Shark Tank Pitch Secrets with Kevin Harrington
Posted by John Livesay in podcast | 0 comments
Episode Summary
Today’s guest on The Successful Pitch is none other than Kevin Harrington, one of the original judges on Shark Tank. If anybody knows what it takes to have a good pitch, it’s Kevin Harrington. He’s literally heard over 50,000 pitches in the many years he’s been doing this, from listening to pitches for infomercials to listening to pitches on Shark Tank. He has a really great key here which is that, “Consistency is the ultimate motivational tool.” He said, “When you’re out there, you need to show the investors how they’re going to get their money back.” He gives an example of exactly the kind of pitch he would like to hear in order to get him to say yes. He said, “You need to test before you invest.” He gives us great insights into what a magical transformation is that he is looking for when he hears a pitch.
Listen To The Episode Here
Shark Tank Pitch Secrets with Kevin Harrington
Hi. Welcome to The Successful Pitch podcast. Today, I am thrilled to have Kevin Harrington. You probably know him as one of the original Shark Tank judges. He has been so successful in so many different areas. He has written multiple books, one called the Key Person of Influence, and he is definitely a person of influence. He is known not only for his expertise on Shark Tank, but he is the inventor of the infomercial, the As Seen on TV pioneer. Now, he’s involved with Quantum Media, which is a digital media agency. He hears so many pitches. He’s going to give us insights into what makes a great pitch. Kevin, welcome to the show.
Hey, John. You said a mouthful there, thank you for all that.
I’ve been a big fan of yours for multiple years. I’ve watched a lot of your clips on television and your areas of expertise. I always like to go back to someone’s story of origin. Did you always know you wanted to be an entrepreneur?
I was lucky. I grew up one of six kids in Cincinnati, Ohio. My father was an entrepreneur and he always said, “Kevin, I want you to be an entrepreneur, own your own business, control your own destiny.” Now, my mother, her father was in banking, so she came out very conservative, “Oh no, I’d really like for you to be a doctor or a lawyer.” They struggled a little bit. The good news is I have two older sisters. One married a doctor, one married a lawyer. I got to be the entrepreneur.
[Tweet “Shark Tank Pitch: Consistency is the ultimate motivational tool.”]
Everybody filled the different dreams of your parents, so you got to do your own expertise there. One of the things that you’ve recently written about in Forbes is that, “Consistency is the ultimate motivation tool.” I’d love to have you talk about that.
I think that when I look at the infomercial business and I look at the infomercials space, that is an industry of consistency. We take Tony Little, who goes on in HSN and gives his pitch. Then, he hones it. Every time he comes on, he has to be consistently the same. He comes back week after week, month after month, year after year, and we’d take that infomercial and it continues that whole path, all around the world. When I get involved with products and companies and people like the Tony Littles of the world, I get involved once they have reached that level of knowing what the consistency of that pitch is and how powerful it is. Then we capture it on tape, put it up in front of millions of people and take it around the world.
Shark Tank Pitch: It’s a much more authentic world in the world of marketing and business today than it was even ten years ago.
Yes, consistency is important. That’s in a product but also running in the business. It’s the same thing. Why is McDonald’s so successful? It’s the special sauce. They give you the same thing. No matter where you go, you’re going to get that same quality little cheeseburger, whatever it is you’re getting. That’s why franchising works. Ultimately, successful businesses are good because they deliver on a promise of consistency. It’s important. People today, they don’t mind paying a little extra or the right price for something, whatever the deal might be. But they expect to get the same thing each and every time. I think, it certainly is as the millennials are coming out. They don’t want to be messed with. It’s a much more authentic world in the world of marketing and business today than it was even ten years ago.
I think we can use this as a through line for the whole episode because consistency is so important in what you’re doing with Quantum Media. When you’re talking about helping businesses increase their conversion rates and use social media and all these other digital tools to create a brand, it’s so important that brand would be consistent.
Absolutely. Let’s put it this way. In the world of marketing, when we first started, I didn’t even know what an infomercial was, we didn’t call it infomercial, we’re just putting them up. But it got down to where we were running our shows, looking for consistent dollar per phone call. We had an allowable with the station where we said, “Okay, we’re going to let you run this show and we need to get $10 for every time the phone rings.” That’s our allowable, that’s our consistency.
Shark Tank Pitch: If you’re not consistent in the world of digital, it’s even a bigger problem today.
In the world of digital marketing, it’s pretty much the same thing. If you’re going to go on Facebook and you’re going to use affiliates and you’re going to do different things, you have to be able to provide consistent everything. Because if you’re shipping your product within 48 hours and that’s consistent, and all of the sudden you have a delay on inventory and you’re shipping in three or four weeks. Your returns are going to go from 5% to maybe 20%. If you’re not consistent in the world of digital, it’s even a bigger problem today. In the old days, we could say at the end of an infomercial, “Hey, call the number, we’ll ship it within four to six weeks.” Can you do that in today’s world?
No. Not with the drones in Amazon and everything. That’s funny.
“Did you mean four to six hours or four to six days?” Don’t give me four days. I want this in 48 hours. The world expects authentic consistent performance. They just don’t allow for the alternative anymore.
It’s all about giving people an expectation that you can meet and then being consistent with meeting those expectations. Because the minute you lose credibility in an infomercial, on what you’re promising your clients from Quantum Media, or what the ad is promising people if they click on it that they don’t get, then everything goes out the window. Now, you have heard so many pitches. Let’s talk about of course your experience with Shark Tank, how did Mark Burnett pitch you to be a judge?
I’m going to tell you that in one second. I got to finish one point you just made. In today’s world, with the star system of rating people’s products and stuff, that is the other reason why consistency is so important. Because in the old days, you could ship something, if it wasn’t perfect, people didn’t have a way to complain other than call the number and say, “You know what? It’s not exactly what I wanted.” Now, you get one or two stars, you get yanked off the air, you get yanked off a website. You’ve got to be consistent. We’ll close that subject down.
I love that loop. Thank you. Even an Uber driver gets rated now, so everybody gets rated.
I was sitting there. I had done about 300 or 400 infomercials with Tony Little and George Foreman and Jack LaLanne and the juicer and all these different fancy shows and things. Taking them all around the world, built a public company with $500 million in sales and had done literally billions across the board. One day, Mark Burnett was on the line and he’s like, “Hey, Kevin. This is Mark Burnett. I’m a TV producer.” I said, “Mark, I know exactly who you are. I’m in your industry.” He said, “Look, I got a new reality show I’m doing. Would you come out to LA? I want you to meet my team and tell you what we’re up to. It’s something I want to see if you might be interested.”I said, “Mark, what an honor to get this phone call. I appreciate it. Thank you. But any kind of heads-up you could give me so I can be thinking about it? Is there any news on it yet?”He said, “No, it’s coming out but we haven’t shot it yet. It’s called Shark Tank. Don’t worry, just come on out here. I’ll tell you more about it when you get out here.”
I said, “Mark, wait a minute. I’m not sure that this is going to be for me. I do know you do some crazy things to people on that Survivor Island show. I don’t know about a show called Shark Tank. What are you going to do to me?” He thought about it and said, “Look, it’s not crazy like that. It’s a business show, Kevin.” That’s when I said, “If it’s a business show, I’m interested, if you’re involved Mark.” My wife said, “How is Shark Tank a business show?”
It was kind of funny. Think about this. When I was shooting Shark Tank, nobody knew what it was. I tell my wife, “I’m heading out to LA. I’m shooting Shark Tank.” She says, “What are you going to do?”I said, “I’m going to be investing money.” She said, “Wait a minute, they’re not paying you? You have to pay them?” “That’s how it works, yes.” She said, “How much are you going to invest?” I said, “I don’t know. It could be hundreds of thousands, it could be millions.” She said, “When would we get that money back?” I said, “I don’t know, maybe never.” She said, “Why do you want to be on this show?”
[Tweet “Shark Tank Pitch: I’ve heard over 50K pitches over the years.”]
When you think about it, I was investing one of the first deals I did, I’d put a half a million into a company. She closed the doors six months later. It was a very risky endeavor and I was one of the original sharks in putting money up and wheeling and dealing and all that. I think the bottom line is this, once we got distribution, once it was on the air, once it got the buzz, then everybody understood. “Okay, there’s the Shark Tank show. Yes, I understand. Kevin’s on that show called Shark Tank.” Then, it started paying off for me. Much like why are we doing a podcast today. I’ve taken now 50,000 pitches over the last 30 years. This is why Mark Burnett wanted me, because I had taken so many pitches before I’ve even got on Shark Tank that I was an experienced pitch taker, if that’s the right way to say. I go to tradeshows every week somewhere. I’ll do 30 tradeshows this year. I’ll invest in products in every show that I go to, whether it’s the pet show or the fitness show or the beauty show or the golf or the toy fair or the house wares or the hardware. That’s what I do for a living and that’s what I love to do.
The one thing I can tell you, John, is that I have learned what it takes to give a good pitch because I’ll sit there in a day, I took 96 pitches in one day. Just think about this, do five minutes times 96, it’s 500 minutes, and do it back to back to back, it’s an eight hour a day and beyond, and there was time in between. Sit there for eight to ten to twelve hours and take pitches, you’re going to learn a thing or two when you get to 47 and you think you’ve taken 500. You’re ready for a little break in the action and you’re ready for a good pitch. I learned a thing or two about good pitches. That’s what I love sharing with people right now. That’s part of my DNA.
I’ve been called The Pitch WhispererR because that’s equally something I’m passionate about as well. I love helping people become great story tellers, and you and I are on the same page. I’ve heard you talked about the need for a pitch to have a magical transformation. Can you describe what that is for you?
I’m in a very visual business, in the world of as seen on TV products. If it’s Tony Little in fitness, we want to see people losing weight. We want to see people getting stronger. If it’s acne, we want to see their bad skin get cleared up. Just think about it. If it’s a kitchen gadget, we would take a little gadget and turn an apple into a bird, “Wow, what was that? That was pretty amazing.” The bottom line is this magical transformation sells. It’s before and after, before and after. It’s visual, it’s demonstrable, and it works. We know that it does.
[Tweet “Shark Tank Pitch: Magical transformation sells.”]
People ask me a lot of times, and you’re the expert to ask this question to. How real is it on Shark Tank compared to when somebody pitches someone like yourself in front of an Angel group? Because I know you’re involved with the Angel Investor Network as well. The contrast obviously is quite different, but I’d love to hear your answer on TV versus reality.
Look, the one thing that I would always say, Shark Tank is a great show but Mark Burnett is a television producer and he looks for ratings. He’d come down halfway through a day and say, “Nobody has invested any money, what’s going on here? If we’re going to have good television, we’ve got to have some deals.” We’d say, “Mark, you want good television, but we want good deals.” There’s a mix there. We could make fun of people or whatever, which I never really particularly wanted to do that. I was more of a constructive guy. Mr. Wonderful, that’s his brand, to make fun of people. That’s okay. He built his brand on that. Me, I like to empower entrepreneurs.
I would say this, that Shark Tank was about making good TV and getting good ratings and getting lots of viewership. They’ve done a good job of that. Along the way, you’ve got to have a mix of some good deals, or the sharks aren’t going to be interested. I’d be sitting there and somebody would come out with something that you just knew. They were looking for ten grand, for 20% of their company, they haven’t even started and it’s this crazy idea, and you just knew this one that it was just made for television.
Do you think that Mark Cuban, who owns a multibillion dollar enterprise and the Dallas Mavericks, is interested in really investing ten grand in one of these teeny little deals? It’s made for TV that they had to do, whereas when we’re pitching equity deals like Angels network and some of these things, these are hardcore deals where we want to see research. We want to see competitive analysis. We want to see exit plans. We want to see the risk analysis where we can really get into the hardcore crunch of the deal.
I did dozens of deals on Shark Tank and I know Cuban’s done probably, I think I read an article that he had done about 35 or 40 deals. He said a third of them are making some money or in business, a third of them are out of business and don’t know it, and a third of them are never going to make it and are virtually done. Two-thirds were done almost and just selling and not really understanding that they really don’t have a business.
Shark Tank Pitch: People forget, when they come on Shark Tank, it’s not really about them. It’s about how do they get the shark to want to write the check.
I think that’s probably not too far off the investor rule in investing in Angel-kind of deals, is if you can get a third of your stuff to work, that’s probably pretty good. However, I wonder how many of the third that are still in business, as Mark says, are actually going to have any kind of an exit to where he might get his money back even. That’s really the ultimate thing. People forget, when they come on Shark Tank, it’s not really about them, it’s about how do they get the shark to want to write the check. That’s the perspective people pitching a lot of times forget. They’ve got to get the shark to write the check. It’s more about understanding really the motivation of the shark to want to be your partner.
Would you say, for someone like yourself who has heard as many as 96 pitches in one day, that having a really compelling story is a way to get people to standout out of all those pitches? You remember the story more than the product, typically?
I’ll say this. I think the story is important, absolutely. I want to hear the story, but at the end of the day, I focus on a couple of things. I want to know, is there an exit strategy, because one of the challenges is this. If it’s a private company, let’s say somebody wants to have half a million dollars for X percent of their private company. There is never a distributions in these small companies. They always need more money. Here’s my half a million, I’m not going to get it back for a long time unless you sell the company or go public. I want to know that there’s an exit strategy.
This is the other trick that I talk about, and Mr. Wonderful uses this one quite a bit. Is there a way to accelerate the pay back to the shark? When I say shark, to the investor. I’ll give you an example. If somebody says to me, “Look, I want your half a million. I’ll give you 20% of my company, but I’ll give you 100% of the profits until you get all your money back. Now you’re whole. Now you own 20% for the rest of your life. You don’t have to be worrying every day, “Where’s my money? Where’s my money?” You got your money back right away. Now, you can focus on building the business to the exit.
I tell people to always focus on getting that money back to the shark. If you’d notice, O’Leary, in many cases is talking about, “Okay, you’re a donut business. I want 50 cents for every donut you sell,” as a way to monetize his investment. That’s because he realizes that he’s going to be riding these people like crazy if he just has equity and he’s never seeing any distributions. But if he’s getting 50 cents back on every donut sold, he’s getting a distribution on a weekly basis and having the chance to have equity also.
I love it because not only does the investor get their money back sooner than the exit strategy, but also it takes the pressure off the founder not to have an exit strategy until they’re really ready because the investors already made their money.
Exactly. In all of the years of watching and doing Shark Tank and being there myself for 175 of my own segments, never did one person ever actually lay it out to me, the shark, “Hey, look. I’m so focused on you to get your money back fast. My goal as the entrepreneur here is to tell you that I’ve got a great business, here’s my plan, here’s my execution, here’s my team. But my goal is to get you your money back within one year, and this is how I’m going to do it.” If somebody came with that storyline, that’s going to be powerful pitch.
It’s really about showing empathy for the investor as opposed to what you need, isn’t it? I love that, Kevin.
I’ll give you an example. I had a company I got involved with. They needed $20 million. We went out and did a raise. They said, “Would you help us go on the road show?” I said, “Absolutely.” They said, “Look, give us a couple of weeks up in New York. We’re going to have people coming in one at a time, have a couple of group meetings. We’ll have you, if you could. There’s a couple of billionaires as part of this, if you could maybe go and sit in their big building that they own at the corner of 15th and Madison or something. We’ll make a couple of appearances here and there.” I made 90 something pitches over that two and a half week period of time.
Shark Tank Pitch: What is it that you like? What have been some of your most successful investments?
We made 90 something pitches to individual investors. The first thing that I did was sat, talked, got to know them for a few minutes. What is it that you like? What have been some of your most successful investments? They would instantly tell me what it was going to take for them to get the money. “This is what I’ve been doing. When I invested in this deal, I love it. I ride it out for years, and boom, boom, boom.” They would basically, within five minutes, tell me what it was I needed to do to convince them that we might have the right investment for them. Sometimes, you’ve just got to sit and listen.
It also sounds like you’re really smart in asking the investors before you even pitched what their criteria is of what makes them say yes. Also, you get them in the mindset of remembering a positive experience before you even pitch, which I think is also very clever.
Exactly. Because on Shark Tank, the advantage that people have today is they can watch all the Shark Tank segments, and they see what Barbara is looking for, what excites O’Leary, how to make those pitches. But when you’re one-on-one with an investor you just met for the first time, how are you going to pitch them? You’ve got to get in their head real fast. That’s what I like to do.
Kevin, one of the key things I know is so important to investors like yourself is, who’s on the team? Recently, I interviewed Laura Wagner of Digitzs. She put together such an impressive team of people from Apple and PayPal and Google, plus herself. Is that a key factor for you when you’re looking at a company that’s pre-revenue and maybe even pre-minimum viable product, is will they have a great team?
Yes. There are various things that I do look for. If someone says to me, “What is the one thing that an entrepreneur really needs to do to be successful?” I say, “They’ve got to have passion and vision and all that. But they need to surround themselves with experts and a dream team that supports their strengths and weaknesses, and more supports their weaknesses than strengths.” I think at the end of the day, Laura surrounded herself with some amazing people and was very, very successful in doing that. What was interesting is that when she first tried to raise some money via crowdfunding, she had some challenges. The bottom line is, it landed soft in the first part and then when we brought the shark stuff and brought more of this dream team aspect to the table, it has super charged what she was doing. The bottom line is we had some very powerful stuff happen as the dream team came together.
You’ve had your pulse on success for so long, from being on the cutting edge of what’s going on in infomercials, being one of the first Shark Tank judges when there was a lot of risk for you, it obviously paid off. Now, you continue to invest in a lot of startups. Let’s talk about where you see the future with what you’re doing with Quantum Media. What is it about that that you feel is so exciting and has so much growth, and how can people possibly use Quantum Media, and who are you targeting?
What’s happened is there’s been a disruption in a lot of industries. Uber has disrupted taxis and Airbnb is disrupting hotels. Not that they’re putting all these out of business, necessarily. They’re tightening up some of these industries. The TV industry has been disrupted itself. There is 50% fewer viewers on TV. By the way, there is big financial drain in the world of television right now. ESPN is losing millions of viewers every single year. ABC owns ESPN and Disney, they’re hurting because of this. What’s happening is, where do the eyeballs go? If they’re not watching TV, they’re watching digital. They’re on digital. They’re on Facebook. They’re on Pinterest. They’re on Instagram.
The bottom line is that there’s this mass exodus to other places. What do I do? I follow the eyeballs. Quantum Media, what we’ve done, five years ago, it was 80% TV, 20% internet digital. Now, I’m 80% digital, 20% TV. We’re doing campaigns for major corporations, for products across the board. We call it a test before you invest kind of a format and do a lot of stuff long before we go to TV, because TV is so expensive. Quantum Media is our new baby. We shoot very inexpensive videos, test them up on social media channels to see what the results are before we go to the next steps. It’s the new way for us. Digital is without a doubt the future in my mind for not only testing products but also rolling them out and, as you started off this conversation, getting the consistency you need as an entrepreneur.
[Tweet “Shark Tank Pitch: Test before you invest.”]
Nice. We’re going to tweet that out. I love that line, test before you invest. What a great sound bite that is. That’s fantastic. I know that people are probably going to want to follow you on social media. Your handle is @HarringtonKevin. You have thousands and thousands of people listening to your advice. I just want to personally thank you for being such an advocate and inspiration for so many people, myself included.
John, it’s been a pleasure to be here today. Thanks for having me. Keep the pitches coming for both of us. I love to take the next home run pitch. I love every single day when I wake up because I never know what I might be pitched that day. That’s what keeps my days exciting, is knowing that I’m going to be hearing some cool new things. I look forward to doing some more business with you. Good luck in your podcast ventures and taking new pitches.
Thanks a lot, Kevin. I appreciate you being on the show.
Thank you.
Links Mentioned
- J Robinett Enterprises
- John Livesay Funding Strategist
- Kevin Harrington
- Key Person of Influence
- As Seen on TV
- Quantum Media
- @HarringtonKevin
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Get Your Dreams Funded with Manny Fernandez
Posted by John Livesay in podcast | 0 comments
Episode Summary
Today’s guest on The Successful Pitch podcast is Manny Fernandez, who you might have seen on television CNBC’s Make Me a Millionaire Inventor. He was named the 2014 San Francisco Angel Investor of the Year. He shares with us how he had a successful exit, and the three things he’s looking for when he hears you pitch. Number one is of course, the team, and why you’re able to execute your idea. Number two, is how large is this market, because without a large market, there’s no return on investment for the investor. Finally, are you early in the market, in other words, it’s too late to be the next Uber. Enjoy the episode.
Listen To The Episode Here
Get Your Dreams Funded with Manny Fernandez
Hi and welcome to The Successful Pitch. Today’s guest is Manny Fernandez. Manny, you might know as an investor on CNBC’s Make Me a Millionaire Inventor. I’ve watched him be on that show and he’s amazing. He’s also amazing on CNBC’s Squawk Box. He’s quite successful in so many ways, and we’re just thrilled to have him here. He’s had a successful exit. He’s an active Angel Investor, and he was awarded the 2014 San Francisco Angel Investor of the Year and Equity Crowdfunding Leadership Award.
He’s not only the founder of the San Francisco Angel Groups, but he is also the founder of DreamFunded as the CEO. What that company does is crowdfund startups with an online market place. He’s got quite an interesting background. I’m going to let him tell us all about it. Manny, welcome to the show.
Thanks for having me, John. I’m honored to be here.
How to Make Money Investing in Pre-IPO Stocks
It’s great to have you. You have touched every possible touch point on how to be successful from writing a book, How to Make Money Investing in Pre-IPO Stocks, to being on television, to launching not one but two different things. I know that you have been involved with Stanford and Wells Fargo, but take us back, if you will, before you got to be on television as the investor, how did you get involved in this whole world of startups? Because so many people say, “Wow, I would like to be an investor someday, but I don’t have a clue.” What was your journey?
It all started with this thing called real estate, where not as an agent, but I just bought a piece of investment property and learned that I was pretty talented at it and then later, I wanted more. I was stuck with the question, “How do you raise money to be able to buy a hundred homes?” I networked aggressively to figure out the answer. Later at the age of 23, I created a real estate fund, then we bought a portfolio of single family homes and sold at the peak of the market. What many people didn’t know is during the down times, I was studying Computer Science out of our office. I created the online brokerage that was later acquired by the largest Century 21 franchise in Northern California. Later on, I created another real estate fund.
One thing I learned about it was how to work with other people, to invest their money appropriately and get a return. When I was attending Stanford, one of the things I learned professionally was about venture capital, Angel investing. Those are the courses that really stood out at me because it reminded me what happened so many years ago. A lot of the dynamics are the same, that one of the big differences, obviously, the asset class is different. That was the start. As I started to Angel invest and joined a group called TiE Angels and later created our own group called SF Angels. Asked for help like always, and was fortunate to network with someone do an introduction, I’d invested early in Google and Paypal. Was a former partner of this legend, Ron Conway. I learned a lot from him and I did a scary thing, John.
I had to go out, which every entrepreneur has to do. I have to go out and talk to customers about the business. It was the hardest thing that I had to learn, I had to be really high profile in Silicon Valley and that was hard to do. Look at my skin. I had to learn how to public speak and talking to entrepreneurs, those were the customers. I had to let them know that we have money for them, but I had to do it in a different way, John, where I gave them advice and education on the subject to allow them to raise money Which was unheard of because everyone want to keep the secrets, like, “Don’t tell entrepreneurs how to raise money because if you do that, then everyone will have the money.” That’s not the case. A lot of people are still stuck in fear.
Get Your Dreams Funded: I learned how to work with other people, to invest their money appropriately and get a return.
Indeed. Let’s talk about San Francisco Angel Group. I’m really interested in how that works compared to other Angel groups, for example. I know you have 30 plus accredited investors. Do you only typically fund people who are in Silicon Valley? Let’s start with that.
Yes, that was the purpose. The purpose was even more specifically in San Francisco early stage. It did go a little bit more into later stage companies, when they were doing the Series A or Series B round, some of our members had access to it. It was primarily Silicon Valley. Throughout that experience of only funding companies here, I realized there are a lot of great companies outside of Silicon Valley, in Austin, in Seattle, L.A., even Florida. At the same time, just being out there in the community, I was forced then to be a keynote speaker in many parts of the world. Many entrepreneurs wanted funding, but what was the most amazing thing, John, is many investors wanted to co-invest. I said, “Our meetings are every Thursday of every month, come on down.” Obviously, I didn’t invite people if they lived in Shanghai or Singapore or Texas and L.A. or New York. I just held their business cards. I remember that many of the entrepreneurs pulling at my heart strings, they want to get introduction to investors, and there was really no way of doing that. I just started thinking about it.
Interesting. If someone lives in San Francisco, Silicon Valley area, and wants to come pitch to the San Francisco Angels, what’s the process and what does it look like when they get in front of your group?
Primarily, you go on a website and you can apply. Some of the members, actually, they’re the best method to get an introduction, usually they’re interested, they’re investing, they’re “sponsoring” you to be presented to the group. If you’re qualified, the entrepreneurs will say their story and the entrepreneur will be asked to leave the group, then the group will ask a few questions among the group if there’s enough interest to do what you call due diligence. If there’s enough, then we will move it forward to do a little research to see if this is an investment we want to do. That’s it in a nutshell.
That’s great. Because this is The Successful Pitch, I’m always interested to hear, do they get ten minutes for a pitch and then there’s a ten minute Q and A? Is that the format you use or is it something different?
No, you’re absolutely correct. It’s approximately anywhere from seven to ten minutes, and then we ask questions among the members of the group.
Those warm introductions are so important, to get even invited to come in and pitch. I know you specialize in equity crowdfunding, the internet real estate software. Does the group itself look for high tech solutions, or is there a type of startup that you like to see come in?
Yes. Everyone in that group is very specifically focused on tech, software, internet-related startups.
Are you funding people who are pre-revenue, giving them their seed round?
Absolutely.
Those typically range anywhere from … The definition is so broad now. It could be anything as 250, all the way up to a million, typically. Is that in the ballpark of what your group does?
The interesting thing about the group, some people make a group decision and some people do it individually. Sometimes you don’t have everyone’s approval. I provided checks as low as $25,000. This will be the first check in to a company, and give them a little boost and try to connect them to other investors to fill their round. It’s not one individual cutting a check for a million, it’s multiple people coming together.
Can you tell us about a good pitch that you’ve heard, Manny, that you’re thinking, “They had me in the first three minutes, and they’ve been a big success story”, either at San Francisco Angel Group or DreamFunded.
I think that one of the things that I hear a lot is entrepreneurs, they’re not telling a story. A lot of people talk in logical terms and things that we don’t care about. One entrepreneur that worked out quite well, they talked about the market, they talked about the team, they talked about the potential for the investors to make money, and that sometimes gets our attention. I don’t know why.
The best way for the investors to feel like they’re going to make their money is to have a successful exit. It’s what I typically hear. Do you have other suggestions?
Absolutely, that’s the case. If the entrepreneur says they’re going to hold it for twenty years and give it to their step-kids, then that’s probably not the right business for us. If they think they’re going to become the next Facebook and make it go public, maybe that will work. But if they look at they’re going to potentially have an acquired, and these are the natural acquisitioners, then we can understand the thought process behind the entrepreneur. I think the best I’ve seen, they tell a story, the beginning, middle and the end. The beginning is why they created it, their personal problem, what team they have established, the great market, and they have some traction, it doesn’t mean it’s sales. At the end, where they’re going with it if they did have the money? What would it look like at the end? If you can imagine a movie, all the dynamics of it, I think the entrepreneur should probably cover that.
[Tweet “Get Your Dreams Funded: Pitch like you’re telling a story in a movie.”]
Nice, I love that. Pitch like you’re telling a story in a movie, like you’re pitching a movie and have us visualize it. Paint a picture, if you will. I like this, why you created it, how big the market is, what the team is. People are always interested in what you look for, besides sales, in terms of traction. I have some ideas, but I’d love to hear what you think is important, or what you think is valid traction if it’s not sales.
I think there’s one thing I was taught, it was three little things. I think you can screen out 90% of the startups that are presenting, or if you’re a startup, look for these dynamics. Because these are the dynamics that some investors look for for really large returns. Number one, it’s a large market. Without a large market, it’s going to be challenging to make any real money and to make it a big business. Second, early in that market. Not chase after something that’s really too late because there’s many relationships, and most of the market is already taken. Last but not least, it is the most important thing, is the team. The team who’s executing behind it, who did I piece together to make this story into a reality.
Nice. Those are great three things. We’re going to tweet that out, a large market, early in that market, and a great team. Speaking of tweeting, you have quite the award there, Manny, with being number fourteen in the top 100 Angel Investor’s to follow in Twitter. Of course I’m following you. One of 150,000 people. Congratulations on that. I couldn’t resist giving you a little shout-out on that.
Thank you. One day, it will have extra number behind, 1.5 million, because the more information we can provide to the public about how to invest or how startups can use the equity crowdfunding to raise money, the numbers will greatly grow. The motivational tweets that I provide, it really goes viral a lot.
Let’s talk about DreamFunded.com. This is different than the San Francisco Angel Groups. It’s an online capital platform, where people can invest in startups for as low as $3,000. Yet, you guys have done some major investments alongside major VC firms, like Tim Draper and Greylock, etc. Tell us, how did you get inspired to start DreamFunded? For people who are listening, maybe you could contrast and compare? Like, if this is you, then you should go to San Francisco Angels, if you have a warm intro, or if that’s not you, DreamFunded is more in line with what you need to do.
When I started Angel investing, I had a certain vision of it. When I got involved, then I had a certain reality of it. I said, “Maybe, I’ll create a group and get a few of my friends and network together so we could fund more entrepreneurs,” and more entrepreneurs were being funded. However, 99% plus unfortunately weren’t getting funded. Maybe because for whatever reason, they weren’t in our network, kind of unfair. They’re not in our network, they can’t get an intro, they can’t present in a meeting, and I had a problem with that.
Get Your Dreams Funded: Money should be more distributed to anyone that has a desire of creating a business.
In addition to that, it was other entrepreneurs that probably had a small business or a business that maybe couldn’t really scale but could do well for the entrepreneur and their community. I started thinking about that. I always had a problem with that. Money should be more distributed to anyone that has a desire of creating a business. They should be able to be backed because that’s a rare desire, an entrepreneur who wants to do something different than have a job.
One day in the fall, it was a slow period in December. This was in 2013. I had some time to go through my emails, and there are thousands of them, unfortunately, I haven’t read yet. I was going through them and I said, “It’s a good time to go back and see companies that applied and see what happened to them. I could do a self-study.” I saw two companies that presented but unfortunately were a little bit slow. It took an average of 60 days to get funding, and fortunately they had another way they got funded. They went on some big name platform and actually received the funding. I said, “Wow.” I played with the numbers of what the exit was. I’m keeping the name quiet. What was exit and what were they asking for and what our return was, and boy, when I saw seven figures, I got really frustrated. I got upset because I started thinking about all the investors who are out there that wanted to get access to it, and yet if we’re faster, then maybe we could have got in.
I started thinking about the entrepreneurs that were trying to get funded as well as the investors that want to invest. I thought back, “What am I going to do about this?” I got a stack of business cards of many investors that wanted to invest. I have endless entrepreneurs who are looking for funding. I thought back, my early 20’s, my first dream was to create a startup or create a business. My second dream after that was I need to get funded. That was almost impossible. I said, “Okay, I know that, but then now, I’m a successful investor and entrepreneur. My dream is to fund the next big thing.” It just came to me, DreamFunded. I bought the name and used our network at SF Angels.
It was an interesting time because there was this new thing called equity crowdfunding happening, t allowing accredited investors to invest. We were the fourth platform approved by Angel Capital Association, a trade organization. Almost in a short period of time, 90 days, we had 3,000 plus accredited investors signed up for many of the Angel groups nationwide. I was looking at it, I could not believe we had so much interest. Maybe many people were just checking out what was going on, but then we had some pretty well-named companies that we funded through DreamFunded and it just kept growing.
I love it. How do someone decide if they should pitch the San Francisco Angel Group or another Angel group or go to DreamFunded? What’s the criteria for getting funded via DreamFunded?
Now we’re trying to have everyone go to DreamFunded and apply there, because there’s, we call it deal flow, where we have to start there and sometimes it’s right for a group, sometimes it’s right for our platform, sometimes it’s right for our fund. We don’t know until they apply. Going to DreamFunded.com and signing up and applying, we as a team can quickly review what they’re doing. Unfortunately, not everyone is going to get accepted but some people are better to tap in this thing called equity crowdfunding, Title III of the JOBS Act. What that really means, it allows everyday people to invest. Just to say what you said earlier, at one time the minimum was $3,000, but now the minimum is $100.
DreamFunded is solving two problems. One, allowing people who are not “accredited” investors with a million in assets to invest in startups. Secondly, giving a platform without needing to have a lot of connections to investors directly to get in front of an Angel group, to possibly get seen and not only be part of equity crowdfunding, but if it’s a big enough idea, get the attention of someone like you who says, “You know what, this is equity crowdfunding and then some.” Correct?
Absolutely.
It’s really exciting. I think what you’re doing is solving so many problems for so many people that I don’t know how you have time to sleep.
[Tweet “Get Your Dreams Funded: Leverage – have a great team.”]
Leverage, my friend. I got a great team. I may be a good marketer but I have a great team, like my co-founder, Avery Haskell. He just graduated from Stanford. He has been secretly building DreamFunded with me throughout the time while he was in his dorm room. He didn’t want to get his focus off of his study. Now he is really improving the site to great ability, because we really have over a 160,000 members all around the world now signed up. We have about 20 companies that are going to be approved shortly, that’s going to be able to raise a million dollars from everyone. People are really spreading the word about DreamFunded because they see it on CNBC Make Me a Millionaire Inventor, or they may have seen it on Wall Street Journal in December or in Bloomberg in December.
The word is being spread, but the message is, entrepreneurs now, they have an interest in raising money and you’re not born in that special network where you can get access to that special club, this is for you. If you are one of the investors that are out there saying, “I don’t know how to get into that special network,” or, “I don’t want to wait for Facebook to go public. Plus, I don’t have much money, I’m not one of the accredited investors. I cannot invest $25,000 or $50,000. I just want to spend $100 or $500.” Maybe back the entrepreneur that I know, that’s going to be creating something. That’s what DreamFunded is about.
Typically, a lot of people will say, “If you’re going to use crowdfunding, equity crowdfunding or any other kind of crowdfunding, you need to “bring your own crowd.” Is that the case with the DreamFunded?
It’s partly the case. But how I started building it is that I started with the foundation of SF Angels and then many of the Angel members nationwide that are members and many of the talks that I’ve done throughout the world brought a stronger base of investors. CNBC’s Squawk Box in the studio, they tremendously increase the visibility as well as the amount of investor sign-ups. It is helpful for the entrepreneur to have a small handful of people that believe in them, to back them. Many of those people can be just found on LinkedIn, so it’s nothing too complex, it’s a combination of both. In a Shark Tank mindset, we have the hungry sharks, the smaller sharks that are ready to bite on the new startups that are going to be applying.
I’m going to shift gears a little bit. In your LinkedIn profile, it describes your successful exit, and that’s always an interesting topic for everybody to hear. Can you tell us that story?
Some things start off one way and they change and they become something different. I think that’s an important thing to know. Every entrepreneur may start off one way and end up changing their direction based on feedback. I just really wanted to create a site where I thought people want to sell their house when the market would change and they wanted a quicker way of selling it. Then the market changed, and unfortunately they didn’t have much equity in their home.
We had people all across the country who were signing up and ended up devolving into an online real estate brokerage where we receive the commission upon the sale of their house. At that time, it was so early, no one knew what this thing called short sales were. We went from zero to an excess of $5 million in sales in a very short period of time. Sometimes you get lucky. It was acquired by the Select Group Real Estate, the largest Century 21 Coldwell Banker, ERA owner in Northern California, with 60 plus offices, thousands of agents.
Congratulations. What you’ve gone through that experience, like going through due diligence. Now you know what to look for and help people that you’re funding get through that process in a way that gives the investors a great return on their investment. Is there any book, besides yours, which we have mentioned, that you would recommend to people to read either about life or about getting funded?
Think and Grow Rich by Napoleon Hill
I do have a new book that’s coming out, that’s going to help people to raise money. It will be on Kickstarter shortly to allow people to buy the book in advance. For those that want to raise up to a million or raise up to 50 million, the secrets will be in there. One book that I really love is Think and Grow Rich by Napoleon Hill. If any of your listeners are looking for a book that’s probably a free version of our book, just email [email protected]. When that book comes out, I’ll send you a copy of it, just put a headline that you heard about it on the show. There’s no cost, you can save the $20. If you feel bad that you saved the $20, just find an unfortunate person and give it to him.
That’s such a great gift. I really appreciate you doing that. Are there any final thoughts you have on giving a good pitch or just perseverance required to be a successful entrepreneur?
Yes. There’s this guy, and this gentleman came up to me late 2013.I was at this event I was judging, he came and grabbed my arm, he said, “Hey, how are you doing? Nice to meet you. Can you help me show me how to fund my hair product?” I really didn’t understand what this guy said. All I heard was, “fund my hair product.” I’m like, “Sorry, we fund software internet companies.” I turned because my attention was pulled somewhere else. He grabbed my arm and I said, “What is going on?” I turned around and looked at him, and I made a mistake because I looked at his eyes, and his eyes are really sincere. It reminded me of myself a few years ago when I was in my 20’s. “How do you raise money? What is the secret about raising private money? Hey, can you show me?”
Get Your Dreams Funded: How do you raise money? What is the secret about raising private money?
I didn’t have an answer, but instantly when he said that, I thought about it and I said, “There has been a PowerPoint that’s been used by our Angel group,” and I’ve seen it circulated throughout the Valley. For some reasons it’s helping a lot of people get funded. I said, “Tell you what, I’m going to give you my business card, you put PowerPoint on the headline, send me an email, I’ll send you a copy of the PowerPoint”, because in my mind I was going to take out the ingredients and just keep it general so people can have a framework. I gave it to him and later on, about 45 days later, he sent me an email that he raised over $600,000.
What’s interesting about that is because I’ve never seen it work outside of Silicon Valley. I’ve never seen it work outside of tech companies. For a guy who I didn’t even understand what he was saying to be able to raise that, it was like, wow. One of the things I do now is, for those that really want a framework to be able to raise money, I can’t say it’s perfect, but it allows you to think what an investor is looking for. I give this away, if you want a copy of that free PowerPoint that will help many people, just email, [email protected]. It’s no cost. It’s my community gift.
There’s a video on YouTube. Type in the word “equity crowdfunding” and it pops up, the number one most viewed video of all time for equity crowdfunding. It was a talk I did at keynote talk in Finland. I gave out that PowerPoint, and I think many people loved that gift, so they started spreading the video everywhere. Fortunately, it has over 200,000 views now. For the entrepreneurs that are looking for a template, take a look at that, GetFunded@DreamFunded. It also shows you ways to follow-up in terms of how to pitch us.
Fantastic. So much value added, so many great insights. You’re so generous with your time, your insights and your knowledge. Anybody who gets to work with you is indeed lucky, so follow you at @MannyFernandez on Twitter. Manny, I can’t thank you enough for being on The Successful Pitch today.
One last thing, there’s an upcoming TV show we’re doing. It’s a new type of show that allows the public to invest in these companies that are approved. More information will follow for those. Follow me on Twitter, Manny Fernandez on Twitter. You will find out the moment I can release it to everyone.
Good. Exciting little tidbits. That’s a great open loop. That’s how you get people intrigued, everybody. Give them a little teaser. Give them a reason to stay listening to your next tweet. Thanks again, Manny.
Links Mentioned
- J Robinett Enterprises
- John Livesay Funding Strategist
- DreamFunded
- How to Make Money Investing in Pre-IPO Stocks – Book
- Equity Crowdfunding video
- TiE Angels
- San Francisco Angel Groups
- Think and Grow Rich by Napoleon Hill
- [email protected] – get new book for free
- [email protected] – get the PowerPoint framework/template for free
- @MannyFernandez – Twitter
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When Science Meets Tech, Lives Are Saved With Jay Goth
Posted by John Livesay in podcast | 0 comments
Episode Summary
Jay Goth is a fund manager here in the Los Angeles area. He talks about how being direct and specific can get you to a yes or a no in 30 seconds rather than waiting 30 days for an answer. He shares a lot of tips on how to pitch whether for a startup or for a fund. He also shares the exciting things happening in the biotech startup industry, showing that when science meets tech, lives are saved.
Listen To The Episode Here
When Science Meets Tech, Lives Are Saved With Jay Goth
Hello and welcome to The Successful Pitch. Today’s guest is Jay Goth who is a fund manager here in the Los Angeles area. He has always been an entrepreneur and enjoy the success of building large companies. After years of being a consultant and an investment banker, an entrepreneur in resident, a nonprofit director, basically a cheerleader for the startup community, he is now forming a fund where he comes up with new discoveries that literally save lives, reduce treatment costs and eliminate unnecessary surgeries and reduce human suffering. How great is that? He’s going to be a different kind of venture capitalist he says. Instead of raising money and looking for special companies, he works with a core portfolio companies to create new investment opportunities. Jay, welcome to the show. My Goodness, I love what you’re doing.
Thanks, John. I’m having a blast.
I bet. Before you became such a maverick in saving and changing the world, can you talk us back to your early days? I know you graduated from University of Colorado in Boulder. From there, you worked for some energy companies and solar. You’ve always been at the cutting edge of technology it looks like to me.
I’ve always been an entrepreneur. I started basically right out of high school, working for myself. I never really got along with bosses too well. It was the entrepreneurial life for me. Back in the 90s, after being in insurance and real estate, trying all kinds of different things, I started raising money for other people. I was terrible at it. I made a lot of friends and zero investors and learned that sometimes you don’t want friends, you want investors.
Interesting. Let’s do a deeper dive into that. People always learn so much when people are willing to talk about what didn’t work as much as what did work. What do you mean by that? You can’t be friends with the investors or you were just too focused on the relationship and not what they needed for a return?
I wanted to be friends with everybody. Sometimes when you’re getting people to write you a check, you can’t quite be so friendly. You have to take control of the situation. Initially, I generated a lot of leads. I was one of the best lead opening people anywhere I worked. The problem was I wasn’t closing people because I wasn’t really taking control. I was just ceding control over to them and they’d always give me some excuse and I wouldn’t nail them on it. I’d just go ahead and go with the flow.
Jay, I think this is so valuable. I’ve never had anybody in over 90 episodes talk about this. I’m really happy you brought this up. So many times, people get the polite no. “Come back when you have more traction. You’re too early in the market.” Or whatever the excuse is. They never get a yes. I like to say that the longest distance sometimes is between someone’s mouths and their wallet. Give us some techniques or ideas that people can use to not just take the first no.
Science Meets Tech: “I’m looking for investors who are interested in this and are willing to write a check. Is that you?”
It’s really a basic thing, asking for the order. A lot of times, we beat around the bushes. “I’d love to see you as an investor,” or this or that. What I learned is that if I start my conversation with a prospective investor, right up front, “I’m looking for investors who are interested in this and are willing to write a check. Is that you?” I was always afraid to do that. When you start that way, then all of a sudden their guard comes down a little bit. I’m not one of the guys that’s sitting there, calling them, beating around the bush. I’m a real person asking him if he’s interested in making the investment. It’s just as easy to get to no in 30 seconds as it is to get to no in 30 days.
It saves a lot of time when you’re that specific and that direct.
Right.
I love it. Let’s take a dive into what you did at Red Tail Capital. I’m interested to know what lessons you learned from that and what types of things you’re invested in.
Red Tail Capital was an investment banking operation. I was really working on mergers and acquisitions, did some debt financing for people. Really, where I learned how to pitch and the things I learned were really when I started a company called Commonwealth Energy back in the late 90s. I was one of the founding fathers of this company. Basically what had happened is we were looking for investors for a number of other companies. Every time we raised money for one of these other companies, they would blow it. They would take the money and they wouldn’t spend it the way they should and they would be coming back to us looking for more money. Our investors weren’t happen with us and we weren’t happy with the management teams. Finally, we decided, why don’t we just raise money for ourselves? With saw an opportunity in the energy deregulation here in California in the late 90s. We built a company called Commonwealth Energy and we started raising money for ourselves. John, we raised $60 million from 1500 private investors over the course of a couple of years.
Holy cow. What was the average investment to get such a large number?
We were doing it under a special California exemption so that we were using California investors and California companies. We were able to get in people who wouldn’t qualify under the “accredited” investor status. There are some looser regulations for those. We were able to get in a lot of people. The minimum investment was $10,000 but sometimes we’d package one or two investors together if they were qualified. Like I say, we raised a lot of money, but the best thing about it was we actually built a business. We build something that became the largest unregulated supplier of electricity and natural gas in the country. Ran the revenues to up to close to half a million dollars and went public on the American Stock Exchange.
Congratulations. That’s a great exit.
Yeah. All of our investors did well. It was the greatest ride of my life, I’ll tell you. That was about four years of just nonstop excitement. There were times when we thought we were going to lose everything. There were times that we were just really riding high. Of course you get to a point in the company where the entrepreneurs leave and the professional management team comes in. That’s what happened. When I left that, I went into consulting and started doing all kinds of things. The core things I learned when I was raising capital at Commonwealth Energy have always remained in my mind. There were some very simple steps that I found that were taught to me that really can help. You get to a yes a lot faster.
Please share those steps.
The first thing you want to do when you’re talking to a potential investor is you don’t want to tell them a long elaborate story because the longer your story the more confused they get.
That’s a great line. The longer your story, the more confused they get.
[Tweet “Science Meets Tech: The longer your story when pitching, the more you confuse investors.”]
A confused investor never invests.
That’s right.
Science Meets Tech: Get three yeses and then ask for the order.
We would give them a very general idea of what we were doing. Of course you have to frame it in the right way so that it sounds really good. Then we would ask them a couple of very leading questions. Something like, “The pharmaceutical market is a multi-billion dollar industry. If you were come out with a blockbuster drug, don’t you agree that there’d be a lot of money to be made?” You’re asking them questions that they almost have to say yes to. The adage that I was taught was three yeses and ask for the order. You would ask them, “Blah, blah, blah, right?” They would go, “Yeah, that makes sense.” You would ask them something else and they go, “That makes sense.” You’d ask them the third thing and as soon as they agreed with you, you’d say, “Here’s what I suggest we do. Why don’t we go ahead and put you down for an investment?” Right away, you’re taking their temperature. Of course usually they’re going to come up with an objection. “I don’t know about that.” “Let’s just get a gauge of where you’re at, what you would feel comfortable in. If everything I tell you is borne out in writing when I send you all the information that you’re going to have to review before you make the investment decision, how much would invest at this point?”
Nice. Because you’re basically becoming copilot with them and saying, “We’re going to land the plane. We’ve agreed that if everything works, the landing gear goes down and everything in due diligence checks out, that you’re going to write a check.”
Exactly. If they said, “No, I’m not going to write a check.” I say, “No matter what I send you, you’re not going to invest, right?” If they said yes then we’re at zero and it’s a good time for us to shake hands and part friends. Go find somebody who is going to write a check.
[Tweet “Science Meets Tech: Be specific and direct when you pitch.”]
There’s nothing worse in my opinion Jay, than the maybe or let me think about it. That just drags everything out. Like you said, you can get an answer in 30 seconds instead of 30 days by being specific and direct. I love it. You are no longer pitching for money because you’re on the other side of the table now.
Wrong, you’re wrong. I still have to raise money for my fund.
You’re listening to pitches and pitching. What’s the difference between pitching for money for a fund versus pitching to get a startup funded?
There’s absolutely no difference. Whenever you’re asking somebody to write a check to somebody they don’t know, to do something, it’s always a difficult situation. It’s never easy. Whether you’re a startup, a fund, an established company. I’ve worked with public companies before. It’s always the same question. What do you do? How do you make money? How am I going to make money as an investor? When am I going to see it? Those are really the things they want to know. There are a couple of different ways you can approach investing. With the biotech, I’m always talking about the greater good, I’m talking about saving lives, speeding innovation to market and really making a difference in all the people that are suffering today that don’t need to if only we can get them the right drug at the right time in the right dose. That’s what I do. That’s what gets me all fired up about biotech. As much fun as I had at Commonwealth Energy, it’s nothing compared to the rollercoaster I’m on right now.
Let’s just quickly recap. There’s such great questions that you just gave us that you could ask when you’re pitching, whether it’s to raise money for a fund or a startup. The first one I think you said was, how do you make money? One of them is, how do I, as an investor, make money? Correct?
Right.
In other words, what’s your exit strategy? In the case of a fund, I would assume that somebody gives you money for you fund, they make money when one of the companies that you fund that they also own goes public or gets sold, correct? There’s some strategy there that eventually there’ll be an exit for them to make a big return.
In a fund, it’s a little different because we’re investing in a number of companies. It’s not just one. You’re a little more diversified so your risk may be a little lower because if one doesn’t hit maybe another one will. At the same time, we’re a very specially focused, special purpose fund. We’re not out there, I’m not looking for the next investment. I’m helping actually produce the next investment. What we’ve been able to do is put together three core companies that I call our consortium or eco system if you’re in the west coast. I know east coasters don’t like that. Basically, these companies work synergistically to develop new intellectual property assets that we can then package into a new company and take to market. I’m very involved in funding these three companies to keep them going. At the same time, I’m really more focused on these new assets that we’re developing because these are the things that are going to be game changers in the medical industry.
What do you look for when somebody comes to pitch you to fund their medical biotech startup? Are you looking more at the team and their background? Are you looking at their passion for making a difference in the world or that they have a business plan? What is your criteria?
I think if you talk to investors, and I talk to them all the time, the number one thing that we always look for is management. We want to see somebody who has successfully been able to do what they tell me they’re going to do now. When I tell somebody that I started a company and we took it public, I have a little bit of credibility compared to somebody who says, “I started a company and it never really got off the ground.” I’ve done that too, believe me. You’re not an entrepreneur if you haven’t had a couple of spectacular failures. I’ve got those. Really, the management team has to be able to execute.
[Tweet “Science Meets Tech: Show that your team can execute the idea better than anyone.”]
You have two risks in biotech I think. One is the execution risk. That’s the management team. That’s the group of people that are going to make this happen. In biotech, so many times you see a great management team of scientists but you’re missing a business element. A lot of times when I see a biotech deal and I see a bunch of doctors and scientists, I’ll say, “This is all great, but who’s going to make the business part happen?” They’re like, “We all run our own operations. We understand business.” I say, “No, this is a whole different thing.” You got to talk about marketing, scaling, operations. There’s just a lot more involved than simple research. You’re translating a product that you’ve developed in a lab to a commercial product. Management is key.
Number two in biotech is really a regulatory risk. Is the FDA going to approve this or not? One out of ten drugs that starts in the clinical trial process actually makes it to becoming a drug. It takes over ten years and a billion dollars. When you’ve got that risk, that’s a very low success rate. You really got to look at how can we maximize the opportunity and increase the possibility that you’re going to get through clinical trials. Fortunately, that’s one of the things one of my portfolio companies does, is you can actually tell in advance who will respond to a drug and who won’t. So when we go in to clinical trials, we’ll be able to tell what our efficacy rate is going to be ahead of time.
One of the things I’m really interested to hear about Jay, is not only do you give money but you roll up your sleeves and get in the trenches and help these companies be successful. That’s so important.
I think a lot of venture capitalists say that they do that. To an extent, as much as they can, they do. That’s why I kept my fund size very small. I’m not looking for a whole bunch of companies. I really want to help make this happen. I’m intricately involved in all aspects of the companies’ operations, even though I don’t hold a management position and I don’t hold any vote. We do have governance positions where we can take an oversight look at the thing. Really, the key to me is if I want my investors to be happy, I got to make their investment spectacularly successful. What can I do to make that successful?
What are you working on now that you can share that you’re excited about?
Science Meets Tech: We’re coming up with a liquid biopsy that will actually just use a little bit of your blood.
We have a diagnostic that we plan on bringing to market very soon. Right now, if you get a CAT scan of your lung because you’ve had this cough for a long time and you look at the lung and there’s a mass in there, you don’t know what it is. The first thing you do is do a needle biopsy. Go in and you actually pull a piece of that mass out to see if it’s cancerous or benign or what it is. We’re coming up with a liquid biopsy that will actually just use a little bit of your blood from your arm and be able to tell with 100% accuracy whether that mass is benign or cancerous.
Wow. Early detection is everything. To make it so non-invasive is really exciting.
That’s the key. This was actually developed by a surgeon who didn’t want to do unnecessary biopsies. This is just one of the exciting things. We’ve ran the tests on 282 patients and it came out 100% accurate. We’ve done a couple of other tests for validation and they both came back with the same high accuracy rate. We’re really looking at moving this out to the market next year.
What do you do in terms of worrying about barrier to entry from competition?
The competition in the biotech sector is just super intense. Everybody you talk to knows somebody who’s working on something. I was at a conference yesterday and I must have talked to 20 people who are working on exciting biotech things. Some of them overlapped, some of them didn’t. I just talked to a gentleman today on the phone. I thought I was pitching him for an investment. It turns out he was pitching me for an investment. He’s running a diagnostics company and I’m running a fund that funds diagnostic companies. Who knows, we may be able to do something together. There’s just so much competition in the space.
What do you do about barriers to entry? We actually have a very strong intellectual property attorney. The companies have formed a relationship with a gentleman who is one of the top biological attorneys in the country when it comes to intellectual property. You want to not only protect the IP that you’ve developed, but you also want to protect how you got to that IP, what kind of strategies you need to employ to make sure nobody else can say, “We found something that’s very similar and we can use it.” Because you want to walk it up as long as you can from a greedy capitalist standpoint, but at the same time, when you’re looking at intellectual property like this, the research and dollars that go into generating it are so huge that you’ve got to be able to get your money back.
Science Meets Tech: I think what we’re going to see is this turn towards what I call precision medicine
I think, and this is me putting on my political hat a little bit, but I think the FDA is starting to take a different approach to how they look at things. They still want to maintain safety and efficacy, which is the most important thing, making sure people don’t get hurt by a drug and making sure that people are helped by a drug. I think what we’re going to see is this turn towards what I call precision medicine. That’s generally the term. You can call it personalized medicine or individual medicine. Really, we take a little bit more time before we do a diagnosis and treatment. We look at your individual human biology. We look deep into your biology to figure out, “Just because you have diabetes doesn’t mean that your diabetes is as advanced as the next guy’s diabetes and what works for him may not work for you. Why don’t we design a treatment based around you as a specific individual?”
I think we’re going there and I think that this is going to actually end up, even though drug makers won’t be selling as much of a drug because we’d be prescribing different things, I think they can actually, because the drug is going to be working, we’re going to go to a pay for performance model eventually. If I prescriber a drug for you and it doesn’t work, that drug maker is not going to get compensated.
It also sounds like we’re really going into this whole specialized, customized dosage and everything else. It’s much like marketing is very specific and customized, that medicine is going to become the same way. I love it. What impact is artificial intelligence having on medicine and what you’re doing?
It’s a good question. One of the things that we have is a bio informatics engine. It’s not artificial intelligence per se but it’s a whole new way of looking at math. We have a laboratory in Pennsylvania that we’re building right now that will be able to generate 250 million data points off of one single tissue sample. It’s looking at human tissue at a whole different way because it’s looking not only at the genetics but at the proteins, at the lipids and all of the different things that make up that little tissue sample. If you have 250 million things that you know about this sample and you’re trying to find out what is the reason for a specific outcome, why is this a diseased tissue versus a normal tissue, or whatever it is, and you have a dozen different tissue samples, 250 million times a dozen.
These data points are interacting with each other to cause whatever the problem is that you’re looking at, that’s a huge mathematical problem. A lot of people have tried applying artificial intelligence, machine learning, support vector machines, all these advanced ways of looking at math. Nobody has really been able to hit the nail on the head. Luckily I found a company that actually has done that with a whole new way of looking at math. It’s very cool. It’s almost like evolutionary math where the data actually fights itself out to find out who the victor is at the end of the day.
I love it.
It’s really cool stuff. We’re seeing all kinds of advancements. I think it’s this marriage of science and technology that is really causing a revolution in the medical industry right now. We’re right at the beginning of it. It’s very exciting.
[Tweet “Science Meets Tech: It’s causing a revolution in the medical industry.”]
Do you think the result of medicine and technology joining forces is that people will be living longer?
Absolutely. I hear people saying we’ll all be living to 150. The people who are born in the 2020s will be living to 150. I firmly believe it. The application of technology to medicine is allowing us to learn so much more about the human body and how it really interacts and what causes aging. Aging is simply our cells being unable to reproduce themselves the way they did when we were young. Because our bodies are always replenishing itself. We’re always rebuilding our cells. We start losing the ability to rebuild them properly. Why is that? There are some incredibly intelligent people who are looking at that right now, everyone from Craig Venter at Human Longevity to Dr. Michael Rose at the University of California Irvine. You name it. There’s just so many people doing this. There’s no way we’re not going to be able to live not only longer but better lives longer.
The impact that’s going to have on population growth and crowding and people not retiring at a certain age anymore, it’s all just going to be fascinating to watch.
You’re right. It’s going to be pretty incredible. Love being in the catbird seat, being able to watch all this stuff unfold.
How to Be a Power Connector: The 5+50+100 Rule for Turning Your Business Network into Profits
I bet. Is there a book that you would recommend someone who is interested in getting in getting their startup funded or learning to be a better entrepreneur or just learning about how to live a better life that you want to give a shout out to?
I’ll say two. One is self-serving because there’s a lady out there that I’ve met recently that I really love what she has to say and the way she’s able to connect people. You know her very well. Judy Robinett. How to be a Power Connector is killer. I hear she’s coming out with a new book soon. That’s one. When it comes to pitching and doing stuff, you’ve probably had people recommend this book before. Oren Klaff has a book called Pitch Anything that is just out of this world. I’ve read that probably 50 times and I’ll probably read it another 50 because I just love his approach.
Pitch Anything: An Innovative Method for Presenting, Persuading, and Winning the Deal
It’s all about how the brain works and framing everything. It’s really well done. I love it as well. Fantastic. Jay, how can people stay in touch with you on social media, your Twitter handle, all that good stuff?
The name of my fund is Forentis Fund. We have Facebook, Twitter, LinkedIn. Feel free to hit me up there. We post regularly whenever I see something cool in precision medicine. We’re always posting news up there and of course our own stuff. It’s a good way to stay in touch with me. I’m at Forentis.com. If anyone ever wants to get in touch with me, you can reach me right through the website.
Fantastic, Jay. You’ve been a great guest. I love your passion. I love that you have so many great tips on how to be successful and have a successful exit and making a difference all at the same time. Thanks so much for being on the show.
Thanks for having me, John. I really enjoyed it.
Me too. Bye.
Bye.
Links Mentioned
- J Robinett Enterprises
- John Livesay Funding Strategist
- Forentis Fund
- Forentis Fund Facebook
- Forentis Fund Twitter
- Forentis Fund LinkedIn
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