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SPEAKER_01: Today I want to cover bootstrapped startups versus funded startups.

SPEAKER_02: Now, we need to set some ground rules here and some basic understanding of what we're talking about. Bootstrapping comes from the term pulling one up by their own bootstraps, which is a physical impossibility, I think. Bootstraps are little straps on the back of your boots that help you put your boots on. Okay, we get it. Bootstrapping is like you can pull yourself over the fence with your bootstrap. It doesn't exactly make sense, but the term basically means you're able to create a company off of either sweat equity or revenue that you immediately start generating. So what are examples of that? A consulting business where you say, I'm willing to charge you $100 for every hour for me to be a consultant to you. Well, immediately, if you sell 10 hours a week, the company's got revenue on day one. It is really easy to bootstrap and it all it requires is if you're going to be in one of these venture capital categories, all it requires is that you are a designer, a developer, or somehow

SPEAKER_06: a business, a salesperson, a marketer, one of those skills, and you kind of need to have all three of those, to be totally honest, to get most of these companies off the ground. That's why a lot of accelerators like Y Combinator or others insist on having a developer on the founding team. If it's a technology company that's high growth, how are you going to have a technology company that's high growth if you don't have a developer? You're not, in all likelihood. And if it's an outsourced development shop, that's a red flag. Why can't you get a developer on your core team? Why can't you be a developer?

SPEAKER_02: And so there is a bias against people who are idea people. There's a bias against marketers, there is a bias against idea people or quote unquote business people. In fact, I've heard many venture capitalists say business person means no skill, that you

SPEAKER_06: have no skill, that you're just an MBA with an idea, maybe you can build a model, etc. Now, you do need to have leaders to hire everybody and bring the band together. So I don't necessarily feel that way. But I think a lot of people in Silicon Valley think in order to be successful, that management team, those co-founders at the start, need to be developer, UX designer, product designer,

SPEAKER_02: product manager, there's a lot of different names for basically the person who architects, conceptually the product, product manager, PM, UX, UI designer, user experience, user interface. Those are the terms that and the titles that people get excited about when they see a team. So if your team was an idea person, like I am, let's be honest, I'm kind of an idea person and a marketer, a business guy, that's fine, but you need to have a collaborator. And I did Brian Alvey was my CTO and my collaborator on Weblogs Inc. And that made me go a long way and had Mark Jeffrey as my CTO when I did Mahalo, and then

SPEAKER_06: moved on to inside. So having and I was also product guy. So having a product person, you know, designer, product person, sometimes those are two different skills, by the way, you have a designer who just makes things beautiful, and a UX person who works on the user interface and how the product flows. But you do need to have that in order to bootstrap because the worst case scenario is you give money to a startup, they hire an outsourced dev firm, the dev firm says, okay, you stop paying us this month, you've been paying us for 10 months, the products out, and then the product doesn't work, there's no developers to work on it, and the company goes backwards.

SPEAKER_02: So one other caveat here is something called friends and family money. Friends and family money is when you are not qualified to get venture capital, and you go to your friends and your family, your associates, maybe people you've worked with and say, hey, I'm passing the hat, I'm trying to raise money. And then I got to take that money, I'm going to hire people and maybe you can with that friends and family money kickstart the project to get enough traction, to get into an accelerator or to get venture capital, pretty hard to do.

SPEAKER_06: Not everybody's got the rich uncle or rich aunt who are willing to throw 100 grand or 250 grand

SPEAKER_02: at a project, but some people do, some people will keep their day job, there's another bootstrapping technique, keep your day job, and build on the weekends and nights or go to your boss and say, hey, I'm willing to stay on for two days a week. And I would like this consulting fee. And then the other three days a week, you work on your startup or, you know, three days that your current company, two days on your startup, a lot of people will start the flywheel going that way, do their user interviews, understand customers, do their research, build their MVP, you want to have your landing ready before you take off, is basically how I would describe this. So if you're going to take off and go out over the ocean, you better have the landing in your mind, and you better have enough fuel, fuel, in this case would be your personal runway, personal runway would be, okay, you've got $5,000 a month in bills and payments and rent and whatever, okay, it's going to take you 18 months to build this company out to the point at which you get venture capital, do you personally have 18 times five, do you have 100 grand 90 grand 100 grand 110 grand with a buffer in your bank account to keep you solvent while you spend a year and a half of your life trying to get the startup off the ground. And I did

SPEAKER_06: that a lot of my startups, I was working as a consultant, or I had a little bit of cash from the previous project in my bank account, or I went into debt, which is very dangerous. You know, and not for everybody, but there is risk, you're not entitled to be a startup founder or get venture capital, you must understand this when you come to the table and decide you want to work in this space. So we talked a little bit about bootstrapping versus VC. If you bootstrap, the longer you bootstrap,

SPEAKER_02: then the less dilution you will have to your cap table. So let's pause on that for a second. If you raise money from that friends and family round, you raise 250k, you might get a two and a half two and a half million dollar valuation, you've given away 10% of your company for that 250. Now, if you

SPEAKER_06: find a co founder who's a developer, and you're a designer UX person, you don't need the 250 because you're not going to give it to an outside firm. So the two of you just build it on the weekends or

SPEAKER_02: nights. Now you have no dilution. Now you get the product to a prototype phase and you go to a seed fund or an accelerator, and you raise 100k for 6% of your company on an accelerator, or you get a

SPEAKER_06: seed fund to put 250 500k and let's say, add a $5 million valuation. Well, now you got to the product done. And you got 500k you diluted 10%. As opposed to in the previous scenario, you would have spent the 250 gotten the product to launch and then taken another 500k from a seed fund and diluted another 10%. In other words, you would have given away over 20% of your business, you would have less than 80%. And you would have raised 750. The longer you can push out the funding and the more you can

SPEAKER_02: accomplish with less, the less funding you have to do. We call this a Pegasus or I came up with the term Pegasus. So there's unicorns companies worth over a billion dollars. But a Pegasus for me as a

SPEAKER_13: company that flies over through the wings of bootstrapping, they fly over funding rounds and they skip funding rounds. And I encourage you to think about how can I grow this business so strong that I

SPEAKER_02: can skip my next round of funding. It's very out of favor right now. Everybody loves to raise funding. It's such a hot market in 2021. valuations are high. Why wouldn't you take money off the table? That's true. And that is a true statement. Money is sloshing around everywhere. People are raising

SPEAKER_06: money at very high valuations. I don't blame them for doing that. A lot of advice is situational, right? So I'm giving you this advice based on a certain situation, which would be a normal market in a hot market. Yeah, if you can raise money at a high price, you know, the same example I just gave, if you were raising that first 250 at a $10 million valuation, it's only two and a half percent dilution, who cares? Right? So that would be a de minimis amount of dilution, you can go for it. But some

SPEAKER_02: companies like Webflow, Bubble, Calm.com, Notion have skipped rounds of funding. And we were involved in Calm.com. And we watched them skip two rounds of funding, three rounds of funding. And that meant

SPEAKER_06: our percentage ownership along with the founders was very high, because we didn't dilute. And then as a

SPEAKER_02: company came worth and worth more and more, we didn't have to put up a bunch of pro rata, we didn't have to keep investing to keep our percentage ownership. And that was amazing for everybody.

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SPEAKER_02: still bootstrap after you're funded, you can skip rounds of funding and be a Pegasus. And that's amazing. So at certain point, you can bootstrap and then qualify for funding. So what are the signals that people will see in there? What are the signals do you think that will get an investor excited about a bootstrap company? Very simple. If you have built a modest team of people who are really motivated, and who are operating at a high level, we love looking at the team members, and who's running the company. So you built a team of three people, you got enough revenue, to make 30,000 a month, you are giving that 30,000, or chopping it up 7500 each with your three first employees, or your co founder and two first employees, whatever it is, in the mix, you got four people, you got to 30,000 in revenue, and you haven't raised any money. Do you realize how attractive that is to an investor? You're able to hire your first two employees without raising money off of your own revenue. And that's where this art of bootstrapping and getting a couple of customers into your product early and paying

SPEAKER_06: you which is completely possible for a SaaS product or a software product. Marketplace is a little bit harder, but still possible. You can bootstrap a marketplace ie you could create Airbnb and just source 20 high end castles, you know, and beautiful, you know, unique homes in Spain and make the Airbnb of

SPEAKER_02: Spain and then just book with people you know, want to book in Spain and manage those and take the profit from them. That would be a perfect way to bootstrap Airbnb. And in fact, I think they did that they were using their own pouch as the test of it when they started. So you can get a team together that builds credibility, building the product and finishing the product that builds credibility. Third, having a customer who will not shut up about you and pays you either in time and effort or with money, hopefully both. If they're using your product, and they're paying for it. Oh my Lord, checkbox, checkbox, checkbox. Great team, great product, and really delighted customers. Now you're ready to get funding. But so many people who are coming to Silicon Valley or coming to the tech industry think it's about a business plan. They think it's about networking. I think it's about who you know, not what you know, it's not about who you know, or what you know, it's about what you've built. It's not about who you know. It's not about what you know. We don't care who you know, we don't care what you know, here in Silicon Valley, we care about what you've built. What have you built the team, the customer base and the product are all things you manifested in the world you built. And people have concerns about Silicon Valley. Is it a meritocracy? Is it fair? Oh, my God, you know, representation isn't great. There's bias, of course, there is bias everywhere. There are problems with representation in all different markets. But when you look at Silicon Valley, one of the things people don't understand is that if you are capable of building a product and a team, and getting customers, if you can build any of those three, two of the three, or even one of the three, you are going to get meetings, if you can build a great product, build a great team, or get customers, any combination of those, you will go from being a bootstrapped company to a company that's a fundable company. Don't waste your time on the debt. Don't waste your time on the pitch. Don't waste your time on networking until you have a great MVP minimum viable product or prototype. Don't waste your time on trying to get meetings and coffee meetings with people until you've got a member or two of your team. And don't try to get the meeting with all the partners until you have a couple of customers, these meetings will take up all your time trying to get them will burn all your time. And you could have put that into bootstrapping and actually building the MVP of your product. Now if your product is not bootstrappable, like you want to build a car

SPEAKER_06: company? Well, you might need to start with a business before building a car company because you're if you have no credibility, you have no track record, you don't get to be trusted with the $50 million it might take to get a car out the door, where the 150 million it takes to do drug discovering or get a medical device out there, you might need to work on a software business before that. Or you might need to work for somebody else's car company or somebody else's biotech company. So again, about this being fair, if you're a nobody with no track record, put yourself in the capital allocator shoes, would you give them 10 million or $100 million? I hope not. I hope you wouldn't do that. That would not be wise. You need to have people who have experience who've done it before. If you want to do those big, big projects. And if you think about it, and Tesla, Elon funded with his own money that he made building a software company zip to so you should know the history of these things, it's really hard to do the hardware projects, direct to consumer, or consumer packaged goods. When you look at

SPEAKER_02: those, they tend to not have high margins, unless the direct to consumers, and they are easy to 2x or 10x those businesses, but can you 100x them, they're a little bit harder. So you don't see too many businesses in direct to

SPEAKER_06: consumer or consumer packaged goods getting funding from venture capitalists, we had a little bit of a direct to consumer boom, for sure with Casper, eight sleep and other companies. But it's really hard,

SPEAKER_02: the product needs to be super differentiated has to be a very unique product like the Peloton maybe, or the

SPEAKER_06: eight sleep bed, any of those kind of direct to consumer hardware businesses, physical products, they are really hard to make work, tonal, it's just really expensive, and you have to install it. That's why they have to charge subscription fees. So some businesses are just not easy to do. And now there's

SPEAKER_02: crowdfunding, just a little exception here that's worth noting. Some people will, if they're building a hardware product, be able to put it on Kickstarter, be able to put it on Indiegogo and get the flywheel going with people ordering in advance because it's such a visionary company. The only thing I'll say is many of those projects fail because they undercharge, they think they should charge the people who are the early adopters less when in fact, they should charge them more, they should charge them extra for letting them be part of the excitement of building a new product, not charge them less, and then under price themselves and get into debt and not be able to deliver the product. So bootstrapping means

SPEAKER_06: you have to have some skills if you don't have skills, well, you know how to get them just go to YouTube, take a UX class, take a no code class, learn how to use the no code platforms out there web flow, bubble, there's a ton of them out there, you can start building your own MVPs in

SPEAKER_02: no code. Now this doesn't work for every company, you think about a drug discovery company, somebody is trying to find the cure for cancer or a medical device, where they're doing some deep tech or building rocket ships, some things are massively capital intensive. Now bootstrapping versus fundraising and at what point bootstrapping companies can then become funded. Now it's important for you to understand that venture capital is not a right. Everybody doesn't get to raise venture capital venture capital funds a very small percentage of businesses in the world. And venture capital is impatient capital. Venture capital is looking for unrealistic growth. Some might even argue a natural growth, growth in the 20% a month range. If you're growing 20% a month, that means your business is doubling every three or four months. Where do you find businesses that grow this fast? Well, you only find them in the early stages and you only find them in truly breakout companies. So why does venture capital even exist? Well, it exists because every 2030 40 companies in Silicon Valley, some company actually achieves this unrealistic goal. And they pay for all the other mistakes and I'm using air quotes in here or failed experiments in a portfolio. So that's the dynamic of how venture capitalists look at it. Venture capital is not the only source of fundraising in the world. So take a pause and understand number one, you do not get to have a right to venture capital. You have no right to get venture capital. It is a competition. And the people who judge this competition are capital allocators known as venture capitalists, who have to find those big winners in order to keep their jobs. That's the crazy, insane Silicon Valley methodology. I have no idea why this exists, or exactly how we got here. I'll be totally honest, but it exists in the world. It is a very strange part of capitalism, that this crazy venture capital even exists in the world as a category. We used to have bank loans, maybe people raised friends and family. But you know, somebody had a rich uncle or an aunt, we got an inheritance. And that's how businesses were built, or people inherited businesses or inherited wealth. And now you have this weird practice of venture capital. Now, many founders asked me to invest in their company when they have an idea. We don't do that. Why don't we do that? We don't have to. There's so many people out there who've bootstrapped their company and come to us with $10,000 a month in revenue or $1,000 a month in revenue or 50,000 a month in revenue. And they have a couple of customers and they have a product that we can use and look at the how well it was built. And we can look at the customers, we can look at the growth, we can look at the churn rate, how customers leave the product, how they acquire customers. So you as a founder are in a competition. So let that sink in. This is not socialism. It's not communism. Everybody doesn't get a loaf of bread or, you know, a certain percentage of venture capital. It is a dogged competition. It is a crazy competition. It's an unfair competition. Just accept that as the table stakes. And then you will be free to understand how you can qualify and how you can actually win that competition. Once you have that realization that it is unfair, that it is a dogged crazy fight to get that venture capital money, then you will be free to start thinking about what are the precursors to getting venture capital and maybe even do you want it because venture capital is jet fuel. You put jet fuel on a skateboard or a bicycle or a car, it's just going to explode into a fiery mess and everybody dies. Jet fuel is for rocket ships. And you have to ask yourself, is this business in fact a rocket ship? Or is it a slow growth or a normal growth business? Remember, venture capital, impatient capital. Realistic growth is not what they're looking for. Venture capital is looking for unrealistic and perhaps even unhealthy growth growth that is going so crazy and so fast that maybe, you know, the tires come flying off or things are messy, mistakes are made, but growth at all costs is really what venture capital is about. Now people will argue that there's conscientious capital or people are looking for you to grow slow and steady wins the race. People might say that, but I think it's platitudes. I think in reality, venture capitalists want absurdly high growth companies in the double digit percentage month over month. And most businesses probably grow double digits year over year. So this is a whole different pace. This is like

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SPEAKER_06: Odoo.com slash twist to check it out. That's Odoo.com slash TWIST. What type of businesses should see venture capital? Well, if you're looking at venture capital, it's very few companies really get those. And, you know, very few companies qualify for venture capital. And that's why many times people

SPEAKER_02: say, hey, your bootstrap business is a lifestyle business. This is not a negative term, although it's perceived as a negative term. We will say, hey, I think you're just a lifestyle business.

SPEAKER_06: That word just, you're just a lifestyle business, a little derogatory. But what we mean in our industry, when we throw around the term lifestyle businesses, this is going to be a great lifestyle

SPEAKER_02: for you, the founder and owner of the company, but it's not going to provide returns for venture capital firms that would please their LPs who are big endowments or retirement funds or high net worth individuals. It's a lifestyle for you. You might make a million dollars a year from this lifestyle business. You might make $10 million a year from this lifestyle business and rock on. That's unbelievable. And if you have a business that's throwing off a million dollars in free cash flow a year, and you're pocketing that every year and every year, it's growing 20%. Well, the best thing for you to do might be actually to pocket the million dollars 10 years from now, it's growing at 20% a year. That means it's doubling, you know, every four or five years, you know, three or four years, you're probably doubling. And if you're doubling every three or four years, then maybe you're taking out $2 million after four years. And then after another couple of years, you're taking out $4 million, you get the idea, and you still own 100% of the business, why would you ever sell it?

SPEAKER_06: But it's not fast growth. So it's not going to IPO or get bought by one of the bigger companies,

SPEAKER_02: which is typically how venture capitalists get their money out. They buy in they have an IPO, they buy in Microsoft, Google, Facebook, whoever buys the company. Those are the two big outcomes for venture capitalists. So lifestyle, lifestyle businesses, which means businesses that are growing single digits per month, not double digits per month, and that are growing, you know, less than two or three x year over year, that's a lifestyle business. In the minds of venture capitalists, they're not going to fund a lifestyle business, because it doesn't have venture scale. Venture scale, another term that we use in the industry, what does venture scale really mean? Venture scale means that this business can get to in 2021 terms 100 million a year in revenue, $250 million a year in revenue, you start thinking about those numbers, you know, $1 million, you know, $100 million a year in revenue is 250 $350,000 a day in revenue $10,000 an hour, it is possible to build these businesses,

SPEAKER_06: it's just hard to build them. And so why do they need to have businesses that can reach that level of scale? Well, those are the businesses that start to get the attention of the big companies to buy them,

SPEAKER_02: a lot of big companies, they're not interested in buying any company with under 500 million or a billion dollars in revenue, you know, take Microsoft, or take Google, you know, when you're printing up as much money as they are, to move the needle on an acquisition is very hard, you need to have a business that really is making some large amount of revenue. And that can grow from that point forward, hopefully with that motherships, you know, reach and dexterity and expertise. That's for an acquisition. And then for an

SPEAKER_06: IPO, well, the public markets are not going to care about a company with 50 million in revenue, generally speaking, they're gonna want companies that have hundreds of millions of dollars in revenue, if not billions of dollars in revenue, as we've seen over the last couple of years, when we've had a boom in SPACs and IPOs, and the SPACs do bring the benchmark down a little bit,

SPEAKER_02: you could have companies that are pre revenue, go public, etc. So venture scale businesses, it just means you're going to grow 345 x year over year, 10 2030 40% month over month at certain points in times in the business, and you're going to get to 100 to 250 million a year in business, which means the investor has a chance to turn $1 into $100, not 100% growth, which would be double your money, we're not talking about percentages here, we're talking about x $1 goes 100 x 100 times $1 turns into 100. That's kind of what venture capital is looking for. So you have to ask yourself, does my business really qualify for this insane race? Is it an outlying company? Is it a software company? Great software companies can grow that fast? Why can software companies grow that fast? The reason a software company grow that fast is no cost of goods. You write the software once I write the game Angry Birds. And if 10 people play Angry Birds, and they pay $1 each, I make $10 if 10 million do it, and I may and I charge them $1. I make $10 million. The cost of Angry Birds remains the same. The five developers who developed it, Instagram, maybe they had a dozen people working on that when they sold it for $1 billion. And you really don't need more than that building a world class app. Today even on iOS is a dozen people for Android and iOS, like literally 12 people can build a world class app. So you have to ask yourself, is it a software business or a marketplace? What's a marketplace? eBay, Airbnb, Uber, these were

SPEAKER_06: all marketplaces. One side puts up supply. Another side is the demand I'm demanding. I need a place to stay when I'm in Paris. And you're the supply, I have an extra flat in Paris that I can rent you for 300

SPEAKER_02: Euro a night. That's a marketplace marketplace to scale because as the number of participants increase, and the frequency of transactions increase, oh my Lord, the five or 10 or 20% of each transaction

SPEAKER_06: they get can add up pretty quick. Uber Eats, DoorDash also marketplaces between drivers, restaurants and consumers. So it's really like a three sided marketplace when you think about it. Those are the type of businesses that investors typically want to invest in because we've seen over and over again, they're high margin and they're high scale, high margin. They don't have a high cost of goods high scale. Because you know, the 100th person coming in doesn't require any handholding. The 10,000th

SPEAKER_02: user of, you know, a marketplace like DoorDash, or Airbnb, doesn't cost you anything to onboard them. And neither does the millionth or the 10 millionth, they just can come in and use the marketplace because it's

SPEAKER_06: already set up there and it's vibrant. And they get to just jump in and benefit from all that velocity in the marketplace. So those are examples of very high skill business, what's a business

SPEAKER_02: that's not high scale and low margin selling Ethernet cables, selling chargers for your phone, it's a race to the bottom, it's hardware, anybody can make it, you don't have any IP, there's nobody cares about the brand. I mean, I might care about anchor, I love that brand. But most people don't care. So hardware is hard, and it tends to not have any reoccurring revenue, you sell it once you're done one transaction at low margin services business consulting businesses, consulting businesses, your cost of goods is how little you can pay somebody. And your top line revenue is how much you can charge for that person. And you just live in that tight little margin between we're charging $200 an hour for this developer, and we're paying them 125 and we get that 75. And everybody hates you because the developer wants to make more money, the customer wants to pay less than your margins constantly getting crushed. It doesn't scale gracefully. It's a waste of time for in most

SPEAKER_06: people's minds. And that's why SAS software as a service, cloud computing, consumer subscriptions, all of these things are software based businesses that scale very gracefully. When you are going into

SPEAKER_02: venture capital, you also are gonna in all likelihood be giving away a large swath of your company, think 10 to 20% of your company, three, four, five times in the life of the company,

SPEAKER_06: which means typically two founders will get down to 10% each and ownership of their startup by the time there's an exit. And if it's a single founder, maybe they have 15 to 25% ownership, but you're going to get diluted massively and you will often lose control of your company in that you have taken on three or four venture firms, three or four 10, you know, 1 million to $25 million checks over a five or six year period, they are on the board, they can oust the founder, sometimes founders have protection and provisions in there. But other times they can be ousted and removed from their own company doesn't happen as much these days, but you get the idea. So keep

SPEAKER_02: this in mind, when you're building a business that if you do go to the venture out, you're going to go really fast, you're going to give away a lot of your company. And it's going to be with a high risk of failure because venture capitalists only care about outlier success, if you're going to be an average

SPEAKER_06: success, they're really not interested. So they're going to disengage from your business, they're not going to want to be involved in it. If you only grow it 50% year over year, they're only going to be interested and they're only going to get excited when you're doubling and tripling revenue year over year consistently. So why would you do that? Well, the reason you do it is because you could have an

SPEAKER_02: outlier success. That's why people sign up for it is they might have the chance to be an outlier success. Why would somebody opt out of it? Well, because the chances of success are like one in 10, or one in 20, or two in 15, who knows, it's a very small chance of success. But if you do win, you get outlier success. And most people candidly don't understand what venture capital is, they think that everybody's entitled to it, they don't understand how competitive it is. And they don't understand how narrow the lens of businesses are that are venture fundable in the current model. Other people have tried to make slower growth models, where they do slow growth companies. And just as a little bit of an aside, you're really not trying to build a business with the acquisition in mind, going in saying, I think we can sell this company to Microsoft in five years for $50 million. That's not what venture capitalists are looking for. So keep that in mind. They want the outlier success. It turns out venture capitalists and venture capital firms are typically defined by one success, maybe two each fund. And that means a venture capitalist over the course of their career, they might be involved in 56 funds. If they're involved in five funds, and there's one or two hits each fund, there might be a dozen hits over those five funds, maybe 10 of those 10, the top two or three will be the majority of the returns, the top 10 will be 95% of their returns. And that means each partner might work on one of those. So in other words, a career in Silicon Valley, a venture capital career is made with one outlier investment over a decade or two of working in venture capital.

SPEAKER_06: Sometimes you get people who hit two or three, I've hit three or four really big ones. And they kind of define your career, Robin Hood, com, Uber, these things are career defining, I've gotten very lucky to hit, you know, three plus in a decade, you know, there'll be more, you know, down the road. But these, this is the nature of the other person on the side of the table who might fund your startup, is that they

SPEAKER_02: are going to place 2030 bets in their career, and one is going to define their career. And the one that does is the crazy outlier, the crazy outlier. This is, but 5% of funding of companies or less is from venture capital, it's a very small mix of the investment in companies. So again, if you're going

SPEAKER_06: to do this, you really want to be doing it in a growing market, and you're going to want to have to go fast, and you're going to want to have other people involved. If you don't want other people involved, if you don't want to be collaborative with investors and hear their opinion, if you are not swinging for the fences and trying to grow really fast, don't take venture capital, don't even consider it. You can just have a bootstrap company get to profitability and just sweep the cash off every year, make it an LLC instead of a corporation with shares, and just focus on distributions year after year. So building to sell is really a dangerous idea, you don't want to do that you're building to build a large sustainable enterprise. And the second option is you sold to somebody now bootstrapping versus funded companies. I hope that this candid candid advice is helpful for you as you start your journey. Remember, you got to have great skills, you got to be able to build these products yourself, you've got to be able to build a team and you got to be able to have great customers, product, team, customers, product, team, customers. Those are the three pillars of building great companies. The market is out there for so many products, you know, and all you need to do is build a great team and build a great product and put it in front of customers and let the magic happen. It's that easy, folks. No, it's really hard. But you have to have skills. If you have no skills, ask yourself, what? Am I ready to be a founder? Maybe I need to get some skills, you might get lucky and just be an idea person who could manifest a bunch of investment and talk people into it. I've seen it happen. It's just happening less and less. These days, the people who are getting funded more

SPEAKER_13: often than not, are able to build their prototypes, MVP, and get something in front of investors with $0 with only sweat equity as bootstrappers. And those are the best, most fundable founders, according to what VC say, around the poker table, or when they're having dinner, or they're being

SPEAKER_06: candid with each other. Oh, that person can bootstrap a company and get a couple of customers, they're capital efficient. That's who I want to place my bet on the person who actually knows how to build great products and teams. So keep that in mind. And I hope this has been helpful. Okay.

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SPEAKER_47: for just $169. Okay. Zach Colias is with us again. How are you doing, Zach?

SPEAKER_48: Zach Colias. Yeah. Every day I just try to suck a little less. I'm trying.

SPEAKER_49: There is a goal. Every day trying to just not suck. It's humbling.

SPEAKER_51: Less, less. I still suck a lot. I just want to suck less. Or you could say you want to incrementally get better.

SPEAKER_52: Yeah.

SPEAKER_30: But it's two ways of saying the same thing. It is humbling what we do as investors because we are constantly faced with making decisions and not knowing if we made the right decision for somewhere between five and 10 years. How have you reconciled this challenge to keeping a scoreboard?

SPEAKER_56: Yeah. Well, I mean, my default is I just assume I'm an idiot. So that just like it goes with the territory. Yeah. But, you know, I like to I really think about it in terms of like the day to day

SPEAKER_58: tactical execution of the businesses that I'm involved with. And it's, you know, I try to be in there figuring out what's going on and trying to be helpful and watching. And if they're moving the ball forward, I'm super happy. Because at the end of the day, this business is a business where you can get incredible rocket ship growth in really unexpected ways at unexpected times. And as long as you're on the field, and you're moving things forward, you're in a position to be ready to catch that. Like, so for instance, today, they announced that KOTU put one point or 120 million into one of

SPEAKER_56: the businesses I've invested in mercury. And that's the bank, right? The bank. Yeah, like, it's like a billion and a half dollar business now. And when they first started that, oh, man, they were it was it was not easy. And I mean, watching them. Yeah,

SPEAKER_58: building a bank, like, not easy.

SPEAKER_61: I'm shocked. Starting a bank is not easy.

SPEAKER_30: Yes, yes, I just summarize your two points. I think, if you think about what we do as our day jobs, and what founders do, you cannot absolutely guarantee any outcome, you have very little control over the outcome. But what you do have a lot of control over is what you do today, your process. Yeah, and the process of being an entrepreneur, from what I'm hearing from you is to be on the field and to keep improving and to be of action to be getting stuff done. So that if you do catch lightning in a bottle, if you do happen to catch that wave, man, you can have a great surf, you have a great ride. And just be ready for that. As an investor, we just have to be as helpful as

SPEAKER_02: we can and see as many meet as many great founders as we can. That is the process, is it not?

SPEAKER_56: Yeah. I mean, for me in my day job, I think about it like, am I helping my companies adding value so that they let me keep investing in their businesses as they grow? And am I talking to new

SPEAKER_58: folks and being helpful to them, helping them see around corners and helping them meet other great investors or meet customers or partners so that when the time comes that they raise money, they let me join? It's for me, it's like the more value that I add in a leveraged way in the ecosystem, the more goodness comes back. And that's my every day that I can do something useful to the ecosystem, whether it's my existing companies or companies that I'm involved with, or companies that I just

SPEAKER_72: like I'm excited about, I feel like I'm I'm moving the ball forward. I'm happy

SPEAKER_30: or being here on Ask Jason and Zach or reoccurring answering of questions and commiserating over how absolutely we have imposter syndrome every day. I mean, when you think about it, you work really hard as an entrepreneur, you and I both got our asses kicked and kicked a little ass as entrepreneurs. And then you get lucky enough to be a capital allocator where you get to, you know, pick who gets money to pursue their dreams. It's pretty humbling. And it's super random. I too,

SPEAKER_38: today had a great day. Robin Hood went public. Yeah. That's crazy. Yeah, I mean, it's the third biggest win of my career after Uber and calm, which are now tied. Wow. Well, you know, we owned,

SPEAKER_30: you know, just basis points in Uber, but we own five or 6% of calm. So that shows you when you own 5% of something worth two or 3 billion, you know, and you own 10 basis points or 20 base points of whatever, of something that's, you know, 100 billion, you can have slightly similar outcomes

SPEAKER_38: and owning a larger percent now is part of my goal. What is the average check size? Just as we start the show off here, before we get to the questions, average check size for you today, how many deals are you doing a month, a quarter, a year, whatever number you want to pick?

SPEAKER_56: Yeah, yeah. So check size is growing. I've got a new fund and it's bigger. But average check now is probably in the sort of 500 to million range for early stage. And that's growing. So it'll probably be a little bit bigger in the next six months. And I try to do in a given year, you know, five or six new companies. And then I'll try to find and then I'll invest in my existing businesses. So a good year, I deploy maybe 15 to $20 million if I'm doing my job correctly. And you know, things are as a solo GP.

SPEAKER_30: Yes, as a solo GP. Yeah, you and I are the same both solo GPs with teams around us. You have a team

SPEAKER_56: built out yet? No, no, no, no. I don't even have an assistant. Whereas you have like this squad of

SPEAKER_90: Uber assassins on your side. So I have a squad. Yes. Well, you know, the, the advertising on the

SPEAKER_06: show has helped me build a team. It's literally the truth for the last couple of years. The profits from this week in startups pay for the investment team. Although we know some with the new fund,

SPEAKER_38: we have a little bit more Matt for the first time some, some fees to hire some folks. So we're getting there slowly. All right, let's get into these questions here. First question via emails from Francis. He asks, What is your number one piece of advice for newer angel investors? I'm part of the syndicate and would love to up my game. Okay, we got a new angel investor, fresh in the game. What's your best advice there, Zach, in 2021 for a new investor?

SPEAKER_56: Yeah, I always say, take your time and plan on this being a really long game, both in terms

SPEAKER_58: of the outcomes, but also in terms of the deployment. Like if I look back over the last five years, you know, I've, I've written about 80 checks. And the first check I wrote, I was

SPEAKER_56: in a very different place in terms of my capabilities and my education and my experience. And if I had, you know, blown my water early and wrote a bunch of checks at the beginning, and then

SPEAKER_58: hope they would all work, I think I would be, I'd be happy because that year ended up being a great year for me. But I, I wouldn't, I would be in, I wouldn't be in as good a place as I am now. So just expect it to take a long time. And then you're gonna have to write a lot of checks.

SPEAKER_21: I always like to use the analogy of learning poker, you would not want to sit down at a high stakes game when you don't know which is a better hand, a flush or a straight. And literally, when

SPEAKER_94: I started playing poker, I was in games where people are like, I went, I got a straight and the person I got a flush and he said, well, a straight's better than the fly. And people

SPEAKER_51: didn't even know. Like, literally, somebody at the table had to keep the card of the winning hands. Like what was you know, it's three, three of a kinds better than two pair. Yeah, okay, great.

SPEAKER_98: I want to play in that game.

SPEAKER_38: That's pretty funny. I mean, this is literally but it was it was a $20 buying game, I think they were paying playing 25 cents 50 cents a game. So like roll people would bring rolls

SPEAKER_30: or quarters to the game was quite fun. And so I do think you want to take your time. And in terms of thinking long term, you are playing a long game and you're playing a reputation game. And you're also playing a long game against the cycles. So here we are in a tech super cycle that started in 2009, which is exactly when I started investing and you started

SPEAKER_38: investing similar timeframe, right? 2015 2015. Okay, you came five years after me. So you started investing halfway into the super cycle or maybe a third of the way in. And so it was starting to climb up when I started it was on the floor. I mean, I couldn't get but five or six angel investors to show up to meet four or five companies at open angel forum. And at that time, angel list was called venture attracts, venture hacks. And it was an email newsletter, there was no angel list, there were no syndicates, it was just people shooting emails around, which actually you did as well. So take your time, making those first couple of bets, there's no rush and don't feel pressure. Be disciplined. The other thing I'll say is, you know, maybe the first 10 bets you make could be in product and companies with products in market and some traction. So that

SPEAKER_13: you're not making these bets before the products even launched. You can actually use the product.

SPEAKER_06: Okay, we got a live question from Gatsby. No indication if he's great or not. The question is, what are typical mistakes you see founders make in their first meeting with you they should avoid?

SPEAKER_30: Okay, this is a great question. What are silly, stupid things that founders do? Or you've seen that are just a mistake when you're meeting with investors? I mean, the number one is lying. Like,

SPEAKER_56: you know, a lot of these founders are just they really want to get the deal done. And they've they've, they feel pressure to basically put their best foot forward. And it's pretty easy to sort of

SPEAKER_58: stretch from exaggerating to lying. And you know, when you're on the other side of the table, and you just watch these folks all day long come to the door, you get a really good pattern recognition of when they're lying. And you know, there's a lot of ways to trip somebody up. And I mean, I'm constantly basically trying to figure out are they really a truthful person? Because it's that's one of the biggest things that is like a red flag for me is people that I can trust when times are bad, and things are not working right, to be truthful and honest and open and transparent about what's going on. Because otherwise, I just it's really hard to work with people. And that's the biggest one. And I see it over and over and over again. And it makes me sad, because it's like there's this great entrepreneurs who I would love to invest in, but they're just liars. And I'm like,

SPEAKER_30: I can't do this, you know, and there's lying. And then they're stretching the truth. There's exaggerating, there's a whole spectrum here. And I think what's important in what you're saying is,

SPEAKER_02: as an investor, we know imposter syndrome, we know that you don't think you're adequate, we know that you're concerned, you only have three paying customers. And one of them doesn't actually use the product and the other one's your friend from college. And you really, at the end of the day, only have one paying customer. And we are okay with that, because we've invested in companies over and over again, and watched this collection of ragtag, misfits and pirates create something of massive value from nothing. We understand that. So there is no actual need to exaggerate to us. And you're so correct, because it always comes out. I always find it out, because I do math in my head, and I say, how many customers you have? They say 100. I say, what is the product cost? And they say, it costs $100 a month. And I go 100 times 100, you get 10,000 in revenue a month. They say,

David Friedberg: okay, so you're doing 10,000 revenue said, Well, no, not exactly. I'm so what are you doing revenue? And it's like, Oh, we're doing $0. And I'm like, you just said you have 100 customers like, oh,

SPEAKER_02: well, that we plan on charging 100. Those 100 people are in beta. And they're not paying. And I'm like, okay, great. So you have users in an unpaid trial. Great. If you had presented it as users in an unpaid trial, I'd be like, Oh, that's great. Tell me about the top 10. How are they using the product? Whatever your traction is, however modest it is, it's something and it's better than lying. Okay, next question. And this is from the dude. And so you know, when the dude has a question, it's going to be a good one is coming hot. What do you think about white labeling tech to

SPEAKER_119: help build or finance your core product? It's a great question coming in hot, dude. What do you got,

SPEAKER_56: Zach? I mean, I always say that anything you can do to get to sort of Sarah table has a great saying

SPEAKER_58: where she's like the red hot center of your business, and whatever you can do to like, make the other parts easier and faster to get to that spot, the better. And so white labeling technology, whatever you have to do, totally, totally fine. Now, at the end of the day, you still have to basically be able to tell a compelling story about how how you really are a technology business and how there is a moat around your technology and how your technology enables you to grow really rapidly and you won't become commodified. So if you're using the same technology that everybody else has access to, that's going to be challenging when it comes time for competition to show up, and they're always going to show up. And if you don't have the ability to protect yourself, you know, investors are going to look at you very differently than if you've, you know, built your own proprietary stuff. But getting to that sort of core proof point to validate the idea, the business, and the value that you deliver to a customer, and then building out from there is a great idea.

SPEAKER_38: Yeah, and by the way, Sarah table, general partner over at benchmark was on Angel season four, episode four, back in February, great guest. She's pretty great. I think it was one of my final guests in the studio before COVID started. Wow, that's crazy to think about. If you're doing white labeling as well, and you sort of mentioned here, dude, the dude, sorry, I didn't mean to be casual there with you, dude, the dude, sorry, Mr. Dude.

SPEAKER_30: It's a great way for you to keep the lights up. And some people are very precious about like, oh, you know, just raise money and stay focused. But the truth is, you may not be able to clear market with investors, you may be an outsider, whatever. If you get three people to take a white label version of your product, and you own all the code, and they're giving you 5000 a month each or 15,000 a year each, and that keeps the lights on. Great, keep the lights on. And then you can launch the web based

SPEAKER_38: product that is not white label for everybody else based on what you learned on their nickel. I'm not precious about it. Whatever it takes to get to product market fit, to get that burning ember at the core of your product, not a problem. Now, if you do have a consumer based product, and you're like, should I have a white label and a consumer? Those are kind of two businesses.

SPEAKER_129: Yeah. It's kind of hard to run both in the same company, isn't it, Zach?

SPEAKER_56: Yeah, absolutely. I that's another to go back to the first question we have, like, what's a, you know, red flag? Whenever you have two different things going on that have different focuses and

SPEAKER_58: different like areas of attention that are required, and you have to make different decisions for those two things. It's a huge red flag for me, like, because at the end of the day, when you actually find product market fit, what happens is, is that the things that used to be really hard revenue, customers traction actually becomes really easy, because all these people see this value, and they just come running for what you have, and you start growing really rapidly. But what happens is, all the things that used to be easy, managing your company, scaling, keeping up with growth becomes really hard because you're growing really rapidly. And when that happens, entrepreneurs need to be really, really focused on basically growth. And they need to, they need to go from basically putting their energies against making things work, to putting their energies towards simplifying and making things simple so that it can keep up with that growth. And what I find is, is that if you're distracted doing multiple things, you get totally crushed during that period. And also, it's a really good indication that you actually haven't found product market fit, because every entrepreneur I know who once they find it, they get that idea really rapidly. And they start discarding everything that gets in their way of the one thing that is 10x that is growing like crazy. And so

SPEAKER_30: Yeah, I mean, the most famous example was Groupon, and the founder had started Groupon inside of

SPEAKER_02: another company that was doing like petitions and lobbying kind of, you know, like, these petition website, and then people started using the petition website to petition to get two for one meals. Yeah, he was like, Wait a second, there's a restaurant downstairs, let's see if we can petition them to do this. And it was like, Okay, it's a petition. They were like, You know what, who cares about this petition to get, you know, Buffy the Vampire Slayer back on TV or whatever, you know, or the stupid Comedy Central thing back on, let's just focus on lot, you know, creating customers through deals, and they created an entire category. And as Andrew, the founder of Groupon told me, it wasn't even his choice, the entire company didn't want to work on what was slow

SPEAKER_15: growth, they all just moved to the side of the ship, where all the fish were coming in, and everybody

SPEAKER_06: just stuck their fishing rods and went to the other side of the of the of the ship to go fishing on the other side. Okay, we'll see you all next time. Bye bye.