right. Yeah. Uh, and, and they really put us in business, you know, I think we had an auction for eight names, uh, at that time, June of 2013. And we ultimately ended up doing something like 150, 170 names, uh, and it ended up being a great business, but, um, these guys were, were some of our first, uh, the first folks to, uh, to take a chance on us.

Yeah. And the backstory to that was that we, 30 days prior to the auction, we actually had to raise $7 million. And we did that using my LinkedIn contacts are private placement memorandum and a reg D filing. So it goes to show you, there are alternatives to VC funding out there. And so I didn’t think I was going to go down this path and I’m not looking for a spar here either.

Again, I do believe that the VCs are, are, is the right situation for the right company. A VC makes. Are there examples where it doesn’t make sense to you? Absolutely. And for the vast [00:19:00] majority of people, VC funding makes no sense whatsoever. You should not sell a portion of your company to somebody else because you can build it yourself and own all of it.

So an example for me is I, you know, we had a, uh, my first company was, was a VC funded. And, uh, at the end of the day, when we, when the company got acquired in 2012, um, we had, first of all, insane amount of legal fees. And second of all, you know, I was looking at the total figure that was supposed to be, you know, the company I sold.

And then what I ended up getting was the small fraction of that. And that’s because we had venture capitalists and a bunch of other shareholders involved in the business. And then another company I started and sold I’d know, venture capitalists and. It was pretty amazing to, you know, when we sold the company, our legal fees were very minimal num number of shareholders [00:20:00] were few.

And, uh, and then we got, you know, me and my partners got all the money, so that was pretty great. Um, now that was a business that didn’t require a ton of money up front and we were able to fund it ourselves. I think there is, for some reason, there’s this like sex appeal of raising venture capital money that I think is actually foolish.

I think the largest number of companies would be better off without raising money or without raising much money. Um, it’s become this sort of like venture capital treadmill where you, you raise the money and then you kind of are forced to spend it. And then, uh, you spend the money and you have to grow more and you may end up doing some unsustainable things, at least in the short term, Um, and what we try to tell our founders to do is not do those unsustainable things in the longterm.

So when you get started venture capital, let’s say you have a consumer business. You want to have [00:21:00] a payback period from the, from, um, your, your initial outlay to acquire a customer of when you get your money back. And you want that, you know, depending on the business and how long the customer lasts, you want it to be, uh, you know, less than a year.

If it’s a customer that’s gonna last for several years, um, or, you know, if it’s customer that’s only going to last for less than a year, you, you want it to be much shorter. Um, but oftentimes with venture capital money, people are in have the idea that they should just grow as much as possible and end up doing unsustainable things.

And what ends up happening is a lot of the venture capital money, uh, ends up going to pay Facebook. For ads. And, uh, I think, you know, probably over the course of the next six to 12 months, a lot of this is going to change. Uh, and some of the unsustainable stuff is going to go away. And of course, at some point it’ll [00:22:00] come back again.

Yeah. And I think one of the negatives of venture capital, and this could also be in other forms of, it’s not just venture capital, but there’s a concept called liquidation preference. I’m working with a company right now where the founder spent 14 years working in the company. They raised $60 million of venture capital.

The company still existed. I won’t say the name, um, to protect the identity of the individuals behind it. But, uh, you know, I was asked to, to step in and try to help them do a turnaround. It’s a tech company, but my estimation is the company’s worth no more than 10 to 20 million at the stage. And yet they had raised 60 million and that original founder.

Not only was he replaced to CEO. Uh, his ownership is worthless essentially. So, you know, when entrepreneurs go down that venture capital route, you know, it is something out of the [00:23:00] movies. You know, I have, I have a friend who was working with, um, I think it was 500 startups, Lil Roberts with Zehnder. She’s been on the show.

And, uh, you know, I, when I, she came back from that, that little, uh, incubator after six weeks or eight weeks, it was talked the way she was talking. I said, you know what? You’ve got Silicon valley disease, right? I mean, it’s, it’s, you, you, you know, some of these companies get carried away and there’s a lot of Silicon valley carnage out there yet.

We think that if you got a VC have won the lottery.

Yeah, definitely true. I, uh, I couldn’t agree more. So a lot of times, you know, I tell folks that are pitching me, Hey, you ought to consider not raising money. Um, usually doesn’t land that well, to be honest, because people have an idea of what they want to do and, and sometimes it’s hard to dissuade them.

Now we’re going to jump you to, to [00:24:00] Jeremiah in a second, but I feel like we’re in a flow where they’ll just slip that you can take a clubhouse. And I know you were involved in the early stages with clubhouse. Here’s a company has got fierce competitors, you know, Twitter spaces, you know, it’s like if they don’t move fast, you know, and that’s what Hostopia, Hostopia had to BC to, we had to move fast.

And for those tech companies that need to move fast and great gain market share and establish a standard in the case of Hostopia global, in the case of clubhouse, the global standard, you know, if you got, if you’re, if you’re a winner, take all. VC makes a lot of sense. And, and, uh, you know, I don’t know how familiar you are with the clubhouse and if you could talk at all about that or if it’s, uh, you know, I think it’s pretty much public, but let me know.

Yeah, Colin, I mean, you completely nailed it. If you’re in a winner-take-all market, it makes sense to just grab as much market as you can, as quickly as you can, because [00:25:00] the fact that you’re the winner is going to be worth a lot. So, you know, let’s use Twitter as an example. I need network effects business.

If you let’s, let’s say Twitter, if you were starting a competitor to Twitter today, you’d have to get, I guess Trump has one, but I have no idea how to use it or whatever, but, um, you know, you’d have to get a ton of users on board and people would be reluctant to use it because there aren’t any users, the chicken egg game.

So, um, The nice thing. So, so what happens is like you’re, you’re in a race to get as many users as on board. Then once you have those users, there’ll be more users because people are, want to see what Colin posted and the same is true of clubhouse. Uh, the more users you have, uh, the more people want to come and listen to folks, uh, smart folks like yourselves talking, and that’s the game that they’re in now.

I think you’re [00:26:00] absolutely right. Uh, Twitter spaces I think has become a very formidable opponent. And I think a lot of the conversations that would have been happening on clubhouse are happening on Twitter spaces. And part of the reason is people are already on Twitter spaces, even though clubhouse had a tremendous, tremendous rise a year or two years ago.

Um, there are a lot more people on Twitter and it’s a lot easier if you’re already on Twitter to just join. Uh, space room there. Um, I actually, frankly, was surprised and impressed by Twitter that they were able to launch that product so quickly. I had not seen a ton of innovation from Twitter in the previous years, you know, I’m one of the guys that’s still waiting for an edit button.

Um, but yeah, that’s, uh, you know, I’m, I think clubhouse has a lot to figure out yet. [00:27:00] Um, but they have an amazing team and, uh, I think some of the brightest product minds seen, so I’m sure there’s a lot of good stuff to come here. That’s great. Um, and if you’re in the audience and you want to get on stage and ask a question of Sheel, I mean, this is a rare opportunity to get him on stage and we really appreciate your time.

Sheel also, if you’d like to share the room and even if, uh, you know, if you like what you heard. Share the room. It’s a little icon down at the bottom there with the up arrow. If you click on that, you can share the room on clubhouse and also on your social media as well. And, uh, it was also available in replay.

And again, as I mentioned at the beginning, this is now a podcast. If you could search your S your, if you search your favorite podcast channel, um, whether it’s apple or Spotify or iTunes or tune in, uh, search for serial entrepreneur club, and that will pop up Jeremiah you’re on stage. You have a [00:28:00] question or a thought about this topic.

Hey, thank you very much for having me, uh, Jeffrey in particular. Great to see you again. I was in the room with you very recently column as well. Sheel thank you so much for all your wisdom so far. Um, Michelle and ed as well. So my name is Jeremiah Schwartz. Uh, I’ll give you a quick rundown of what we do and not try to try not to get into the weeds too much.

Um, And not waste anyone’s time, hopefully because we’re not necessarily interested in VC, but I wanted to hear your opinions on this. And if there is a future opportunity for VC based on what we’re doing. So, uh, I operate and created an emerging sport called tribal. We really do believe that this is the sport for the future generations.

Um, we are focused on creating the world’s number one mixed gender competition. We are leading. Business development and leaving that, um, product development phase. Having traveled the [00:29:00] world for 17 years and getting about 65,000 participants to actually play the game. So now we’re trying to build it into a sport so we can generate revenue, be self-sufficient and reinvest into, um, resources, such as inventory of balls and goals, and then sell it with economies of scale.

Therefore, it’s more affordable for schools and backyard equipment, et cetera, et cetera. The way we plan to lead business development is through our tribal championship. It’s an, a us national team. Now we are in sports. Typically, I don’t see many examples of VCs in the sport industry or interested in sport at all with the exception of maybe five.

And they’re very, very competitive to get into. Um, one of my questions, however, was I’ve been considering recently, not only doing regulation, CF, uh, you know, equity, crowd investing, but, um, I think if we were to, to launch that for the [00:30:00] tournament, yeah, it could be great, but we’re probably not going to sell it out at any point in time, anytime soon.

Um, however teams. And if we look at the business model of most teams, a lot of people try and build the teams up to a point and then sell, resell them for higher value. So I was wondering if anyone found it somewhat possible, where we start building the tournament, and then we start also allowing VCs to invest into.

Uh, teams that we would co-own with them. Does that make sense? Yeah, I haven’t seen a whole lot of venture capital investment in sports. Um, there, you know, there were a bunch of emerging sports cities that did have investors, um, you know, IPL in India, the Indian premier league of cricket is one that has done phenomenally well recently, I think it’s about 15 years old.

Um, there were other fields where VCs did invest. There’s one called the drone racing league. I don’t know if it’s still around [00:31:00] anymore. Um, absolutely. Um, and then sort of more recently, a friend was just telling me yesterday, uh, pickle ball, uh, has gotten a ton of attention and they’re selling pickleball, uh, teams right now.

And, and some, some relatively famous folks who have got bought them, including Gary V. I think they cost a half a million bucks each. I didn’t look into the particulars, but somebody sent me the deck at some point. Um, so yeah, I think, you know, I, I think there is interest in sports. I do think, you know, it’s probably going to be hard if you only have ever had 65,000 people playing it.

Like, I think sports need a ground swell of people playing it before you could probably monetize it. Um, that’s my hunch [00:32:00] is you’re gonna need a lot more people playing it. I think there are, there are tens of millions of people playing pickleball actually regularly, which number surprised me. Um, and. You know, I, I think they’re now in a good position where they can sell teams and maybe some of the team revenue that they sell goes back to the parent entity, um, which is something is a model that you could probably go after as well.

Uh, can you hear me? Yep. Okay. Yeah. And thank you for that. Um, I, you know, I hear that a lot and I agree that 65,000 is not a number worth boasting, even though building a sport, it’s not like an app or any consumer business, obviously, you know, this, it requires a decent amount of people to play in [00:33:00] each game and then the actual costs.

Anyway, that being said, what I find interesting though, is if we look at the, the actual history of a lot of team sports, they. Actually were developed the exact opposite. It wasn’t through participation. It was actually through the entertainment spectacle, um, for example, football, American football, when it was growing out of rugby in one of the first five games, official games ever played.

And let’s remember that there was probably only about a hundred footballs ever made at the time. God forbid one popped you’d have to wait a year to get another one, but these were run by clubs at the elite level colleges. So Rutgers played Princeton and maybe 50 people were in the field, but a hundred thousand people came to watch and that’s what actually started to cultivate the participation.

So that’s one of the things that we’re trying to. Uh, circumvent. We want to lead with a televised and straight to digital Mer, um, entertainment platform that would then [00:34:00] incentivize educate the market and bring the market in specific areas where we see where they are, who they are, why they want to be involved in a manner that we can better control and distribute as far as participation.

But it does seem very, it seems very evident right now that, uh, ESPN, for example, once content. So that was our, I guess it sounds cool. And I will say this again, it’s about finding the right potential investors and doing your homework and figuring out what kind of companies would invest in that. I will say that we went to venture Atlanta with pod.com and we presented there.

Uh, it, you know, even though it was an e-commerce company and it was scaled, it was over 40 million in right. We still had a bit of it. We got a bit of a cold shoulder, I have to say. And that’s because they all seem to be focused on this. Um, they love digital platforms. They love recurring revenue. There almost seems to be like a playbook, the VCs, and this could [00:35:00] change too, by the way, cause this is where it was two years ago.

You know, these cloud computing stocks that had, you know, a creative, monthly revenues MRRs and, um, had, you know, growth rates of, you know, huge growth rates with, um, with, uh, and then you track the churn rate and low churn and all that stuff. Is that correct? Sheila’s am I wrong about that? But it just seems to me, the VCs were just focused on these digital platforms with recurring revenue.

Yeah. I think a lot of there’s a lot of interest in recurring revenue. Um, more so than e-commerce. Although you have to find the right investor there, there’s a, you know, a right investor for every door and have the business. Uh, and you just have to convince, find the right ones and convince them that what you’re doing.

Yeah. I wanted to just add too. Cause, um, Jeremiah, you made me think of it too. Both calling you and Sheel mentioned, you know, that there are other ways to raise money and sometimes venture capital is not the right way. One thing that’s, that’s [00:36:00] often very useful for a startup is a strategic investment, right.

Finding money, and it could still be structured like a VC deal. So you want to be careful about that, but, you know, there are opportunities to raise money that strategic. So for example, when I was a co-founder of bar point.com, we were focused on the barcode scanning space back in 1999. And our first investor, we raised $3 million from symbol technologies, which was the leading manufacturer of barcode scanning hardware.

So there was a strategic fit that attracted them to what we were doing, even though we were an unproven startups. So I think in the sports arena, especially at this early stage, you know, there may be more opportunities to raise money from a strategic partner as opposed to a traditional venture capitalist.

For sure. I think that that makes a lot of sense for some businesses. Yeah. And there are definitely synergies you can get there. I will say, um, oftentimes [00:37:00] having a corporate partner makes it harder to get a venture capitalist like myself on board. And the reason for that is the corporate partner. You know, I don’t know what the case was with symbol and bar point, but like the corporate partner may see it as a path to acquisition and it could be a low dollar acquisition, generally speaking.

Um, and that’s generally not something that VCs want. Acquisitions are nice when they, when they have a huge price tag, but oftentimes. Uh, you know, a, a strategic investment means that a means that somebody would be interested in buying it at a lower price in that let’s say tens of millions of dollars, which wouldn’t return much money to the VC fund.

So something to think about in terms of what VCs are looking for, but for the entrepreneur, it could put a lot of sense. Good point know, in the case of bar point, we were fortunate. We eventually went public [00:38:00] and then did a pipe with Jefferies and company there. So symbol symbol was, was a small piece of that pie ultimately, but you’re right.

It’s something that we, we, we actually kind of hope they were thinking of acquiring us when we went into that deal. Cool. Uh, we have another Steve Steven on, on board up you’re up next to you and we can’t see your face, but we see your starting. thank you for having me on stage. And I want to thank the moderators for bringing in Sheila and ed, uh, really great work and doing that.

I shared it on Twitter and, uh, this is, uh, it’s very rare to have people like Sheila and add on. So Jeffrey and Colin and Michelle, thank you for doing this. Uh, my question for anybody up on stage is Sheel add or anybody up there is, um, when you’re looking at startups from your view, uh, you hear people like out of the PayPal mafia, they talk about first principle thinking.

And first principle thinking, you know, from, um, you know, you hear everybody from like Reed Hoffman, who was, who put together [00:39:00] LinkedIn to, you know, even Elon Musk. And you hear about first principle thinking and I’d love to hear any thoughts you guys have on, uh, startups that use it effectively, or is it talked about a lot and do from the VC side or from the founder side?

Do you guys talk about first principle thinking where you’re trying to. To see how they decide whether something’s true, maybe their theory of constraints on how they make decisions of what to do, what not to do. Um, I’d love to hear any thoughts you guys have, because it’s very fascinating to me, but I don’t hear it talked about very often.

And, uh, but I’d love to hear people say thoughts that are on this stage, because this is not a typical startup stage. So thank you for doing this, uh, Collins, Jeffery Michelle, putting this together. Sheel thank you for being here for brilliant things about everybody up on this stage. Thank you so much.

I’m just going to listen. Do we have someone on stage who can address first prints? I have some thoughts, but I’m not, you know, not shit. Yeah. It’s, it’s like, [00:40:00] I’m not a student of first principle. Um, you know that what you talked about there, but I will say that, you know, every one of my companies, since 2006, we do strategic planning and we spend two days off.

So. Um, I say two days of X, two days of strategy, strategic planning, 88 days of execution. And more often than not, we always have those aha moments. We come across these times, these ideas that just seem like you’d never would have done it. Had you had you not had this formalized, structured, strategic planning.

And we come up with them, we execute on them. We implement them and the results, you know, the results show by the, by the success of the company and the sales and stuff like that. But that’s just something that we’ve done in the past. Any anyone have experience with the what’s called a first principle?

Can you say [00:41:00] that again? Steven’s first principle thinking. Yeah. First principle thinking. So where I’ve seen it, the most common and first principle thinking is people that have come out of Stanford and have been in like the philosophy department. Like people like say Peter Thiel. Like if you read like zero to one Peter Thiel that goes through a lot of first principle thinking, or if you go through a, you listened to Reed Hoffman, he’ll talk about first principle thinking Elon Musk.

Well, like if. Yeah. First principle thinking, I think Elon Musk’s is like the first one, but, uh, it, it, it it’s, uh, deciding whether something is genuinely true or not true. Um, because, because I think that’s why people like, uh, uh, you know, Peter Thiel, I think he hired like Eric Weinstein. Who’s really, really smart and like, uh, uh, uh, physics and, and philosophy, because I think philosophy has its roots.

Like if you look up the encyclopedia of philosophy, it’s out of Stanford. So, so what what’s fascinating sometimes about that school and all the great people that have come out that. Big big technology companies is how many [00:42:00] of them were probably influenced by the philosophical focus that the school has us deciding.

Is this true? Or when you listen to somebody like, um, uh, when you heard, uh, Jack Dorsey, he talked about, um, how he broke it down to first principles down to like two and his two were to do or not do. And he had basically uses this, uses his phone and he just has a list of do or don’t do, and just reviews that list.

Um, but w what’s interesting or Peter Thiel’s where he talks about the principles of protecting a monopoly and any, and he has it down to a competition is bad. And, uh, domination is good, but it was just interesting to see if there’s any first principle thinking where you’re running into founders that have a core, core, core beliefs and core principles that are down to just such a root level, that they can’t be reduced any further down love.

Any thoughts, any anybody up on stage like editor Sheel have to, because I know they talk about it [00:43:00] in the, in those circles that they’re hanging out with. I don’t know if they’re going to let us know the secrets though. I’m done speaking. Maybe I’m not cool enough. I, uh, I, uh, I’m not in those circles, so I, I don’t know what they’re talking about.

I’d say, um, in general, um, you know, I think you, you did a good job of explaining first principles, first principles thinking, which is like, you know, a basic principle that you can’t, you can’t get any further, uh, to deduce from. Um, and I think it’s, I think it’s just a way to say. I think like a scientist uses scientific method, uh, which is certainly the way that we encourage people to think, but I don’t have, I don’t have anything brilliant to say here c’mon ed.

She got something for us.

Uh, it’s such a big topic and, uh, probably better for another room, but, uh, in some ways it’s, it might be the inverse of the innovator’s dilemma where existing [00:44:00] incumbents are so optimized around their existing customers. That a lot of people assume that’s as that’s a, those are facts that can’t be changed.

And if you go back to the beginning of really trying to understand kind of the core basics what’s going on and the interaction in the marketplace, you might find a different route to a different solution that actually reaches a new, you know, new, new possibilities that weren’t obvious before. So just another way of kind of reframing the opportunity, reframing the discussion to maybe discover something that other people are missing.

Okay, great. I hope hopefully we addressed that a little bit. Uh, it might be worth having another session and really digging into that Pooja. Is that how you pronounce your name? Pooja. Do you have a question for Schiele or the panel or a thought on this topic?

Okay. Michelle, I know you haven’t had a chance to [00:45:00] really, I, sorry. I’m sorry. I wasn’t muted. Um, uh, so first, well first thank you guys for this talk and please forgive me. I have COVID and I am not feeling that great, but this conversation is awesome and I wanted to get your advice. Um, I. Um, raising money for a future film that I wrote and I’m going to direct.

And, um, my story is in 2018, I created a web series called Guido’s guide to moving on and it was, it garnered interest from a studio, um, that wanted to make an offer on it. Didn’t come together. Then I kind of went into a development process in the Hollywood system and that kind of took years. Didn’t really, um, um,[00:46:00] 

sorry, you’re breaking up the wifi or stopping working, or is it, I.

Uh, or you can raise the rest through equity financing. Um, that’s my responsibility. I have verbal commitments of 200,000 and I would love for advice on how to raise the rest. Okay. Well, I know we have an expert here. Jeff is in the, since I’ve been in that business before. So if you heard that Jeff take a shot at it.

I mean, it, it broke up quite a bit, so I didn’t really hear the whole story, but, um, I caught a little bit of equity financing pieces, and I know that there have been a number of, uh, entertainment projects that have used crowd funding to get the ball rolling. [00:47:00] But, um, it’s been a number of years since I was actively involved in, in the film industry.

So, uh, you know, I, I don’t, I didn’t really hear exactly what the question was. Sorry, but I wonder if Kickstarter, is that something you’ve seen. Uh, you used for raising money for movies like that. There’ve been, there’ve been a number of projects, certainly to get like a pilot done or even, um, a number of film projects have funded like a, uh, an extended trailer, maybe a five to seven or 10 minute, you know, trailer for the film.

And then, then going on to try to use that, to raise additional funding or get the interest of a studio or a streaming service. So certainly there are a lot of entertainment pro projects at various levels using crowdfunding, um, to get money. I’m not sure about the equity funding as much as there’s the traditional, you know, Kickstarter, Indiegogo, crowdfunding.

Okay. I don’t [00:48:00] know if we are going to, we’re wanting to do Kickstarter. We are re the, the seed money will be 500,000. So. A little bit more than what a traditional Kickstarter and the total budget we’re aiming to raise is 5 million, three to 5 million. Yeah. I mean, there have been projects funded through crowdfunding, you know, in excess of that amount.

Uh, really just depends. It really just depends on what, you know, what kind of interests you can, uh, generate and, and, and the belief and the following you can have. Okay. I like that idea. Okay. I’ll look into that. Thank you. I appreciate that. I know, I know Jen Casson Jenny Cason has a show on Wednesdays at 7:00 PM Eastern on, on start-up club.

And she dedicates that show to, um, she’s a lawyer in California and talks about, you know, all those crowdfundings and all those different types of offerings. So you should definitely go to that show and get onstage and ask her some questions and see what your thoughts are. Okay. [00:49:00] Oh, thank you. I’ll look into that.

Okay. Thank you so much.

Um, I would also say you might look at what Mila and Ashton Cushner are doing. They actually are doing a project that’s called stoner cats. They do, they do a Dao. So there are people out there doing it. But I think, you know, to Jeff’s point, it’s kind of a new way to do things. So if I were you, I’d just start really looking at who is successful in the space and what they’re doing.

Um, stoner cats is one that gets a lot of attention. Awesome. Thank you so much. I’ll definitely look into that. Thank you. Great. Hey, I have a question. Sorry, Michelle. Yeah, I have another question for shill. Why we have him here? So Sheel like, you know, this all sounds, [00:50:00] uh, you know, rightfully so rather complex.

And there are big ideas and really big projects and unit, you know, obviously like you said, it has to be in your industry and really has to strike a chord with you. So let’s just say, you know, we have members here that have what they do believe is a great idea in your space or another space. What would you recommend to them?

Because I dare to say that the vast majority of folks don’t have this experience putting together this deck and pitching, and that experience can take years to develop. Um, like who would you suggest that they might even seek to network with, or to get coaching or consulting with? Like what, what could help them actually get to the point where they could even have a productive conversation with somebody like yourself and your [00:51:00] company?

You’re on be it.

Oops. Um, I think there are a bunch of resources on the internet, I would say. Um, Y Combinator, uh, just go to their website. They have a bunch of, uh, great resources. Another place to turn to is first round capital has something called the first round review, which is like a blog that has just a tremendous amount of resources on how to get started.

So I would go there and actually like, let me look up, uh, there’s one other that I wanted to highlight, uh,

look up and tell you. Okay. Then while you’re looking that up a little actually did Y Combinator. [00:52:00] As well, and that’s, you know, she’s the one who did Zen do. Uh, and that’s one of the companies I invested in as well. Cool. How are they doing? Is that is doing very well. I don’t know if you know the story, but she did get a lot out of it.

I know I talked about Silicon valley disease, but the reality is she got a huge amount out of that process. And so, um, that’s something that if you are thinking about raising money, connecting with these incubators accelerators innovation centers, that can be a starting point. Yeah. That’s that’s great. Um, the thing I was looking for is called founder library, founder, library.com, lots of great advice on there.

And, um, you know, they, they realize they don’t have to reinvent the wheel. So they’ve bookmarked to other great advice to.

I think that’s great advice. And we can put that in our blog posts for the members who are following. So [00:53:00] remember, you know, to go to the website, www.startup.club and join our email list so that you get email alerts for very cool, informative speakers. Like shell has been today. Also you’ll be able to hear recordings as well as blog posts.

So, um, you know, shell, I’m glad you bring that up because it’s one thing that we have heard concurrent, you know, um, consistently I guess I should say is, you know, if you do have an entrust and you’re not quite there yet join an incubator and find one that’s in your industry, they’ll have connections.

With investors, maybe VCs, maybe, you know, angel investors to give you not only advice, but if it’s an idea that resonates with them, they can help take you through the process. So it’s definitely worth doing so. Thank you for bringing that up and pointing us to a few specific [00:54:00] examples. Absolutely. Okay, great.

Pier. We have you on stage here. Do you have a question or a thought about seed funding? Hi everyone. Good. Um, good afternoon. I just had a quick question. Um, I guess I’m looking, I guess the question I am, I’m going to ask is, um, at all times when people are doing a startup, they are starting from. Um, but what caught my attention earlier was a discussion about scale.

Um, and if you’re an established business that’s been around and you’re looking to maybe, um, and you’ve been private for a while, but you may be looking to scale, uh, maybe a new product that might take you into a new industry. Um, does that prevent you necessarily from being, um, considered for VC? If you’ve been around for a while?

Um, I’ll say from my end, I run a small business. I work with, um, small businesses on their analytics for 13 years. And I am actually thinking [00:55:00] about, um, a couple of things for, in terms of products. It would be great, but I think I have experienced with me also help that product out at the very beginning, at least be, or at least give some competitive advantage.

Um, but I’m not sure that given that I’ve been around for 13 years, that might be, um, seen as maybe not, maybe not too old, but maybe not, maybe not quite the, quite the area that a VC would look at. So I was wondering if you had any thoughts on that for people who may be a little bit more established, but they know that they may have to come up with a product that might, that would scale that that needs to scale to kind of get into a different market or play a different market.

I hope, I hope my question makes sense. And thanks. And thanks for framing for your answers.

Um, I, I think I understand, so is the, the, the basically like you’ve been in business for awhile and, and now on a scale, I would say VC is not really built for that. Most of the [00:56:00] folks that. Most of the folks that, um, use venture capital are starting a new business. It tends to not be existing businesses that have been around for a very long time.

Um, but you know, it depends on the numbers. You know, it could be, there are bootstrap businesses that have been around for a long time that raised venture capital to get to that next level. Um, but they tend to have very significant revenues and be large companies when they raise rounds. It’s not from people like me, it’s from people with a lot more money than me.

It’s probably a negative bias if you’ve been around for a while. Right. Because you’re the thought is by the investor standpoint is okay, this is pretty much a lifestyle business. It’s a status, you know, static growth. It’s, it’s, there’s something called the rule of 40. I don’t know if you follow that one.

Um, you know, I’ve followed that one for awhile and we always look at the rule of 40, which is what’s the growth rate plus the EBITDA [00:57:00] or. And if it exceeds 40, then I’m okay with that. And actually they were talking about that on CNBC, about the company, snow, if you’re familiar with that with spring Slootman and stuff like that, I know that symbol snow, right.

And a snowflake had about an 80% growth rate, but yet they had negative earnings because we’re now dealing with unusual times, it was getting hammered in the stock market. And even though it exceeded the rule of 40 is the rule of 40 something they use at all in your world. Um, not at the stage that I invest, but absolutely it is a thing that venture capitalists use in the later stages.

So yeah, you’re totally right. That, that is a, that is a metric of people use. Okay. Well, great. Well, we’re winding down that we’re winding down the show right now. Any last thoughts? Sheel any last pieces of advice or wisdom you can share with our Starbucks? [00:58:00] I want to raise some seed capital. No. Um, this has been great.

Really thank you for having me on great, to great to reconnect with you guys, calling Jeff and ed and, and the meet the rest of you. All right. So then I’m going to ask you another question, cause that wasn’t, that wasn’t the best end rejection. It’s part of the process, right? What do you say to those people who keep getting rejected over and over again?

Keep at it. I’ve been rejected so many times in my life and I think the most important thing is to just, you know, get back up and don’t even think about rejection. Uh, so that’s, that’s been my motto always and it has served me well. All right, that’s great. And again, please follow the mailing list because if you wouldn’t know if Sheels coming on, if you weren’t on that mailing list, get set start-up dot club and everyone we’re also, we’re also trying to do giveaways as we’ll see later, Sheel, we’re trying to do giveaways as well.

And uh, if you’re on the email, as you can benefit. Next week, we’re talking about raising money again, [00:59:00] but we’re going into a really weird world here. We’re talking about tokenizing real estate and there’s a project down here in Miami. There’s a gentleman who’s coming on and Jenny Cason is going to be coming on as well.

She’s the lady I mentioned earlier, the lawyer from California, but this gentleman is working on a project to tokenize a Miami Miami condo building in Wynwood. And I began to talk to him about my real estate business. And could we tokenize that? What an interesting concept, you know, from BC to tokenization, we’re going to try to uncover it all here on the serial entrepreneur club.

Our again, check out the podcast on your favorite channel. Thank you very much, ed. Really nice to see you and everyone on stage. Uh, Steven and Michelle and Jeff, have a good day call and see Campbell complete. Thank you so much. Great room. Thanks everyone.[01:00:00]