Unleash Your Inner Company with John Chisholm
Posted by John Livesay in podcast | 0 comments
Episode Summary
Today’s guest on The Successful Pitch is John Chisholm, the author of Unleash Your Inner Company. He has such an impressive background from MIT and Harvard and has coached thousands of entrepreneurs on how to be successful. He shares those secrets with us today. In fact, he said, “Passion is an attitude but perseverance is a behavior.” He does a deep dive into the psychology of growing your mind from the inside out. He really shares what he looks for when he hears a pitch as an investor. I think you’re going to get a lot of value into learning what it takes to reduce the risk by hitting certain milestones and showing an upside potential so that your pitch becomes irresistible. Enjoy the episode.
Listen To The Episode Here
Unleash Your Inner Company with John Chisholm
I am thrilled to have John Chisholm today as my special guest. John has an amazing background. He went to MIT. In fact, he’s now president of the MIT Alumni Association. From there, he went to Harvard. He was one of the early employees at Hewlett-Packard and Silicon Valley. He has an amazing book called Unleash Your Inner Company. He has also founded two companies. He co-founded a third. He sold a fourth company. He’s advised literally thousands of entrepreneurs across five continents. John, welcome to the show.
John, thanks so much for having me.
I have so much respect and insight for what you’re doing. You have such an amazing career and journey. Let’s start with this whole concept of you’ve been both an entrepreneur and an angel investor. Let’s just dive right in. What do you listen for when you hear a pitch?
Unleash Your Inner Company: Use Passion and Perseverance to Build Your Ideal Business
I think it’s helpful to have been an entrepreneur, when you’re both evaluating pitches and trying to be helpful to entrepreneurs, I listen very closely for a real unsatisfied customer need. Until I hear one, it’s hard for me to get very excited or to be very focused on the opportunity. So many entrepreneurs focus on their really cool technology rather than a real customer need. I like to say, I started my first company with a really cool technology for which there was no customer need. It took me six to nine months to let go of that cool technology and swap it in favor of something for which there was a real customer need, namely doing surveys on the internet.
My first company which I founded in 1992 was Decisive Technology which published the first software for automated surveys via email and later via the internet. Start with a real customer need, that way you know that your business will be addressing a real customer need. It’s okay to use your resources, including your technologies if you have some, to suggest real customer needs, but make certain that you’re satisfying one. In the book, I talk about ways to come up with a potentially infinite number of unsatisfied customer needs even just in the areas you’re passionate about and to test them and to confirm that they’re real.
How do you suggest somebody test that the problem is real? Do you have any ideas on that?
Yes. First of all, let me talk about how you come up with unsatisfied customer needs. Start with any product or service in an area that you’re passionate about. For example, you’re passionate about running. One of the products and services we runners use are running shoes. Then ask yourself, what are the limitations of that product or service? I can think of three for my running shoes. Number one, they start to smell after I’ve worn them too many times. Two, if I want to change the shoelaces to match the color of my outfit, it’s a hassle to thread and re-thread them every time, two laces of different colors. Three, the shoes don’t tell me how far I’ve run or how fast I’ve run and they should know that, shouldn’t they? Those are three possible customer needs.
I have to confirm that they’re real and unsatisfied. Real means that other people besides just me have the need that means talking to people, going online seeing if other people seem to have the need, doing interviews. Also, I have to confirm that they’re unsatisfied, which means that another product or service isn’t already satisfying them. That means seeing what products and services are currently available, going to shoe stores. If I can satisfy myself that they are real and unsatisfied, great. That’s an opportunity for me to come up with a possible solution to that need. Let’s say, I can’t find anyone who addresses the problem of changing shoelaces easily to match the color of my outfit. That’s an opportunity to be creative and maybe I can think of a way to let a set of shoelaces to snap on or off. For the other needs, the shoes that smell and the shoes that don’t tell me how far or fast I’ve run, there are obviously solutions for those footpads and sprays and so forth.
Then ask yourself, what are the limitations of those solutions? Sprays have to be done every day. Footpads have to be changed frequently. What if there were a way to go for weeks or months without having to use the spray or change the footpads? That would have some advantages over the current product. Now, I have a new potential customer need that is the leftover need from the original need that’s not fully satisfied by the product or service currently available. Similarly, for the shoes that don’t tell me how far or fast I’ve run, there are solutions to those. There are Fitbits, there are odometers and so forth that you can wear while you’re running, but those I have to put on and take off. What if there was a way to have it built into the shoes so that I didn’t have to worry about putting it on or taking it off? Then that’s another potential need.
You can see I started out with a single product or service in an area that I’m passionate about. It blossoms into a tree of potential unsatisfied customer needs that I can consider evaluating. That’s how you can get a potentially infinite number of unsatisfied customer needs from even just one product or service in an area that you’re passionate about.
Unleash Your Inner Company: Come up with unsatisfied customer needs.
That’s so helpful. I’m always telling everybody: when you pitch, paint a picture. You just did that for us, John. You talked about it blossoming into a tree and you showed us how each branch leads to another branch by this logical way of exploring what the problem is. You’re really getting into the head of a potential customer’s problem that they may not have even thought about. “Yeah, my shoes smell.” They accept it. If you can really figure out a way to prevent that, they would love it. That’s really helpful.
John, sometimes I hear from budding entrepreneurs, “What if my areas that I’m passionate about aren’t very business oriented?” Let’s say I’m passionate about long hot baths, kittens and comic books. None of these sound very businesslike, do they? But even in these areas, there are potentially an infinite number of unsatisfied customer needs.
Warm hot baths. People like to read, listen to music, talk on the phone when they’re in the tub. How about a floating waterproof case for my iPad or iPhone that lets me do those things when I’m in the tub? Kittens. They lose a lot of their cuddliness when they grow up to be cats, don’t they? What about a diet or genetic therapy that allowed a kitten to stay a kitten its entire life? There would be a lot of demand for that, wouldn’t there? Comic books. The hugely successful and popular tradeshow Comic Con in San Diego attracts about 150,000 people. Hugely profitable, people sign up, attend dressed up as their favorite comic book character. No matter what your passion is, even if they don’t seem very businesslike, like those three, there will be unsatisfied customer needs in those areas. You just need to find them.
I love that. I’ve actually been to Comic Con. Talk about finding people who are passionate. This enthusiasm, whether it’s somebody who rides a Harley and they get that tattooed or the Nike people that get the swish tattooed. If you’re that passionate and there’s a whole other group of people that are equally passionate about what you’re doing, that’s great advice, is to focus on solving that problem and you’ll solve other people’s problems. In your book John, you talk about using passion and perseverance as a positive feedback loop, which is just the very beginning of Unleash Your Inner Company. I would love to have you talk about, how we can get a positive feedback loop going in our own head?
What do we mean by positive feedback loop? I mean people or things that reinforce each other. Passion is an attitude, perseverance is a behavior. In many aspects of our lives, our attitudes and behaviors reinforce each other. If I deeply love an activity, you know how the hours can go by like minutes when I’m engaged in that activity. It’s easy to persevere in those circumstances. That’s an example of passion driving perseverance. Similarly, if I just stick with an activity long enough so I start to get good at it and then get better at it and then start to like it and then start to love it, that’s an example of perseverance driving passion.
If you can think of any aspect of your life where you’ve experienced this positive feedback between passion and perseverance, that’s probably a really good area to consider starting a new business. It could be in any realm of life. It could be in family, sports, some area of scholarship, travel. You name it.
[Tweet “Unleash Your Inner Company: Passion is an attitude, perseverance is a behavior.”]
You talk about the psychology of entrepreneurship, and certainly passion and perseverance is a big part of that. Is there anything else that you want to share with us about the importance of the psychology of entrepreneurship?
I have an entire chapter in the book called Growing Your Mind from the Inside Out. It’s really hard to start a business. You’ll run up against lots of obstacles. I talk about many of the obstacles I’ve run up against in the last 25 years starting businesses. I’ve had to lay off people, cut back salaries, factor receivables so I had enough cash to make payroll. At one point I reduced my salary to minimum wage. We had to move to smaller more modest offices. All of these are hard and humbling steps to take. You have to be very deliberate about building your own self confidence to be successful as an entrepreneur in my experience, or at least it’s helpful to do so.
In this chapter, Growing Your Mind from the Inside Out, I offer a number of techniques. One of the techniques I offer is this: If there is some aspect of yourself that you genuinely can’t change, find a way to view it as an asset. I use myself as an example. When I was in my early 30’s, I accepted the fact that I’m gay. Most people wouldn’t view that as an asset, at least from a business standpoint. I disagree. For me, it’s been an asset for at least five different reasons.
[Tweet “Unleash Your Inner Company: Growing Your Mind from the Inside Out”]
One, when you are growing up gay, you know unambiguously with absolute certainty that at least some of the world’s routine assumptions aren’t wrong. People routinely assume that guys are attracted to girls and vice versa. You know that it’s not universally correct. I think growing up gay has helped me not necessarily accept the status quo, think outside the box. That’s made me a better entrepreneur and executive. Two, it wasn’t socially acceptable to be openly gay when I was growing up and so at least some of the energy I might’ve put into dating, I put into sports, studying and career instead. 30 years later, I’m hugely enjoying the benefit of that early investment. Maybe I wouldn’t have gone to MIT if I hadn’t been gay.
Three, I’m not a minority in any sense that I can think of other than being gay, so it has sensitized me to what it’s like to be a minority. Four, when people see that I’m not trying to hide my sexual orientation, they can see I’m being honest with them and that helps build trust between us. Five, I think it further conveys that I have strength and reserve if I can be open about the fact that I’m gay.
Similarly, if there’s some aspect of yourself that you genuinely can’t change, find a way to view it as an asset. Set the bar very high. Don’t use this as an excuse to accept some aspect of yourself that you can change and would like to change. If you genuinely can’t change it, if you can find a way to view it as an asset, it’ll be hugely empowering for you as it was for me. That aspect of yourself will become one of your strengths.
A few years ago, I was telling this exact same story to a group of undergraduates in Guatemala in an auditorium. About half way back in the auditorium, a young man was sitting. As I spoke, he slowly made a fist and gently moved it up to his chest and pressed it against his chest. At first I thought it was a small gesture of agreement or support for what I was saying. Then, when I looked again, I could see he wasn’t making a fist at all. His hand had no fingers on it. I imagine he was saying, “This I cannot change. This is my strength.”
[Tweet “Unleash Your Inner Company: Turn your challenges into an asset.”]
How moving. I love what you said so much. I personally relate to it as I’m also gay. I know that before I was comfortable talking about that, it was always a secret that you’re keeping. In order for anybody to trust you, I’m a big believer that before anybody wants to work with you, hire you, invest in you, they have to trust you. The best way to be trustworthy is to be authentically who you are, because otherwise people feel like you’re hiding something and they can’t put their finger on it. If you’re comfortable with who you are, more times out of not then other people are too. They pick up your energy, whether you like yourself or not. Thank you for sharing that so much. It’s so great.
One of the questions I always get asked by people I’m helping with their pitch is, “Is this the right time for me to be looking for money? Do I have to have a lot of traction or can I get funded with just an idea and a minimum viable product?” What are your thoughts on that?
Unleash Your Inner Company: I definitely think there are right times in a startup’s life to raise money.
I definitely think there are right times in a startup’s life to raise money. They’re not when you’re running out of cash. Then you have no credibility or negotiating leverage at all. They’re not even when you’re about to run out of money. I would say that the right times are when you either, A) significantly in reduced risk or B) significantly increase your upside potential as perceived by the investor. Let me say a word or two about both of those.
First of all, significantly reduced risk as perceived by the investor. What do I mean by that? Each time your company reaches a milestone, such as a positive cash flow of revenue, your first customer, your first working prototype, each time you reach one of those milestones, you have eliminated a risk in the business. If you have positive cash flow, you’ve eliminated the risk that you can get revenue. If you have revenue, you’ve eliminated the risk that you can get customers. If you have customers, you’ve eliminated the risk that the market will accept your product. If your market is accepting the product, that eliminates the risk that your prototype works, and so forth. Each time you can reach one of those milestones you have significantly eliminated or reduced a risk to the investor.
If you’re about to achieve one of those milestones, that’s a particularly good time to raise money, both before and after. Let’s say you’re very confident that you’ll achieve one those milestones in the next 60 to 90 days, schedule a time to visit the investor. Layout your value-add, the customer need that you satisfy, your solution, your team, your track record and so forth. Say to them that in the next 60 to 90 days, you will achieve this milestone. Then, ask if you can come back 60 to 90 days later after you’ve done so. Then go ahead, achieve that milestone, go back and talk to the investor again. That starts building your credibility with the investor even before they become an investor.
I love that. You said two things that I really want people to have as a big take away. One, don’t wait until you’re running out of money to seek money because you’re desperate. Just like in dating, nobody wants to date someone who’s “desperate.” What you just said here is just so important. Investors invest in who you are, your integrity and how you think. John just laid out for you step by step what to do, to prove that you have integrity, that you do what you say you’re going to do because you have thought through something. That your word means something because then they know if they invest in you going forward and you say you’re going to deliver a milestone, odds are you will because you’ve already proven it to them.
Beautiful, John. Thank you so much. They may or may not invest in that round but they’ll remember, “Those were the guys who said that they were going to do X and who did X.” You’ve made a positive impression, they could well be investors on the subsequent round. That’s one set of times when it is a good time to raise money, in my experience. A second set of times are the converse of reducing risk, which is right after you increase upside potential.
One of the things I talk about in the book, Unleash Your Inner Company, is the bowling pin model. Think of the growth of your business over the next three to five years as a series of bowling pins. You knock down the first bowling pin, that bowling pin helps you knock down the next bowling pin, the next, and next and so forth. Each of the bowling pins is a customer or market opportunity. It could be a city. It could be a vertical market.
Let’s say you’re located in San Francisco. Your first bowling pin might be the region of San Francisco, where you live. Your next bowling pin might be the city of San Francisco. Then the next bowling pin might be Oakland, which is a nearby city, then Sacramento, then San Jose, then Los Angeles. Establishing a market presence and awareness and customer base in each of those cities will help you further penetrate the next city. These bowling pins could be vertical markets instead. If you’re in IT, maybe it’s accounting as an application for your software. Maybe it’s supply chain management, maybe it’s customer relationship management and so forth. You could grow that way.
Unleash Your Inner Company: What builds confidence in the investor’s mind that your company has upside potential is when it’s really credible.
What builds confidence in the investor’s mind that your company has upside potential is when it’s really credible, that by knocking down one bowling pin, it will indeed help you knock down the next bowling pin, the next and so forth. One way that you can help build that credibility is by showing that you’ve knocked down one bowling pin and it is helping you already start to knock down the next bowling pin. I’ve got a set of customers in one vertical market, maybe the markets are like retail, maybe they’re B2B customers in retail financial services, telecom and so forth. Maybe your initial set of customers is in financial services and you are expanding from that base into retail or into telecom or vice versa. The first few customers that you get in the telecom space or whatever the next bowling pin is, that builds the credibility that it really is true that by knocking down one bowling pin you can knock down many bowling pins.
Again, another really good time to raise money right before and after, when you’re very confident that the first customer or cluster of customers in the adjacent vertical market or whatever the market is will be knocked down. Let your potential investors know that you’ll be achieving that within 60 to 90 days. Go out and do it, then come back to them 60 to 90 days later and show them that you’ve done it. This technique is like a two-edge sword. If you succeed in doing what you set out to do and said you’re going to do, it is a huge win. If you fall significantly short of doing what you said you were going to do, that’s a big negative. You want to be very confident that you are going to achieve whatever it is you’re going to achieve in the next 60 to 90 days. If you need to wait a little bit longer to make absolutely certain that you’re going to do it, that is something you might well consider. All of this raises the question, how would I fund my business in the interim until I’m at a point to raise money?
In the book, I laid out three different ways to fund your business in the interim until you’re at a point where you can attract outside investment. They are, number one, living frugally yourself. In the book, I offered the example of my friend, Nick Winter, a successful entrepreneur here in San Francisco, who has reduced his physical possessions to exactly 99 things. He has one laptop, one cellphone, two pairs of jeans, one wedding ring and so forth. My list on 99 things is in the book. This is an extreme case of minimalist living, which seems to me is an emerging trend.
I know that I have experienced downsizing from a big spacious three-story town house in Menlo Park to a compact town house in the town of San Francisco seven years ago. When I did, I had a whole new sense of freedom from having to take care of day to day maintenance on my house. When I clean out a closet or my kitchen and free up space in the closets, I have a new set of freedom and spaciousness. I haven’t gone to the extreme that Nick has but I can certainly empathize with how simplifying your life and minimalist living frees up mindshare and money to invest in your business. In the book, I talk about how skipping Starbucks can save you $1,250 a year, which is enough to buy a very nice coffee machine with gourmet coffee for several employees for the first few months that you’re in business. Living frugally is one technique, and freeing up mind share, resources and cash to invest in your business.
Two is providing services. If there is some skill that you are uniquely skilled at and expert at, then potentially you can offer those services as a way to generate revenue to fund your business. For my second company, which was in enterprise feedback management, which means automating the customer feedback and surveys for corporations, we had learned about that field from my first company, Decisive. The second company was called CustomerSat, the website is still CustomerSat.com. We had early experience in doing surveys. For my second company, we used the product of my first company to do large scale surveys for corporations and used the earnings that we made from those services to fund the development of our platform for the second company.
Unleash Your Inner Company: Use whatever skills you have to generate cash to fund the development of your new technology.
You can do the same. Use whatever skills you have to generate cash to fund the development of your new technology. If the skills that you’re providing or the services you’re providing relate to the new business, so much the better. In fact, that’s the ideal case because there you’re not only generating funds, but you’re building customer relationships, you’re learning about customer requirements and all of that. You can fold it into the new company that you’re starting.
The third way is friends and family. If your friends and family see that you’re living frugally, see that you’re serious enough about your venture to provide services to fund it, then that will show them how serious you are about that new venture and make them receptive to consider investing in your new venture or lending to you for your new venture. Those are three techniques that you could use before you reach the point where you’re ready to either get crowd funding, angel investing or approach a venture capital firm.
That’s so helpful. Live frugally so that investors feel like you’re going to be good stewards of their money. Provide a service as a way to generate additional revenue for yourself in the interim. Especially if, let’s say, you’re really great at tech and that’s what you’re bringing to your start up, then you could probably get hired as a tech consultant. Those people that are hiring you could even become customers. I always like to say, if you really hit the jackpot, you come up with a startup idea that a customer becomes an investor because they love what you’re doing so much. Have you ever seen that or experienced that yourself, John?
Absolutely. The company I co-founded two and a half years ago, Pyze.com, their largest investor came to them directly through one of their customers. Incidentally,if any of your listeners are developing mobile apps, they should check out Pyze.com because the applet gives their mobile app a ton of customer intelligence, free of charge in the basic version of the product.
That’s great. Unleash Your Inner Company has received over 85 five star reviews on Amazon, soon to be 86 when I get on there. How did you come up with the name of your book? I’m always interested in that story of origin.
The catalyst for writing the book was a TED Talk. After I sold my last company in 2009, I was invited to talk to young entrepreneurs in Silicon Valley. I started out with a 30-minute talk and then a 90-minute talk, then a half-day workshop, and a full-day workshop. Then I was invited to give a TEDx Talk, which meant cutting it back to eighteen minutes. I had a full day of material. I had to figure out what was the most important for the eighteen minutes. That process of deciding what was most important and distilling the most important parts to eighteen minutes was so clarifying. I realized for the first time after I’ve done that I could turn this into a book. That TED Talk is a TEDxUFM, University of San Francisco Marroquin in Guatemala.
That was 2011, I already had a great deal of material to work with. Originally, the name of the talk was Release Your Inner Company but then I changed it to Unleash Your Inner Company because that seemed more powerful. I spent about a day a week in 2011, two days a week 2012. It was a full time activity by 2014. I finally submitted the book to my publisher in 2015. It was five years in the making. A labor of love. Probably on average about a half time activity over that five years. The book came out in October 2015. It’s now been out for almost a year and a half.
What’s the best way for people to follow you? Obviously, we’re going to put the link to buy Unleash Your Inner Company on Amazon. You have a wonderful website called JohnChisholmVentures.com. Your Twitter handle is just your name?
It’s @johndchisholm. The website for the book is www.UnleashYourInnerCompany.com. The website for my consultancy in angel investing practice is www.JohnChisholmVentures.com.
John, I can’t thank you enough for sharing your wisdom, your insight, your passion and your expertise on how we can all learn to unleash our inner company and make it happen with the passion and perseverance that you’ve clearly shown and continue to show in the way that you live your life.
John, it’s been a pleasure. Thanks so much for having me.
My pleasure.
Links Mentioned
- J Robinett Enterprises
- John Livesay Funding Strategist
- Unleash Your Inner Company – book
- CustomerSat.com
- Pyze.com
- Unleash Your Inner Company – book on Amazon
- JohnChisholmVentures.com
- John Chisholm TEDxUFM
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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.
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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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