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The "No BS" version of how startups are really built, taught by actual startup Founders who have lived through all of it. Hosts Wil Schroter and Ryan Rutan talk candidly about the intense struggles Founders face both personally and professionally as they try to turn their idea into something that will change the world.
TST EP277_Audio Version
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Speaker: [00:00:00] Welcome back to another episode of the startup therapy podcast. This is Ryan Rutan joined as always by my friend, the founder and CEO of startups. com will Schroeder will. It is no secret. We talk about a lot on here. We talk to a lot of founders, lots and lots of founders, as many as we can find. One of the things you may not know is that we also talk to a lot of repeat founders in relation to funding.
I think we consistently hear the same thing over and over and over and over again, which is. If I do this again, here's what I'll do differently. Now, are we saying that we would never raise funds again? Are we saying we shouldn't raise funds? What are we actually saying here?
Speaker 2: I think you talked to enough founders.
It's literally every founder, ourselves included, who who's raised capital from VC investors, whatever. Their first response is always, I'll never do that again. Now. I think that's funny. I think that's funny because you think about how it's like the dream for all of us to go raise money and how it's, it's, you know, this big validating point.
Then, then why is it that all the people have done it? Almost every single [00:01:00] person is like, yeah, I'll never do that again. Never do that again. That now that doesn't mean they don't. It's an experience. Yeah. Right. Right. Right. It's like people who get married and divorced and they're like, I'll never, I'll never get married again.
Now you probably will, but, but,
Speaker: but. Sure. We'll do it differently, at least in, in, in like, let's hope so. Right. Like the hindsight being 2020 there, there are a lot of things you can look back on and go, here's, here's what I would do differently.
Speaker 2: And I think, you know, what we can dig into here is for the multi time founders, like this is a trip down memory lane.
They're just going to be going. Yep. Uh huh. That's exactly what I dealt with, but I'm curious to see how many of the things we're going to talk about apply to you and your situation and how, how well that lines up. As important for the folks who haven't raised capital, or even, you know, for folks that have already done it before.
Yeah. Let's talk about what to do differently. Right. Right. Knowing that everybody kind of says the same stuff. Everybody kind of has the same solution. So I want to walk through all of the gripes that people have about having had raised capital before. And then really what [00:02:00] we found among all these founders, uh, in our own experiences, what were the best solutions?
Speaker: Love it. So for those of you who've been through it, this will be catharsis. This will be a little bit of healing. Uh, for those of you haven't been through it, let's hope this helps you avoid some of those pitfalls. Alright, where do you want to kick off?
Speaker 2: Well, you know, I, I think the first part that it's the hardest to ignore is that no one gets paid.
We talk about the perils of funding a lot, which isn't the same as us being anti funding, which is hilarious. We run a funding platform. Funding's a huge part of our business, right? Obviously it'd be pretty hypocritical for us to say we don't think people should raise.
Speaker: Right, but it'd be just as hypocritical for us to not open up all of the doors and, and, and make people aware of the process, like anything we do in the founders space.
We want to make sure people come into this eyes wide open, right? This is anti funding, pro funding. This is pro awareness of what the hell is going to happen if you go down this path.
Speaker 2: You bet, you bet. And so, the first thing I would say is, folks always argue, number one gripe, not getting paid. [00:03:00] I didn't get paid.
Two ways. I want to make sure people don't misunderstand. What they mean is maybe I didn't get paid at the end. Obviously you haven't had an exit. Less of a complaint. But most people don't. So that's where it starts. But the second part is along the way, if you're raising money, you're almost invariably going to be tied to the ship for five to 10 years.
In that time, you are going to get a fraction of your market rate. Most people don't get that. They're like, Oh, when we raise a lot of money, I'll just get paid all the money I was getting paid at my last job. False. Great. You will get paid the high watermark
Speaker: and then we'll make that the low watermark, right?
So whatever it was, the most I've ever been paid in the past, that's when I want to be paid now. Unlikely. Very unlikely. How
Speaker 2: about this? How about a job? Because essentially you're taking the job as the CEO or whatever your C level title is at this company. How about a job where you can almost guarantee that the boss always thinks you're an asshole?
Yeah. And that boss is the bottom line. That boss is your investors, et cetera. [00:04:00] No matter how well you do. It'll never be good enough. Now you have Aaron examples. And I say Aaron, cause it's such, it's such an anomaly. You have a Brian Chesky at Airbnb just crushes it. Right. Eventually, but you talked to him at the
Speaker: formative years.
Remember we interviewed him. Wasn't pretty, right? He was eating leftover boxes of Obama O's for a long time, right? Yep. Yep. Sleeping on his own couch.
Speaker 2: Let's first unpack why you don't get paid. Yeah. Okay. Cause I don't think people don't get it again. People have done it before. They're all too familiar.
First off, you're raising a small amount of money. Relative to the company over time, over a fairly long period of time, which means there's room for everybody in the salary line, but you, the quintessential response to founders asking for more salary is you got paid, it's your equity stake, which ironically you already had.
Speaker: Yeah. But I mean, and you think about it too, it's like the negotiating position for the founders here is, is zero. And you're like, okay, we've taken on capital. Here's all these things we need to use it for. I'm also going to use some of it for [00:05:00] myself. Like, no, you're not. Yep. Right. Because if we don't pay the marketing company, they don't do marketing.
If we don't pay the developer, they don't do developing. If we don't pay our rent, we leave the building. If we don't pay you, what are you going to do, Tiger? You're going to leave, right? This is your company. Exactly. Right. You're going to leave? You have zero leverage in this conversation.
Speaker 2: You do. And the last thing on anybody's mind is how do we pay the founders more money?
Like in salary, right? It's the last thing on anybody's mind. It sounds weird. If you haven't been through this, you don't quite get it again. You think, well, didn't you raise like 10 million? Like there's plenty of money to pay you. There's plenty of money, but it doesn't go to you as weird as that sounds.
Let's play it a scenario just so people can have some actual facts and figures to work with, right? Let's say that Ryan, you and I are starting a company and we're 50, 50 partners. And it doesn't matter what our titles are, but we're both the C level people. And we raise, call it [00:06:00] 700, 000 on a seed round.
Speaker: What's your
Speaker 2: guess at how much we would allocate for both of our salaries at that point?
Speaker: Do we get salaries at that point? I mean, the
Speaker 2: second thing
Speaker: I was thinking, yeah, I was like, geez, I guess it kind of depends, like what's, what's revenue look like? What's MR look like? Do we have AR or do we have revenue?
Right. Or is this, are we, are we pulling from? That, that is part of the dynamic there, but it's going to be a hundred K would be a fantastic and it's probably unrealistic.
Speaker 2: Right. So I'm, I'm guessing a hundred K on the max because we have to also pay other people. And it's only 700 K, which isn't going to, isn't going to last us very long.
Maybe 80 K. Right now, start with that. Before we raised any money, we weren't getting paid anything, right? Presumably. So let's say we went a year. This is going to start to add up. Watch this. Yeah. We went a year, maybe a long, probably longer without getting paid. Okay. So getting 0. In that time, in that first year, and it's probably 18 months, it's probably longer.
In that time, we were burning through savings. We were burning all of our, our [00:07:00] capital reserves. Yeah, exactly. Right now we raised 700k. It's our pre seed round, whatever it is. And now we get 80k, a hundred K, which is still way less than we were making before, not for everybody, but for most people. And we still can't pay our bills.
We're still like pulling out of savings to make our mortgage payments, so to speak. That capital lasts us, let's say 18 months. Typical 18 to 24 is how long a capital raise will run. And now we go out and let's say we were successful at a seed round. Now we've raised 3 million on a seed round, not a bad seed round, you know, bigger, smaller, whatever.
Where do you think our salaries are then? About 80, 000,
Speaker: right? Kind of like right, right, right where we started. Now, at that point, we, we may be able to level up a tiny bit here, but. Maybe not. But again, it all depends on what it's earmarked for.
Speaker 2: Right. Probably 1. 20. 1. 30, 1. 40 on the high end, right? And again, everybody's mileage varies, but you got to look at it from the investor's eyes.
The investors are like, you guys are already [00:08:00] stuck with the company, right? I'm more concerned about paying everybody else. And honestly, by that point, so are we. Let's say we move to 120, which would be pretty gracious, if you will. Okay. Now we've got another 18 to 24 months at that price point. Let's build on this, year one, zero, year two and a half, 80 grand, right?
Year three and a half, year four and a half, because I'm stacking all these together, 120 grand. We've averaged less than 100, 000 a year, right? Probably closer to like 80 ish, right? For three to five years. Well, for four years so far, right? Now, pause there, going back to never got paid. We did everything right.
Yeah, I want to point out we did everything right. Yep. We were successful. We raised, we raised again. We raised, we raised again. We raised on the right timelines. We were able to close our rents. We did everything right. And you and I each made less than a hundred thousand dollars a year as C level executives of our own company.
Speaker: Sweet.
Speaker 2: [00:09:00] Okay. And we're four years deep. A lot of bad shit can happen in four years.
Speaker: Yeah. Well, cause we didn't talk about that, right? There was the, there was the drawdown on savings. There was the increase in debt. There was all the other stuff that was going on. Yep. That makes that hundred K averaged out even less valuable, right?
You bet. And we normalize that down. By
Speaker 2: year four, we have long since exhausted our savings by, by trying to like, whatever. So we're so fortunate. We're one of thousands of companies per year that's able to raise a series a. So we raised a series at 8 million, right? Just pegging our number. And now we're like, finally, we can get paid a little bit more buck 50 bucks, 75, maybe it caps out fast.
Now here's, here's where we get really screwed that buck 50. Is going to run us for the next two to three years, assuming we're very capital efficient and we don't get to a B round, et cetera. But now we just added three years at a buck 50 plus with what we averaged before we are now at seven years at barely [00:10:00] breaking a hundred K in likely the prime income earning years of our lives.
And again, We did everything right. Like we nailed it every single time. People were high fiving the shit out of us the entire time about how well we executed. Investors were praising us for getting our rounds done. We were hitting our milestones all the while. You and I are going back to our wives. Like we're pretty broke and there it is.
And there's never got paid.
Speaker: So what do we do about it? Right. So like, cause I think everybody listening now is like. Yeah, we get that part. It sucks. So is there an alternate path here? And there are right, but they're not necessarily easy, right? It takes, takes some doing.
Speaker 2: There's a couple parts. Number one is recognizing that this is a thing.
Speaker: Yeah.
Speaker 2: It's like a hidden secret. Like you talk to CEOs that are seven years deep in a funding round, you know, in funding world and their startups and you're like, Hey, how old do you get paid? And they'll just laugh at you. Right. They'll be like, are you kidding me? I get paid. Um, how old do you get paid?
Sometimes. That's about [00:11:00] right. And then begging for that paycheck. Remember, because they're constantly hands out trying to get that money. The best way to do this differently, like if you and I were doing this for our third time, fourth time, whatever it would be for us, the first thing I would say is we need to establish an incentive comp structure.
Speaker: Yeah.
Speaker 2: So that our base salary is just a reference point. You know, it's almost like being in sales and our performance metrics that we insist on having every single year. Allow us to earn more money.
Speaker: I think it's the only way I've seen it work, right? Because it's something that the investors might agree to, right.
As opposed to just like, and here's how I'm going to step up my salary over the next five years. No, that's such an easy, no.
Speaker 2: That's why I say incentive based. Yeah. There's two reasons for that. The first reason is everyone will say yes to it. Yeah. Like who wouldn't want to create incentives for a CEO? Now you might not hit him.
Okay, sure. The second is because it's dynamic, it gives you the opportunity each year. to kind of reset those [00:12:00] milestones because your business is totally different every year in a startup, right? So to your point, if you say, Hey, we're going to do a salary ladder and it's a guaranteed, I go to one 20 to one 50 to one 80 to two 10, you know, et cetera.
No, one's going to say yes to that. But if you were to say, Hey, uh, I want to have, um, my base comp and then milestone bonuses based on hitting milestones that all agree with, you know, with the board. Everyone will agree to that, generally, if the money's there, because it implies that you're doing what you're
Speaker: supposed to do.
But in this scenario, where we're doing everything right, we're actually benefiting from it as the founders as opposed to just being left behind.
Speaker 2: Yeah, exactly. Exactly. And there's no lack of founders out there that I talked to that, again, like seven, eight years deep in a funded company. And they're like, actually the company is doing pretty well.
Like if I owned this company, like I'd be, I'd be making a ton of money, but because I'm restricted from like enjoying any of the profits or, or, or upside to the I don't have a way into or out of this thing, [00:13:00] so I'm fundamentally stuck.
Speaker: Stick on that for a second because I think there is a misconception in, in, in the overall space that's like, okay, but if we're, if we're really profitable by that time, that's a big ass if, like, but if, if we're, if we're profitable by that time, then I'll just start taking distributions and that'll make up for, for the salary.
Speaker 2: Yeah. That happened.
Speaker: Yeah.
Speaker 2: That happens exactly. Never. There's nothing worse than seeing a profitable company that you built from scratch that you can take no money out of. It's bizarre to me. I watched a friend of ours, a guy we both know. I'm always mindful of being, keeping people anonymous, but a friend of ours grew a company.
I'm actually in two of them now, both of them almost in the same pace, grew a company to about 15 to 20 million in revenue. Uh huh. And because they had an investment structure, investors, right? And the company was profitable, like really profitable. They couldn't take any money out. And I remember one of them coming to me at some point saying, Hey, we have like seven million dollars in the bank now.
Yeah. Right, of like earnings, not like, you know, we raised money, right? [00:14:00] Right. Earnings. This is money we earned. Yep. Yeah, like, can I get some of this? And I remember he was trying to buy a house at the time. And I remember having this conversation and it's so funny. He's a great founder. He's like, I've got 7 million in the company, you know, whatever.
And he's a majority holder, but that doesn't really matter. Doesn't talk about that. And all I need is like 500, 000 to put down toward a house. And I'm like, you realize that's your money, right? That's the whole point of starting a company. And he's like, yeah, but I don't, I don't think I can access it.
Right. And the truth is he couldn't, he ended up selling the company and doing great. So he had all the money he needed. But my point is 7 million, another friend of mine, uh, somebody you and I both know, uh, had, uh, Two and a half million dollars in a, in a slightly smaller company and same thing. Yeah. Like had never taken more than a hundred thousand dollars out because he had a bunch of investors that were like, no, that's company money.
That's not
Speaker: your money. It's company money. It's gotta be reinvested for growth because that's how investors get paid. Right. They, I think, again, another misconception, right? Not only can you not take it, the investors don't take it either. This isn't [00:15:00] like, oh, they kept it $7 million. No, no. It has to be reinvested so the company can grow so that it can exit, go public.
Or cease to exist. Right? Like it's, it's grow or bust at that point. You have to grow so that the investors can get their money back. It's the only way it happens.
Speaker 2: Another one that I think is really interesting that you, it's hard to understand until you've already done it is actually having raised to.
Early, you see that, right? Like the first time out, they raised too early. The second time, like, I'm going to hang back a second and develop this thing for a while before I go out and.
Speaker: The irony is at the moment, everybody thinks they're raising too late. They're like, we should have done this six months ago.
We should have done this a year ago. Why are we so far behind the funding curve? And then after the fact, they're like, Damn, we shouldn't have taken on money in the first 18 months of the first 24, 36 or whatever it is. Yeah.
Speaker 2: Yep. I don't think you realize how incredibly vulnerable you are in those formative stages.
The problem is it's at a stage where nobody has any money. So it's so obvious that, you know, quote, I need money. So it's like, you and I start something we're [00:16:00] 12 months in and it's like, damn, we need to hire this and this and this, we need to pay for this and this, this it's money we don't have. And therefore any money is good money, et cetera.
What we don't think about, because again, we typically haven't been through it before, is what's the benefit of waiting? Because in our minds, this idea is hot. Someone else is going to do it. If we don't raise money now, we're totally screwed, right? Which almost never happens, right? Instead, founders who've done this before are like, you know, I'm going to like, get through prototype, MVP, first customer, do whatever I got to do, right?
I'm not going to go out for money when I'm vulnerable. Yeah. I'm going to say that again. Stay scrappy. Yeah. I'm not going to go out for money. When I'm vulnerable, I'm going to go out for money when I feel like I've got something that gives me leverage, which simply means product, customers, and traction.
Right? And I think that the differences for a first time founder that's never raised before, they don't understand how vulnerable they are. They just know they need money. You know, something that's really funny about everything we talk about here [00:17:00] is that none of it is new. Everything you're dealing with right now has been done a thousand times before you.
Which means the answer already exists, you may just not know it. But that's okay. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups. startups. com. So if any of this sounds familiar, stop guessing about what to do. Let us just give you the answers to the test and be done with it.
Speaker: And they know they need money. And I think that the challenge that I always run into here is that really what it's going to do is, is maybe move them a little faster. Sure. But at a time where the path is so poorly defined, we're just going to go faster. We're not necessarily going to get somewhere better.
We're just going to move faster. Yep. And I think that's what a lot of them will go back and regret and be like, you know, we could have gotten there six months later or a year later and retained another 15 or 20 percent of the company. Yep. And then there's a whole bunch of other things that come with this.
And we'll get to some of them, [00:18:00] including loss of focus, which I think is a huge one that starts to come into play. When we take on funding, we take it on really early and we start to divide that focus at a point where we still really weren't sure where the hell we were going. Yep. Right? Massive compounding of problems at that point.
Speaker 2: Agreed. And I, I think what happens is we don't realize how months and tiny milestones have major impacts on what we're doing. If you and I are in the idea stage, we just have the idea and we want to raise like a hundred K let's say in order to kind of get the idea going to build an MVP. In our minds, our logic, and this is kind of everybody, so I get it.
Our logic is, well, we need the MVP. We need that, you know, that initial product in order to have anything. Whatever we have to give up now to get it is worth it. But we look back later, not even that long, like two years later, we'll have had like, dude, I gave up 20 percent of my company for a hundred thousand dollars.
Like you've got it for a shitty MVP that we built. Yeah. We never even used or like, you know, we hired some consultant that we'd, that never even worked out or like whatever. Right. And we [00:19:00] look back and like, damn, had I just toughed it through that one milestone, which really would have only cost me like six to nine months.
I would have absolutely saved a major chunk of equity not having to take on this, this investor, all this other stuff. And they're like, this time around, I'm not going to raise until I've exhausted Yeah. For just that reason.
Speaker: Yeah, exactly. Yeah. And it's, again, it's so hard to see when you're, when you're on that path and you feel like this is the one thing I need, you know, the moment I do love seeing is when people are like, they're really at the early stage when they're vulnerable, where we like, it really is a, a huge question mark as to whether raising at that point is a good idea or not.
Sure. Sure. Pre customer they're pre revenue. Right. And they're like, we have to go do this. We have to do this. There's no money. We have to do this. We have to. Watch them get to revenue somehow. And oftentimes this is us pushing them or somebody pushing them to say like, well, Hey, take, do a service based thing, right?
If you're trying to build product, do service first, do something else to get some revenue going. [00:20:00] Make the side hustle within the company figured out. We've talked about this in other episodes, all of a sudden the tune changes significantly, right? Like they were willing to go and give up 15, 20, 30 percent of the company to get money to go get to revenue.
Now they've gotten to revenue and they're like, shit, I'm, I'm glad we didn't do that. Right. I'm really glad that we didn't execute that funding round because now here we are and now our valuation is completely different. Right. Our traction is completely different. Our leverage in the investor conversation is completely different.
By the way, we've started paying ourselves. So that won't be a question. Going back to point number one, it's unreal.
Speaker 2: So, so let's shift. I think the third, I would say biggest category that we get is the massive, massive. Loss of focus.
Speaker: Yeah. Yeah. This is what I was touching on just a few minutes ago, but a hundred percent.
Speaker 2: Yeah. I think what ends up happening is if we've never raised before, we, we can't possibly appreciate what a massive loss of focus, time, energy that we've basically created an [00:21:00] entirely new customer set, right. In an entirely new product, the customers, investors, and the product is our fundraise. And we have to keep working on that part of the equation, on that part of our business, which by the way, is a part of the business that doesn't exist for most companies, right?
It's a whole other set of liabilities and focus that is unique to funded companies. When you've never done it before, you just assume, Hey, I get money. I get the help of investors. Those are all upsides, right? Hell no, it's not. When you start raising money, you've opened up an entirely new line of business that is wildly unforgiving, totally uncertain, and you can generally never win.
I think if you talk to enough fundamentals, they're like, Hey guys, double down on the, you can generally never win. It's never good enough. Whatever you do, it's not good enough. If things are going really well, which is such a small number of companies, you get some reward, maybe. And then at that point, everybody's sharp elbowing into your deal.
Speaker: Let's break the [00:22:00] division of focus into two major buckets here. Cause I think there's two, the way I look at it, there's two major buckets here. There's the fundraising itself, which is a massive distraction, right? In a time, in like an energy suck. Yeah. Yep. Energy suck. Time sucked. Just like attention, all of it.
Right. You end up and then you start to maybe do things differently within the company. 100 percent try to appease and appeal to investors, which starts to create the secondary bucket, which is then let's just say we are successful. We go raise funds. This creates a whole bunch of new distractions. And a loss of focus because now one of the beautiful things about being poor is you can only do one damn thing at a time.
You are, when you're a poor startup, when you're bootstrapped, you're going to focus on whatever the thing that you think is going to do the best to move you forward. The minute you've got money. Now, the expectation from the investors, from everybody that get to put money in is like, okay, now you got to go do 20 things at once.
You got to go build the marketing team. You got to go build the sales team. You got to go build more product, get past the MVP, find customers, find partners, grow the team, all this shit. And [00:23:00] like, All of a sudden you're moving faster. And in a lot of cases, in my case in particular, I then had to move at a pace.
That at that time I wasn't capable, all of a sudden I was accelerated beyond my capabilities. Like I could keep up with what was going on when, when I was unfunded the minute I was funded and all of a sudden I had 20 new jobs, my shit. I don't know how to do some of this stuff. I got to figure it out on the fly, which is part of it, I suppose.
But for me, that's the two, the, the bifurcation, you've got all the distraction and the loss of focus during the fundraise, but then there's a whole bunch of new activities that come into play. Once you're funded, they'd also divide the focus.
Speaker 2: That's what I'm saying. And, and ultimately your mindset changes.
You go from, Hey, I'm worried about building products for customers to I'm worried about whether we do this thing. is going to have some sort of impact on whether it will raise more money. And you hear this nonstop, and I've been through this before myself, is what will investors think? Signaling. [00:24:00] No one ever talks about signaling that doesn't have an investor.
They just talk about revenue and products. That's like what a business is supposed to be. But when you're out raising money, it's like, Hey, if we partner with this company, it'll signal to investors that they might want to invest. If we hire this person at this skill level, it'll signal to investors that, you know, that we're, we're this next generation company.
And you start to realize that, like, that's not what you're supposed to be building a company for, but you sure as hell do.
Speaker: Yes. Funding is, is a major distraction, uh, particularly, you know, I think this is a coupled with when it happens too early. Right. So I think if we look at that, the, the previous point we were talking about, which is that like, if you raise too early, this creates some, some additional challenges.
I think that it's even more of a distraction to folks at that early stage. So what's the solution? The solution is at those early stages. Stay focused on things like generating revenue, being efficient with your costs, do all the things that you can do to avoid needing the funding at that point in the first place.
And honestly, like you want to send [00:25:00] a signal to investors, you want to become attractive to investors. Become attractive to your customers. Investors really do like that, right? At some point, it's an expectation. We'll forget this. They're like, well, we'll worry about revenue later. We're just going to keep raising money.
Like at some point that stops, right? You can't raise to victory. Right. At some point, somebody has to buy your stuff. So I would say like the solution here is, is stay focused on the things that are truly core fundamental principles around how do we drive revenue? How do we, how do we get where we need to as efficiently as possible?
Not necessarily as fast as possible until we're really sure where we're going.
Speaker 2: I heard a founder say something, uh, recently. And he said to me, Hey, we're just closing our round. And I'm like, cool. Uh, you know, what are you gonna do with the funding, use of funds, whatever. And he said, uh, cut a bunch of costs.
And I thought that was so interesting. I was like, again, this is a little bit more relative to our time period. Right. But like, I thought that was interesting. And I was like, That's genius.
Speaker: Yeah. Right. Spend the money, build tooling, build process, buy systems you didn't have access to before to reduce [00:26:00] costs.
Yep. I love that.
Speaker 2: And the idea was I'm going to take a moment when I have the money to reduce my reliance on money. That's the polar opposite of how most people go about it. And this is exactly what leads to them being so stressed. They say, Hey, I raised more money, so I'm going to exponentially increase my liabilities, even if I don't have the revenue to go with it.
Part of that is, um, Hey, I'm making investments, but I also think it's a dangerous, dangerous gambit because people could easily say I'm making investments without actually having to pay any of those investments
Speaker: off. There's a big difference between making investments that are speculative and making investments in assets.
This founder was talking about is making an investment in an asset, which is a cost reduction, which has permanent benefit.
Speaker 2: And I just thought what you're doing is you're saying in order to get some of my focus back So I'm not constantly distracted by talking to investors. I got a crazy idea. Why don't I become more self sustainable?
Right. I remember this a long long time ago Jason Calacanis. A lot of people don't remember this [00:27:00] Does the all in pod etc, but years ago many years ago Jason did a company called Mahalo and Mahalo was a Yeah, right. I'm going way back, like 2007 ish. But Jason did a company, it was a search company, it's irrelevant.
But I remember what he said at the time, this was during the financial crisis, we were sharing office space with him, right? And, uh, it was during the financial crisis, and people were asking, like, whether Mahalo would make it. And Jason said, we've got cash for five years. Now, what I thought was interesting about that is he hadn't raised that much money.
Yeah. Fun fact, though, at the time, this is just so funny when you look back now, you know whose board members were? Elon Musk, Rulof Boto, who's the, uh, the head of Sequoia now. Um, like all these people who were not no names back then, but like not that big of names. Like they didn't ring out like they do now.
Speaker: Yeah.
Speaker 2: Yeah. Yeah. It's pretty amazing. Anyway, uh, props to Jason. So anyway, but what he said was. While everybody else is going to be spending all the money and going crazy with it, I'm going to stay as cheap and focused as possible because I don't want to have to need more money. Yeah. [00:28:00] And I thought that was genius.
Now, Mahalo didn't work. And Jason will tell you, trying to beat Google at being Google up until now, hard to do in their a day, but his focus, I'll never forget. That was so spot on. He was like, Reduce my reliance. That's how I get further. And think about who was in his ear. Elon Musk and Ruloff. Not exactly capital averse guys.
Yeah, exactly. Exactly. All right. So the last one, you know, I think we should, we definitely have to touch on. I hated my new boss. Now when people hear that, wait, I don't think I heard you right. You, you, you are the boss. What do you mean you hate your new boss? No, no, no. When you raise money, You are basically hiring a boss, so to speak, right?
Hiring by virtue of taking on that investment. Okay. In that person or persons. is your boss until the end. And there's a 90 percent chance they're not going to be a very cool boss because startups are hard, right? Things generally go poorly. So when you made a fairly cavalier and probably leveraged decision to [00:29:00] take that person on as an angel investor, a board member, et cetera, you just want to get the capital and get, get on going.
You don't really think too much about who that person was or what they might be like in the future. And you know, like anything in life, people change boy. After having to go back to that person, hat in hand year after year, getting browbeaten nonstop year after year. The last thing on your mind on round two of doing this, you know, as a second time or third time founder is let me bring that bro back.
Yeah.
Speaker: Let me, let me bring them back. Yeah, man. I always, I love this starry eyed young founders who were like, we're going to go, we're raising now. And we're, we're trying to be really selective. We want to, we're looking for smart money. I'm like, guys, just find some not mean money. Find some not shitty transfers.
I
Speaker 2: agree with you. It's hard to tell because most people have never worked with investors before and it's not that they're all bad necessarily. You gotta understand where they're coming from. Like, they invest in assets that generally fail. Which means most of all their [00:30:00] employees, if you can call founders their employees, are all failing and all need to get fired.
Right? So, it's not an easy job, right? I feel for them. Now, that said, Some of them have to do the job and they're actually kind of cool about it. Some of them have to do the job and they're complete assholes such as life, such as the world. We have to be tethered to that person who we didn't even realize was our boss for a really long time.
Yeah. And that person holds the keys to everything in our lives. They control our worlds and we take that decision. So lately it's like getting married to the first person we went on a date on just because they thought we were cool and wanted to go on a date and not realizing how important that commitment was.
Speaker: Yeah, it's huge, right? I mean, as you said, it's going to be a long time and it permanently changes your, your options within the startup, right? All of a sudden you've taken on a boss and basically what you're saying, you take on a boss and you're saying your outcome is primary. My outcome is secondary, right?
Despite the fact that I'm the one in this thing day in day out [00:31:00] making it work and I'm the one who's taking the financial sacrifices over time. I'm the one who's putting the emotional energy into this thing. Your outcome is first. Mine is maybe.
Speaker 2: Yeah, right. Well, I mean, the other, you know, thing we always talk about is like, hey, investor person, uh, you're already rich.
You're going to pay your bills. I already cleared out my savings. Like we're not on the same side of the table. They're lives that are very different as this outcome goes. And so I think the solution there take real stock. In who these people are that you're aligning yourself with when you're putting the board together.
And if you're going to raise money, you're going to have a board. Don't willy nilly it right. Don't be like, Oh, I guess, you know, this partner at this firm is fine. Or I guess this, you know, a board observer is fine. Those are going to be the most important people in your life. And if they're not cool. It's not going to be very cool.
Speaker: So look, let's put a bow on this whole thing. I think we can sum up a lot of this by saying, look, here's what most of us have learned on the other side of a [00:32:00] fundraise. All right. And if we decide to raise again, the things that we're going to do differently come under a couple of themes. One, it's like, be really, really deliberate and really intentional about why you're going to do this and, and when, right, which is point number two, slow things down a little bit.
All right. Yep. You don't have to just get places faster. You got to make sure you're getting somewhere good. All right. And so be thoughtful, be mindful about the timing of the race. Slow down. When you get to the part where who are we putting on the board seats, right? Who is going to be my new boss? How are they going to feed into that other bucket that we talked about around distraction and remind yourself that a lot of times distraction comes from that same place of wanting to move faster and break things.
Cool. Right. I get it from a philosophical standpoint, but like the less things we break along the way, the better. So take your time. Slow down, keep your focus and be really deliberate in who gets involved in this adventure. Overthinking your startup [00:33:00] because you're going it alone. You don't have to, and honestly you shouldn't because instead you can learn directly from peers who've been in your shoes, connect with bootstrapped founders and the advisors, helping them win in the startups.
com community. Check out the startups. com community at www. startups. com to see if it's for you. Could be just the thing you need. I hope to see you inside.