How to Raise Capital with Clarity & Focus

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Shawn, thank you so much for joining me on the show.

I’m happy to be here, Meny. We were introduced through Steve Hoffman, one of your past guests. He’s been a hero of mine and he could not say better things about you. I’m so excited to be here.

You saved me from sharing it. Sometimes my audience knows that I start off one of the best parts of the show is I get introduced to my network broadens because one guest introduced the other guests and so on and so forth. You beat me with that. That episode was great. When Steve made an introduction, I said, “We have to get you on the show as well.” For our audience, a little bit of the background, you are in a certain unique space. You’ll share more about it but share a little bit about your backstory, how you got to what you’re doing currently and what you currently do so we could set the tone of the conversation that we’re going to have.

Undergraduate, I did Mechanical Engineering but I always wanted to travel. After college, I went abroad for close to eight years. Some of that time was in Costa Rica but the majority of that time was in China, where I stayed for a little over four years, almost five years total. I started a couple of companies. Two didn’t do good at all. One did pretty good, sold it to my partner and came back to the US in 2013. When I arrived here in the States, after you’ve traveled that much and you’ve started companies and that you need excitement and you need high energy working environments.

I got the opportunity to get involved in the Startup Ecosystem in Silicon Valley. After a while, I met some angel investors and I was the Investment Director for an angel group. From that, I was doing deal flow agreements between the angel group and some of the new Chinese incubators and accelerators that were opening up in Silicon Valley. One of them made me a very nice offer. I joined them for a number of years. I was helping companies from Silicon Valley set up operations in China in some of the land development projects they were doing. The company itself had 15 incubators and 25 offices globally at its peak. I was going back and forth between here and China every other month and I did that for a number of years. I have onboarded at Global Capital Markets. I’m a principal there in Global Capital Markets. We focus on mid-market mergers & acquisitions, growth capital and then some other things which include the evaluation work advisory work and pre IPO companies secondaries.

[bctt tweet=”Figure out the investment thesis of your targeted investors. ” username=””]

Also, on the side, I have a podcast myself, The Silicon Valley Podcast. When you were talking about the amazing introductions you get, the network and everything, I only speak highly to people of you who have to do your own podcast. It’s a great way to just grow as a person, grow your network and everything. That’s my backstory. I can go into more detail on any of those if you’d like.

We’ll go into some of them but I have to start with this. How did it work out living four years in China?

It was a love-hate relationship. I kid you not. Every day, it was a new challenge and I would go home at the end of the night so frustrated with whatever happened but then at the same time I thought, “That was awesome.”

I was in China once. I’m the type of person that because I deal with so many different business owners and different types of businesses, I like to be knowledgeable in everything I do. It’s very hard to consult and coach and be involved in projects that you are very disconnected. We have a bunch of clients in the branding and the private label space. One of our clients gave me the opportunity to go alongside him when he went on a sourcing trip. This was an amazing trip. In one week, we traveled in so many parts of China seeing so many different settings of companies from this old factory doing everything by hand to the most modern type of setup and everything in between. It’s interesting.

That’s one of the things that’s really amazing about China that I don’t think a lot of people here in the States really understand. Here in the States, if you go to different cities, the technology modernization and everything is pretty equal. There in China, you go to these cities with a million people and they really don’t even have electricity then you have others that are more modern than anything you’ll see in the States. It’s crazy.

To put some numbers and some facts to the story, I visited one of the factories that basically did a product that they are soling. The cost of a sole is between $2.50 and $3 and I counted 23 people are touching that product only until it gets boxed. Now, the time where we’re recording this episode, there’s a major issue with people bringing stuff from China especially to get the shipping and the container fees. People are trying to see where else I could develop stuff and ultimately, nothing is closed at the moment to calm the powerhouse that China is able to provide from a modern technology side to a production and assembly line on those products.

Speaking a little bit more of that, it’s just amazing how some people think all that can be moved so quickly. When you hear these conversations, you go, “It takes years to build this infrastructure.” It’s wanted to be there. In the States here, we have city-by-city permits and city-by-city different groups. It’s just amazing when I hear these conversations. I think to the disconnect from reality from what people want, I’m sure you’ve researched a little bit of the Belt and Road Initiative, all the logistics there and the infrastructure that’s being built out that. It’s incredible.

I want them to dive deeper into Silicon Valley. Giving it the Silicon Valley Successes, the podcast is named Silicon Valley so your roots, connection and heart are pretty much aligned. I want to speak about, first of all, the nature of what’s happening in Silicon Valley now versus the past. Where do you see this going? Every day, people wake up with these crazy ideas. Now, it’s apps or software, technology in particular. Their hope and dream is always the exit at Silicon Valley or Silicon Valley, pouring in money and investing. What is the reality when you’re seeing those deals happening? Let’s speak about the fund fundamentals. For our audience, we’d like to give no-nonsense advice. What are the fundamentals a business or an idea should be set up that people from Silicon Valley, those funds should want to invest and feel that this is maybe something I want to bet on?

LTB 90 | Raise Capital
Raise Capital: You’ll have to go to 200 meetings with investors to get that one check. But along that way, you’ll learn 200 lessons.

The quickest advice is to figure out what the investment thesis is of the investors you’re targeting or talking to. What I mean by that is all these VCs, all the venture capitalists, all the angels, angel groups, everything, they all have an investment thesis where we look at this like this VC might say, “Our investment thesis is we look at companies that are geographically in one hour drive of our office. They hit $1 million ARR and they are in the FinTech Sector.” They narrow it down quite a bit when they go out to fundraise for their fund or if it’s an Angel, some Angels will just go, “I invest in people I like,” but in reality, most of them have a wealth manager or someone they’re talking to that says, “You can invest 10% of your net worth into alternative investments that could be startups.” We recommend you diversify and this would be how you diversify. Maybe you become an LP in a fund or you’ve written small checks to this many startups. There are ways to go about it.

All these conversations are going on in the background. These investments that you hear about in the newspaper where it’s this company had no revenue but raised $20 million. It was bought out by this company or that it’s all done strategically for some reason that was thought about in the past whether it’s the technology added that much more value to whoever’s acquiring or is it acquihire. Some of these startups are getting acquired are basically because of the engineers there. These bigger companies need the skill and talent that these startups have. A way to get engineers to stay at your company for three years or whatever is one of these higher-end deals where they’re buying the company where the shares get vested for three years or the earn-out is over a three-year time or something like that.

There are a lot more things strategically happening in all these conversations that I think the general public has no idea about. Most of the time, when I talk to people, they’re asking me, “How do I meet Angel investors? What do Angels look for? What’s a venture capitalist? What’s an investment banker?” Most people, when they think investment bankers, they think of people trading stocks on Wall Street. They don’t understand that maybe a company gets an offer letter, an unsolicited offer letter. They’re curious about is this the best offer that we can get for this company? Can someone go out there, create a campaign for us, get other bids involved to drive up the price or reconfirmed that this is the best offer? They don’t know that they can hire investment bankers to go out and raise growth capital for them. They think they have to do it all themselves.

That’s what the CEO’s jobs are. They should be spending 100 to 200 hours raising this capital even to go deeper into that. Most people have no idea the amount of time it takes to raise money. I’ve had so many conversations with people that go, “I really want to fill this round in the next 30 days so I can go back to focusing on the company.” When I listened to them, I go, “You don’t have any materials ready for anyone. You don’t have your pitch deck. You don’t have the wireframe of your app laid out. You just have this idea, which the idea could maybe get you a meeting or you could talk about but there needs to be a little bit more substance there for anyone to write a check.”

The fund and process itself are normally 6 to 9 months for someone doing their seed round or any of the rounds, it’s a lengthy process. It’s not you get off the plane, here’s a blank check for you, go build this, great job, which some people really believe that’s the situation. It’s more you’re going to 200 meetings with investors to get that one check but along that way, you’re getting 200 lessons taught to you of these are the questions people are asking. This is what they’re curious about. These are some changes to the company. This is where my ideas are lacking and where the future is. You’re ever so slightly chiseling away at your creation at each of these meetings until you have something that speaks to the investors that they go, “This is what we’re looking for.” The process is more time-consuming the information and the difficulties are a lot harder.

There are ways to go about it. Find out the investment thesis of whoever you’re talking to. That shortcuts things a lot because so many people just take mindless meetings. They think if I have eight meetings now, I’m productive. When in reality, it’s just eight meetings with people in advance who were already going to say no and not going to help you. It’s the truth.

It’s not only that, just on that note because I’ve seen some of the trends when somebody will tell me, “I got this meeting. Somebody emailed me.” They don’t realize that email is a scraper. It went out there and scraped thousands of apps and just sent out, “We want to acquire you.” It’s not like direct to a strategic move that somebody sent out an email. Let me ask you this question and I think it’s important especially for my audience because as you mentioned before, we see these headlines acquisitions, raising of funds and so on and so forth. When would you say a company is not ready and they shouldn’t even entertain the idea of getting some outside funding?

[bctt tweet=”Plan out what milestones you need to hit to accomplish your goals. ” username=””]

Some of the advice a lot of people will give is to never take funding if you don’t need it and hold off as long as possible. There are then other people out there that will say the exact opposite as take as much money on day one as you can, really grow the company. There are conflicting points on both sides. One thing is the earlier the money you take, the more valuation you have to give up or the lower your valuation, the more equity in the company you have to give up. The more equity you give up at the beginning, the less you have later on for later rounds. If you’re one of those companies that will only need 1 or 2 rounds of capital to then be cashflow positive, you could take that a little bit earlier than maybe a company that when you’re thinking they’re going to need 5 or 6 rounds.

What’s your exit itself? Are you looking to be that company that stays around for ten years and goes public? Are you open to the idea of as soon as we get the first offer and we’re ready to sell. I’m the type of person that has an idea who wants to work on it for 2 to 5 years and then start a new idea and work on that for 2 to 5 years. That goes back to the founding teams’ personalities and who they are. There are a lot of people here in the valley and they’re like, “I build companies from idea to seed round and then I get a new CEO. I keep some equity and then I do my next idea.” I’m like, “That’s who you are. You know that’s your personality that works for you. Fantastic.”

I think a lot of this funding strategy, people come here and they go, “I have an idea. I need to raise funding,” but in reality, it should be, “I have an idea. Let me plan it out. Let me think of what milestones I have to hit to have those inflections in the value.” Each milestone you hit could double your value just like that. It’s incredible how people think, “I’m going to raise money. I have this much in the bank. Ten months from now, I need more money then I’ll raise money for eighteen months. After a year, I’ll start raising the next eighteen,” and things like that. When in reality, it should be, “This is my plan. These are the milestones I have to hit. This milestone I can get done three months from now. This one, six months from now. This one, eight months from now. This one, thirteen months from now but that thirteen months from now is going to make a huge inflection in the valuation of the company. How can I hold off long enough to get to that thirteenth month or maybe that thirteenth month doesn’t do much and that nine-month one is a huge difference? I’ll go out in nine months and start raising capital because the next six months after that is not going to make a big of a difference.”

I think the strategy itself with what the company is doing should align with funding and taking money. That’s another thing that a lot of people are missing. They think time and money in the bank versus action items that will result in increased values of the company to raising capital. That makes a huge difference, to be honest.

Also, I think it’s a very important point is that I’ve seen it now. There’re a lot of aggregators and brokers are going after FBA businesses now. This is a very hot space and you see a lot of money and funding being poured into those funds to go out and buy those FBA businesses. A lot of our clients get those emails and they’re thinking. I always tell my clients, “First, make a decision if you want to sell or you don’t. Whatever that is just to work towards that.” It means to say it’s very hard to continue growing a business while also focusing on getting a good deal and funding. I’m going back to the point before is if somebody is out there trying to raise funds for the company, it’s one mindset. If they’re growing it to keep at the moment, they have a different mindset. Ultimately, they become conflicted of what they do on a regular basis for the company. Sometimes you could see CEOs stepping down and they become going out for funding and ultimately, somebody else takes over the day-to-day operations. It’s an important point that you have to have clarity of what you’re doing and what the core focus of the company is at the moment.

There are only so many hours in the day so when you’re out there funding, you’re taking time away from growing the business. You’re distracted in many areas. Meny, you’re a business owner. You know yourself. You’re working twenty hours a day. How do you allocate your day to get the maximum results and time management is so huge for many people? That meeting you have, is it a meeting you should take? You have to think about that.

I’ll just give you a fun fact for people reading this show. When I started doing this show, I spoke to my team and I said, “The most I could do is dedicate my time to do those interviews because nobody else is doing the interviews. I’m doing those interviews but all of the rest of the staff will need to figure out how we’re going to make it happen. Otherwise, I don’t have the bandwidth to be able to do it.” Fun fact for our readers, this show has about 36 to 37 steps for every episode that goes live.

All I’m doing is doing the recording. Everything else is either we’re using automation or we’re using people on the team that are doing bits and pieces of it but I’m only doing this piece. If you don’t plan for it, all of a sudden everything comes crashing therefore you see many people that are starting podcasts or any other ventures and it’s closed. That’s why we have this dedication. We’re straight two years since 2019 that we’re doing this week-by-week because we have plans for how are we going to make it happen with time management.

LTB 90 | Raise Capital
Raise Capital: When you’re out there funding, you’re taking time away from growing your business.

That’s incredible, 36 steps. I’d love to see your Trello board.

We have different staff, different people but we use a lot of automation as part of this process. We heard Zapier did a whole blog post about this particular process. It’s some of the components for other podcasters to learn from. Back to the point of business owners’ core focus is the most important part. When I speak to business owners or I speak to teams and I asked them, “What do you feel is the biggest issue with our company? Why it’s not growing fast enough?” Most of the time it’s going to come back to what we do is not focused all over the place.

I want to dive into one more topic on this. There are so many different funding options now more than ever. Once upon a time, when you really will look for money, there was like 1 or 2 ways of to get funding for your company or some cash infusion for your company, whatever it might be. Now, there’s more diversification of lenders and investors. If you could give us a crash course on the basics of them and what each one’s pros and cons are on a high level for our audience to get that grasp of the different types of funding or investors out there.

There’re so many different types and it really depends on the stage of your company. You have angels, which are individuals that will write checks. Normally these checks could be as small as $5,000 but say $25,000 to $100,000 depending on who the individual is. They are normally involved in angel groups. Angel groups have maybe 30 to 40 members. There are some that have quite a global network. Others are rather niched that focus on one little area and its five friends. There’re many different sizes of angel groups but they, on many occasions, will syndicate their funds. They’ll say, “We write checks of $150,000 because each of our members will write these smaller checks and we put it together for the companies.”

At that point, normally people will go to like micro VCs. Micro VCs are venture capitalists that write smaller checks, maybe $250,000 or $500,000. They sometimes will invest with angels. They’ll sometimes invest with family offices. With all these people, I look at it, I guess more check size. I don’t want to go into too much detail right now. Angels are individuals and their investment thesis can change, whereas VCs and people that are investing other people’s money, their investment thesis is pretty rigid.

You have micro VCs that write smaller checks than venture capitalists that write bigger checks. Some of these venture capitalists now, the minimum check was $40 million. There are huge gaps because these venture capitalists’ funds keep getting bigger and bigger. Maybe the first time person’s fund would be $10 million, the second fund $50 million then they raised $100 million. It keeps getting bigger because people like the management fee. They like to carry the success. From venture capitalists, you’ll get the private equity groups. It’s a lot bigger checks. It’s case-by-case basis but from private equity and then public.

Also, in that mix, you have the Sovereign Wealth Funds, which is the oversees governments. At the lower level, going back to the Angels, you have a lot of crowdfunding options that are out there right now for equity or no equity. Another thing that people don’t know about or don’t focus on, which is a shame because it’s a great opportunity in companies now is family offices. Some of these Angels over the years have accumulated quite a bit of money. You’ll hear about a family office that manages the money for 6 or 7 families and they have $4 billion under assets or something like that. It’s incredible.

[bctt tweet=”Sit down and talk to people because the little money you have can go a lot further than you thought.” username=””]

Family offices are huge. The nice thing about family offices, unlike venture capitalists, is they don’t have that harvest mandate normally. VCs normally have a fund length where it’s, “We invest for the first two years then the company grows for five and then we harvest the funds,” maybe 7 to 10 years total depending on the fund. In family offices, it’s their money. They don’t have that harvest date normally. It’s just, “We can invest and see how things grow.”

Another option for earlier on that people don’t seem to take advantage of and there seem to be more and more options are government grants. Not just only in the US but overseas, there’s a lot of opportunities where if a startup opens up a facility. The local government will match any of the money that they put in. If you’re, for example, Korean and you invest $200,000, the Korean government might put $200,000 in. If you put up an office in Singapore as well, there are quite a few places where there are those. In Canada, they subsidize engineers. There are a lot of governments around the world that will really help your company out and extend your money quite a bit.

I completely forgot about friends and family, which they always say are step one. I’m not sure if Steve Hoffman, when he was on your show, talked about how that’s a thing he avoids. If you want to stay friends with your friends and family, it’s best not to take their money. While you’re in the business itself, there are many ways to make your money go further or getting tax credits from your engineers that you’re paying. In their salaries, you get tax credits on it. You can factor invoice. There’s a lot of ways that if you just sit down and talk to people, the little money you have can go a lot further than you thought. There’re a lot of strategies to get help and there’re a lot of different funding options out there. One thing that most people don’t even know is working with investment bankers to raise growth capital. That’s an option. It’s not a funding source itself but it’s a way to use your time more wisely. Time is the biggest currency of anything. There’s so much money floating out there.

Thank you so much. This was very helpful. I think it’s important to know these different options. When somebody needs to get some funding, make sure that you’re speaking to the right people to know what’s the best for yo especially when it comes to selling a business now or sometimes you get an offer from someone, you get excited then you want to run with it. Chances are if they’re reaching out to you, they’re probably not the best offer out there that’s available for your company. We need to have that bidding war. Funding is the same thing. You have to figure out what is the best way. Sometimes, you’re going to be strapped for cash, you’re going to go out for funding and they’ll take a huge percent of equity. Other than the funding, they’re not going to provide any value to the company. Sometimes you might get the funding plus somebody that might add value coming with experience and helping you grow the company.

For our readers, it’s very important to figure out for the next step in your business, what is the best funding partner so to speak, to go for. I want to end almost where I started when I asked you about your experience with living in China. I know that you’re very connected to Silicon Valley. What do you love so much about Silicon Valley? What are some of the information that they’re missing for the rest of the world to look at Silicon Valley, which being part of communicating and dealing with them on a daily basis, you would say it’s not so much the people and how they’re conveyed to the world?

I think what I like about most of Silicon Valley is just the richness of ideas here and the people. It’s not uncommon to sit down in Starbucks pre-COVID when people would meet up and it’s starting to get better now, where you hear these conversations of, “This guy working on this project or that person has got this idea.” It’s everywhere. People don’t shut ideas down. It’s more like, “How can we make that idea work? Here are some suggestions and some improvement.” People are very open-minded. The people here PhDs from Berkeley, Stanford, MBAs working all over, the Waterloo PH, you name it. Chinwag, Ducey, some of the smartest people in the world are here working on their ideas or they come and visit. It’s an amazing area for creativity and knowledge.

Some people, when they think Silicon Valley that they may not know, I also want to say it’s a very close network where it’s easy to meet people when you get here at events. I find it’s very open with people wanting to meet and have conversations but the network is so important here. Getting to know people with what you’re doing and what you’re working on. The network is the value of Silicon Valley more than anything. You have 1 or 2 degrees separation from someone that has the resources you’re looking for whether that’s capital, it’s introductions to factories or it’s introductions to this service. It’s all within 1 or 2 degrees of separation in a small area that without traffic, which there never is, you can drive in an hour.

This has been great. Where can our audience find more about you?

LTB 90 | Raise Capital
Raise Capital: Angels are individuals who write checks, and their investment thesis can change.

If you’re interested in listening to my podcast, The Silicon Valley Podcast, it’s on iTunes and Spotify. All my social media handles are @ShawnFlynnSV. For investment banking, my email is SF@GlobalCapitalMarkets.com. I look forward to hearing from people. Meny, this has been fantastic.

Let’s close with the four rapid-fire questions. Are you ready?

Okay, sounds good.

Number one, book that changed your life?

Why We Sleep That’s probably had the most impact on me. I went from sleeping 5 to 6 hours. Now, I really try to get 7.5 to 8, and I find my whole day, everything has changed.

Number two, a piece of advice you got that you’ll never forget?

A wise man learns from his mistakes. A wiser man learns from the mistakes of others.

Number three, anything you wish you could go back and do differently?

[bctt tweet=”Don’t shut ideas down. Rather, think of how you can make your ideas work. ” username=””]

I wish I had moved to Japan for a year or two instead of spending five in China. I think there’s going to be so many opportunities in the future for the people that speak Japanese. It’s an untapped universe.

Last, the final question, what’s still on your bucket list to achieve?

That bucket list is overflowing with items I want to accomplish. I want to go to Brazil. I want to get my black belt in Brazilian Jujitsu. The list goes on and on. Meny, you can’t ask someone in Silicon Valley that.

This is a first. For our producers of the show, when somebody is from Silicon Valley, we cut it at question four. Shawn, thank you so much for joining us. I know your time is valuable. That is why in the name of our readers, we’ll forever be grateful for sharing some of your time with us.

Meny, it was my honor. Thank you and I look forward to any other opportunities in the future for us to collaborate on anything.

My pleasure.