Startup Fundraising Office Hours Free Monthly Livestream for Entrepreneurs [Replay]
MasterMinds Startup Fundraising Video Office Hours help early stage company founders raise money for their startups.
The fun, friendly live video Q&A sessions answer financing and strategy questions from entrepreneurs from all over the world with FREE expert startup advice.
Startup Founder Discussion Questions
This month Startup Council CEO Scott Fox took questions from startup founders live on camera and via chat, including:
- Rocky from Brisbane, Australia - How to value a pre-seed startup that has no revenue? What factors affect the valuation of a startup and how much equity to give to first investors?
- Adam from Santa Ana, California – what are the criteria for bank loans, especially from the US SBA? What are banks looking for in a startup business before they will make a loan?
- Rashad from Baltimore, Maryland - What are the differences between loans and equity? What is better for a first-time founder to use to fund their startup company?
- Kris from Toronto – What excites angel investors like Scott the most about new startups that pitch them? How to network to meet angel investors?
- Chetan from Bengalaru – Should you start with investors by showing a prototype? What are proxies for customer validation and traction for an early stage idea startup?
- Catherine - how to pitch a complex startup idea that involves many partners but needs a lot of capital to get going? Why are venture capital firms so picky?
To watch this month’s Startup Office Hours replay click here.
And see a complete TRANSCRIPT BELOW.
JOIN STARTUP OFFICE HOURS LIVE JULY 27 to WATCH & COMMENT:
The NEXT Masterminds Startup Office Hours livestream is the 4th Tuesday of each month at 300pm ET / Noon PT. Questions and practice investor pitches are hosted LIVE by Scott Fox, CEO of the Startup Council/Angel Investor/Serial Founder/Author/Startup Expert.
You can watch LIVE here:
https://www.youtube.com/scottfox
https://www.facebook.com/clickmillionaire
https://www.linkedin.com/company/ocstartupcouncil
Subscribe to the YouTube channel here!
And the audio-only PODCAST is here:
Submit your Question in Advance >> Win Free MasterMinds Workshop Tickets:
Submit your question about raising money for your startup, or practice your startup's investor pitch for friendly, free expert feedback: https://www.mastermindsforum.com/office-hours-rsvp
If your question or pitch is included for live discussion during the show, you'll get an email of special instructions on how to join Office Hours on camera. And, you'll WIN FREE TICKETS to the next MasterMinds Startup Accelerator Workshop (http://www.mastermindsworkshops.com)!
Visit http://MasterMindsWorkshops.com to attend the Startup Council's monthly MasterMinds Startup Accelerator Workshops for startup founders and friends!
Sign up for free email updates and free event tickets at https://StartupEventNews.com
MasterMinds Startup Fundraising Office Hours are a free community service of the Startup Council.
MasterMinds Startup Fundraising Office Hours TRANSCRIPT for June 22, 2021:
00:00
when it's scott fox here from the
00:02
masterminds world of startups
00:04
here to help you and your startup dream
00:06
come true
00:07
well i don't know this is not a get rich
00:09
quick show but it is
00:10
um it's a broadcast about
00:14
making realistic goals
00:17
come true faster to help you put
00:20
your dent in the universe as steve jobs
00:22
famously put it
00:23
i'm scott fox i'm a serial internet
00:25
entrepreneur angel investor
00:28
author of several books about startups
00:31
and a guy who's here trying to help you
00:32
make a difference
00:34
i'd like to spend the next few minutes
00:36
answering questions from folks
00:38
who have written in from around the
00:39
world trying to
00:41
move their startup ideas forward faster
00:44
learn how to raise money especially
00:45
that's
00:46
the perennial topic recurring topic and
00:48
we're going to talk about uh
00:49
several questions that folks have sent
00:51
in to try to
00:54
make the world a better place through
00:56
entrepreneurship that's what i do
00:58
so like my goal is to help
01:01
more of you figure out your path
01:05
the world of venture capital and angel
01:07
investment
01:08
and private equity has traditionally
01:10
been limited uh
01:11
to those who kind of knew somebody or
01:13
who had gone through just exactly the
01:14
right series of checkpoints in their
01:16
life
01:16
to get to the place where they wanted to
01:19
be where the
01:20
where the industry wanted them to be
01:21
before they could get funded or even
01:23
before they could get good advice
01:24
oftentimes so i've come up from
01:30
maybe not the wrong side of the tracks
01:31
but certainly i was not an insider as a
01:33
boy i grew up in inner city detroit
01:35
i put myself through college i put
01:38
myself to graduate school at stanford i
01:40
learned about the internet early on and
01:41
it's been pretty good to me and i've
01:43
spent many years now trying to help
01:44
other people
01:45
figure out how to get their piece of the
01:46
internet revolution as well because
01:48
there's a lot of wealth being created
01:50
and a lot of creativity and opportunity
01:53
for both personal development
01:55
and improving corporate efficiencies and
01:58
the world in general
01:59
that are really walled off
02:02
if you're not from that world already so
02:04
today we're going to talk about
02:05
questions from you guys
02:07
and i'll be here with an open microphone
02:09
for a little while uh
02:10
until we run out of questions basically
02:12
and i do this once a month by the way
02:15
this is a service of the startup council
02:17
which is a global community service
02:19
group dedicated to accelerating internet
02:20
entrepreneurs and
02:22
um we're going to take questions from
02:24
folks all over because i want to help
02:26
you
02:26
so if you're live on watching this on
02:30
youtube or
02:31
facebook or linkedin or listening to the
02:33
podcast through blog talk radio welcome
02:34
i hope you help us out by liking and
02:36
sharing along the way or subscribing or
02:39
following or all those other social
02:40
media things
02:41
there's a lot to be done in social media
02:44
that can help our mission if you
02:45
wouldn't mind you can join our email
02:47
list i just put up the
02:49
link there on the screen startup
02:50
eventnews.com get on the mailing list
02:52
for more
02:53
and of course you can invite your
02:54
friends to join us while we're getting
02:56
going here
02:57
so today we're going to talk about no
03:00
sales pitches
03:01
no sales pitches this is honestly just
03:03
trying to help and i hope that it does
03:05
help you because this
03:06
is um really trying to
03:09
uh get everybody going on the same page
03:11
in the same direction
03:12
so if you're on the chat in uh in
03:15
youtube or um it's a youtube facebook
03:19
linkedin there's live chat and if you
03:21
want to head over there you can
03:23
toss in a question that would be great
03:24
and your chats will show up live on the
03:26
screen
03:26
and we can dialogue that way or if you
03:28
have an interest in coming on camera and
03:31
you have a good
03:32
question that is uh not a sales pitch
03:34
again
03:35
uh but a question about your business
03:37
that i can help you with i just put the
03:38
link there on the screen
03:40
um it's uh a bit bitly you know bitly
03:43
link
03:44
bit.ly and then slash masterminds on
03:47
camera link
03:48
a very encrypted link there masterminds
03:50
on camera link at bitly
03:51
so if you want to join me on camera you
03:53
can do that uh looks like uh
03:55
adam just showed up adam if you want to
03:58
turn on your camera let me see what your
04:01
question was about
04:02
all right okay that's not a bad way to
04:04
start adam we could talk about that adam
04:05
has a question about
04:07
uh small business association loans and
04:09
um
04:10
and talking about bank financing so
04:13
that's we can get to that adam if you
04:14
want to join us
04:15
live turn on your camera and then we've
04:17
got questions here from uh well from all
04:19
over the world from uh
04:20
from orange county from los angeles from
04:23
maryland
04:24
from uh brisbane australia down under uh
04:28
and several other topics so we'll get to
04:30
those one at a time
04:31
as we work our way through this hour
04:32
okay so let's get going here
04:35
uh adam are you with me do you want to
04:36
turn on your camera it looks like
04:38
oh you faded out there okay so if
04:40
anybody does want to join on camera go
04:42
ahead and hit that link that's showing
04:44
and um in the meantime i'm just going to
04:46
keep talking because that's what we're
04:47
doing here
04:48
so okay so let's talk about adam if you
04:51
want to come back on camera we'll get to
04:53
your
04:53
uh question in a minute here let's see
04:56
here
04:57
um i wanted to
05:01
here we go okay so this one was from
05:04
rocky
05:05
and rocky wrote in from as i mentioned
05:07
brisbane australia
05:08
and rocky wanted to talk about
05:10
evaluating a startup when it has little
05:12
income
05:13
um and that's really a question of
05:15
valuation
05:16
so evaluation is a topic near and dear
05:20
or
05:20
or desperately afraid of for most
05:23
entrepreneurs
05:24
the the difference the difficulty with
05:27
valuation
05:28
for early stage startups is they don't
05:30
have much revenue
05:31
and businesses are usually valued based
05:33
on how much money they make
05:34
so if you are not making money what is
05:36
your business worth this is a common
05:38
problem and
05:39
that's what rocky's question is about so
05:40
let's unpack that a little bit
05:42
the question evaluation is really about
05:47
it's really a measure of the
05:50
investability of your business
05:52
which is based of course on the
05:54
potential return to the investors
05:57
so most entrepreneurs understandably
06:00
start from
06:00
the bottom and work their way up which
06:02
is my business is about
06:04
x y and z and it makes this kind of
06:08
money
06:08
and therefore it should be worth this
06:11
and that is totally valid
06:12
but it's sort of the opposite
06:14
perspective that many investors like
06:16
myself have
06:17
which is well what is this business's
06:19
potential
06:21
like what could it be worth someday
06:23
assuming everything goes right and
06:24
that's a big assumption
06:26
but if this business really goes well
06:28
then um
06:29
what are we going to do in terms of
06:31
valuing it today because let's say it's
06:33
worth a billion dollars
06:34
in 10 years well you do discounted cash
06:37
flows and there's various things fancy
06:39
things you can do on spreadsheets
06:40
especially if you went to business
06:41
school
06:42
that would then you can discount those
06:44
cash flows back to see what they might
06:46
be worth today
06:47
and that's the um that's the challenge
06:50
that faces entrepreneurs is how to meld
06:53
their perspective on the business
06:54
with the way that investors look like
06:57
look at it
06:58
um and okay looks like we got several of
07:00
you on the chat room i'll get to those
07:01
in a sec
07:02
uh welcome to uh zob and chitton
07:05
and adam and town again um let me do
07:08
this evaluation question and we'll get
07:09
to you guys in a minute but if you are
07:11
like i said it looks like uh
07:12
rashab and titan are on looks like you
07:14
guys are all on youtube okay so you're
07:16
watching over at youtube.com
07:18
scottfox which is the my old youtube
07:20
channel um and there's a lot of
07:22
subscribers there if you are there uh
07:24
please subscribe and like it and all
07:26
that stuff helps me uh you know keep
07:27
this going to help more people
07:29
okay so back to rocky's valuation
07:31
question so the valuation issue is about
07:33
revenues usually
07:34
but also working backwards from the
07:36
other point of view like i said it's
07:37
kind of like a telescope right you look
07:38
at it one way it works and then you turn
07:40
it around
07:41
it's the same stuff but from a different
07:42
point of view so
07:44
how do you value a startup with no
07:46
revenue well one way to do it is to look
07:49
at the potential market that you're
07:50
addressing
07:51
and then discount that back like i said
07:52
so if you think you can put together a
07:54
spreadsheet that credibly
07:57
grows your revenues incredibly is the
07:59
key word here right not just
08:00
fantasy right but a credible stab at
08:03
making a large amount of money
08:05
let's call it a billion dollars because
08:07
that seems to be the
08:08
everybody thinks they're going to be a
08:09
unicorn these days
08:11
then you need to work backwards how are
08:13
you going to achieve that right
08:14
and at the same time you're going to
08:16
start from the bottom as an entrepreneur
08:17
working upwards right because you
08:19
started at zero and then you're working
08:21
upwards to having revenue over time so
08:23
how much revenue do you think you can
08:24
have in the first year how much revenue
08:25
do you think that will grow to in the
08:26
second year
08:27
how much in the third year and of course
08:29
i'm not just talking about revenues
08:30
profits are important here also but
08:32
it's really the top-line revenue growth
08:34
that startups usually trade
08:37
for exit meaning when they sell for
08:39
acquisition or get bought
08:40
based on some multiple of revenue
08:42
because that i guess maybe that's more
08:44
of a
08:45
generally accepted measure of growth
08:48
because expenses are obviously a
08:50
different and very important part of the
08:51
business but they're
08:52
sort of those are more um
08:56
those are more under the control of the
08:58
company and the revenues are really
09:00
demonstrates what investors are looking
09:01
for
09:02
which is how interested our customers
09:04
and actually paying for this
09:05
right because if no revenue is coming in
09:08
there's no growth in the revenue then it
09:10
doesn't matter how
09:11
good your uh expense structure is like
09:14
how
09:14
how well you have your expenses under
09:16
control if nobody's buying the thing
09:18
it's not going to go anywhere anyway
09:19
right so that's the issue
09:21
um okay so the bottom line is uh
09:24
with all that is context and again this
09:26
is not legal or professional advice i'm
09:28
just here a guy you know
09:29
i'm just a guy talking on the internet
09:31
right don't take this too seriously
09:33
but um the the basic truth
09:37
is that most startups are valuable
09:39
between say a million and four million
09:41
dollars when they get started
09:42
because you've got to start somewhere
09:44
right you're valued at more than zero
09:46
because you're doing something you've
09:47
got an idea you've got some friends
09:48
working on it
09:49
maybe you have a minimum viable product
09:51
or a customer
09:52
you know at least some prototypes more
09:54
than zero but it's less than four or
09:56
five million because
09:57
anybody that puts money in well it's so
09:59
early and so risky they want a big chunk
10:01
of the business
10:02
and in most cases i've been involved in
10:06
i don't know a dozen certainly i don't
10:07
think it's hundreds yet but lots of
10:09
angel
10:10
seed deals lots over a long period of
10:12
time including my own as a founder
10:14
and they start off always in that range
10:17
like one to four
10:18
million dollars okay so honestly the
10:21
truth is
10:21
you just kind of pick a number i know
10:24
that there are
10:25
there's a lot of advice to the contrary
10:27
and there are a lot of people especially
10:29
accountants and mbas who get paid a lot
10:31
of money to develop
10:32
fancy models to calculate this stuff and
10:34
you do need to do this
10:35
but rocky's question is about really at
10:38
the beginning
10:39
like the pre-seed stage honestly pick a
10:42
number
10:42
two million dollars why because what i
10:45
just said we're doing
10:46
something we don't know what it's worth
10:47
now that will move
10:49
depending a lot on how much money the
10:51
people want to give you
10:52
right so if they're gonna give you two
10:54
million dollars and your company you
10:56
think is valued at two million dollars
10:57
or you've just sold the whole company so
10:59
that's probably not what you want to do
11:01
right god bless if you can get two
11:03
million dollars for pre-seed these days
11:04
but
11:05
anyway um you can't give away the whole
11:07
company right
11:08
because investors want to see that
11:10
there's enough stock for you left
11:11
that you will still have incentive to
11:13
get up in the morning and kick some ass
11:15
right
11:15
you're going to go out and build this
11:16
company so if somebody's going to give
11:18
you let's be a little more realistic
11:19
let's say
11:20
500 000 or even a hundred thousand
11:23
dollars okay let's say it's a hundred
11:24
thousand dollar investment
11:25
um well then if it's a million dollar
11:27
company and you give them
11:29
10 percentage okay that sounds about
11:31
right right because that leaves you 90
11:33
it gives them a good chunk and hopefully
11:35
they will continue to participate in
11:37
future rounds but you're gonna have to
11:39
raise more money probably right
11:40
so 10 probably about right if they're
11:43
gonna give you 250 000
11:45
well then maybe you want to value the
11:47
company at two and a half million
11:48
why because it's 10 times 250 000 right
11:51
this is not
11:52
rocket science at this early stage so
11:54
these are really kind of made up numbers
11:57
and you will need to develop a model
12:00
that shows how this stuff
12:02
grows but that's honestly the truth
12:05
the free seed level is generally done at
12:07
these kind of made up numbers
12:09
that are small enough that people can
12:10
get their heads around and say okay i'm
12:11
going to give you some money
12:13
you got a little something going on but
12:15
not a lot
12:17
but we got to give you credit for
12:18
something okay how about
12:20
10 for 50 grand
12:23
that makes the company worth 500 grand
12:25
or add a zero to that you know same idea
12:27
you're getting the idea hopefully
12:28
so if that's useful uh and i hope it is
12:31
that's how i would think about
12:33
evaluating a star excuse me valuing a
12:35
startup when it has little income
12:37
at the beginning and it's again not very
12:39
precise this is not legal and financial
12:41
advice there are lots of
12:43
caveats to this and fancier ways to do
12:45
it but um that's the way
12:47
that i would address it okay so there we
12:50
go
12:50
all right so let's look at our friends
12:52
in the chat room um
12:54
let's see by the way let me do a a small
12:57
commercial if you're interested in this
12:58
kind of advice once a month we also do
13:01
startup masterminds workshops and the
13:03
masterminds workshops are a group of us
13:05
that all meet by zoom
13:07
once a month and we talk about questions
13:10
like this and there's a lot of
13:11
networking and guest speakers and stuff
13:12
like that they're a lot of fun
13:14
so if you haven't been to one of those
13:15
yet actually that's the poster here on
13:17
the wall
13:18
behind me masterminds workshops
13:20
mastermindsworkshops.com
13:22
and these are uh and you can get a free
13:24
ticket if you send in a question
13:26
right nobody's making any money here
13:27
believe me but if you'd like to
13:29
participate and we can be helpful to you
13:31
check out mastermindsworkshops.com
13:34
okay now we're going to get to some of
13:36
the chat questions um
13:38
okay adam i see you're back lurking in
13:39
the chat room uh do you want to turn on
13:41
your camera and we can
13:43
bring you in uh but these are that's
13:46
that's how this works so turn on your
13:47
camera if you want to join us
13:49
okay so the chat let's see here
13:52
what's got a bunch of these um
13:56
okay rashab okay rashab has a similar
14:00
question let me
14:01
sorry let me browse a second so the shop
14:03
is asking about investments versus bank
14:05
loans
14:06
chaton's asking about networking and
14:07
finding angel investors
14:09
uh adam's asking about uh different
14:12
atoms asking about breaking ice with vc
14:14
firms yes okay um
14:18
marketing okay yes and
14:22
okay social media market okay good good
14:24
questions uh
14:25
gentlemen i think these are all
14:26
gentlemen i don't know where the ladies
14:27
are today but
14:28
please invite your friends who are women
14:30
and minorities of all sorts a lot of the
14:32
reason i do this is trying to diversify
14:34
the pool of entrepreneurs
14:36
so if that is you welcome and if you
14:38
have friends
14:39
who that sounds like please invite them
14:40
as well as well as to the masterminds
14:42
workshops
14:43
okay so rashad let's go uh okay adam i
14:46
see you there
14:47
let's sorry let me just answer well
14:49
let's bring you on you're on you got
14:50
your
14:51
camera on there um hold on let's bring
14:53
it so it's always more fun when it's not
14:55
just me talking to myself
14:56
okay so here comes my new friend adam
14:59
let's see here there he is all right can
15:02
you hear me anna
15:03
yeah i can hear you hey everybody nice
15:06
to meet you
15:07
nice to meet you yes all right so why
15:10
don't you talk you want to talk about
15:11
your question a little bit and
15:12
let's discuss it yeah so um
15:15
me and my me and my buddy we have a
15:18
flower shop startup
15:19
and we've been going for about a year
15:21
and a half now and so we're kind of
15:23
looking into
15:24
sba loans and we're trying to build the
15:27
company up
15:28
uh right now we're actually looking at
15:30
uh retail spots and we're trying to
15:31
figure out
15:33
how do we get the banks interested in us
15:35
to give us sba loans like
15:38
how what kind of growth do we have to
15:41
show for them to take us seriously
15:43
basically yeah
15:44
okay great good question and
15:46
congratulations
15:48
it's great to hear about people starting
15:49
new businesses especially
15:51
that we are still here all of us after
15:53
this crazy pet i mean right this past
15:55
year has been such
15:56
such uh craziness okay
15:59
so um i have to let me say up front
16:02
my expertise is in tech companies not in
16:05
flower shops
16:06
um so that's i'm not sure i can give you
16:08
the specifics
16:09
um but loan officers
16:13
in my understanding are really about um
16:16
growth and credibility right so um if
16:19
you guys have can demonstrate have you
16:21
have any revenue yet
16:23
yeah so over the uh for our first year
16:25
we did uh
16:26
just over a hundred thousand okay and
16:28
then
16:29
for uh the past six months we've done
16:32
about
16:32
i want to say just a little a little
16:34
over 75
16:36
a little over 75 okay good job as far as
16:38
right yeah
16:39
yeah and even during a pandemic so
16:41
that's got to speak loudly to somebody
16:42
if anybody's paying attention you're
16:44
doing that during a pandemic nicely done
16:46
um okay so well that sounds to me like
16:48
the right idea because what they're
16:50
gonna look at
16:51
of course is the business coming in the
16:53
profit margins are you actually
16:55
profitable are you making any money out
16:56
of that uh we're about
16:58
at a three percent uh profit margin
17:00
right now
17:01
three yeah three okay three okay all
17:04
right so that's pretty tight so you're
17:06
on the edge there that's why you need
17:07
the loan then
17:08
to uh to expand then i would guess um
17:11
yeah okay so um all right well so the
17:14
idea then i think is to have you
17:16
um put together the paperwork you've
17:19
probably done that already
17:20
it sounds like you've got your head on
17:21
your shoulders to even be asking the
17:23
right questions right
17:24
a lot of bank loans are about
17:25
credibility um the sba programs are
17:28
definitely designed for people like
17:30
you and your business so the combination
17:33
of
17:33
uh the revenue uh the income that you
17:36
have demonstrated
17:38
the profit margin i'm guessing they're
17:39
going to want to see a little uh
17:40
increase in that if you can raise your
17:42
margins because you don't have much
17:43
wiggle room
17:44
you know if you took a one you know
17:48
one bad month and i'm guessing you're
17:49
you're unprofitable again it sounds like
17:52
um and then the uh
17:55
the i don't know i actually like i said
17:58
sbs are not my
17:59
expertise but uh are your zero and your
18:01
partner personal
18:02
credit score are you guys do you look
18:04
reliable from a
18:05
institutional point of view yeah my
18:08
partner just uh
18:10
he's just around the 800 and i'm just
18:12
under that as well well good job all
18:14
right well you sound like real guys
18:17
um okay well i don't have much more for
18:20
you than that unfortunately because this
18:22
i usually talk about venture capital and
18:23
angel investors
18:24
um and they're not going to be
18:26
interested in a business like this
18:27
because they're more looking for
18:28
software these days
18:29
um okay so your video keeps cutting out
18:32
there sorry
18:33
um but
18:36
the i would encourage you to go apply
18:38
because a lot the other piece that
18:40
people miss
18:41
they think that loans or any financial
18:42
transaction is really about a one hit
18:44
right and it's really about
18:45
relationships uh and also that sba loans
18:48
are administered by many different banks
18:50
so you don't just have one shot right so
18:52
in in this case i would think this for
18:54
everybody obviously because there was a
18:56
question in the chat room as well about
18:58
loans um
19:00
loans are based on credibility like i
19:01
said um so if you have relationships
19:03
with multiple banks
19:05
and um they see you more than once
19:08
that's going to be good right so um they
19:11
get inundated with questions of course
19:13
like like anybody who invests does
19:15
but if you can reach out to them sooner
19:17
um and
19:19
this is one of the phrases that one of
19:20
my mentors taught me that i i hope this
19:22
makes sense because
19:23
i like it investors in this case i would
19:25
put banks as well
19:26
they invest in lines not dots so the
19:29
idea being if you have one meeting
19:31
they only have one dot right but if you
19:33
have three or four meetings
19:35
they start to see a trend right and
19:36
that's what they're looking for is a
19:38
trend
19:38
so i've met this guy four times now
19:40
every time he's been on time
19:41
professional the business seems solid
19:44
he's a nice guy that i don't mind doing
19:46
all the paperwork for
19:47
like all those soft things add up in
19:50
addition to the numbers and
19:52
i think that would really help and if
19:53
you do that at multiple banks rather
19:54
than putting all your eggs in one basket
19:56
i think that would probably help as well
19:58
so all right that helped i hope so
20:01
[Music]
20:02
yes it did um would you suggest us going
20:06
try to do uh angel investors as well as
20:09
loans or do you think that because our
20:11
profit margins are
20:12
you know kind of tight right now you
20:14
know just try to stick to the loans and
20:15
not really the angel investors
20:17
yeah yeah it depends on the angel
20:19
investor it's a good question most angel
20:21
investors when i talk about angel
20:23
investors i i'm
20:24
talking about a certain type of angel
20:25
investor which is the in the tech world
20:27
right
20:28
so those angel investors they don't tend
20:30
to invest in physical businesses
20:32
um that are based on real estate and
20:35
bricks and mortar and you know the
20:36
businesses that all of us grew up with
20:38
that actually
20:39
improve our lives um angel investors
20:41
like me tend to work on software
20:42
businesses because they take off
20:44
so crazy you know and turn into facebook
20:46
but there's another class of angel
20:48
investors which is the traditional angel
20:50
investor which is
20:51
like your uncle right or you know the
20:54
the guy you knew in high school who did
20:55
really well
20:56
and now has some extra money right or
20:58
that woman you know who's a dentist and
21:00
has some cash flow right
21:02
and those people often often like
21:05
businesses like yours especially if you
21:07
can get to a place where you have a cash
21:09
flow going right a three percent profit
21:10
margin i don't think you're there yet
21:12
but if you had some more margin so that
21:14
you could promise somebody like
21:16
that some income stream or dividends you
21:18
know say you put some money in with us
21:20
and we'll make you a small partner and
21:22
we can
21:23
pay back your loan and give you a piece
21:25
of the business
21:26
x percent or x dollars a month you know
21:30
indefinitely either for a period of time
21:32
or forever
21:33
you know that's it's a deal and if
21:35
people have money
21:37
um and they're looking to put it to work
21:39
uh an opportunity like yours might be
21:40
appropriate
21:41
these days interest rates are so low at
21:43
the banks that it isn't
21:45
worth much keeping money in the bank so
21:47
people that's why the stock market keeps
21:48
going up and stuff people are looking
21:50
for places where they can make
21:51
more than zero and if you can offer an
21:53
opportunity for more than zero
21:55
then it's really a question about
21:56
networking as much as the business
21:58
itself
21:59
so cool so that was adam uh if you want
22:01
to join me on camera the url is there on
22:03
the screen
22:03
uh i'd love to have you it's more fun to
22:05
talk to a person of course than just
22:07
hearing me lecture but let's talk here
22:09
about
22:11
titan had a similar question i thought
22:13
let me scroll up here i'm doing several
22:15
things at once
22:16
um let's see uh
22:20
okay so yeah okay the chatana had that
22:23
question but we'll hit rashab's question
22:24
along the way so rashav asked
22:27
for a young entrepreneur starting out
22:29
his first business what is better
22:30
investment or bank loan
22:32
so since we've already laid the
22:34
foundation for that let me hit that real
22:36
quick for shop
22:37
and then to time we'll talk about
22:38
networking and finding angel investors
22:40
so bank loans versus investment both are
22:43
totally valid tools
22:45
the media covers the angel investment
22:47
and venture capital
22:48
all the time right because it's the sexy
22:51
new thing
22:52
you know i had an idea i met this guy at
22:55
a coffee shop he gave me a million
22:56
dollars
22:57
and six months later i was public and
22:59
i'm a unicorn company and i'm a
23:00
billionaire right
23:02
but that is really really rare it's the
23:04
same way
23:05
that the media covers lottery ticket
23:07
winners right because that's essentially
23:08
what that is
23:09
it's it's it's like lightning struck
23:12
the real world runs on bank loans and it
23:15
always has
23:16
this angel investing concept is really
23:18
fairly new so especially if you have a
23:20
traditional business under shop i don't
23:21
know what your business is
23:23
but if you have a physical business the
23:25
really the best place in adam if you're
23:27
still listening this is a great
23:28
tip for you too is to find people who
23:30
have had success
23:32
in your business so in adam's example he
23:34
was running a flower shop well there's
23:36
probably other people who get the flower
23:38
shop business
23:38
who made some money there and would be
23:40
willing to back a young entrepreneur
23:42
who has the energy and the new ideas
23:46
to expand that kind of business right
23:47
and that applies in any industry
23:49
if you can find people who've already
23:50
done well there and they're like
23:53
uh you know my age or older uh they're
23:55
probably be interested in
23:56
offering their expertise and maybe some
23:58
money as well so the bank loan thing is
24:01
the way
24:01
businesses has traditionally run and the
24:03
problem with bank loans though rashab is
24:05
that
24:06
they require income and revenue and
24:10
all the things that demonstrate that
24:13
you'll be able to repay the loan
24:15
angel and vc investors a little more
24:18
kind of bet on the idea
24:20
and hope that you're going to do well
24:21
and that their ownership of the company
24:23
is how they'll get paid right
24:24
so they own a piece of your company then
24:26
later when the company gets bought or
24:28
goes public or
24:29
something does really well hopefully
24:31
then they get paid back what they put in
24:33
multiplied many times over like 10 times
24:36
or 50 or 100 times more
24:38
of than the money they put in but it's
24:40
it's really a gamble
24:42
that that will work whereas the bank a
24:44
bank loan is really saying okay
24:46
you make a hundred thousand dollars a
24:48
month uh
24:49
and your profit margin is whatever ten
24:51
percent
24:52
we therefore we think that you can
24:54
afford this much
24:56
will give you this much money because we
24:57
think you can pay it back this much each
25:00
month over time plus interest
25:03
and over time we'll get our money back
25:05
and if we don't
25:06
we're going to take your business right
25:08
so that's a different model it's much
25:10
more like buying a house where you get a
25:11
mortgage
25:12
you take the loan you buy the house you
25:14
live there you pay it back over time
25:16
but um and they have the right to take
25:18
the house back if you don't
25:19
if you don't make the payments so it's a
25:21
very different model and both have
25:23
uh great applicability but it really
25:26
depends on the kind of business you have
25:28
and also frankly about your connections
25:29
and your network ability
25:31
to find the right people to invest so
25:34
that's a good segue to chatan's question
25:37
which is about networking
25:40
let's see let me i'm going to change my
25:42
chiron here so i'll remind you again
25:43
this is not qualified legal or financial
25:45
advice
25:46
please please do uh please do talk to
25:49
your own professional advisors
25:51
uh if you're gonna do this sort of thing
25:53
and uh by the way if you're watching now
25:55
on
25:55
online or have friends who do please
25:57
have them come over to
25:58
the scott fox channel on youtube uh this
26:01
is a presentation of the startup council
26:03
which is a community service group that
26:04
i started trying to help entrepreneurs
26:06
all over the world
26:07
increase their access to innovation and
26:10
investment capital
26:11
and we do this once a month this is the
26:13
fourth tuesday of the month and we're
26:15
here
26:15
on linkedin facebook blog talk radio
26:18
and i'm missing one youtube they're
26:22
live once a month to try to help
26:23
everybody out and if that's useful to
26:25
you
26:26
please tell your friends and you can
26:27
also sign up here for our email list
26:30
uh and get free tickets to our
26:31
masterminds workshops as well
26:33
okay so back to um
26:39
sorry let me go back to the chat room
26:40
okay so networking chaton says
26:42
hey guys it also be fun to hear where
26:44
you're from when you type in your
26:45
question uh could you add where you're
26:47
from
26:48
that's just it's entertaining for me to
26:50
to feel uh to figure out where we're
26:51
reaching
26:52
uh with these broadcasts um so chatan
26:55
says
26:55
um what are the best ways to network and
26:58
find
26:59
uh angel investors um okay so that's a
27:03
big one
27:03
um let's see here sorry i gotta write
27:06
that down okay
27:08
what are the best ways to network and
27:09
find angel investors well it depends a
27:11
lot on your industry and where you live
27:13
but the bottom line is you're asking the
27:15
right question networking with angel
27:17
investors
27:18
is the only way you're going to succeed
27:21
to raise money from angel investors
27:24
everybody likes to think that you can
27:27
just send out
27:27
cold emails and that somebody's going to
27:30
answer your email
27:31
and then write you a check i guess it
27:34
happens but like i said it's
27:36
like the unicorn lightning strike
27:38
example
27:39
it doesn't really happen right if the
27:42
exception proves the rule and you hear
27:44
about it because it happens so rarely
27:46
that it's amazing what you have to do is
27:49
get out
27:49
into your community and network and meet
27:52
people and build relationships because
27:53
like i said
27:54
investors invest in lines not dots one
27:57
dot
27:58
is the email that comes into their inbox
28:00
they don't know you you haven't been
28:01
referred
28:02
okay that's just going right in the
28:04
trash we'll get way too many of those
28:06
you have to put yourself in the
28:07
investors position you think about how
28:09
many emails a guy like me gets right
28:11
asking people i've never heard of you
28:14
know
28:15
inviting me and begging to look at their
28:18
decks and do things
28:19
and i'm happy to do it i just don't have
28:21
time i frankly i can't i can't
28:23
do it all so you have to work backwards
28:26
think about who that investor is do they
28:29
invest
28:30
in your sector right are they a software
28:32
investor or do they invest in pizza shop
28:34
pizza parlors or do they invest in um
28:38
construction you know there's all kinds
28:40
of different types of investors
28:41
do they invest at your stage like do the
28:44
early stage or later stages
28:46
do they um are they in your town or do
28:49
they invest
28:49
via zoom calls and virtual google meets
28:52
right and microsoft teams like the world
28:53
has changed in the last year or two
28:55
you can actually do a lot more online
28:57
than you should be able to do maybe you
28:58
can do
28:59
things remotely you know you're in
29:01
bangalore and they're in new york city
29:02
maybe they're still interested you know
29:04
assuming the time zones work out you can
29:05
actually talk to each other
29:07
all those things mean that you can
29:09
filter down to find people who are good
29:12
prospects and that's where you start
29:14
don't just spray and pray and send out
29:16
your ideas to everybody
29:18
you gotta work backwards so here's
29:20
here's my recommendation for all of you
29:22
to find the right investors
29:24
figure out what kind of company you are
29:27
running okay that's obvious right so you
29:29
know what
29:29
sector you're in next find the companies
29:33
that have had success in that area
29:35
right if you're a construction company
29:37
this or more my expertise if you're a
29:39
software company
29:40
or a social media platform or you're a
29:42
business productivity app
29:43
or you're a dating site something like
29:45
that right all those different sectors
29:47
find successful companies in that area
29:50
find who invested in them figure out if
29:54
you can
29:54
network into finding and meeting those
29:57
investors
29:58
because if they've done well by
29:59
investing in that company already
30:01
they might be interested in investing in
30:03
you as well a good place to do that of
30:05
course is linkedin
30:07
you're welcome to connect with me if i
30:09
can help you make introductions
30:11
if there's somebody in my network we can
30:13
do that
30:14
there's my linkedin profile please don't
30:17
just click hello
30:18
to connect please put a little note in
30:20
so i have some idea who we are because i
30:22
delete most of them because again i get
30:24
so many
30:24
right but make a relationship take the
30:27
effort to personalize something and
30:28
you'll get much better response
30:31
then the other piece is to really look
30:34
locally or through your personal
30:35
connections of course in the town that
30:38
you're in
30:39
you know who is there that knows your
30:41
industry make friends don't just ask for
30:43
money build relationships
30:45
you want to go friend raising before you
30:47
go fundraising
30:48
a friend of mine often says that i think
30:50
it's good advice
30:51
so the the short answer is it's not
30:54
quick and easy
30:55
you got to get out and build the
30:56
relationships ask for advice
30:59
and you might get money if you just
31:00
start asking for money you probably just
31:02
get
31:02
deleted and at most you'll get advice
31:06
okay i hope that's helpful uh and then
31:09
uh
31:09
let's see here okay some more stuff in
31:11
the chat uh if that's useful thank uh
31:14
let me know uh like and follow and all
31:16
that social media stuff please share
31:18
this out
31:18
on your internet connections with your
31:20
social media if you're on instagram i'm
31:22
terrible at instagram if you want to
31:23
share about this on instagram
31:25
that would be really appreciated or of
31:27
course on linkedin
31:29
and youtube and so forth okay
31:32
so let's go back to our chat room and
31:34
work our way down to the next question
31:37
um let's see okay adam okay so adam this
31:41
is different adam
31:42
adam has and by the way if you want to
31:43
come on camera please join me so this is
31:46
not just me
31:46
doing the talking head let me put that
31:48
link up there again there it is
31:50
it's a bitly link if you click on that
31:52
you'll uh come into the waiting room and
31:54
i'd be happy to chat with you
31:56
face-to-face it's fun don't worry i
31:57
don't bite and we've got a worldwide
31:59
audience here to help you in the chat
32:00
room as well by the way folks if you
32:02
hear
32:03
somebody if i'm talking about a question
32:04
and you have advice
32:06
please share your answers in the chat
32:07
room too i don't have all the answers
32:09
i'd love to hear your opinions and you
32:12
can help each other that's perfectly
32:13
legitimate
32:14
and frankly the best way to um you know
32:16
to build
32:17
a network and to help each other um
32:20
and helping me answer the questions is
32:22
much appreciated
32:23
okay so we were going next to adam's
32:25
question which was what's the best way
32:27
to break the ice with a venture capital
32:29
firm
32:30
i don't have any warm introductions
32:31
available as i haven't needed to raise
32:33
for a few years how do i get them to
32:35
respond
32:36
well adam okay so it sounds like you've
32:37
done this before which is awesome
32:39
and i think you know the answer you
32:41
start over you need the warm
32:42
introductions
32:44
i don't like that i don't think it's the
32:47
right way to do business
32:50
but those of us who invest we don't have
32:53
any better way to screen
32:55
people than to take referrals
32:58
there's just too many people out there
32:59
with too many ideas most of whom don't
33:02
do their research right so they're
33:03
pitching me
33:04
you know whatever late stage clean tech
33:07
deals or
33:08
or real estate deals or things i don't
33:10
even do you know and
33:12
i and i can't handle it right so
33:16
um you need a warm introduction
33:17
unfortunately because that's the filter
33:20
right if someone if you can find someone
33:22
that knows someone that knows the person
33:24
you want to meet and you have a warm
33:26
introduction that means that
33:27
they have invested a little bit of their
33:29
personal capital in helping and they say
33:31
you know adam
33:32
oh you have that kind of deal okay
33:34
you're an artificial intelligence
33:35
startup and you're based
33:37
in new jersey okay oh and you want to
33:39
meet uh you know
33:40
jennifer and she works in manhattan
33:42
that's near new jersey and she does
33:43
artificial intelligence
33:45
okay that sounds about right i know
33:47
jennifer i will pass your
33:49
uh introduction along to her that is how
33:52
things work right
33:53
so if that's useful then um to both
33:56
parties that's when people will help you
33:58
um cold introductions of just like hey i
34:01
see you know
34:01
so and so will you introduce me no
34:05
why would they right you've got to build
34:06
the relationship a little bit first
34:08
um and i think i'm sorry but that's the
34:10
truth i'm here to tell the truth and if
34:12
anybody disagrees and have a better
34:13
answer please put it in the chat room
34:15
um you get them to respond by going
34:19
to where they are right um figure out if
34:22
uh you know that vc that you've targeted
34:25
is active in some facebook group or on
34:27
linkedin
34:28
or they're attending some events either
34:30
virtually or in person you don't want to
34:32
stalk people but
34:33
you know an honest uh friendly smile on
34:36
a face to face or zoom call
34:37
is a much better way to create your own
34:40
warm introduction
34:41
when i started out i had no warm
34:42
introductions i worked my butt off
34:45
to network network and network and
34:47
that's that's how you get there
34:48
but they're on the positive side there
34:50
are people that are looking to help
34:52
but you'll do yourself a real favor if
34:54
you start from
34:56
working with firms that are already
34:58
interested
34:59
in that space that are more likely to
35:02
be open to you and of course you can
35:04
start with the smaller firms that are
35:05
less established that maybe don't get so
35:07
many incoming emails or phone calls as
35:09
well
35:10
then there's the old school way you
35:12
could actually like write them a letter
35:15
send them flowers right or something
35:18
physical that arrives in the mail
35:19
like that would be shocking right or fax
35:21
them i know it sounds stupid but
35:23
this is sales right how do you get a
35:25
prospect's attention when you're a
35:27
salesperson
35:28
you got to do something the other guys
35:29
aren't doing so maybe some of that would
35:31
be helpful
35:33
okay so um i hope that's helpful
35:36
uh let's see let's keep going here
35:39
oh we're halfway through already okay
35:40
well let me remind everybody you're
35:42
watching
35:43
mastermind startup fundraising office
35:45
hours
35:46
and i'm scott fox i'm your host i run
35:47
the startup council as well as the
35:49
masterminds workshops
35:51
we run a monthly workshop as seen here
35:54
which is a monthly workshop the next one
35:56
is on july 8th
35:58
i think that's a thursday night and we
35:59
do it via zoom so you're invited from
36:00
all over the world it's two hour session
36:02
with a whole bunch of people
36:03
just like the ones you're meeting in the
36:05
chat room now a bunch of networking and
36:06
fun we often have guest speakers
36:08
and we help each other answer questions
36:10
and it's uh if you think this is fun
36:12
it's a lot more fun when we can all
36:13
speak to each other
36:14
face to face virtually anyway okay so
36:18
um thanks for joining me and like i said
36:20
please like and share
36:21
along the way here all right back to the
36:24
chat room
36:24
okay ochaton i see that you joined us
36:27
here and there's uh adam's back for more
36:29
maybe as well
36:30
but chaton if you wanna i saw you
36:31
briefly if you wanna come back in we can
36:33
talk a little more
36:34
turn your camera on in the meantime
36:36
we're gonna work our way down the chat
36:37
room here
36:38
um let's see to town i think you're
36:41
gonna
36:42
come in and talk about the expenses oh
36:44
there is okay you want to do that
36:45
all right let's do that nice to meet you
36:48
there is chaton what's here can you
36:52
test your mic there can we hear you
36:56
no i'm not hearing i hear a little
36:58
mumble but
36:59
can't quite
37:04
yeah keep talking
37:12
i'm sorry i can't hear you i can see
37:14
your mouth moving i hear a little mumble
37:15
but can you hold the microphone up to
37:17
your mouth or something
37:22
okay well then i heard you there at the
37:24
end there whatever you did brought it up
37:25
to your mouth maybe or
37:27
yeah that's what i did are you able to
37:29
hear me now yeah that's better
37:31
that's better okay but you'll not be
37:34
able to see me if i do this
37:36
is that all right yeah i can see half i
37:38
can see your ear
37:42
good looking ear
37:47
if you're okay to continue like
38:00
if i should just start developing it and
38:02
release it into the market and then try
38:04
and raise funds or
38:05
should i try just put my idea out there
38:08
in front of some investors and try to
38:10
build
38:11
some partnerships and then put something
38:13
out into the market right right okay so
38:15
let me repeat the question so he's got
38:16
an early stage
38:17
idea he's trying to figure out whether
38:19
to build a prototype i guess
38:22
uh to put in front of investors now or
38:24
whether to put it out in the market
38:26
um and what kind of idea is it just
38:28
roughly speaking
38:29
it's a social media platform social
38:31
media platform okay great
38:33
okay so it's a good question um all
38:35
right so i can let's see more than your
38:37
ear now i'll talk
38:38
let me let's see you again can you push
38:40
it back on your face
38:42
there he is there he is okay cool all
38:44
right nice to meet you um
38:46
okay so i think the answer is neither of
38:49
those
38:50
the answer is uh well as you kind of
38:52
said this but
38:54
what investors almost never invest in
38:56
just ideas anymore
38:58
there's just too many of them and
39:00
software is so inexpensive to start
39:02
at least to do a prototype that you need
39:04
to at least get something built
39:06
and show it to customers what investors
39:08
want to see
39:09
is that customers care right not that
39:12
they care
39:13
so if you can demonstrate that whatever
39:16
you can do to get in front of 5 or 50 or
39:18
500 people
39:20
and then you can create some numbers and
39:22
say just as an example i showed it to
39:24
100 people and 78 of them said they
39:28
would buy it
39:29
that's interesting right if the
39:32
traditional approach is to show it to a
39:34
hundred investors
39:35
and hope that one of them writes you a
39:37
check that won't work anymore
39:39
i would show it to 100 customers and
39:42
show
39:43
their engagement and interest i think
39:45
that would be a better way to go
39:46
is that useful
39:50
awesome okay well i'm going to move on
39:52
because we can't both hear you and see
39:53
you
39:54
it's nice to meet you hope we'll see you
39:55
again and we'll let's keep in touch
39:58
in the chat room if you want to follow
39:59
up on that okay
40:01
all right nice to meet you okay
40:04
so let's uh so the point there guys is
40:07
that customers are what matter these
40:08
days ideas
40:09
unfortunately are very common right
40:13
and investors are not interested as much
40:15
in the idea as they are in the business
40:17
and you don't have a business until you
40:19
have customers
40:20
so i would really look at customers and
40:22
think about how you attract customers
40:24
and build a growth strategy
40:26
and the growth strategy is what will
40:28
bring in the money which is what the
40:30
investors want to see
40:31
and the validation from a first few
40:33
customers especially if they're paying
40:34
customers
40:35
is is really what's most attractive and
40:38
i think actually chris
40:40
chris from toronto chris asked
40:43
you say you're an angel investor can you
40:45
honestly say what certain aspects of
40:47
startups trigger your emotions
40:49
what part of the pitch excites you the
40:50
most well that's it chaton set that up
40:53
for us chris
40:54
uh it's customer validation ideas are
40:57
awesome like i'm an idea guy i
40:59
personally get excited
41:00
you asked about emotions my emotions i
41:02
get excited about the ideas
41:03
especially ideas that solve problems
41:05
that are interesting problems especially
41:07
if they help
41:08
people they make things more efficient
41:10
and make money like i get excited about
41:12
those ideas
41:13
but i'm an idea i mean that's why i
41:14
wrote all these books right i don't know
41:16
if you guys know these books i wrote
41:17
these books and they're for you
41:19
these are in english there's three of
41:20
them in english and the other ones
41:22
as russian and turkish and japanese and
41:25
polish and vietnamese
41:26
there are many languages around the
41:28
world so if that's helpful to you go to
41:29
amazon.com or whatever and
41:31
search on scott fox and you can read
41:33
these books there are these same ideas
41:35
trying to help people
41:36
um learn how to think uh
41:40
like a venture capital investor
41:41
essentially build businesses that can
41:43
grow and
41:44
and uh make a difference so what excites
41:46
me is the idea
41:48
but the excitement chris isn't enough to
41:50
get people to invest
41:51
to invest it has to have business
41:54
traction and traction is the word that
41:57
investors use it's really shorthand for
42:01
ideally revenue but at least customer
42:03
interest
42:04
and any business these days that doesn't
42:07
have
42:08
at least some revenue or at least at
42:10
least proof that customers
42:12
care isn't really going to go anywhere
42:15
unless
42:16
it's your your aunt with a bunch of
42:17
money or your cousin who
42:19
you know has some a chain of dry
42:22
cleaning shops and doesn't know what to
42:23
do with his cash flow right
42:25
or you just sold your house and you have
42:27
some money to invest yourself
42:28
if you really want to build a business
42:30
that attracts investors
42:32
i would start with customer validation
42:34
because there are far too many people
42:36
and i
42:36
accuse myself of this i've suffered i've
42:38
done this many times to my own
42:40
uh suffering is get charmed by the idea
42:43
and the product
42:45
and not spend enough time talking to
42:47
people who will
42:48
give you feedback that you may not want
42:51
which is
42:52
you know i don't think this is worth
42:54
money i wouldn't pay for it or you need
42:56
to change this
42:57
or or whatever it is right that customer
42:59
validation is the whole game these days
43:02
all right so i hope that's helpful um
43:06
let's see it looks like chris had a
43:07
fault there let me just
43:09
see what that was uh we're getting a
43:11
bunch of messages here
43:13
uh what about using competition to prove
43:15
traction oh good question chris okay
43:17
yes competition can prove traction
43:20
well not prove it can correlate or
43:22
demonstrate right
43:24
um that you have traction uh it will
43:27
show that um
43:29
you that other people have done this and
43:32
it's working for them
43:34
that's good but it's not as good as you
43:36
doing and showing that you can do it and
43:38
that you can make money doing it right
43:40
so i think that's a it's a great point
43:42
it's especially valuable at the early
43:44
stages to show that this
43:46
um this approach that you have has
43:49
legs right it's something that can get
43:50
up and walk on its own
43:52
you know it in and that other people
43:55
have succeeded
43:56
um of course it doesn't show that you
43:58
have done it right so it's not the same
43:59
thing
44:00
and it also introduces the idea which
44:02
you have to address
44:03
which is competition right if there's 14
44:05
other examples of this
44:08
is there really room for you right
44:10
that's so it's a two-edged sword
44:12
um and you need to be careful you don't
44:14
want to scare people off because there's
44:16
too much competition
44:17
but at the same time if there's so much
44:18
competition maybe you need to rethink
44:20
what you're doing
44:21
so anyway you see the pros and cons of
44:23
that i hope
44:25
competition is a proxy that's a fancy
44:27
word for a substitute
44:29
but it's not the same as as yourself
44:31
having done it and demonstrated revenue
44:33
on your own
44:35
okay so let's keep going here um
44:39
chaton adam uh cheyenne okay hey
44:42
cheyenne nice to meet you
44:44
where are you from cheyenne i don't
44:45
think you said oh you're in long beach
44:47
okay you're nearby all right
44:48
um beautiful day here in southern
44:49
california okay
44:52
so doesn't want to talk about marketing
44:53
she wants to recommend easy finance
44:55
options for my founders to build an
44:57
app i'm not quite sure i understand that
45:01
what that means cheyenne maybe or
45:03
cheyenne sorry i'm saying that wrong
45:05
cheyenne maybe explain that a little
45:06
more the question we've got from you on
45:08
screen cheyenne is what's the best way
45:10
to compensate
45:10
fish investors like your uncle same deal
45:13
as 10
45:14
etc yes um okay so how do you compensate
45:16
people
45:17
who are um i don't know if you mean fish
45:20
unless you're running a fish store maybe
45:21
you meant first
45:23
but let's assume you mean early
45:24
investors like your uncle right
45:26
so how do you compensate them um
45:29
yes you give them a piece generally
45:33
there's two paths like we talked about
45:34
earlier with
45:36
somebody else's question about bank
45:38
loans right uh who was that that was
45:41
rashab's question so there's two ways to
45:43
raise money you can give them a piece
45:45
of the ownership of the business or you
45:47
can give them a piece of the cash flow
45:50
if you give them a piece of the cash
45:52
flow that's
45:53
roughly speaking that's like a loan
45:55
right they give you
45:56
whatever 100 000 and you agree to pay it
45:59
back 10
46:00
000 a year over 10 years plus some
46:02
interest just to keep it simple right
46:03
so you're giving them a piece of the
46:05
cash flow and at the end when you've
46:06
paid it off
46:08
they've gotten their money back plus
46:09
whatever interest or whatever but you
46:11
still own the whole
46:12
business right so if that business then
46:15
sells
46:16
for a billion dollars then you keep the
46:18
whole billion dollars they just got
46:20
their money back plus interest that's a
46:21
loan
46:22
right what angel investors and venture
46:25
capital investors perhaps like your
46:26
uncle
46:28
usually do is they take a piece of the
46:30
business and they don't expect to be
46:32
paid back out of cash flow
46:34
they expect to own a piece of the
46:36
business so that when the business later
46:38
sells they get their money back plus
46:40
hopefully
46:41
10 times or 50 times their money right
46:43
so yes 10
46:45
is a typical just a round number right a
46:47
round number for
46:48
uh ownership and like i talked about
46:50
earlier and if you missed that earlier
46:51
part of this discussion anybody that's
46:53
coming in late you might rewind we
46:54
talked
46:55
extensively earlier in this show about
46:58
how to value an early stage startup
47:00
but say you're you want to raise they're
47:02
going to give you a hundred thousand
47:03
dollars
47:04
so you're gonna call the business as
47:07
worth maybe a million dollars
47:08
so a hundred thousand dollars off a
47:11
million pre-money
47:12
something like 10 percent i won't get
47:14
into pre-money and post money valuations
47:16
but that's roughly the idea right
47:17
they've given you a hundred grand you
47:19
think it's worth a million
47:21
you prove that to them enough that they
47:23
agree they own 10 yes
47:25
but they don't get anything back until
47:28
the business sells and hopefully it
47:29
doesn't sell for a million it sells for
47:31
10 million right so they get 10 times
47:32
they get a million dollars back
47:34
and you get 9 million cool right so
47:37
that's more of an equity ownership
47:39
approach
47:40
and that's what most early stage venture
47:42
style investors do
47:44
and of course there's in betweens also
47:45
there's things called convertible notes
47:47
which is a loan that pays interest but
47:49
also converts into some ownership along
47:52
the way depending on what happens
47:53
etcetera etcetera it can all get legal
47:55
very quickly
47:56
but that's the right idea you're
47:57
thinking on the right direction and i
47:59
should mention by the way if any of you
48:01
need lawyers to handle this stuff i know
48:04
a lot of lawyers there are sponsors
48:06
of the startup council and of our
48:07
masterminds workshop i'll be happy to
48:09
refer you to lawyers who specialize in
48:11
this stuff
48:12
i would be very careful do not go and
48:14
use your uncle
48:15
the divorce lawyer or your aunt the
48:18
personal injury lawyer or family
48:20
law lawyer or whatever lawyer this is a
48:23
specialized area
48:25
if you're going to raise money in a loan
48:27
like for a typical business like adam's
48:29
flower shop
48:31
maybe the divorce lawyer could get you
48:32
through that but if you're going to try
48:34
to raise money
48:35
from venture investors the deals are
48:37
much more complex
48:39
they're changing all the time and you
48:41
really need professional counsel
48:43
and yes they're expensive but if you're
48:45
going to do it right to build a growth
48:47
company you need to lay the foundation
48:49
properly and if you need
48:51
referrals to attorneys i'd be happy to
48:52
try to help you with that
48:54
you can contact me go to scottfox.com
48:57
there's a page there work with scott
48:59
and there's a contact page there as well
49:02
okay
49:03
so that was our new friend shia from uh
49:06
messing up your name chayanna from long
49:09
beach
49:10
um let's see and then uh okay
49:17
and what time is it okay we got about 10
49:19
more minutes here and looks like oh
49:20
chris is back with more questions okay
49:22
chris
49:22
let's see here what about using
49:25
competition we did that one let's see
49:28
like yes okay
49:32
what sorry i'm reading he says what
49:34
about he or she i'm not sure chris
49:36
next time you i'm happy to have you back
49:37
chris next time you gotta come on camera
49:39
then we can have a real conversation in
49:40
fact if you
49:41
are you around it would be easier to
49:42
talk to you and get your feedback rather
49:44
than trying to respond to these little
49:45
texts
49:46
if you could turn on a camera that would
49:47
be super
49:49
let's see
49:54
sorry guys i know it's not very
49:55
interesting to listen to when i'm
49:56
reading but
49:57
what you do if you have a similar
49:58
product that requires a chunk of
50:00
marketing
50:01
to prove validation other than polling
50:03
consumers
50:05
let's assume that there's a unique value
50:06
in the product that allows us to enter
50:08
the market and not worry about
50:09
competition
50:10
yeah well chris i think that's right
50:12
polling consumers yeah why wouldn't you
50:14
do that
50:14
yes uh and he says uh he's male and he's
50:18
sorry he's at work he can't
50:19
turn on his camera fair enough okay
50:21
thanks for the update
50:22
okay so um yes i think polling consumers
50:25
is exactly what you do right i mean what
50:26
else would you do
50:28
you need to make a story that shows an
50:31
investor
50:31
there's two things right there's two
50:34
ways to think about a venture investment
50:35
one is
50:36
all the upside and and entrepreneurs
50:38
like myself we love to
50:40
focus on the idea you know this could be
50:41
huge it'll change the world it'll be
50:43
worth a billion dollars
50:45
and you know hopefully make people's
50:46
lives better and help people and make
50:48
things more efficient and all those cool
50:50
stuff right
50:51
but the other side you know
50:54
venture investors agree with you they
50:56
like the ideas that's not the problem i
50:58
mean of course you have to have that
51:00
but they're really interested in the
51:01
other half which is de-risking
51:03
the investment how do they know that
51:05
you're the guy or gal or team to do this
51:08
how they know the competition is not
51:09
going to crush you how do they know that
51:11
the regulatory environment
51:13
isn't going to change and suddenly make
51:14
it illegal to do whatever you're doing
51:16
uh and uber is a good example as you
51:18
mentioned in the chat a lot of they ran
51:20
a lot of legal issues right and
51:21
regulatory issues and stuff and fights
51:23
with the taxi unions and stuff like that
51:27
and what they really want to know is
51:29
does anybody give a and
51:30
that's the piece that customer polling
51:33
solve a lot of that right
51:35
because if you go out and talk to
51:36
customers and it was the example i gave
51:38
somebody earlier
51:39
you know if you talk to 100 customers
51:41
and 78 of them say they want to buy it
51:43
that's that tells you a lot more than
51:46
all the theory in the world right
51:48
and in fact it doesn't even have to be a
51:49
hundred how about 10
51:51
right and if eight of those are
51:53
interested awesome or even if
51:55
two of them are interested but they're
51:57
really really interested
51:59
that might be enough because if they're
52:01
really interested and maybe i mean
52:03
this making this up right but maybe
52:05
they're a really big customer right
52:07
it's like boeing or uber or mcdonald's
52:10
or
52:10
you know some big company or the us
52:14
army right like if you can get a couple
52:16
customers like that
52:18
you're done right maybe it is a billion
52:19
dollar company right if you get the us
52:21
defense department to start buying
52:22
holy crap right i mean that's a big
52:24
company right so
52:26
polling the customers is absolutely the
52:28
way to go um and there are steps let me
52:30
outline that for a second if you want to
52:32
demonstrate customer interest
52:34
uh the easy way to start is you buy some
52:36
ads on google or facebook or
52:38
whatever social media you want to do and
52:41
you
52:42
suggest what you're selling out there
52:43
and just see how people react
52:45
right and you tweak your offer and see
52:48
what they react to and maybe that goes
52:49
to a web page or an app
52:51
that explains a little more and it's
52:53
essentially just a survey right
52:54
but you're getting reactions and you
52:56
refine your approach and say well we
52:58
shouldn't call it the the
53:00
blue bicycle we got much better
53:01
reactions to the red bicycle okay
53:04
oh and then we try it again and it's not
53:06
bicycles people are really into
53:07
surfboards
53:08
it's red surfboards right or whatever
53:10
right and you iterate on this
53:12
that kind of feedback is what you do and
53:14
you can do that for like 50 bucks right
53:16
you can spend a little money a small
53:17
amount of money
53:18
on google or um facebook ads or
53:22
instagram or wherever you're going to
53:23
put some ads
53:24
and test the stuff linked in right
53:25
depending on your target market and get
53:27
reaction and refine it right
53:29
fifty or a hundred dollars at a time so
53:31
if you have a budget of maybe five
53:32
hundred dollars
53:33
you can actually get a fair amount of
53:34
feedback once you have an offer
53:36
becomes the next step once you have an
53:38
offer that might be
53:40
polling well then you spend a little
53:42
more money
53:43
and try to see you know upgrade your
53:45
questions and see if you can get some
53:46
commitments
53:47
and what you're looking for is that
53:49
people will say um
53:50
they're marginally interested or they're
53:52
really really interested
53:54
um there's a thing called a net promoter
53:56
score you can look that up online net
53:58
promoter score
53:59
which is basically a measure of would
54:00
you recommend this to a friend
54:02
kind of idea right and if your net
54:04
promoter score is anything less than
54:06
like
54:06
70 or something like that 70 then you
54:09
need to refine your offer because
54:11
you need enough people telling their
54:13
friends that it goes off on its own
54:16
that's what investors really like to see
54:17
isn't the net promoter score is really
54:19
high like look at this
54:20
you know 93 percent of the people liked
54:22
it so much
54:23
that they not only would tell their
54:25
friends but they did tell their friends
54:27
wow they call that a viral coefficient
54:29
like people are all telling their friend
54:31
this thing's going like crazy right
54:32
and ideally those people of course are
54:34
customers uh depends on your business
54:36
model if you're a social media site
54:37
you're not really selling stuff you
54:39
might just be selling ads right in which
54:41
case you need a lot of people to make
54:42
the ads make a lot of money
54:43
or if it's more of a business service
54:45
you might be selling
54:47
specific products or services and you
54:49
want to get even if you don't have it
54:51
ready to sell
54:52
you get letters of letters of intent loi
54:55
they call it or uh poc proof of concept
54:58
you can run a test with that one big
55:00
customer
55:01
uh and again you demonstrate the
55:04
customers care
55:05
and that's really interesting to
55:07
investors
55:08
okay blah blah blah talking a lot here
55:11
okay
55:11
so let's got a few more here uh just a
55:14
reminder i'm scott foxy listen to the
55:16
startup office hours
55:17
this is brought to you as a free service
55:19
by me because i'm trying to help you all
55:22
find innovation get involved in the
55:24
innovation economy there's a lot of
55:25
money out there looking
55:27
for more diverse entrepreneurs the
55:30
internet has connected us all
55:31
even more due to the pandemic and i'd
55:34
like to help you
55:35
i think that there's a lot of creativity
55:37
out there perhaps
55:38
between your ears and i'd like to help
55:40
you liberate that and
55:42
improve the world okay so let's see uh
55:45
chris says i really appreciate you
55:47
taking the time to answer my multiple
55:48
questions we'll definitely try to join
55:50
the video next time you're awesome
55:51
thanks nice to meet you chris yes love
55:53
to meet you next time
55:54
these are like i said the fourth tuesday
55:56
of each month so that's july
55:58
i don't know 27th or something but in
56:00
the meantime the next workshop is july
56:02
8th
56:03
and that's me plus all these people in
56:04
the chat room together on zoom and those
56:06
are a lot of fun
56:07
all right looks like uh catherine from
56:11
austin texas has joined us hello
56:12
catherine
56:13
she says um let me just read these do i
56:16
need to network from each sector to get
56:18
the investors we need
56:19
yes i'm trying to build a new type of
56:22
dementia village that'll take millions
56:24
to build and collaborate with many
56:26
different sectors
56:27
okay so catherine nice to meet you um
56:31
happy to help let me slow you down um
56:34
and i somebody's got to tell you this
56:36
now i don't know that much about you
56:38
i don't know much about your idea but
56:40
what you're talking about is a very
56:42
complex idea
56:44
which is going to be impossible to raise
56:46
money for
56:48
because it's so complex i'm not saying
56:50
it's not wonderful i don't even know the
56:52
idea but i've had
56:53
family members with dementia i totally
56:55
get the need
56:57
i totally agree that it needs to be
56:59
solved but
57:00
investors are not going to be able to
57:03
invest
57:04
most likely and i'd love to have you
57:06
prove me wrong right okay i'm not trying
57:08
to
57:09
i'm just trying to help you here you
57:11
need to boil it down to a
57:13
single idea that like we just talked
57:16
about can be validated with customers
57:18
that makes money
57:19
so you're coming at it from the typical
57:22
entrepreneur point of view with the
57:23
product and the service that you want to
57:25
do
57:25
which is totally valid i'm the same way
57:28
but i've gotten myself into trouble over
57:30
the years my first company i've pretty
57:31
much bankrupted myself
57:32
lost all the investors money because i
57:34
was so focused on
57:36
the problem i was solving rather than
57:39
the business
57:40
so if you want to raise money catherine
57:42
and everybody who's listening
57:44
you need to focus on the business how
57:47
does this thing make money
57:49
otherwise investors they literally can't
57:52
help you
57:52
right you even if you you need to find
57:55
investors that
57:56
sympathize with the issue and there may
57:58
be special investors who focus in
58:01
you know long-term health care dementia
58:03
mental health all those sorts of things
58:05
there's lots of those out there
58:07
but unless you have a business they
58:09
can't even react right
58:11
because the idea sounds great sure and
58:13
of course i'm not being fair because all
58:14
i have is this little description of
58:16
what you're doing and i'm sure it's
58:17
fantastic and much more developed right
58:19
but the way you present to investors is
58:22
to say
58:22
i have this business opportunity which
58:26
is going to make money like
58:27
this by the way it's solving this
58:30
enormous problem with dementia we're
58:32
going to build a village
58:33
that pulls in you know specialists in
58:35
neuropsychiatry and the local hospitals
58:37
and
58:38
the latest drug research or whatever it
58:40
is you've got in mind and i'm sure it's
58:41
fabulous
58:42
but each of those specialties i just
58:44
mentioned is a multi-billion dollar
58:45
industry by itself right
58:46
so the complexity of what you're talking
58:48
about it's enormous and
58:51
i think you'd be better served and again
58:53
i just met you i hope this is helpful
58:56
to boil it down what's the simplest
58:58
thing you can do that will make money
59:00
sooner so that you can start with your
59:02
baby project
59:03
and say this is my
59:06
initial idea and it will make money like
59:09
this
59:10
and we'll use the money from that to
59:11
salt begin solving this problem
59:14
and as we go we'll then do this amazing
59:16
thing with the dementia village with all
59:18
these partners
59:19
and etc etc the complexity comes later
59:22
right
59:23
you can't build the whole thing from
59:25
scratch unless you have a business first
59:26
is what i'm trying to say
59:28
so i hope that isn't i'm not trying to
59:30
discourage you i'm trying to
59:31
encourage you to channel your efforts
59:34
toward the business pitch
59:35
rather than the product or service pitch
59:37
as much and as important as the pitch
59:39
is on the server side i get it and agree
59:42
the business is what the investors need
59:44
to see their fiduciaries which mean
59:46
they're managing money for other people
59:48
and they're only allowed to put that
59:50
money in places where it will make more
59:52
money
59:52
so that has to be their first concern
59:54
legally speaking that's their job
59:57
so um anyway i hope that's helpful and
59:59
i'm trying to help you not
60:01
uh not rain on your parade i'm sure it's
60:02
a wonderful idea and there's more to it
60:04
than i just had time to give a credit
60:05
for
60:06
so i think we're out of time i'm tired i
60:09
need a drink of water and some lunch
60:11
but i hope that you've enjoyed being
60:13
with me i thank you for being here hey
60:14
if you have a chance
60:16
and you can click like or subscribe um
60:19
or share with your friends or if you see
60:21
us out there
60:22
uh if you see the startup council or
60:23
masterminds workshops out there
60:25
on facebook or youtube or linkedin very
60:27
active on linkedin please come follow me
60:29
uh or uh not follow me but uh join me
60:32
connect let me put that up there there's
60:34
my linkedin if you want to connect
60:35
um and by the way i don't i have real
60:37
trouble responding to linkedin messages
60:39
be better to email me
60:40
visit scottfox.com the