Jon and Justin consider a new early-stage fund called Earnest Capital
Show Notes
Tyler Tringas recently announced Earnest Capital; a new way for bootstrappers to raise money for their startups.
Should Jon and Justin consider this type of funding for Transistor?
What do you think?
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Creators & Guests
What is Build Your SaaS?
Interested in building your own SaaS company? Follow the journey of Transistor.fm as they bootstrap a podcast hosting startup.
Hey, everyone. Welcome to build your SaaS. This is the behind the scenes story of building a web app in 2018. I'm John Buddha, a software engineer.
Gavin:And I'm Justin Jackson, and I'm standing in my closet.
Jon:I'm Justin, what are you
Gavin:what are
Jon:you doing in your closet?
Gavin:I'm recording from home and as every experienced podcaster knows, the most soundproof room in your house is your closet filled with clothes. So that's where I am.
Jon:It's a trade trade secret?
Gavin:It's a trade secret. And I was I was telling you offline that there's some big shows, like one of my favorite shows is Sleep With Me, which is by, I think his name is Drew. Oh, what's his last name? Anyway, and he does all of his shows inside his closet.
Jon:Nice.
Gavin:Yeah. Actually he has a Patreon and he just moved houses and one of the Patreon videos was him showing the new closet that he's been moving from. Pretty cool. Anyways, follow along as we build transistor.fm that's the whole point of this show. Before we get going here John let's quickly do our shoutouts for our Patreon supporters.
Gavin:We have a brand new brand new supporter, Mike Walker. I don't know much about Mike. Do you know Mike personally?
Jon:I don't know Mike. But he seems like a good guy because he's supporting us on Patreon.
Gavin:Yes. Thanks so much, Mike. Maybe you could reach out to us and let us know how you found out about the show. Let's see. He does bees, breakbeats, code and peanut butter.
Gavin:I like them already.
Jon:That's a good mix.
Gavin:From Vancouver, BC.
Jon:Oh, nice.
Gavin:So another Canadian. Great to have you along. Who else do we have here? Brad from Canada as well. Darby Frey, Kevin Markham, Adam Duvander, and David Junta?
Jon:You got it. Perfect.
Gavin:Man, it's always 5050. They're gonna get it.
Jon:I should I should spell that out for you. J o o n t a. Yeah. In our in our notes.
Gavin:In our notes and then I would always have it. So yeah, this week is a little bit different. I just did a live stream with Tyler Tringus, who just announced this new, fund called Earnest Capital. And their slogan is basically they're trying to provide funding for bootstrappers. And I thought what we would do is we would play that interview for our listeners And then maybe next week, John, you and I could come back and just say what we thought.
Gavin:And if we feel like, you know, something like that could work for us or it just our kind of
Speaker 3:Yeah.
Gavin:Our thoughts on it.
Jon:Yeah. That'd be great.
Gavin:Cool. So I'm gonna play that interview right now.
Speaker 3:As a as a founder, you know, often in the early stages, your personal runway is the thing that is the the constraint on on whether or not you can get, your product off the ground, mostly what you need. You know, these days, you don't need a ton of capital in terms of you know, what you mostly need is time. And, you know, very few people, myself included, don't necessarily, you know, at the stage where they wanna start this company and take these kinds of risks. They don't have, you know, the capital saved up. You know, they don't necessarily have you know, when I was when I was trying to raise money from from VCs, I heard so many times, like, why don't you just go raise $250,000 from friends and family?
Gavin:Mhmm.
Speaker 3:It's like, man, like, my friends and family do not have that kind of money. Like, Very few of them have got, you know, positive net worth, much less the ability to write me a a $50,000 check. You know?
Gavin:So As you know, I've been writing a lot about, the challenges of bootstrapping. And we're using, bootstrapping as, kind of a blanket term here to describe people who are building startups outside of traditional VC. Is that fair to say?
Speaker 3:Yeah. I mean, so yeah. I mean, the the word bootstrapping, I think, is extremely problematic in this discussion. Right? Because, to to me, bootstrapping, you know, has sort of grown to expand this definition of this whole set of, like, values and priorities and goals and strategies that are, you know, very different from, let's say, the venture backed startup world.
Speaker 3:And I I think that that can be sort of separated from this narrow definition of, like, you know, bootstrapping means, like, no outside capital so ever. And I think you've done a great job of of pointing out that, like, you know, like, a lot of people fund their startups with with different things. Right? And and whether you get a $150,000 in savings from a side hustle, from in kind contribution from your partner, from a rich uncle, or for a professional investor. Right?
Speaker 3:It it doesn't really matter that much. Like, you're usually funding it somehow. You know?
Gavin:Yeah. Yeah. Exactly. Exactly. So, the what surprised me is and so just as a background, I'm building transistor.fm with my friend John Buda.
Gavin:We formed our partnership in January And since then we've gone on to, I think we've got, I don't know, in the hundreds of customers now. But I've realized, man, this is a lot harder than, for example, doing an online course, which is something I've bootstrapped before. And I thought that my experience bootstrapping an online course would help me now. I thought that my experience working for bootstrapped startups would help me now and it is just a whole different game when you're when you're doing it yourself. And, I think part of what's coming out in these blog posts is just the, like, having my eyes opened to wow, this is tricky.
Gavin:And what what, you know, there's all sorts of nuance to maybe all of the stories that we heard before. All of the, the founders that have gone before us. And, you know, if we just look at John and I's situation, it's already different than a lot of people. We're both almost in our forties. I've got kids.
Gavin:We both have mortgages. You know, there's all this stuff and, you know, the the advice from someone who bootstrapped a startup while they were 20 and living with their parents is a lot different than than my experience. And so I thought maybe we could start off and say, you know, how would Ernest help someone like John and I with transistor? What what would that look like?
Speaker 3:I mean, I think that the the pain point that you're describing is a a large part of of our sort of investment thesis. Right? Which is that, yeah, like, the bootstrapper strategies, oftentimes are constrained to a very narrow subset of people. Right? Like, you know, yeah, you can go you can you can, you know, get on a plane and fly yourself to Southeast Asia and live for, you know, $250 a month and and bootstrap a business if you are at a certain kind of point in your life.
Speaker 3:Mhmm. And and, you know, I think, there's a lot of people who sort of advocate for that as a good pathway. I think it's great, but it's a bit, I think, narrow, like, sort of, myopic to think that, you know, well, everyone should just do that. Right? Because actually, there's a lot of people like like you guys that are in, very different sort of life situations.
Speaker 3:Mhmm. And and so so that alone, if you just look at at earnest as a, you know, just providing capital, that is sort of the point of it. Right? It's it's if you're at an early stage, you have a business that, you can sort of see the the sort of pathway, to to it being a a sort of, let's say, profitable, sustainable, long term business. But you're right in those early stages of the kind of, you know, this the what do they call it?
Speaker 3:The long slow SaaS ramp of death. Mhmm. And and, you know, you just kinda need, capital to to be able to to sort of compress what might be 18, 24 months of nights and weekends or having to balance priorities with a bunch of different other things that are, you know, generating more short term income, with, you know, 6 to 9 months of full time work if you had kind of capital for for founder runway. And and so generally, the way we think about investments is, like, plus or minus a year of founder's runway, plus a sort of sidecar of of capital to, to either make your first kind of support hire or to do some customer acquisition or something like that. And so so from a pure sort of cash perspective, that that would be our pitch would be, hey, you know, like, if you can see a pathway to, to that, you know, to to where you're going to be once you hit kinda 25 k MRR, and you you understand the steps to get there.
Speaker 3:But the big problem right now is your your time and bandwidth is so constrained because you have to do, you know, spin another 7 plates each. Mhmm. You know, what we would offer is some early stage risk capital to to allow you guys to to be full time focused on it. Then beyond that, I mean, what what we offer is the kinda traditional, like like, project of building a seed fund. Right?
Speaker 3:So we've got a bunch of of, folks who are backing the fund, who are themselves experienced founders, who then have a stake in in your success. Mhmm. And so they're there to be sort of mentors and and to offer guidance in a way that I think when their skin in the game, it is still a different level of of sort of mentorship. You you do really get to the top of the of the to do list. Mhmm.
Speaker 3:And and then lastly, we're trying to put together a bunch of shared resources for bootstrappers. So, kind of acting a little bit like a kind of union for for for founders in the sense of going out and saying, hey. You know, bookkeeping services. You know, we're gonna be bringing you, you know, 30 startups over the next, couple of years. So, you should give us priority and, and a discount and all that kind of stuff and and to help help with all those kind of recurring things that that every early stage startup deals with.
Gavin:Yeah. And so what does that look like practically? Now I'm gonna give a disclaimer. I am a finance idiot. I don't understand, typical, like, VC funded rounds.
Gavin:I don't understand the stock market. I don't understand a lot of these things. You said 6 to 9 months runway, and I'm wondering basically, like, is earnest would earnest be for someone like John and I, 2 old guys, old guys in tech, that, you know, I think at a bare minimum, 6 to 9 months 6 to 9 months. Let's say 9 months. I mean, that might be
Speaker 3:I think about plus or minus a year, actually, closer to to a year.
Gavin:Okay. And so you're saying closer to a year. Does that look like like, what what kind of seed rounds are we talking about? Are we talking about a 100 k, 200 k, 20 k? What what what's the actual how much money are we are we talking about here?
Speaker 3:Yeah. So so I'll I'll start by taking a little bit of a step back, which is that I didn't, really intend to to launch, Earnest itself, this week. What what what actually happened this week is that I released a a, pretty technical blog post, looking, like, quite narrowly at the question of trying to find an investment structure that works for, bootstrappers. Right? And going back to this term of, like, folks who who wanna build the next, like, Basecamp or Buffer or Wild Bit or Wistia.
Speaker 3:Like, you know, you wanna build a sort of sustainable, profitable, you know, long term business, not raise a bunch of rounds of funding and then exit. Like, if you wanna do that, there's this kind of problem which is that all of the investment structures that are kinda out there off the table for people to use to say, hey. You're an early stage startup. I'm an investor. Let's use a convertible note or a safe, which is what y combinator uses, or let's just take a preferred equity stake in your business.
Speaker 3:All of those are really predicated around this other set of outcomes. Right? It it's mostly based on the idea that you will eventually raise more follow on funding, and then you'll eventually sell the business, and, you know, we'll own a small stake of that business, and we'll get our big payday when you, you know, sell for $500,000,000. And, and and if you decide, what you're seeing now, for example, the kind of high profile discussions around Buffer and Wistia who both kind of had VCs in there, and then kind of said, like, this is not really a fit, and and they've had to have these, like, pretty hard negotiations to to sort of unwind those relationships. We're sort of saying, okay.
Speaker 3:Let's work backwards from what this kind of community wants to build, what this is. It doesn't necessarily mean small, but it means it's kind of different values. Right? Valuing sustainability overgrowth at all cost, those kinds of things. How can we design a a sort of investment structure so that, you know, that if you build, you know, the next base camp or Wild Bit or something that that's a success for both of us.
Speaker 3:Right? Whereas a traditional VC fund is kind of like, oh, well, great job building this business, but this is a huge failure for us. You know? Yeah. And so that's kind of the scope of discussion that that I sort of have hammered out.
Speaker 3:I'll answer your question which is that, you know, we're looking to invest somewhere between $53,100,000. $50,300,000. So so At
Gavin:a time. There's a
Speaker 3:pretty yeah.
Gavin:Okay.
Speaker 3:So there's a pretty wide range there. So so for, like, you guys, where you're at, if you're 2 founders, you know, some somewhere in the range of, like, $150,000, maybe $200,000 would be, you know, something like, you know, a year of full time runway, you know, if you were both gonna focus on it full time from from the point of investment, you know, and then plus some capital to, you know, maybe maybe you start to, you know, acquire a ton of customers, and you wanna actually to add, like, a part time support person. Right? Mhmm. That's kinda how we would think about sizing the investment amounts.
Gavin:Okay. So, again, I've never taken investment, so I don't know these things. Yeah. Does that is that how is that dispersed? Like, let's say we figure stuff out.
Gavin:I sign your sign your term sheet. Is that a lump sum that the founders get in their bank account? And then what kind of oversight is there on that amount, on that money? Like, how does it work when practically in terms of, you know, all the logistics?
Speaker 3:Yeah. I mean, it it it depends on the stage of the business. I mean, frankly, there is a version of it, which is that it yeah. It's a it's a lump sum, and there's basically no oversight. But, you know, I mean, to some extent, there's, like, a huge part of of this is just selection.
Speaker 3:Right? So it's the process of of me getting to know the founders, understanding the business, and and sort of trusting the founders. So, you know, I really view this entire project as a service business. I'm here to to to find really talented founders that I think probably will figure it out some way, somehow, you know, otherwise and and give them resources. One of those resources is capital.
Speaker 3:It's access to other people who can help, but fundamentally, like, it's not the case where I think, like, you know, I know how to build your business. I'm gonna tell you how to do it. I'm gonna take control over your company. I'm gonna hold the purse strings. Like, it's it's the complete opposite of that.
Speaker 3:I I can imagine depending on the stage of the company, if it's if it's quite early, you might phase in the capital to to make sure that, you know, if for example, you're really early, and you're not totally sure that you wanna, for example, go full time. There might be a a chunk of it that is available to get you to a certain phase, and then it's like, okay, you guys need to, you know, go all in on this to access the next kind of tranche of capital.
Gavin:Yeah. Now,
Jon:I
Gavin:just brought up a bunch of questions in my head. Well, first of all, okay. So let's say hypothetically, it's a $200,000 investment. What what kind of return is Earnest looking for? Like, how do you and I'm assuming, like, when I say earnest, it's you and it's a you have a partner as well?
Gavin:Is that right?
Speaker 3:Yeah. So, I mean, earn earnest is structured as a as a fund. Yeah. I am the only general partner, right, so the actual person who who manages the fund. And then, we have what's called limited partners, which are people who invest in the fund, and, very heavily involved and and, you know, super helpful kind of strategic advisor level is, what I would call my partner in this project, Kevin McCardell, who runs SureSwift Capital, which is the business that acquired StoreMapper from me, and they've acquired, I think, close to 30 other companies in the space.
Speaker 3:They're kind of super active, at the sort of end of, you know, actually, you know, kinda buying these successful businesses.
Gavin:Yeah. And and where who? Again, I don't know anything. Where does the money come from? Like, is it you and SureSwift that are putting money in, or you also are you're gonna have other investors come in as well to form the pool?
Gavin:Is that is that how it works?
Speaker 3:Yeah. The money comes from myself and and SureSwift, and also a number of other investors. So, I have to kinda be careful, like, because we haven't, announced the close of the fund. So there will be more information about where else the money comes from. But we have to, yeah, we have to kinda tow the line on regulations around that.
Speaker 3:So
Gavin:but let's say $200 is an investment. I have a startup. You guys just say, we're gonna put $200 in. What what do you folks get out of it? From what I understood, there's, like, a 4 x you wanna get paid back 4 x.
Gavin:Is that correct?
Speaker 3:So so where we've kinda settled is essentially, like, the main way that we wanna get paid back is, we want a share of what we call kind of founder earnings. So this is basically the way that you as the founder benefit economically from from the startup. And and we're sort of using this model of, like, when you look at some of the bootstrap startups here, they they tend to pay themselves, like, once they're quite successful and they're high margin and very profitable. You know, you pay yourself a nice healthy salary, and then you also cut dividends for yourselves and and for the employees. And and we basically would want a share of that.
Jon:Mhmm.
Speaker 3:And so, we get a share of that once you're, you know, profitable, and we get that up to a sort of capped amount. And so, you know, a traditional equity piece for example might say, I get, 10% of your company, which means I get 10% of dividends forever. Right? I mean, equity theoretically goes on forever, whether you build a $1,000,000,000 company or whatever. What we do is we take a little bit more than let's say, you know, 10%, but it doesn't go on forever.
Speaker 3:We take it up until we get a certain multiple of our investment. So, I'm gonna say for now, it's gonna depend very much on the deal, what stage you're in, how risky we think it is, but it's gonna be somewhere in the range of 3 to 5 x. And then the rest of the investment structure is just trying to say, okay. Well, maybe you're gonna grow the business, and you're gonna wanna raise follow on financing. We actually don't think, like, VC is bad or that, you know, it's just like it's not a fit for everyone.
Speaker 3:But sometimes you start a business very early stage and it turns out, hey. We we've got a bit of a rocket ship here. We wanna raise more money. We wanna sell the business, whatever. Basically, we just wanna participate in that process on fair terms.
Gavin:Yeah.
Speaker 3:But the main thing is getting paid back a multiple of what we invested.
Gavin:Okay. Now I'm trying to do the math in my head because so I'm just thinking, like, so 200,000, you know, 3 x, that would be 600,000. Right? And then 5 would be a 1,000,000. Mhmm.
Gavin:And so, basically, you're saying you would keep you would take a portion of founder earnings, and that could be dividends. That could be if I decide to pay myself a $500,000 salary. You're able to take some of that Yeah. Up to this this return multiple. Mhmm.
Gavin:And and what like, are you is this does this happen over like, in your mind as the investor, is this supposed to happen over a couple years, over 5 years, over 10 years? What's the what's the kind of exit window in your guys' mind?
Speaker 3:Well, I mean, we we have to give, our investors guidance on how long that takes, on average across the portfolio. But in any particular company, I mean, we are not you know, there is no repayment schedule. Right? We're we're completely aligned with the founder's decisions on when and if they're able to sort of take profits out of your business. Right?
Speaker 3:So as a founder, you do have to make those decisions about how, you know, kind of, you know, do you are you reinvesting for growth, or or are you taking profits? And, you know, basically, if we invest on those on those terms and yeah. Okay. You know, you need to pay back 3 or 4 x or something. But actually for a long time, like, you still just have this amazing growth trajectory and you wanna pay yourself a skimpy salary and, you know, just reinvest a 100% of the profits because that's where you think the best opportunity is for the business, we're okay with that.
Speaker 3:And there's nothing we can do to to stop you from that, and and, you know, we're we'll be here to guide you to make sure that, you know, we think that you're making that right call, but ultimately, it's the founder's call.
Gavin:Mhmm.
Speaker 3:So there is no repayment schedule or or defined timeline, for when that money has to be paid back.
Gavin:Yeah. And, again, like, I I think part of the one of the things in the Hacker News thread that came up is a lot of folks were like, well, why wouldn't you just get a bank loan? And, I mean, you could probably speak to that too. I know that for,
Speaker 3:yes.
Jon:Good luck.
Gavin:Good luck. For traditional like like, maybe a brick and mortar business where you've got $300,000 worth of equipment, banks seem to like that. But, it's a lot harder to get it for a software business. To be perfectly honest, bank loans are very commercial bank loans are very difficult to get.
Speaker 3:I think it's I mean, frankly, I think it's impossible. I've never heard of someone taking out a bank loan for an early stage software startup. You know, maybe once you already have, you know, 30, 40, 50 k MRR, you could go and get, you know, kinda working capital. But it's it's easier to get a $1,000,000 loan to start an Arby's franchise than it is to get a 100 k to start, you know, a software startup. Like, it's it yeah.
Speaker 3:I mean and and that's before you even get into the downsides of debt, right, in the sense that you probably have to personally guarantee it. And if the business fails, like, they could come after you or your house or all your assets. I mean, yeah, I if you want a bank loan and and you can get one to start your Internet startup, like like, go for it. Yeah. But Well
Gavin:and so the is there no personal guarantee with you folks? Okay. So that would be because that was my other question as I'm thinking because the other place that SaaS folks have gone, startup folks, Bootstrap folks have gone, is credit cards. That's kinda like the dirty secret of startup funding. And, you know, a credit card, depending on how you do it, is probably 5 to 20% interest per annum.
Gavin:Right?
Speaker 3:Yeah.
Gavin:Mhmm. And so, again, I'm running the numbers quickly. I'm bad with math. I'm bad with all this stuff. But 20% a year on 200,000 dollars is $40,000 a year in interest.
Gavin:That doesn't include paying it back. Yeah. The other disadvantage there I mean, that way you do have all the control. You you have all the upside if if it goes well. And certainly, I mean, if we really knew the behind the scenes story of how some of these bootstrapped companies got off the ground and stayed off the ground, maybe there would be, you know, a lot of credit card in there.
Gavin:But then you also have to own the dump side.
Speaker 3:About also yeah. Don't forget about the survivorship bias. Right? We we hear about people like like me and other folks who who took out enormous amounts of credit card debt and then sort of somehow pulled out of it and and sort of built a successful business and paid it off and and, you know, wrote blogs about it that people read. Right?
Speaker 3:But I I imagine you don't meet them at, you know, at at MicroConf, but I imagine there are a large number of people who tried this and, and ended up just massively in debt, and and their business failed, and it was a huge disaster for them. Mhmm. But, you know, to to give you one context, I mean, I so I looked at how much I had taken out for credit cards when I was kind of getting this business off the ground and then how much I ultimately paid back. And it it's a lot. It's over 2 x.
Speaker 3:Right? Even if you pay it back fast.
Jon:Mhmm.
Gavin:And it
Speaker 3:gets worse and worse and worse the longer. It took me about 2 years to pay it all back, and I still paid 2.2 times what I had taken out.
Jon:Mhmm.
Speaker 3:And if it takes you 3, 4, 5 years, compound interest is is horrible, right, when you're talking about 20% interest on credit cards.
Gavin:Yeah. You end
Speaker 3:up paying 3, 4, 5 x back to them. You know?
Gavin:I'm I'm just trying to think of how long it would take to pay this off, and what would what would that feel like? Would it feel like a burden? Would it feel like, kinda like, oh, well, thank goodness we got there. You you know, now we can make a living, but then it's like, oh, but now we gotta pay off this this money. And it it's not just a $100,000.
Gavin:It's not like we borrowed from friends and family a 100,000. It's like, no. We actually borrowed 3 or 400,000 that we have to pay back in a sense. Am I getting that right? What am I missing there in the It's
Speaker 3:it's a good question, but the way to think about it, though, is that we're structured as as just taking a percentage of whatever decision that you make for yourselves. Right? So ultimately, imagine you're getting okay. You're at, you know, 25 k MRR, and, you know, you're basically paying yourselves and maybe 1 person. Okay.
Speaker 3:We're not we're just here helping you. That's it. You know? And then maybe you get to 50, and you're sort of saying, okay. Like, we've got a team of 4 people, but actually, we've got a pretty healthy margin.
Speaker 3:And, you know, we, you 2, have been have been at it for a little while. We wanna actually start, you know, recouping some of our invested time and opportunity costs and stuff like that. So we wanna start paying ourselves a bit more and either bumping and, you know, depending on tax and whatever, you decide either to to pay yourselves a nice big healthy salary or to start cutting yourselves dividends. Basically, whatever you decide to do of that, we get a percentage of it, but you still get most of that. Right?
Speaker 3:So fundamentally, it shouldn't it shouldn't change your or at least if we've done our jobs right, if we've, you know, structured the investment correctly and we're, you know, haven't screwed it up, it shouldn't change your decisions. You should do exactly what you guys as the founders would wanna do, for the long haul, and we are basically like a sort of silent cofounder taking, you know, another chunk of that in exchange for, you know, having bridged that gap early on.
Gavin:Mhmm. Mhmm. Okay. I wanna get to some of these questions here. I'm sure I will as I continue to churn, I might have more.
Speaker 3:This is really good, though. I I really enjoy this because I you know, one of the things I know that we need to do, right, is is to to do I mean, not educate, but just answer lots and lots of questions. Right? Because, you know, I feel like everybody only knows about the way this stuff works in the venture world. Right?
Speaker 3:Mhmm. There there hasn't been this process of really deeply educating people and giving them a sort of intuitive understanding of the math and stuff like that. So for example, like, when we say, hey, we want a 3 x or 4 x or 5 x return because, oh, that's a lot more than a bank loan.
Gavin:Mhmm.
Speaker 3:Right? But, you know, if you take seed investment, they are trying to get a 50x return. Right? You see what I'm saying? And those things those are comparable.
Speaker 3:Right?
Gavin:Yeah. Yeah.
Speaker 3:They are saying, like, hey. You know, when you ultimately sell for 100 of 1,000,000 of dollars, we're gonna get 50 times what we put into your business. Right? And so then it's like, oh, well, actually, that doesn't seem so crazy. You know?
Speaker 3:Yeah. So, yeah, I I don't know. I'm happy to sort of just just talk us through
Gavin:Mhmm.
Speaker 3:In gory detail.
Gavin:Yeah. I we're let's get to some questions, and I'm gonna keep turning in the background here. Michael Buckby asks, how much guidance advice, strategic introductions do you anticipate providing to companies you invest in? Similarly, are you looking for a certain number of companies in the portfolio?
Speaker 3:So, I mean, I think I'll kinda go back to what I said before, which is I I really view this as a as a service business, not, you know, a sort of extension of my, you know, personal brand. It's not as though it goes from I write blog posts, and then I have a course where I tell you how to build startups, and then, you know, like, and then it just this is the nth iteration of that. Now I invest in you, and I tell you how to build your business. I am mostly here to to find talented founders and and back them. I'm gonna be as helpful as I can, you know, and as I mentioned, we're we're going to have, you know, quite a big portfolio of some really talented entrepreneurs as well who will be, you know, fundamentally invested in your success.
Speaker 3:Mhmm. So hopefully and a lot of them are a lot smarter, a lot more successful than me as well. Mhmm. So so they'll be on hand to to be, you know, as helpful as we can. And definitely, like, strategic introductions and stuff.
Speaker 3:I I'm really excited to sort of be a bit of a of a nexus, for for these businesses. So, you know, just trying to to help them with hiring and with introductions and stuff like that. One other thing we're really thinking about doing is, investing along a couple of, themes, where the companies would have basically synergies with each other. So they might share a similar value proposition or share customers, and, we'll invest in a couple of companies that can then kind of almost collaborate. So just to give you an example, like, I'm really interested in, kind of tools that are dedicated for remote teams, So that are fully built around enhancing remote team culture, around remote team productivity, around I mean, this is we're remote first.
Speaker 3:I I live in Brazil. I've only ever built remote companies. So, like, I'm super interested in that that vertical, and I'd love to make several investments with multiple companies that can all, kind of benefit from each other along that theme. And similarly, we're going to be building some tools for the companies in the portfolio to collaborate together as well.
Gavin:Okay. So now that's great. So hopefully that helps you out, Michael. Yeah. Do you wanna comment quickly?
Gavin:We don't know much about Rob Walling's tiny seed fund. We know a little bit about NDVC. You've already mentioned that. Do do you any other similarities or differences between NDVC, tiny seed, any of those?
Speaker 3:Yeah. I mean, well, I mean, first of all, one of the things that's exciting to me is that, you know, for example, obviously, there's been a lot of exposure from from this post, and I've, you know, had the the opportunity to sort of mention, what I've been working on to to a lot of people recently, and only a tiny percentage of them who are sort of very plugged into the right communities even mention that there are other alternatives. So I always say, like, all of us who are working on these things, we're to the extent that we're competing, we're competing against we're competing against, you know, investors thinking that these are not investable companies that if you're not trying to be $1,000,000,000 company, I can't earn a return, by investing in you at the early stage. That's one frontier we're competing against, and we're competing against, you know, basically bootstrappers thinking, like, VC is not for me. I can't get a bank loan, so my only option is is to bootstrap.
Speaker 3:Those are really the frontiers of competition.
Jon:Mhmm.
Speaker 3:To the extent that, you know, what I'm trying to do is is different, I think and it's hard for me to say this because, you know, these are all private entities and I so I don't know I don't wanna mischaracterize what they're trying to do. Yeah. But NDBC, I believe, is is targeting much later stage businesses, ones that are already, you know, quite established and profitable. Yeah. If you look through the portfolio of investments that they have made from, again, private transactions, so who knows?
Speaker 3:But from what I understand, these are, you know, already quite big operations, not investing at the same stage that we are. And then I think we've made some significant changes to the terms under which we invest, that are pretty boring to get into. But if you really dive into the the middle of my long blog post, I think that we've we've kind of aligned our investment a little bit more with what founders at this stage are really looking for. In terms of tiny seed, I think, we are investing closer to the same range. Mhmm.
Speaker 3:I I I spoke to Rob. I saw him announce it at, MicroConf in Croatia. As far as I understand it, I'm sort of using a mental model of it as, like, y combinator for for bootstrappers, which would be earlier than we would probably invest. We're definitely not looking for people who are idea stage. We're looking for folks who have launched a product, hopefully have traction and revenue.
Speaker 3:Mhmm. And then I I as I understand, I think they are investing along the same way that that also the Y Combinator invests. Right? So a very standard, you know, we take a percentage of equity in your business Mhmm. As opposed to what we've done with which with this blog post.
Speaker 3:And I think there's there's pros and cons to both. For sure that way is is a lot simpler. It's very straightforward. We're taking this percentage of your company.
Gavin:Mhmm.
Speaker 3:I do think that you ultimately start to get locked into wanting to wanting the company to exit to sell because you own a percentage of the business, and you get paid out when they eventually sell the business. And so one of the things I really wanted to do was to not create incentives for the entrepreneur to sell their business.
Gavin:Mhmm. So
Speaker 3:I'm perfectly happy if you come to me and say, I never wanna sell this business ever. I wanna run this for the next 30 years. I'm like, great. Here's how here's my structure. Here's how we invest.
Speaker 3:That sounds amazing. Yeah. So yeah.
Gavin:Yeah. Okay. So I've got another question here from, inside of my Slack channel, the mega maker club. This is from Dave Churchville. Let me bump this up here.
Gavin:I think Tyler's Fund proposes profit sharing, but that seems tricky to manage without being the in the entrepreneur's books. Hey. Did you deduct that vacation? It's cutting into my profits, etcetera. How can, a fund sustain itself on best effort profit sharing, Or would there be specific terms or a specific way of choosing candidates that would maximize the visibility of that approach?
Gavin:Does that kinda make sense?
Speaker 3:Yeah. It makes sense. I mean, what yeah. I mean, you you've gotta calculate something. And so how do you do the calculations and who does the work of calculating?
Speaker 3:To the second part of of who does the work of it, like, some people will say, hey. This is gonna be a lot of work for me. You know? One of the things I that I mentioned before is we wanna build shared resources for all the the entrepreneurs. So and and that extends to bookkeeping.
Speaker 3:So, like, our plan is to basically roll out bookkeeping services that okay. You don't have to use them if you, you know, your your spouse happens to be a bookkeeper and they wanna do the books, like, fine. Yeah. But we'd like to make it really kind of a no brainer to where, hey. Like, you use these bookkeeping services, and as a result, these bookkeepers are really familiar with how we wanna calculate this, and they just make that really painful.
Speaker 3:To answer the question of, like, you know, getting into details of accounting and and, you know, what is the profit and stuff like that, you know, there's there's a there's a layer of trust. Right? Like, you know, we we are going we're not gonna nitpick. You know, ultimately, we're not trying to nickel and dime people who are are deducting things that, you know, are questionable. There's layers of things, you know, like, we are leaning on the, you know, federal governments and the tax collectors to sort of appropriately determine what is and is not a valid expense.
Gavin:Mhmm.
Speaker 3:And and we're happy to sort of just sit behind those layers of decisions. So Mhmm. Ultimately, there will be a fairly, you know, technical definition in our investment documents, but it's it's not gonna be anything too complicated.
Gavin:Yeah. Yeah. I I have to say your model so far is and, again, I'm gonna probably think about this. I have to I have to think about all this stuff. But it it's the one that is the most attractive to me out of the gate because there's no equity position.
Gavin:Right? It seems quite simple. Like, we're giving you a percentage of our earnings for, you know, however, up until we get to a certain multiple, that simplicity is really helpful. And I think also just your humility about all of this, that you don't have anything against VCs, that you're just figuring it out, that this is all brand new is also refreshing to me. Because, one of the things that turns me off about VC, and to be honest, a lot of high profile angel investors, is the bravado.
Gavin:I just don't like I don't like being in meetings with those people. I don't like, I don't like them telling me that they're super awesome and that everything they touch is gold. Like, there's something about that that it just feels yucky. So the the tone that you folks have have struck with Ernest is really refreshing. And, folks are saying this in the chat too.
Gavin:We've got Aaron here saying, just wanted to say I'm super excited about this model. I've already quit my job and I'm developing a couple products that I know could be helped greatly by this kind of financing model. So there's people that are out there that are bootstrapping that are doing this either with their own savings or their own credit cards. I one thing I would definitely think we need to write about more is the downside of funding yourself, using your own savings, using credit cards, using these other things that people have used. There's probably tons of horror stories that haven't been told there that, you know, yeah, might be, might be good to get out.
Speaker 3:Yeah. For sure. Likewise, I wanna say, you know, thanks to you for for, you know, really putting yourself out there and and writing about this stuff. I think it's it's immensely helpful for for folks who are who are bootstrapping or just who are thinking through these issues to to sort of, I don't know, break the seal on this conversation. Right?
Speaker 3:And just to say, like, you know, let's talk about this stuff and let's and also let's let's strip away a lot of the, like, zealotry around, like, bootstrapping or VC or it's all this or all of that. Like, the reality is, you know, capital is one part of the equation.
Gavin:Yeah.
Speaker 3:And and we're just trying to figure out, like, what works the best for for various entrepreneurs and not not put any of them really on on a pedestal. And so I I appreciate you sort of really opening that conversation. I think it's immensely helpful for the community.
Gavin:Cool. Well, hopefully, I don't burn out in the meantime. Keep at it, Justin. Alright. And we're done.
Gavin:And he's and we're done. And any, app app updates this week, John, before we go?
Jon:Let's see. Not not any huge updates. I think I finally fixed some of our YouTube problems that we were having.
Gavin:Nice.
Jon:YouTube uploads. I know there are a few folks that had some problems with the integration page and, like, unauthorized YouTube errors that would show up. And sometimes we got a bit backlogged with mass YouTube uploads. So I think I think I squared that away, so it should be a little bit more more functioning. Cool.
Jon:Other than that, still it's kind of working ahead with displaying your Spotify analytics. They're all being pulled in now per day, but we're not displaying them yet. And then continued work on this free SSL for everyone, which kind of hit a little roadblock with something I was trying to do, but we'll, get that back up and running.
Gavin:Yeah. That's just programming, isn't it?
Jon:Yeah. It's just, you know, you've, yeah. Basically, I was gonna use this this new web server and it turns out it's not all that performant.
Gavin:Okay.
Jon:So I I was a little concerned about how that might that might work, but we'll see.
Gavin:Yeah. Cool. Well, I mean, we'd that's the whole point is you just keep trucking away.
Jon:Exactly.
Gavin:I had an interesting, dilemma posed by one of our listeners.
Jon:Mhmm.
Gavin:And it's just something for us all to think about, which was, he said, you know, you always ask people to, you know, interact with the show on Twitter or by emailing you or, you know And he said, is there no better way for folks to comment or discuss an episode than Twitter? And I honestly couldn't think of a better one because I'm sure most of the people listening to this right now are on their phones on the go. Right? They're in the car. They're doing the dishes.
Gavin:They're on a walk. And it feels like the most accessible thing is if you're going to comment or reply to an episode, you would just, you know, open up your phone, get on Twitter. That's it's easy enough to do that, but anything else like logging in to, you know, Disqus for comments or, I don't know. But I I thought it would be an interesting dilemma to to pose to the listeners. I guess the only way they're gonna be able to get back to us is on tour.
Gavin:Yeah.
Jon:I I don't know if there's a better system that's already existing for that, or if there's some sort of, you know, text to reply or voice mail system we can integrate with or I don't know.
Gavin:Yeah. I mean, I've used text to reply before and I think the the thing with that that's difficult is it's still a learned sis like a system you have to train people on. They have to they have to put the number in their phone, they have to And you almost have to like get in the habit of doing that. Whereas Twitter already has some of that friction friction removed. They can just, you know, people already know how to tweet.
Gavin:Yeah. So
Jon:Yeah. I guess the question is do they want it to be on a public forum or do they wanna just post feedback directly to us? That's
Gavin:Yeah. Yeah. That is true. I I think what I would like to see is eventually for there to be a this is never going to happen, but I would love if there was something in the RSS spec that dealt with, feedback, you know, comments, voice mails Right. Messages.
Gavin:And for there to be an easy way to collect that. But, you know, I'm gonna get a lot of folks saying, well, you can comment in breaker, which is true. You can comment in cast box. You can
Jon:Yeah. It's all sort of just yeah. They're all separate.
Gavin:Yeah. Anyway, that's I'm just putting that out into the world. In the meantime, reach out to us on Twitter. Yeah. We're at transistorfm.
Gavin:We'd be especially interested in knowing what you think of Earnest Capital and what they're proposing. And if you think it's a good deal for bootstrappers or a bad deal, yeah. Let us know and we will be back with our thoughts next Tuesday.
Jon:Sounds good. And everyone else in the United States, if you're listening to this Tuesday morning, please go vote.
Gavin:Oh, yes.
Jon:And I'm gonna go continue to stress out about it.