TSP003 | Eva Ho – Transcription
Posted by John Livesay in Uncategorized | 0 comments
Welcome to The Successful Pitch, where we interview start-ups who have received funding, as well as investors who share their criteria for what makes a winning pitch – with your host, author and funding strategist, John Livesay.
John Livesay:
Hi and welcome back to The Successful Pitch. Today’s guest is Eva Ho, she is now the co-founder of Susa Ventures, that specializes in early-stage tech companies. But she has a fascinating story that starts way before that – she worked at Applied Semantics, where they got bought by Google when there was only 50 people at the company in 2003. She shares her story of what it was like to find out the news that they’d got bought by Google, and the next thing they knew, they were at Google Head Quarters and it totally transformed the 50 people’s lives that were working there.
She tells us all the secrets that she looks for when someone is pitching her for an investment. It all has to do with being authentic and coming across as someone who has integrity and passion. She said something that I think is absolutely tweetable, which is: You can’t fake passion. It’s such a true story. They need to know why you care about something. And she’s really not interested in knowing what your exit strategy is; she’s more interested in knowing why you’re so passionate about what you’re doing.
So the big mistakes that people tend to make when pitching her include saying they don’t have competition, and they don’t have a lack of validation and many more. Be sure to stay tuned to listening to Eva tell all the secrets of what it’s like to get bought by Google, and what she looks for when someone’s pitching her as an investor.
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Welcome, everybody, to The Successful Pitch podcast. Today’s guest is Eva Ho – I’m excited to have her with us because she brings such a unique perspective. She has been at start-ups that have been funded and bought by Google, and now she’s an investor herself. She started her career at Applied Semantics, which was sold to Google in 2003, so then she became an employee of Google, so she has an incredible perspective of what it’s like to work at Google and what it’s like to work at a start-up that gets bought by Google.
And then from there she went to another start-up called Factual, here in Los Angeles, and was in charge of marketing, sales and operations, and she did everything from working with the tech people to crafting a keynote for the CEO. Now she is at Susa Ventures, which is investing in early-stage technology. So she’s going to give us an incredible insight into her journey, how she got started, what it takes to be successful at a start-up, and what it takes to get investment.
Welcome to the show, Eva.
Eva Ho:
Thank you, John, for having me.
John:
It’s great to have you here. So I gave the audience and listeners a little snippet of your background, but I’d love for you to just take us on your own journey of what made you decide that technology was for you?
Eva:
That’s a great question. So I don’t have a typical sort of tech background – I didn’t own an Apple2 or anything like that.
John:
[Laughs]
Eva:
I grew up actually as a refugee. I was born in China, I grew up in Mozambique, Africa, and through a very curvy journey, we ended up as refugees in the US, so a combination of public housing and all the various life factors, I didn’t actually get introduced to technology til I was in my mid-twenties. I randomly moved out to LA, and it wasn’t like I was previously inspired by technology, but I got here and met two inspiring people, by the names of Gil and Adam, who were the founders of Applied Semantics. I didn’t know much about what they were doing – they were building this interesting thing, what they call ‘meaning-based search engines’. I knew a bunch about marketing, we didn’t really speak the same language, but we connected much more on a personal level, and actually, we connected on the love of running, interestingly.
So I became their marketing person, and lo and behold, three years after that, the company grew into something that was very meaningful, and we were with the people behind AdSense and then got sold to Google. In many ways, it was sort of a dream journey. So that’s how I got started in tech, and after that obviously it became a love affair.
And not only being a part of Google, but I left and started a company between Factual and Google, called Navigating Cancer so I was coming full-circle to my science background and my undergrad with my strong passion for health. I did that for a little while, so just a myriad of experiences in tech. It was really a privilege to have met Gil and Adam early on.
John:
That’s such a great story, I love the fact that you’re really living the American Dream, right? Which is that anybody can make something of themselves, even if you aren’t born with a silver spoon in your mouth, basically. And I love the part where you talk about connecting with them on a personal level – you both were into running? Is that what it was you said? You’re both joggers?
Eva:
Yeah, that’s right.
John:
Because one of the things I talk about with my clients is how important it is to have a connection – not only with the team that you’re working with (I know that you consider the people you work with to be family), but also whoever you’re working with as an investor. To connect with people first on a personal level, before you start talking about the technology – would you agree?
Eva:
Absolutely, and I think if you’re lucky and you have a previous relationship with the potential investor, that’s easier, but for a lot of folks, it might come through a warm referral. If that’s the case and you haven’t met them before, it’s important to do your homework so that you know what they care about, what they’re passionate about, and I always like it when they actually know a little bit about me outside of the deals I do. If they say, ‘Oh, Eva, I actually see that you really like STEM education for children’, I’m immediately wowed that they actually took the time to know me a little bit. And vice versa. This is not a one-way thing. If there’s an amazing entrepreneur that I’m excited to meet, I will also do homework on him or her, so it goes both ways. I think you’re actually right, John – that connection resonance up front is really important.
John:
And what’s your favorite way to do homework on someone? Do you just go to LinkedIn? What do you use?
Eva:
I guess it’s so much easier today than it was even 5 years ago. Everything from if they do podcasts, like the wonderful ones that you’re doing right now, to basically anything that they have online, which is the somewhat obvious answer. A lot of it is really talking to my network and seeing if they know this person. That kind of comes full-circle to the importance of your own brand and reputation, and the fact that the investment and entrepreneur community in LA, specifically, is still highly provincial, meaning that everyone knows everyone and the first call is probably to someone that’s one degree away, or knows you personally. So it’s really important that we do a little bit of a background-check before we speak to you.
John:
So the due diligence starts even way before you start talking to someone? A lot of people who are looking for funding think ‘Oh, well the due diligence doesn’t start until after they like my idea’, and that’s such an important point for our listeners. The due diligence starts before you even get in the door, before they even look at your pitch deck. I love that. Especially with your background at marketing – can you speak a little bit about the importance of someone having a brand for themselves separate from their company? How do we brand ourselves? What would be your two or three tips that you would give someone who is an entrepreneur that wants to brand themselves, in addition to who they are as the entrepreneur of that company?
Eva:
Yeah, that’s a great question, John. Some of it is brand, and some of it’s pure reputation. I think if you are brand new and out of college, it’s very different than someone who’s been in the industry for a while. But I think the combination of having done good work in the past and having people that we know in common is the first sort of check for myself in terms of what type of reputation you have. From a brand perspective, I do go and read your blogs, I go to Twitter, I go to LinkedIn and see who else you’re connected with, so that sort of gives me a fuzzy, yet some sort of picture about who you are, what you care about. I care less about whether you are famous or well-known in terms of a brand, but much more about whether you’re a high-integrity person, and that you have built long-standing relationships. Those are the qualities I look for – the softer qualities.
John:
Yes, they’re so-called ‘soft qualities’, but my goodness! What investors are looking for when they decide whether they’re going to invest in a start-up are those soft qualities of character – is this someone of integrity? Is it someone who does what they say they’re going to do? Is it someone who has the ability to not give up easily and has perseverance? And who not only has passion, but also has a real explainable vision. Do you have any tips for someone on creating a pitch deck that expresses any of that?
Eva:
Yeah, so I think you’ve mentioned a lot of the core things that they have to be able to show within, literally and honestly, seconds or minutes. You have to convey everything that you talked about, so a combination of experience, leadership, commitment – all these things – integrity, authenticity, very very quickly. For most people, the attention span is short, so you only have a few minutes to convey and to bring all that to the table. I think coming forth and making sure that the initial delivery of your story or narrative starts off with the very powerful beginning of the arc, and it’s about pulling them through that arc where you take them through somewhat of an emotional journey of why you’re doing this.
John:
Yes.
Eva:
I always look for the why. A lot of people have the skills and the confidence and the experience, but they can’t convince me that they’re truly passionate about this. That’s the hard part – you can’t fake passion.
John:
You can’t fake passion. Boy, that’s a tweetable quote right there! Right from the podcast – we’re going to be putting that in the transcript, you can be sure. That’s great! Can you give us an example of how Factual would give an elevated pitch? I know you have a YouTube video out that I watched on your own personal passion for solving a problem and actually making datasets, as opposed to just aggregating data – I thought that was really fantastic. But I would love to hear you give our listeners an example of this passionate ‘why’. You can pick any of the companies you worked for; we’re just trying to get an example of what you think an example of good, passionate storytelling is.
Eva:
Sure thing. With Factual, when we started 7 years ago, the notion of big data was not a common household meme or topic, and that’s changed a lot. I think it’s pioneers and companies like Factual where our early mission or thesis is ‘Data’s going to be a core input engine to a lot of different types of businesses’. And most important, at a computer level, is where you need scale, so our initial audience was developers.
How can we open up and provide access to really important core data to a wide group of developers who are building really important things? That was our initial mission, and over time, we’ve learned that making big data sets is very complicated, so we started focusing on location. And now, Factual is one of the largest location databases out there, and we power lots of companies like Yelp, Twitter etc.
That’s a little longer than an elevated pitch –
John:
Right.
Eva:
But I think both Gil and I – and especially as Gil started and I joined him – we’re just super excited that we believe the world is going to be transformed by this really massive deluge of data, and it’s so important to make it accessible for machines to compute. He’s very much stuck to that, and even though I’m not at Factual anymore, it’s a delight to watch him carry this mission through.
John:
And you’ve followed him from your first company. Is that correct?
Eva:
Yeah, I have. Gil and I have been working together in some way for 14 years.
John:
Now, as an investor, and as someone who’s experienced that, can you speak to that? Everything I’ve heard and talked to from investors is that they love serial entrepreneurs, and they really love a team of people that have worked together before. Anything you can talk about in terms of the importance of the team and the importance of serial entrepreneurs with that team would be really helpful.
Eva:
Yeah, it’s interesting because I think there’s a lot of discussion around if you’re building a business and say you’re getting to a stage of presenting to investors, whether you want to be a solo person, two people, three people. There are lots of statistics and data around that. I just take it back one step – it’s much more enjoyable to share it with somebody else! Whether that’s one person or two people at the beginning, it’s a very tough thing to pursue, and it’s more fun to have that person. I’ve been lucky to have Gil, and in some of the past companies, I think for young folks who are starting off, what I look for is chemistry among the original founders – whether you went to college together, whether you played a sport together, whatever the reason that you guys came together.
I would say of all the companies that we look at, only I would say 10% really have a story that they bring together. Often, nowadays, it’s somebody who has a great idea and then they go out and find a technical co-founder. They might have only known each other for a few months, and that’s not a deal-killer, but it’s definitely more compelling when the two or three people have said ‘You know what? We’ve been thinking about this for 4 years, now we’re all at the right stage in our lives to pursue this and we’ve been excited about it for a while, and this is the reason we exist’, type of thing.
John:
It’s a mutual passion – we’ve been in the trenches together and we know we can conquer any problems that might come up along the way. It sounds like that’s what you’re saying, right?
Eva:
Yeah. Part of it is also because the journey ahead of you is so long that it’s better to have your trusted cohorts with you, who get you and understand with you. The turn-over in the early days is really high, and for us, we want to feel confidence that you’ve worked together and you get along. It’s kind of like a marriage: you get along and there’s a good prediction that you will get along in the future.
John:
Sure, almost like a marriage!
Eva:
Yeah, exactly.
John:
Can you take our listeners on that journey, because it’s such a unique, unicorn story that you were working with Gil at Applied Semantics. Tell us how long you were working together before Google said ‘We want to buy you’. What did it feel like that day? Where were you? How did you guys celebrate when you got the news?
Eva:
I was there for about 3 years, and it happened rather quickly and unexpectedly. The company wasn’t up for sale, we weren’t looking for a buyer, and as many know, that’s sort of the best position to be in. Google basically pursued us, but the acquisition happened over a very quick period of time, so I think we were all kind of in a cloud. Or at least I was, I don’t know how Gil was. But because it happened so quickly, it was almost like a dream state, none of us really believing it was happening. Even when it happened, I couldn’t actually even believe it because the next day, or within weeks, we were up at the Google Head Quarters, and they were announcing us on the Friday at their tech hangout, or whatever. It was honestly quite unbelievable.
I know that happens to very, very few people. There are times where we re-live it, but honestly, as much as that was a high, the high was more after the fact when we got integrated into Google and we actually saw the product take off and now become a truly significant part of Google’s revenue stream and monetary strategy, which is pretty awesome. A lot of companies get bought –
John:
Yes!
Eva:
And you have the high, and then quickly after, you have the low.
John:
Right.
Eva:
Meaning that if you don’t integrate it correctly, they fire a bunch of people. We never had that happen. It was actually very synergistic and happy.
John:
How great. Well I find it most fascinating that you just stayed focused on staying in your lane and weren’t trying to get someone to buy you, and that’s almost like dating again, right? You can’t be trying too hard to get someone to be interested in you. Do you have any suggestions for people who ideally would love somebody big to buy them? Like what to do to be attractive to someone like Google?
Eva:
I think one big tip is when you’re pitching to investors, don’t focus on your exit strategy. I think a lot of younger folks come in – I may even trick them as an investor, somewhat cruelly, and say ‘Hey, do you want to be sole in 2 years?’ And if they quickly say yes, I’m not the right investor for them. There might be investors out there who are looking for first or second base wins, but I think for the best founders that we like and that resonate with us are folks that are playing the long game. If they’re playing the long game and they’re building something great, selling to somebody should not be really top of mind. They love solving this thing so much, and they’re going to do it for a really long time. But the reality is that people tire.
Even in the most perfect world, after 6 or 7 years, often being an entrepreneur is very, very hard and there might be some folks that say ‘You know what, I may want to sell because I’m just exhausted’, or ‘I want to be a father again’, or whatever that might be. And that’s okay, too. We respect that from an entrepreneur, and if they’re looking for a buyer, I would say work with your investor, and they will help guide you through a process. Again, it’s most ideal if you don’t have to sell. When you have to sell, there’s a whole other process, but I think as long as you keep building value and product, and you say ‘Hey, maybe at some point I want to be sold to one of these big companies’, your investor team can actually be very helpful in helping guide you through that.
John:
Well it sounds like what you’re saying, Eva, is that if the passion is there and the reason why you’re in business in the first place is strong enough, the only reason you would want to get bought would be to make the product better, as opposed to being focused on the money, and that that’s what you’re looking for when you talk to potential people you want to invest in. Their passion and their ‘why’ is so specific that it’s not about the exit strategy, it’s about ‘I love what I’m doing so much’, ‘I want to make a difference in the world’ or ‘I love this product solution’. Is that accurate?
Eva:
That is accurate because I think any of the products and services that are useful and exciting, you’re going to get tons of acquisition offers. As a founder, you’re often faced with a good problem, which is ‘Do I sell now or not?’ You don’t have to sell, but every six months, you’re going to be approached by somebody, maybe you’ll be approached by an investment bank, whatever, and I think you have to have quite a bit of fortitude to resist and say ‘Hey, you know what, I think there’s a lot more value I want to create over time and I want to keep going at this’. Again, there’s no judgment if you do want to get out. I don’t think you’re a worse person. At first, for some of our founders, making $5 million is a lot of money.
John:
Of course!
Eva:
There’s a chance for you to make $50 million or $500 million, but we can’t ignore that feeling.
John:
Yes.
Eva:
And we will help you work through that, and whether that’s the right move or not. That’s sort of our job as investors, to help you think through that.
John:
Got it. What was the biggest difference between working for Applied Semantics before Google and after Google?
Eva:
Well, I think we just had so much more resources. We were this tiny company that was climbing up a hill – there was competition around the corner. In some ways it was wonderful, because it was a family of 50 of us and we all got along and hung out on the weekends, and it was quite a joyful and often, albeit stressful period. Like every little company, there’s some dysfunction in that, but in that dysfunction, there’s a lot of highs and camaraderie. I think once we moved over to Google, it was just kind of this wide open space where anything can happen, and now the resources have quadrupled.
I think, certainly it’s less stress because the risk is removed, but I think that the experience of being part of Google early where they still had a lot of that start-up energy. Being bought by Google today is very very different than being bought pre-IPO. It didn’t feel so different from Applied Semantics, and that’s why I think Gil and Adam were willing to do it because culturally, it was very symbiotic. We knew that going over to Google was an extension of our family, and we didn’t have to tweak ourselves to something we’re not. I think that’s why they were willing to do that.
John:
Another question I have for you is: What made you decide to go to the other side of the table and go work for Susa Ventures?
Eva:
I was one of the folks who founded Susa Ventures, and I think I had never really thought about going on the investment side until probably about 2 years ago. Just working at Factual and seeing all the big and small companies out there that need various data solutions, a lot of them could be solved by Factual, but honestly, some of them could not. They needed, say, Genomics Data, or they needed some other type of data that Factual didn’t carry, and I was so passionate about the data side and the extension of everything that I’d learned at Factual that I thought ‘What’s the best next step to scale myself and actually support people who are honestly smarter than I am?’ I think starting a fund was one way to do that, and I’m pretty happy to see how Susa has evolved. We’ve made about 25 investments and stayed very true to our data-centric thesis and mission, and I’m really proud to be a part of these young companies who are working on Fintech, or commerce, or mobile – things that were sort of peripheral to Factual, but not the core of Factual. I could leverage some of the experiences and skills that I learned from being at Factual.
John:
I love that question you asked yourself: How do I scale myself? It’s a great question that I’ve never heard anybody phrase quite like that. We always talk about how do I scale my business, but how do I scale myself? And that’s what was sort of the impetus for you to start being a co-venture in this, what a great line. You’ve made 25 investments already? Can you give us a range of what your average investment is?
Eva:
Our sweet spot is between $250-500,000, and we only do seed stage, so sub-$10 million in valuation is where we excel.
John:
Right. And if you had one piece of advice to give someone who wanted to get your investment, what would it be? Have a great pitch deck? Would it be get to know me first? How would somebody best get your attention? Or get an appointment to pitch you, even?
Eva:
I think a warm referral is always good. I think sending a cold email, not only for myself, but for most VC firms or funds, doesn’t really work. I think a lot of people do that – not a lot, I get pitches through emails, and those almost never work. I wouldn’t waste your time doing that. I would always say try to find somebody who knows somebody at the firm, and then come in that way. If you come in through a warm referral, we will always take it seriously. Certainly, having a deck that’s compelling is great. Having a good background is great. But that’s really it, there’s not a whole lot of magic.
We’re very thoughtful about what fits with us and what doesn’t, and if we’re not, we’ll respond very thoughtfully to you via email. If it fits and you have a chance to have a conversation with us, and it’s in that conversation of 30-45 minutes where you can make your case of why this is something worthwhile for us to invest in, and we talked earlier about how to think about that. That’s basically it.
John:
That’s great. Is there one mistake that you see fairly consistently when someone comes and pitches you? Where you’re like ‘God, I wish they would learn how to pitch better’, or ‘I wish they could explain what their product does in 2 or 3 sentences’, or ‘I wish they could tell me why they want to do this more’. Is there something consistently that you see and go ‘Oh, that’s a mistake’, or something that somebody could work on before they come to you?
Eva:
I think there’s a few. I think having authenticity still remains really core. I think a lot of people wonder how you can show passion and commitment without showing arrogance. And that’s the hard part. Basically when you come in and pitch, I want to push back. I’m going to say ‘I don’t think that’s going to work’, or whatever you face, we’ll push back, and you have to keep pulling that person over that hump. That’s not a mistake, but I think if you come in with too much of an attitude, that’s difficult. I think having unrealistic financials is also another one that’s hard – meaning I think a lot of people try to show the hundred million dollar at year 5, or profitability by year 2. A lack of validation, I think is huge. You can make all sorts of claims, but if it’s not backed up by customers or testimonies, stuff like that, [it’s a mistake]. And things like mentioning that there’s no competition, which is never the case, because there’s always competition.
There’s a whole set of – I don’t call them mistakes or pitfalls, that folks can do. I think if you’re pitching within ten minutes, you can gauge something like that, then I think the VC person can lose interest. The great thing right now is that there’s just so many great pitches that you can see on YouTube – watching somebody like Y Combinator and seeing those guys who are trained to be professional pitchers. Watch those and you will actually get a really good sense of how to do this well.
John:
Oh good, I want to put that link on the transcript. Who is it again, can you spell that name for me?
Eva:
All the pitches that are online are from Y Combinator.
John:
Y Combinator, of course, yes, got it. I thought it was somebody’s name, but now I’ve got you. Oh, it’s my bad hearing.
Eva:
No worries.
John:
Is there any one or two books that you really love that you think start-ups should read?
Eva:
There’s so many books, but I think The Lean Startup by Eric Ries. There’s so many, it’s hard. I actually read a lot of biographies, like by Andy Grove, so any of the great leaders – the books on Jobs are all really good. I loved recently Peter Thiel’s book on Zero to One. I read less of the classic management books, but take more inspiration from folks who have done this in such a big way, and I think that can really help a start-up founder to at least aspire to what they actually can be through hard work. So those are some of the books that are cool.
John:
My big take-away from talking with you is it’s all about authenticity, and even the books that you read. You’re reading books about people who are authentically themselves, and using that for inspiration for how can I be my authentic self. Great. Is there any last idea or quote or comment that you want to leave our start-ups on how to persevere, or how to think of something to do when they’re pitching, or before they pitch?
Eva:
Maybe one note for women, because I get asked a lot about that.
John:
Yes!
Eva:
I think there’s been more content written about this because a lot of women founders ask me: How do I do this? Can I do this? And is there any preference if they pitch to me versus. to an all-male team? So from my perspective, I’m pretty gender-blind, meaning I think there are a lot of innovations and amazing things to be built in the world, and will be built, and I think a lot of them will be built by women. I don’t lean forward in terms of saying ‘If you’re a girl, somehow I would treat you differently, or I see you differently, or I’m more inclined to invest in you’. I think there are plenty of competent women out there, and I think for women, in my career, being a girl has actually been a huge advantage versus a disadvantage. I think that’s what I try to look for with young women on believing that they can build the confidence to say ‘Hey, it’s actually pretty awesome being a woman in tech’, and if you have the hardcore skills and the confidence and the know-how, you actually are at a great advantage in tech.
John:
Fantastic, what a great way to close! If someone wants to connect with you, learn more about being inspired – especially if they’re women and believing that they can do that and see you as a role model or even learn more about your stem-cell education, you said, right?
Eva:
STEM education.
John:
STEM education, sorry. What’s the best way for people to follow you? Is there a website you want to send people to, or a Twitter handle?
Eva:
Well, thank you for all those kind words, John. My email is just: [email protected], I’m super accessible. And my Twitter handle is just: eva_ho.
John:
Okay, great. Well, you’ve been an incredible guest, thank you so much for your insights, your generosity, and most of all, your authenticity.
Eva:
Oh, thank you so much, John, for having me. I had a great time.
John:
My pleasure.
Thanks for listening to The Successful Pitch podcast. People say that the longest distance in the world is between someone’s mouth and their wallet. People can promise to invest in you, but then when it comes time to open up the checkbook, it doesn’t happen. Another way to look at getting funding is you’re on the left side of the riverbank, and you have to cross that river, and on the other side, is where funding happens. On the left side of the riverbank, you first have to make up your idea. Then you have to make it real. And then you have to make it reoccur. Once you’ve done that, you start to dip your toe in the water and you start to cross that river. That’s where I come in. I can help you get across that river faster than you could on your own, with a lot less frustration and confusion of ‘Why are you getting no’s’. So if you’re interested in learning more about how to get funded fast, go to www.SellingSecretsForFunding.com/webinar, and watch my free presentation that will give you a lot of free content that will prove to you that you can get funded fast and make your start-up a reality. Thanks.
TSP002 | Judy Robinett – Transcription
Posted by John Livesay in Uncategorized | 0 comments
John Livesay:
Hi and welcome back to the Successful Pitch podcast. Today’s guest is Judy Robinett, author of How to Be a Power Connector. Judy has a wonderful story about how she met Mark Cuban and then was able to get him to write a testimonial for her book, but she gave him something valuable first and she’s going to share that in today’s interview. Judy said, your network is your net worth and the importance of having a strong network could not be more key to getting an investor to say yes to your startup pitch. Judy said one investor told her that a startup can’t figure out a way to find me that probably means they can’t figure out a way to find their customers. One of the other things that Judy said that’s so important to find the right investors. Some angel investors, she said, can become devils and some venture capitalists can become vulture. So, let’s make sure that doesn’t happen to you and listen to her interview. Thanks.
Welcome to the Successful Pitch. Today’s guest is Judy Robinett. I am thrilled to have her on the show. She is a startup funding expert and author of the book How to Be a Power Connector . She has so much expertise to share with us today. I want to welcome Judy to the show and Judy can you just tell us about the importance of connecting since that’s what your book is about.
Judy Robinett:
Sure, absolutely. So, you know, I learned early on in my career, I kind of got stalled when I hit the wall in the fortune 100 company and I thought, what am I doing wrong? I’ve kept my head down, I’m working hard, I’m not getting anywhere and somebody pointed out to be me that I really needed to increase my emotional IQ skills IE networking and that there’s always been this unwritten rule of success that is your network equals your net worth and when I became CEO of a public company and started raising money, millions of dollars, I found out, again, my network didn’t really help where I was, so I needed to build one that was deep and wide and robust so that I had access to the funds that I needed and then I was asked to vet a small unknown company in Park City named SkullCandy when Rick Alden at year three was broke and had product stuck in China and only one distribution challenge and a super angel asked me to vet that and I became very fascinated with the startup world , so now I do that.
I can tell everyone that everything you need is attached to a human being and so, humans have the deals, humans write the checks, humans get you in the door whether it’s to investors, family offices, venture capitalists or even incubators, so it’s absolutely critical that you improve your skills particularly with strategic networking and, you know, the old school networking is dead. It used to be who you knew and what you knew, now it’s who knows you and so it’s absolutely critical and it’s so easy now with LinkedIn and Twitter and the access that you have.
John:
Can you elaborate? That’s such an important point. I really want to hit it home. Old school used to be who you knew and what you knew and now it’s who knows you and, of course, how do we get people to know us? Through social media like LinkedIn. That’s the point?
Judy:
Yeah. LinkedIn is critical. It’s 300+ million professional who all want to network. There’s wonderful groups. It doesn’t matter whether you’re looking for VC funding, angel funding, go to private equity group, all those groups are represented and you can do a simple search. The other one I used extensively is Twitter and I’m just amazed who you can reach out to these days. So, you know, when I did my book I was all excited. (#3:54?) signed my contract and then they said, “Judy, you’ve got to build a platform” And I was so naive I said, “What’s that?” And so now I’ve jumped in to Twitter heavy and I’ve just been amazed and really impressed with the people on it and how you have access now and so the Facebook is really historical, it’s about who you know. Twitter is about now, and future is really about Pinterest, but – and the other big thing that I tell people as far as access is how important it is to join powerful groups and so, you know, every week or almost daily someone writes to me and says, you know, there’s no money out there and I point out there’s 7 billion people on the planet. 369 trillion in global private wealth.
There’s no lack of money, there’s no lack of opportunities and we as humans are like chickens, we flock and so it turns out we all have problems, we all have opportunities. Well, the millionaires, the people who are accredited investors, their problem is finding a good deal. So, what do they do? You know, they hang out at pitch events and they are friends with people at the incubators, because they’re scouting looking for a good deal because they don’t want their money stuck in a bank account, you know, earning 1.7%. So, there are people looking for money and the point is where are they hanging out. So, it’s important.
Now, a couple of other things I suggest to people when I first moved to Salt Lake City, somebody asked me if I would consider being on a finance committee for a local governor’s run and the guy didn’t win, but being on there was where I met my first two billionaires.
John:
Wow.
Judy:
And then just another short story, I met a fellow in Salt Lake and he had been recruited by a top wealth management firm and he came into this very conservative area and happens to be black and gay and within two years he built this tremendous book of business, very successful. I said to him one day, “How did you do that? You came to town, you didn’t know anybody, you didn’t have any network.” He said, “I joined the symphony.” So, he paid a little extra to go to the, you know, meet and great and grab some snacks before the show started and rub shoulders with, guess who, all of his customers and so you think about, you know, where the people hanging out that need a deal.
John:
That’s such great advice. Go where the fish are, basically, right? If you’re targeting people who live a luxury lifestyle, figure out what’s – investors, typically angel investors live a luxury lifestyle. They’re interested in art, they’re interested in music, and they’re interested in culture, join the things that they’re interested in so you have a personal connection first. Would you agree?
Judy:
Yes. So, you know, I hate robot presentations. I mean, you never walk to up to a person and say, you know, “Jeez I’ve got this great startup and blah blah blah. I just need 1.5 million and I’m going to get 2% of the market in China and we’ll be billionaires!” You know, people make connections first personally. So, it’s critical that you, even if you go into a pitch event, you be you and you be real.
John:
Being authentic really is the key to making that connection and I talk to people all the time that I have this clients about the importance of people buying emotionally and then back it up with logic and most people want to lead with the numbers as opposed to the emotional connection, right?
Judy:
Yeah, so the numbers are all suspect, as you know.
John:
Right!
Judy:
They’re usually based off of a assumptions, so it’s anybody’s guess. So, you know, there’s two reasons startup fails. Number one there’s lack of customers, number two is lack of funding, and so you think about when you’re in one of those pitch events, your customers literally, those investors, and you know, it’s nice to hear about Kool Aid and how great your Kool Aid, your product, is and what you’re going to do, but you really need to show them who you are, your character, because one of the first things they look for is, “Is this guy honest?” There’s going to be hard times, you’re going to hit the wall, they want to know if you’re coachable and certainty they will look at your go-to-market strategy, what the ROI is, they wanna know when they’re going to get their money back, but yes, you know, be you, be authentic. If you can admit to some failings, have made pivots along your way, they’re going to say that you’re educated. They’re really looking for your judgment and your ability to think well.
John:
You know, that’s such an important point. We can’t emphasize that enough to the listeners is the willingness to be a little bit vulnerable and not come across like you know it all and you don’t need any advice. That whole concept of being coachable is what allows people to say, oh, you’re not just going to take my money, you’re going to let me have some input and we’re going to share our combined resource of brain power to make this successful and I’m going to be part of building this with you as a oppose to, I just want your money and goodbye, right?
Judy:
Yeah and angels don’t do that. I mean, the main reason that angels invest honestly is they like to coach, they like to mentor, they like to involved and use the experience that they have. I would say, you know, if you’re just looking for money that would be bad money and you can find that. There’s a lot of fools out there that you can get bad money from, but you really want people to help you, because, you know, guess what, no man can know it all anymore.
John:
That’s right. Can you explain a little bit more about using to Twitter to connect and reach out? Do you have a story of how you’ve done that or someone you’ve worked with as oppose to LinkedIn?
Judy:
Sure, so when I was new, I couldn’t even figure out – I mean, my adopted son Preston said to me one day, “You need to start tweeting.” I remember saying to him, “140 characters? What do I put? I’m in the shower?”
John:
Right.
Judy:
And I started sharing quotes and information about, you know, venture capital deals and stats and other things. I’m interested in all things entrepreneurial and people started reaching out to me, but you know, one lady I was really impressed with what she was doing with social media, ended up talking with her on the phone. She now handles my social media, but I called her one day and I said, “It’s Sundance, I’m going to be meeting with Jean Davis, she needs some help with her social media outreach. Would you come out here.” And you know, she about passed out. She said, “Of course.” So, she flew out. I never even met her at that point. This was just like a Twitter meeting and I have other angel investors reach out to me, you know, you end up seeing that people are so accessible to you.
So, people contact me, you know, for interviews saying, you know, I’ve got money to invest, so certainty, you know, it’s important to do that and again, you can find the thought leaders, you can tell a whole lot about people by what they tweet about, what’s in their profile, you know, the same thing on LinkedIn. You can read between the lines.
So, it’s important in your network, so research shows that the two things you look for just almost instantaneously. Number one is warmth, because you don’t want kind of stranger danger and the second one is a level of competence, but the third characteristic I tell people to look for is generosity, because just because someone can help you, doesn’t mean they will!
John:
Ah, right. It’s that generosity of spirit. Is it in their DNA? Are they someone who is opened to sharing ideas or at least a referral without needing something back right away. The warmth and competence. Those are three great takeaways for our audience. Warmth, competence, and generosity is what you want to look for so that you get what Judy is described as good money of someone who’s going to be helping you get through the bumps in the road that will happen.
Judy:
Yeah, some angels are devils. I mean…
John:
That’s a great quote. Some angels are devils.
Judy:
You have to be careful. Some angels are devils just like some ventures are vultures.
John:
Okay.
Judy:
But, 90% of high potential startups are funded by angels and there’s roughly 700,000 in the United States. There’s 300 angel groups that are active in the US. I was the managing director of Golden Seeds, the third most active group and it’s, you know, 300 accredited women, some men, and we syndicated deals with 120 other angels in early stage VCs and all of these groups you can get online and, you know, look at the application, many of them post what the due diligence is needed.
John:
Let’s have you speak a little bit about due diligence, because that’s one of your areas of expertise. What kind of due diligence are angel investors looking for when they decide whether they’re going to pick a startup to invest in?
Judy:
You know, usually angel groups have some, I guess, guidelines. So, some of them are very early stage and they will take just an idea. Some of them want to have proof of concept, so they wanna see that you really have, you know, customers. The VCs say the dog that will eat the dog food and so they will have certain criteria before you even apply. So, if you pass that criteria then you usually come and give a 10 minute pitch and then the angels get together and say, “Jesus, person looks good. Let’s see if they’d be easy to work with, you know, what kind of evaluation they’re expecting.”
I tell people to be very, very open, you know, don’t march in and say you’ve got a 3-5 million evaluation when you don’t have a customer, you know, they’ll just say this is an amateur that doesn’t know what they’re doing. So, usually the dance is can we work with this person. Do they really have a good concept? As soon as they make the decision to go into due diligence, for instance, Golden Seeds would put together a team and they will have a legal guru, they’ll have a couple of gurus that’s out of the specific industry, so they can look at the stats. Do the competitive analysis, the marketing. A good place to go look is TacStars. If you look at some of the angel groups there’s actually a list and Tac has one that’s five pages of due diligence questions.
They’ll look at your social security, they’ll look into your background and see if you’ve had previous litigation, but you know, initially upfront they’re looking to make sure, as you know, no hair on the dill and that means it’s clean, you’ve not gotten money from friends and family and cousins that isn’t documented, you haven’t given away, you know, massive amounts of stock so that at the end of the day no body is going to make money in particularly the investor. They want to make sure that you’ve got IP protection or you’re in the process, you’ve got trademarks, so there’s sections on legal, there’s sections on the competition, sections looking at the market place. They do go into the founding team’s background, what is their expertise. That’s just some of the major ones.
John:
That’s really helpful, Judy. Thank so much. I think the real key takeaway and the consistent thing that keeps coming up over and over again is when you first pitch they’re looking at, are you easy to work with and even when they’re doing the due diligence, they’re looking to make sure that you have integrity and you are who you say you are.
Judy:
You know, if you’re a pain in the butt, next. I mean, there’s a millions of deals out there and so if you’re a know-it-all and smarty two-shoes and think your evaluation is sky high, it’s like too much trouble to educate you.
John:
What is your criteria for what a good evaluation is? A lot people say, you know, I know all the numbers are suspect and I think I want, you know, x amount of money for this percentage in equity therefore my evaluation is this, but do you have a formula that you say that’s unreasonable or this is really how to be conservative in your evaluation?
Judy:
Yeah, so the best book out there and I recommend it to people, it’s out of print now, but Howard Stevenson was considered the Godfather of the entrepreneurial world of Harvard. He’s now retired and inhale help, but he has a book that he wrote with the co-founder of Angel Investing that’s probably the best I’ve ever read and it’s really to educate angels and there’s a capture in it on evaluations and there’s a Chicago method and all these different, you know, methods and at the end of the day, he said, you know, it really is what the investors are willing to do.
I mean, they’re the ones that they’re going to call it and if you don’t want the money, then fine, but he has a really good one that he liked and many people use it and you get points for a founder that’s done it before so you have expertise, you have an advisory board which shows you are coachable and you realize you don’t know it all. You have customers and you get so many points and I think it starts at a 1.5 million evaluation and moves up to the maximum of three. Now, that book was written many years ago, so you can actually find stats of what the going evaluations are and East Coast and West Coast, those are the main two markets and you can, you know, certainty look at that.
John:
Great, thank you.
Judy:
But it’s a combination of art and science. There is no format. At the end of the day, you know, really what are you going to do?
John:
Right, art and science. Great takeaway. The other thing I want to tap into because you are on – I want to have the listeners know about you a little more. You’re on Illuminate Ventures. Tell us a little bit about that and some of the other boards you’re on and advisories so people have a real picture of what you do.
Judy:
Okay, so I’m an advisor on two venture capital early stage boards. (#17:31?) in New York and our strategic arm is Nielsen and just did the first portfolio deal. The one that I’ve been on the longest is Illuminate VC out of Menlo Park. It is in the top 10% of performers and it’s an interesting back story. Cindy Padnos, who is the founder, had five million dollars and people kind of sneered and said, you know, that’s not enough money to invest and you’re not going to do anything. Well, she has her first unicorn in the portfolio and a couple of others that are valued at a billion and so an advisor, we have Ken Elefant of Intel Capital, Claudia (Fan Munce) from IBM Capital.
You can go look it up online and the same with (#18:16?). I’m also an advisor to SpringBoard, which was founded because women had such a difficult time getting into the VC doors on the angel investing doors and today we’ve raised the companies that have been mentored and we teach them how to a pitch and they go to market strategy have – we’ve raised 6.6 billion, had 11 IPOs, and probably more than a 145 strategic sells at this point and that’s a not for profit.
That’s another one you can go online and another one, we haven’t touched this kind of kind crowd funding I’d tell the listeners if they wanna learn about due diligence, go look up CircleUp. So, CircleUp is kind of a little further up. You have to have a dill of three to five million already in sales, but they’re really quick at financing, so it’s later than early stage, but they probably have the best documents online on due diligence that I’ve seen.
John:
Oh, that’s great. Crowdfunding. Thank you for that. Well, that brings us back to, you know, the real challenge for so many people whether they are women or men and SpringBoard or whatever is what do I need to have on my pitch that’s going to convince someone like you to wanna take it to the next level. What are you looking for in a pitch deck that you could give suggestions to our listeners on?
Judy:
You know, I’ll send you some documents that you can attach on the show notes. So, I have a couple of sample pitch decks usually no more than 15 slides, you know, I certainty want to see what your product is, your value proposition, I usually tell people if they can’t tell me the value proposition in one sentence they don’t have clarity, they don’t know quite know what they’re doing. I’ll give you an example, I sat on the university of Utah tech transfer center and I’ll never forget. I hear pitch after pitch after pitch and we’d have people come in and one guy go, yes, you know, we’ve got this mechanism of action with this chemical and it’ll help blah blah blah and he goes on for 20 minutes and I afterwards I said to him, “Why don’t you just say it fixes a hole in the heart?”
You know, so if you can get sophisticated enough to get your messaging right of tell me in one sentence. Tell me in one or two sentences what this is, what it does, then you know, you’re crystal clear. So, a short slide deck and certainty has information on the product, the market size, the competition, you know a little bit on the team, but I particularly look at, you know, competition and there’s thing that instantly earmark you as a amateur. For instance, either have no competition or very little competition and another question I’ll ask people is what your customer acquisition cost and usually it’s dear and headlights.
So, you know, your number one job is sales. You know, cash covers a lot of sins in a startup and so the focus needs to be cash flow and I do look for people telling me the truth. I’m looking for people that have good judgment, but I’ll send you, I’ll send you an article angels to avoid, I’ll send you one on how to do a pitch deck. Another thing I’d like to use with people and most people have heard about it is Business Model Generation and it’s a one pager that you put, what is your value of proposition, what is your pathway to a customer, who are your different customer segments, and you can do it on one page and usually after you work through that, it really makes messaging easier. So, that’s an important one.
John:
Well, Judy, you’re certainty model for our listeners all the qualities you say you look for in a startup, warmth, competence, and your incredible generosity to share with everybody all those things that you just said that we’re definitely going to post in the show notes about angels to avoid and your pitch deck tips. What I found really fascinating that you talked about is the two reasons why a startup goes out of business you had mentioned one, they don’t have customer and two, they don’t have funding, right?
Judy:
Yeah.
John:
So, of course it makes perfect sense that one of the key areas a lot of people don’t prepare for is what is the cost of your customer acquisition so that you don’t go out of business. So, it ties it in full cycle with what you open the show with and one of your big tips that rarely get mentioned in what people are going to get asked during a pitch deck or should be in the pitch deck to begin with so you have an awareness of, you know, if we’re going to get customers through Facebook, this is what our CPM is and this is what our cost per customer is or we’re going to spend money here, this is how much it costs to generation a customer.
Judy:
Yeah, because it’s when you meet a customer it’s kind of like battle plans are really good until you go to war. So, it’s when you meet the customer that you find out, you know, some of our assumptions are wrong or faulty or you may find out you could get more money by doing XY or Z, so Clayton Christensen, again at Harvard, famous on innovation says the research shows that takes three pivots before you get to the point of a consistent revenue stream, you know, you’ll find some customers even if you have an LOY signed or you’re showing there’s customers. That’s a big deal to investors, because there’s a gazillion ideas out there and just because it’s an idea doesn’t mean anybody wants it. I mean, that’s sad. I’ve met people who’ve spent three years, mortgaged their house and spent all of their friends and family money and built something only to find that nobody wanted it.
John:
Nobody wants it. Three pivots, that’s a huge, huge takeaway for our listeners. The fact that you need such passion and perseverance to keep pivoting. Most people give up after the first pivot and then another huge percentage probably give up at the second pivot, but if it takes three pivots on average before you really nail it and have something that people want, that’s a really surprising statistic for most of our listeners to be aware that you have to show that willingness and that’s why investors love serial entrepreneurs so much, right? They have tenacity.
Judy:
Yeah, they’ve learned and you learn from the market. I mean, the market talks to you. There’s a famous quote that says, you know, there’s more danger sitting behind a desk writing a business plan. You need to get out there, get out there with your folks. Big companies do this as well. Viagra, Viagra was a heart medication pill initially and then nurses noticed this strange side effect, you know, so they did a major pivot. Now the drug is available for women, so it happens all across different industries, you know, verticals.
The same thing with the money, you know I gotta tell you, it just hurts my heart when people have a brilliant idea and can’t get funded and another story, in Salt Lake I met a woman who had just a brilliant medical device, very simple, nothing complex, it was a permanent birth control device, little tiny thing that could be done in a doctor’s office, inexpensive, came as an RFP from China, obviously there’s customers all over the world; women in Africa walk seven miles to have slid open, they use scissors to cut the fallopian tubes, no anesthesia, many of them die and this woman had looked for funding for eight years and I looked at it and I knew, I knew it could go and she could make millions and she was in the wrong room. I talk about this in my book.
So many people I meet are in the wrong room whether it’s looking for funding or the right employees and I said to her, you know, you’ve got two strikes. You’re a woman and you don’t kind of belong to the local religion and we need to get you out of dodge, so I took her to Golden Seeds in San Francisco and then to a group in Boston. We got half a million dollars in less than six months. The company sold two years later for millions and she searched for money for eight years. She even mortgaged her house so she could cover her IP and I just wanna tell people, the money is out there. You make sure you get in the right room and lots of that in my book and if people just wanna contact me I’m happy to – or we could do a second show and go into more of these.
John:
I think that’s such a – I mean, the book again for everybody is How to Be a Power Connector and it’s one thing to be in the wrong room as Judy said and then when you get into the right room, what do you say? So there’s two steps, right, get in the right room and when you’re in the right room, what do you say?
Judy:
Exactly. So, you be real, you smile, say hello, shake hands, you know drop the elevator pitch, so I was raised, I was shy, I was bullied in Junior High, I didn’t dare talk to people. I mean, even in the corporate world, they’d have these events, I’d go late and leave early and I would hang out in the corners, I mean, I hated it and it turned out I wasn’t shy. I was worried about what other people thought of me and did I add value and so you be authentic, but I’ll tell you a secret and if people just did this, I call it my two golden rules. After you share your story and you go, you know, I’ve got this startup and we’re going to do great things and I’m trying to find my seed round, then you say two things, what other ideas do you have for me? And number two, who else do you know I should talk to? Those are golden. This is how I have billionaires on my Rolodex. It’s how I got Mark Burnett to endorse my book.
John:
Wow.
Judy:
And friends with people on Shark Tank and if you ask those questions, you will go, you will build your network up and out and that’s what you need, because on average people know 632 people, so you’re literally crowd sourcing from those people. The best people in their network for you to reach your goal.
John:
That’s such an incredible information and clearly it works if you have Mark Burnett endorsing your book and know people on Shark Tank. So let’s just repeat those two questions if we could for the listeners. The first one is after you share your story is, what other ideas do you have for me?
Judy:
Yes.
John:
And the second one is, who else do you think I should know?
Judy:
Who else should I talk to. Who else do you know I should talk to.
John:
Who else do you know I should talk to.
Judy:
And listen, the secret is most people will help you. So, research shows that if you’ve been raised in a lower to a middle class family, we’re taught not to ask! Put our head down and to work hard. Imagine what will happen? It’s a fairy tale.
John:
Yes.
Judy:
You have to learn to ask and when you ask, ask simple. I mean, you don’t walk up and go, “Dude! Don’t you wanna invest $800,000 in my company evaluated at $15million?” You say, “These are my ideas.” And people will help you if you ask, most people are wired to help others and they like to share advice and this is really true with angels.
John:
That’s so great. Those Judy secrets. What other ideas do you have for me and who else do you know I should talk. One of the key things to notice about those question is they are open ended questions. They are not yes/no questions. So, make sure that if you don’t use her exact words, which I highly recommend you do, whatever ideas do you have for me and who else do you know that I should talk to that you make sure any kinds of questions that you ask someone are not yes/no questions. Are you interested? That’s a yes/no question.
So, now that we know Judy’s incredible secrets of how she gets not only in the right room, but when she’s in the right room how does she get the right people to help her and not being shy to ask for her is, IE being coachable, is a really key takeaway for everybody. So, Judy, in the last couple of minutes, I just wanna see if there’s any other suggestions you have for someone who maybe has an idea that doesn’t necessarily solve a problem, because so many pitch decks are here’s the problem, here’s the solution, they have a new idea, maybe it’s a game or something along those lines that’s not really solving a problem, how would you suggest someone pitch something along those lines?
Judy:
Yeah, so those are the brilliant breakthrough things like Facebook. You can’t really do a business model on something. I mean, no body asked for a light bulb. There are brilliant things out there and, again, I would surround yourself with advisers, find people who will really give you advice, you know, and when you start sharing your story, I mean, never ask for money initially and what happens is you’ll find somebody and they’ll go, “Oh my gosh! I love what you’re doing. Can I help? Can I be involved?” And then you have champions and this is really important when you do angel deals, because angels, like the rest of us, can be finicky and you can do a great pitch an there’ one person in the whole group that goes, “You know, I think that is just a stupid idea. I’m not going to do it.” Well, if you’ve made friends with an angel that’s involved in that group in taking them to lunch, then they stick up for you. They’re a champion in that group.
So, in every town, in Salt Lake I just Adam Slovik. He has built and sold a company for a billion dollars, he’s one of my favorite angels. I take people to him like you’re mentioning that have an idea just to brain storm, help flush out what would be the best way and more importantly, which angel group makes the most sense. Also in the VC world, all of those people, you know, Tim Draper invests in angel deals on the side. He has Draper university. You can go look at that.
So, you know, it’s important, I guess to get the people first. You can be honest and upfront. Usually ideas like that come out of universities, research labs and sometimes just by a regular person. You can get resources at all the universities, at the community colleges, even the SPA offices. I mean, I would just make the rounds because there’s gold, you know, something else I wanna tell people is, we all have a network already.
On average, peer research shows we know 632 people and I can tell you 99% of the time the answer that you need exists already in the network you have and just another quick story. My agent called me one day and she goes, “Judy, I think you need to talk to Mike Muhney. He built ACT software, sold it for 4 million, he’s the father of the CRM industy and he has this brilliant app called Viber that’s for contacts, keeping track of connections.” We get on the phone and talk. He flies to Salt Lake and I said “Mike! I’ve never heard of your app. What are you doing or marketing? How are you acquiring customers?”
And he talked for a few minutes and he looked really said and he said, “You know, if I could just get a story in Success Magazine.” I looked at him and I said, “Mike, when you go back to Texas. I want you to call Wendy who I’ve only known for six months who you’ve known for six years. One of her friends is Darren Hardy, the founder and owner of Success Magazine.” And he literally almost fell off his chair. I can tell you this happens to me every week. So, you need to share your story with the people you’ve already got. My basic formula is…
John:
Quality relationships.
Judy:
Quality relationships + strategy to your goal. Quality relationship + strategy. So, it’s important. You know when people talk about be persistent, be scrappy. You know, I met with a VC guy and he said if you can’t figure out how to get to me, you certainty not going to figure out how to get a customer. So, you know, besides using the network you have and getting in the right groups is the other thing I’ll tell you is talk to strangers. Everyday there’s probably millionaires walking by you.
You know, I met a guy that was a billion and he was in coveralls, you know, work clothes, and we only talk to strangers 2-3% of the time and if you think about critical important people in your life, usually your spouse, they were a stranger at some point! So, we’re taught as kids just embed in our head, strangers are danger and that works well as a kid, but not as an adult. So, start participating. Just say hello, say hi, if you start doing that, because yes, very good things happen to you because of your working hard and planning, but if you think about it, the most important things are usually luck and serendipity and that is all about positioning and you can make those things happen.
John:
I love it. That’s such great advice and what a great quote that the VC said. If you can’t figure out how to get to me, you probably can’t figure out how to get a customer. So, that’s great tips. As we’re wrapping up the show. Is there any other book beside Howard book that you mentioned? Howard Stevenson’s book on due diligence that you would recommend for startups to read, besides yours, of course.
Judy:
Certainty I do like the business model generator, but I’m going to send you the actual work sheets that are fine and it’s okay. I like Art of the Start by Guy Kawasaki. There’s two or three that I like and I’ll send you some of those so that they will help people.
John:
Thank you. Judy, this has been such an informative, jammed-pack full of incredible secrets, information, and insights for our readers. I mean, the big one is what other ideas do you have, who else do you know that I should talk to, coming across authentic, being warm, it’s just been such a great interview, we can’t thank you enough for your generosity and sharing your brilliant and your knowledge. Everyone should obviously pick up the book, How to Be a Power Connector. Judy has her own website, she is a couch, she is a speaker, she’s clearly someone that you want to have in your own Rolodex so that you can network and really help her get to know so that she could make a difference in your business. Judy, thank you so much.
Judy:
Yeah, people feel free to reach out to me on LinkedIn or Twitter or my website and I’ve also been asked by so many people, I’m going to put together an eight week webinar on how to get funded. I’ll probably interview you on it.
John:
I would love that! That would be great.
Judy:
Thank you and listen folks, everybody out there, I mean, really, just do it. Reach out to people, they will help you, I promise.
John:
Great ending. Thanks Judy.
TSP008 | Scott McGregor – Transcription
Posted by John Livesay in Uncategorized | 0 comments
John Livesay:
Today’s guest on The Successful Pitch is Scott McGregor. Scott has a fascinating childhood where he was literally, it was his duty to the world to make a difference and he’s been doing that his entire life. That concept of focusing on making a different as oppose as focusing on making a lot of money is what brings you satisfaction and gives you the passion that investors are looking for when they want to fund your startup.
Be sure to listen to Scott’s interview today, because he has an incredible story about a rocket that cost 10 billion dollars, yes, billion with a b, and wouldn’t be ready for ten years and hear how he was part of this incredible concept of getting this funded. Talk about a story of evaluation and getting a return on investment. He’s able to take that whole story telling concept of how that happened for a rocket and show how to make it even for an app where traction is sometimes more important than even having commitment, because you have traction, the commitment is probably already there as oppose to just having commitment without traction. Enjoy the incredible interview with Scott McGregor.
Hi and welcome back to The Successful Pitch podcast. Today’s guest is Scott McGregor. Scott is an adviser, co-founder, and consultant to tech startups based in Silicon Valley where a lot of great ideas and companies come out of. Scott, welcome to the show.
Scott McGregor:
Thank you. It’s great to be here.
John:
Scott, you have such a wide variety of experience where you advise startups on things that they need to know and do in order to be successful and you’ve lead teams doing things that seem impossible and coming up with innovations. I would just love to have you tell our listeners a little bit about your background. How does someone get to be you, basically? How did you get interested in text startups and what was your journey that took you from where you were to where you are now?
Scott:
Wow. Well, my journey probably started really early. I think it started basically when I was, you know, under the age of ten. About the age of eight, my maternal grandfather told me, he was very interested in science and technology, and he told me that with my last night, that I was part of what he called the Scott’s American inventive imperative. That’s a big phrase for an eight year old, but it fired me up and he said, you know, you have a duty to the world to go up and create. These Scott Americans have this tradition that creating new solutions that change our world and make it better and don’t mess it up!
John:
No pressure.
Scott:
So, I just always kind of lived into that and then when I was in my, when I was 16 I got involved into computers, so that was back in the early 70s, so I’m sort of the same generation as Bill Gates, Steve Jobs, and Steve Wozniak, a lot of other people that were kind of the founders. There wasn’t a lot of stuff preventing us from doing stuff, because none of it had been done. So, I’ve always sort of lived into the future at each step.
John:
I just love the fact that you were told at such a young age a sense of your identity and a sense of duty to the world to make a difference and clearly you’ve done that, but it’s such a key element for our listeners to take away. If they weren’t as fortunate as you have been to had somebody instill that in you, you can still put it in yourself and instill that in yourself the sense of who you are, so grounded and so focused that sense of purpose is really, I think, one of the key elements that makes a startup successful, would you agree/?
Scott:
I would agree. In fact, I would say the, one of the myths that it would be good for the media to dispel is the myth of the entrepreneur who is in it to make a lot of money. It’s a hell of a lot of work for low probability of making a lot of money, but there’s a lot of satisfaction. One of the things for me is I’m a co-inventor of web conferences and what we’re doing right now is, you know, an outgrowth of some of that technology that we did in the 90s and on the tenth anniversary of web conferencing, I read an article somewhere, I don’t recall where it was anymore. I wish I had a copy of it, but the author estimated that about one billion people had used some form of web conferencing in those ten years and that is one out of every six to one out of every seven people in the world. That’s a huge number and that’s in keeping with what my grandfather asked me to do.
John:
Yes, make an impact in the world.
Scott:
Now, interestingly enough, because of when we needed to raise money and the dot com bust and various different factors, I didn’t make very much money from that, but I have the satisfaction in knowing that a lot of people are doing business with other people around the world without having to get on airplanes to do it.
John:
Exactly.
Scott:
Their doing business with people they would never have done business with before and that’s amazing when we can go out and change the world in that kind of way.
John:
I love that story. Speaking of stories, you mentioned to me early before we started the show that you have this amazing story involving lots of money and a rocket. Can you tell us our listeners that story?
Scott:
Sure. I worked for a guy named Rick Giarrusso back in the early 2000s and prior to founding the company that I joined, he had been the CFO for a company called Rotary Rocket, which was founded in the mid 90s and at that point of time there was this expectation, Motorola had this plan for iridium that was going to be this ring of satellites and provide this all satellites telephone communication and there was this huge expectation that there was going to be high demand for telecommunications satellites in low earth orbits so we would all have satellite phones.
Now, as we can see now that’s not the way the future actually panned out and we wound up with cellphones rather than satellite phones, but of course, no body knew that then, but his task was, he had this idea for re-usable rocket and in fact most of the stuff that Rotary Rocket did is now wound up in the SpaceX type designs. The companies that have come together to put together the SpaceX rocket or the successors to Rotary Rocket, but his task was we need 10 billion dollars to go out and build this rocket and it’s going to take us ten years, you know, before it’s available.
John:
Talk about evaluation and taking a long time to get an ROI
Scott:
That’s right. So, you know, one of the questions is how do you do that? Well, the way you don’t do it is go out and raise ten billion dollars and build the rocket and then see if you make money. You gotta go out and have the, you can’t build the rocket first. With that much money, you’re going to have to raise money, so he did some really interesting things and everything that I’m about to talk about is clear in the context of the rocket situation, but it’s true for everybody that wants to raise money, even if all they have is a little app that they put in the app store. So, if you still need to raise money, this is a great way to think about it. So, the first thing he said is he said, in order to raise this money, I have to prove to our investors that we’re actually going to be able to sell it.
John:
Right.
Scott:
And that’s ten years into the future, so how do I do that? So, what he did was he looked at the numbers and they expected that by making this re-usable rocket, they’d be able to reduce the price of one pound of satellites in orbit by a factor of ten. So, it costs one tenth as much to put up a satellite as it does today. That’s a huge advantage, so everybody would like to have that, but that’s not today, that’s when the rocket is ready, but he went to – there were seven companies at that point of time that were creating telecommunication satellites and he said, look, I know you guys are paying NASA or other companies to go out and put your satellites in orbit.
I’d like you to sign a contract to buy space on my rockets that will put your satellites in orbit at a tenth of a price that you currently pay and I’d like you to do it so that when this is ready, you know, we have this contract, and I need to go out and get a billion dollars worth of contract to go out and do this and he went around to each one of these and they said, well, this all sounds great, you know, if this was available today, we’d certainty, we’d happily to give you all this business, but, of course, it’s not now. It’s ten years and a lot of things can happen in ten years, including competitors can raise that we don’t know about and other changes in demand.
So, we can’t commit ourselves to that. He said, well, that’s okay, here’s what I’d like you to do. I’d like you to sign a contract that says you’ll do this and you will have the right to cancel this contract any time up until the rocket ready. So, when the rocket is ready, you know, if you haven’t already canceled it by that point of time, you’d agree to do it at this price. One tenth of what you’re paying today.
John:
Well, that sounds, let’s stop there for just a second, because it’s so interesting. There’s a couple of things that you’re saying that are so valuable for everybody as you said, no matter where they are in the process. Number one is, really having a clear explanation of what problem you’re solving, even if it’s ten years from now and secondly, getting some traction and being able to show investors there’s a signed letter of intent here even if it’s for ten years from now. I love that.
Scott:
That is the amazing part of this. So, he got letters of intent from all seven companies. So, that’s 100% of the market, okay, but so then he took that money and if you’re trying to raise a billion dollars, that’s too much for Silicon Valley VCs.
John:
Sure.
Scott:
So, he went to Wall Street, to the Wall Street bankers and private equity markets and they said, he said, look, I’ve got a billion dollars worth of contracts here. I would like to factor these contracts and get my money, you know, get 80% of this price up front and they said, well, that’s all really nice and good, but they can cancel this contract. So, we can’t give you this money, give 80% on this money because what if they cancel it all, we’ll never get our money back. And he said, no, no, I get that. Here’s what I’d like you to do. I’d like you to go out and write up the loan and you agree now that you will give me this loan if I come back with contracts in which there’s cancellations insurance. If I can get cancellation insurance on this, you’d get paid anyways. So, that should satisfy you, right? But, I need you to go out and say that you’ll do this.
John:
Again, let me pause there for a second, because you’re giving such valuable insights and I just want to recap it for the listeners. Not taking the first no as the final no and going on, you know, actually listening to the objection and then having a prepared answer for that objection. I can’t emphasis that enough is to anticipate what the objection might be and then have a response to it that still makes sense for the investor to say yes. That preparation and that mindset is brilliant.
Scott:
There’s another thing I think is worth pointing out, not only has he done this twice where he’s got the note and then said, well, what can I get you to say yes to, but he’s actually got them to agree to something. It’s contingent, but it’s an agreement.
John:
Yeah.
Scott:
So, he got this agreement that if he could do that, but they all said like, yeah, but where are you going to go get cancellation insurance on a billion dollars? And he said, well that’s my problem, right? And they said, sure.
So, he went away and he went to (#14:12?) and he went and talked to the name and said, (#14:15?), and he said, I have got, look, I’ve got these contract, I’ve got all seven companies signed up to buy this stuff. I’ve got the loans already ready to go that will allow me to have the money to build this rocket and to satisfy these contracts, but I can only close these loans if I have cancellation insurances. Would you guys write this cancellation insurance. Wow, this is, you know, ten billions of dollars to do this, we would need a billion dollars policy and he said, okay, well, I can do a billion dollar policy, because I’m going to do it from this loan.
Now, I’ve already got this loan, that’s contingent on you saying that you’ll write me this insurance, so you know I can pay it, because here it is right now. So, he got the billion dollar insurance, he went back to the banks, said, you know, give me eight billion dollars on this ten billion thing, took a billion of that and put it to pay off the cancellation insurance that left them with a billion dollars for RND.
John:
Well, the joke is when you’re doing something that’s not that complicated, somebody says, well, c’mon, it doesn’t take a rocket scientist to make this happen.
Scott:
Exactly, exactly right.
John:
In this case it did take a rocket scientist to put this deal together almost as complicated as building a rocket except what I love is how global it is that you live Silicon Valley, you get what you need from Silicon Valley, the letters of intent, then you go to New York, to Wall Street, to get the investors, and then you go to London, literally, to get the insurance. So, it really does take a global effort to pull something like this off, so that kind of tenacity, perseverance, big picture thinking, that’s for sure, is what it requires whether you’re starting up with a rocket or you’re starting up with a mobile app.
Scott:
Right, so let’s come back and talk about the mobile app for a second. One of the things that people come to me and ask me be an advisor or a board member, work with them in some capacity or another, I frequently get people who are technologist, that’s not surprising being here in Silicon Valley, so our software developers and they say, I want to build this app and I need this much money so I can pay my developers and then in a year I’m going to have or half a year or something, I will have this app and we’ll put it on Napster and I’m sure we’ll make a lot of money. Okay, but I can’t start it, I can’t quit my job, I can’t do any of these things until I have, I can’t build this thing, until I have that money.
They want to go and talk to angels and VCs here in Silicon Valley and when they do they’re usually frustrated, because pretty much right now if you got a mobile app, most angels and VCs that I know that you could go to will say, well, that sounds pretty cool, it’s cheaper to development software these days. A number of people do it for free in their dorm rooms and stuff. You find someway to finance the building app and you put it on the app store and if you get 1000 people in the first 30 days, come to me, then I got a solution, because what I know at that point in time is that you got something people like, it’s just that only if you people know about it and one thing we do know is with money, we can buy advertising and create awareness and if it’s a great thing, so we can help you scale your company, but you gotta get us that far and then they go, oh, well, I still need the money to develop this or whatever.
Now, there’s another option today and this is the Rotary Rocket option and people don’t realize that and it’s KickStarter. Think of it, KickStarter is the same thing. You go to your customers first and you get them to agree to pay you before you build it, okay. So, this same model is a model I recommend to basically everyone. A lot of people get hurt building products and then they get take them to market and they don’t take off as easily as they think they were going to take off and they’ve used all the money that they’ve got and they’re not able to go out and raise the next money, because they don’t have the success they had. If they could go get the letters of intent first.
John:
From potential customers in this case.
Scott:
Of potential customers, okay, either collect money in advance the way you do with KickStarter or just get letters of intent and stuff. This will carry you so much further. You’ll already be having a relationship with your customer before the products built and you’re going to come to question starting building where the developers are going to say, well, we could go left or we could we go right here, what should we do? If you have no customers, you just make a choice, and you find out later. If you have a customer, you can go out and check with that customer and then you can use the fact that the customer said this and that’s what you did. Again, as more proof of traction and more market alignment, and that’s again going to make your investors, you know, potential investors much happier.
John:
You know, there are so many road blocks to getting an investor to say yes and you’ve identified a big one which is if you don’t know your customers or have any sense of traction or any kind of movement at all and just have an idea, there’s so many great ideas out there and it’s not enough.
Scott:
You’re right and well, it’s, I know in one of your previous podcasts, there’s a big discussion about how really ideas don’t really matter and it largely true that’s it’s all about execution and a lot of people think they got this idea and the value is in the idea and they undervalue that the value is actually in them. Their ability to execute and one of the things that leads to is, oh, I can’t tell anybody about this, because the value is in the idea. Well, if you can’t tell any about it, you can’t get anybody to help you.
John:
You’re the first person to say that. I love it so much. Let me just reiterate that, Scott, thank you for saying that. So many people are so paranoid that if someone takes my intellectual property, my idea, and duplicates it, then where am I? Right? What you really said to everybody is, you know what, you’re the value, not the idea. The concept of Uber versus Lyft and who got funded first and who gets to market first and all that stuff had really nothing to do with the concept as much as it did with who executed it first and I know there’s some proprietary stuff that everybody has, but if it could just reduce some of that paranoia by ten degrees, it would really help the stress level of the entrepreneurs realizing that the value is in them, that people like to bet on the jockey, not the horse, right?
Scott:
That’s right and again, I’ll tie this back to where will you get the best reassurance about that. It’s going to be from your potential customer.
John:
Yes.
Scott:
Right and the customers actually don’t know what the all the ideas are out there. They may not even know whether somebody else has the same idea. It doesn’t really matter. It matters that you’re in front of them right now and you can solve your problem or you can’t.
John:
Right, let me ask you something else. I was curious when you were talking about this scenario where somebody hasn’t quit their job and they’re going to an investor to build something. A lot of investors that I’ve talked to have said, look, if you’re not willing to put yourself into this 100%, put your own money into it, we’re certainty not going to put money into it. Is that your observation and insight as well?
Scott:
So, what I will say is this, I think that’s a story that sometimes people say because there’s really uncertainty about whether the person that or team can carry it off and has commitment.
John:
Commitment, yeah.
Scott:
And if you had traction, people stop carrying about it.
John:
Got it, right. It’s when you don’t have commitment or traction that’s…
Scott:
If you don’t have it then it’s like, let me come up with all the reasons why I’m worried you’ll never get traction.
John:
Got it.
Scott:
You’re going to take my money and you’ll never get there. Again, if you got that letter of intent earlier, but the other thing that happens is you have those letters of intent and you have those customers and stuff, that creates an incentive to you and you’re already feeling like I got commitments to my customers to these people, right? And that will create that, your willingness to go in and go deeper and stuff. So, I think that it’s almost, it’s almost backwards that it’s not that I need you to be committed so that you’re going to do this, but if you were that commitment, I wouldn’t have this question. I would know that because you would already be in this deep with your customers or with something.
John:
That’s such helpful information. So, it’s no longer the chicken and egg story so much as a parallel story. If you have the traction, you have the commitment, and if you don’t have the commitment, you probably don’t have the traction, basically, is what I’m hearing you say.
Scott:
In fact, another thing to think about when we talked about ideas and stuff. Another way to sort of think about this is that, let’s say, you are not an idea person. You’re a person just deep pockets. What would you think that you’d want to put money? Would you want to put money on some place where you could see that the players that are already out there are making money and you could back onto them or would you like to go out and put with somebody that’s never done anything.
John:
Yes, goes back to the team, right.
Scott:
Right. So, again, this is sort of where the idea that the funny things is until you make a lot of money, no body is actually interested in stealing your idea. Okay. They either smart enough to have ideas of their own and then they want to do it because it’s there idea. That might be similar, but they are driven by an internal thing or if they’re just really out steal somebody else’s idea, they want to steal one that they know works in the market place. Why should they take risk? What they’re thinking is, what is going to make me win is I can throw this money and we can out spend the other player, right.
John:
Yes, well, that leaves us with the whole concept of competition and how you view and just being aware of it, but I love what you said, until you’re making a lot of money, no one’s really interested in stealing what you have or your idea. It’s great.
Scott:
In fact, look at what Elon Musk has done. He has this idea for the hyperloop. He didn’t go out and say, this is such a cool idea. This idea of a pneumatic tube transportation system between San Francisco and LA. I’m not going to tell anybody about it. No, he goes and publishes detailed technical documents and advertises on his blog and tells everybody about and gives it to the world. What happens is a bunch of people around the country find this interesting, bunch of engineers and say, well, let’s go out and build a little prototype and then when they’ve done that, they say, oh, we don’t wanna go out and have Elon involved at all. No, they call Elon and say, hey, look, we loved your idea, we ran with it and stuff, we want you to be part of our team.
John:
Nice.
Scott:
So, if you really have a great idea, go out, preach it to the world, and get all the followers that are going to make it happen.
John:
That’s a great, great, that’s a great place to end. I mean, half hour goes so fast with people who have so many great stories and insights like you. Thank you for sharing that. I love that analogy.
Scott:
Welcome.
John:
In our closing comments to the listeners, is there any particular book that you really resonate with lately that you’ve, oh, that was really inspiriting or gave me some new insights that you would like to recommend?
Scott:
Yeah, one of my favorite books to recommend for entrepreneurs is a book called The Goal. I don’t have the book in front of me right now or the author’s name. The second author is Jeff Cox.
John:
We’ll find it and put it in the transcript notes. The Goal.
Scott:
And Jeff has also written probably my second most recommended one for entrepreneurs, which is called Selling the Wheel and Selling the Wheel is all about this issue that we talked about we’ve got this great technology, how do we get it from something that never existed in the world to something is, you know, in dispensable like web conferences.
John:
Love it.
Scott:
But in The Goal, he talks about using constraint management and the insider here is, if there were no constraints on your business, you would be instantly, you would be instantly and infinitely profitable, okay, you’re not, so there must be something that’s constraining your growth. When you understand what their techniques to go out and figure out what those constraints are and when you know what they are, you can do one of two things.
If it is a constraint you can remove, you can remove it. You can maybe get another machine or get another thing or get a replacement, move to a different technology. All of those things will allow your company to grow again. There’s some things you can’t remove. You can think for example sometimes regulations and sometimes there’s just laws of physics.
Then what you need to do is find a way to be as efficient as possible within those constraints and I find in startups that a lot of times people that I advise are thinking about, well, I want to work on this problem and this problem and this problem, but there are none of the problems that are currently constraining them. What that means is that they’re spending time and money, but they’re not going to get any benefit from it yet. So, this can really focus you.
John:
That’s so great. If you’re working on the wrong problem, you’re not making any traction. So, that’s a very important distinction. Make sure you’re spending your resources and your times and creativity first in defining what your obstacle is that’s constraining you. I love that. Thank you, Scott. Scott, how can people keep in touch with you. Should they follow you on LinkedIn, you have some blogs up I know.
Scott:
Yep, follow me on LinkedIn is a great way to keep up with me. I do post things there. I do share a lot of other materials that I get access to. I am open to people reaching out to me if they are looking for an advisor or board member or something.
John:
Great and I see you have your own website. Do you want to give that to our listeners?
Scott:
Sure, I actually have two websites. One is http://www.smcgregor.com/. You’ll learn about lots of things that I’ve done in the past and then there’s my consulting business which is SwiftDesignGroup.com and for companies that actually have product and technology and they are looking to expand outside of the US, I work with a couple called PointGreen.biz. They are interesting. We are a company that basically, we act as consultants to large companies in Europe and the Middle East. Sometimes they are telcos and mobile service providers and IT providers that can act as a distribution challenge for technology, but also have access to governments and hospitality and banking and many other kinds of industrial, you know, B to B type and customers. We’re looking for new technology. So, we help them find the technology they need and we help the technology companies find these customers.
John:
It sounds like you help people cut through red tape.
Scott:
We do.
John:
Yeah, that’s great. Scott, thank you so much for being on the show. You’ve been an incredible guest and I know our audience have gotten incredible takeaways and we look forward to following you and watching you continue to make an impact as you have so much and continuing in that duty to the world that you were told to do and we want to thank you for all the contributions that have made and will continue to make/
Scott:
Thanks so much. It’s been a lot of fun. Maybe there will be another time we can do this again.
John:
I love it. Thanks Scott.