Ep. #1168 - Fundraising Battle: Coast vs. Midwest

Matt DeCoursey  00:01

And we’re back back for another episode of Startup Hustle, Matt DeCoursey. Here to have another conversation I’m hoping helps your business grow. One thing that can help your business grow is fundraising and capital. And it’s probably one of the most popular topics that comes up either on Startup Hustle, or when I’m not on Startup Hustle, it seems to be what everyone wants to talk about. And there seems to be this versus battle between the coasts and everywhere else. So today, we’re going to have a fundraising battle, and we’re going to talk about the Coast versus Midwest. Now before I introduce today’s guests, today’s episode of Startup Hustle is powered by FullScale.io. Hiring software developers is difficult and Full Scale can help you build a software team quickly and affordably and has a platform to help you manage that team. Go to FullScale.io to learn more. That’s my business if you didn’t already know that and we love talking to Startup Hustle listeners. So reach out once again, link in the show notes. With me today, I’ve gott Nichole Montoya and she is the cofounder and CEO of Cheddar Up. You can go to CheddarUp.com. There’s a link for that in the show notes as well. Straight out of one of my favorite cities in the United States, Denver, Colorado. Nicole, welcome to Startup Hustle.

Nichole Montoya  01:21

Thank you. I’m excited to be here.

Matt DeCoursey  01:23

Well, you know, start our conversation today with a little bit about your backstory, and then we’ll get into this. This heavyweight showdown of Coast versus Midwest.

Nichole Montoya  01:34

Yeah, that sounds good. That’s a perfect, great topic. So my background, prior to starting Cheddar Up, I was in management consulting, kind of kind of a snooze fest honestly. Worked for Accenture and KPMG. Learned a lot there. And it wasn’t, it was right around when I had two young daughters entering elementary school, while also kind of working for a FinTech company, or consulting with a FinTech company. So I had FinTech kind of on my brain. And this was years ago, this was like 2012. And I just found myself writing a lot of checks and filling out a lot of forms. Oftentimes, it was related to things that that dealt with my kids, but I thought it was just sort of uncanny. And I didn’t, I just it was slowing me down as a working parent. And I thought, gosh, there has to be a better way. I really felt like the world needed. Sort of an evite like organizational tool that was really payment forward. And so I was perhaps naive enough to just decide to go build it. And, and that’s what I did. So that was sort of like, you know, the aha moment actually didn’t explain that aha moment. The aha moment was when I was taking money from my daughter’s piggy bank, for pajama day because I didn’t have $4 in cash. So I was sort of sort of one of the aha moments. When I was just like, gosh, I would never raise my hand to collect money from a group. And this is silly that I’m still filling out paper forms. But yeah, does that does that resonate?

Matt DeCoursey  03:08

Raising money $4 dollars at a time?

Nichole Montoya  03:11

Well, yeah, and just the chaos of it, right? Like, I mean, it’s one thing to have to go scrounge for the four bucks as a parent or as the person paying, it’s another to be the person on the other end, who needs to interpret that track that create a spreadsheet, go to the bank, all the things, just sort of a just, you know, comedy of errors as it relates to efficiency.

Matt DeCoursey  03:31

Yeah, I’ve been through that within my own household watching my wife and kids sell Girl Scout cookies, amongst other things that are a myriad of $4, $8. And a lot of people yelling out Venmo stuff. And I’m just like, wow. Well, congratulations and lucky, anything that involves cheddar. It’s so many so many. So many cheddar analogies now, according to the we talk about fundraising and, and the difficulties and perils of that. Now we do that as startup founders a little more than $4 at a time. I think that’s probably fair to say, or if you are out there raising capital for dollars at a time, you’re doing it wrong. Yeah. Or you got a long, long road, to get to wherever you need to go. It’s according to Crunchbase, you’ve raised $2.2 million. And you’ve been, you’ve been down that road. Now, you know, as we get into, you know, being in Denver now, for in all fairness to the coasts they are not adequately represented on today’s show. Because I’m in Kansas City, I still consider Denver to be part of the Midwest, I would say. It’s in that it’s in that flyover country that many people talk about where when you go from the left to the right or the right to the left, you fly over a whole bunch of United States. Now for those of you listening for, for founders that are in the Midwest, I’ve been doing In this a long time, and there’s there’s a lot of I think animosity was the first word that came to mind because it’s a lot more, it feels a lot more difficult to raise capital as a startup founder in the Midwest than it might be on the Coasts, I think some of that is just a density and population issue.

Nichole Montoya  05:23

Interesting. Um, yeah, maybe. I mean, there’s also just, there’s just so many fewer sources of funding in the Midwest. I mean, maybe that’s what you’re saying.

Matt DeCoursey  05:34

That’s back to the density thing. If you look at, you know, obviously, anytime we’re going to talk about startups, people are going to point at San Francisco in the Bay Area. And, you know, that’s density. And when I talk to founders that are out there, about the ease of raising capital, a lot of that is the the density, the meaning, like there’s so much stuff packed into such a small area, it makes it easy for collisions to occur, meaning like, you run into you get, you know, I mean, I remember being at TechCrunch in 2019 and we stopped and visited some of the founders that had been on the show. And I was talking to one of them about raising capital, and was it easier out there? And he said, well, yeah, cuz I can be at a coffee shop and run into a venture capitalist standing in line. So and then also the this ease of use, meaning, like, hey, I’m raising, okay, cool, meet me at the coffee shop. And they’re both, you know, half a mile away, short Uber, as opposed to like Denver, Kansas City, where the funding options are a lot more limited. It’s not as you know, the collision ethic. When I say a collision, I don’t mean literally bodies running into each other. But you’ll hear this term a lot like the co-working community likes to refer to collisions because you don’t know who you’re going to run into at the office that day, and so on and so forth. I mean, that’s part of it. And then obviously, there’s a lot more money flowing into those areas because there’s a lot more stuff going on.

Nichole Montoya  07:07

Yeah, no, I mean, when you refer to density in that regard, it’s just so true. You talk to a lot of founders, who have been kind of beaten up, so to speak, 100 plus rejections, which is real, that happens. But it’s hard to get 100 rejections in the Midwest. When you’re talking to funds, there just aren’t that many funds. And you can, for better or worse, not that anyone wants to be fundraising and get lots and lots of rejections, but you just have such a larger pool when you’re on the Coasts and New York, just the same. You know, they’ve got massive funds over there. They’re not quite as well known as, as Silicon Valley. But I don’t know. And I have I kind of come at it from a different perspective because it’s been a while since I’ve raised funds. We’re pretty capital efficient now. I raised that 2.2, kind of over a couple small rounds. And I was so happy to be done with it. It was It wasn’t the, you know, the most glorious journey, I guess. And so I haven’t done it for a while. And I think anybody who’s done it, I don’t know, you either fall into a couple of camps. Either you love it. And it’s your jam, and you can’t wait to go do another round. Or you’re like

Matt DeCoursey  08:24

Is anyone really in that camp, though? Because I don’t think I’ve met I mean, I really don’t think I’ve met anyone yet. I’m sorry. I don’t mean to interrupt, but I don’t think anyone. Oh, man, I can’t wait to get back out there and raise capital.

Nichole Montoya  08:37

I mean, it’s it’s huge. I mean, yeah, I guess if someone’s saying that it could be problematic, because it’s a huge distraction. If you’re trying to run a company. I mean, I guess, I guess I do know. I just know, some some founders who are really good at it. And they don’t, it’s just like, oh, here we go. Let’s go do this. And they do kind of find it fun. I do know, some founders who think it’s kind of fun. It’s like a game to them. Whereas it’s it’s literally like, you know, giving blood for me. It’s awful. Anyway, so I have a lot of points of view as it relates to kind of pros and cons related to Coast and Midwest. I ultimately raised most of my money from what you would call the Midwest, you call the Utah, the Midwest, right?

Matt DeCoursey  09:15

Yeah, sure.

Nichole Montoya  09:16

Right. Yes.

Matt DeCoursey  09:17

Yeah. I think if it’s not touching the ocean, or a near proximity of the Pacific or Atlantic, or maybe the Gulf Coast down in Florida, I guess it’s still the Atlantic. I mean, it’s I have a couple stats here that now obviously, the state is always going to be in a trailing kind of West. So this is from 2021, which was a pretty hot year for VC investment. But I have total number of seed stage deal count investments, and this is from PitchBook. And so this is this is categorized into Midwest, South, Northeast and West. So West wins, we know that what do you think comes next?

Nichole Montoya  09:56

If I say one more time in the Midwest,

Matt DeCoursey  09:59

You got the South, you have the Northeast, and you have the West. Knowing that the West Coast wins.

Nichole Montoya  10:05

Yeah. Well, I would, I would say Northeast.

Matt DeCoursey  10:08

Yes. Correct. So you got 15, 125 seed stage deals in 2021 that were recorded. There’s probably more than that. This is why PitchBook managed to keep up with get 874 in the Northeast. So you look at the West Coast is doubling, New York and Boston, Philadelphia. Those are three huge cities right there. Next is the South. Now, I don’t know what they characterize the South as, I’m assuming that’s just the southern states, 630. And then the Midwest, 281.

Nichole Montoya  10:45

Wow, that actually surprises me. I guess maybe that’s Austin that’s bumping up the South like me,

Matt DeCoursey  10:51

Maybe. Well, I think you depends they, I don’t know. I think when you get out of the Northeast, I think you’re gonna have Miami and Atlanta in there, which are two, which are two big ones like Miami and Atlanta do pretty well when it comes to this stuff. So you get all probably all of Florida, Atlanta, who knows a collaboration. And you know, the interesting thing is the South has some, has some little hidden jewels, like people might think about places like Huntsville, Alabama, do you know what’s in Huntsville, Alabama, NASA, right? So like, you get these little like, ya know, it’s like you wouldn’t think you don’t think about like Huntsville, Alabama, as being a hotbed of innovation. And it kind of is. So there’s a lot of little hidden stuff in there. And then you have like, my home town, which you know, Kansas City, which is a lot smaller than a lot of markets and actually punches above its weight. So you know, I have that conversation, you kind of have tier one, tier two, and tier three, and Kansas City should be in that tier three. Tier four is kind of like the that’s pretty rural, at this point. But yeah, so you know, it’s about what the difficulty is, is, and I’ve got a couple of opinions on this from the Midwest point of view. I think that when it comes to people investing, so you talk about the sophisticated state of mind, and I’m not trying to pick on Midwest investors, but they’re a lot more conservative. I know a lot of them. I know a lot of people that run funds and do a lot of different stuff around here. And there are going to be a little more in the trailing vapors and a lot of stuff that happens they get they become a little more reaction, oh, that people are there’s drawing a lot of attention in New York and in Miami in the Bay Area on this stuff, maybe we should get behind it. On the flip side of that there’s a ton of people on the Coasts that have really started to search. If you think about think about the United States map, and think about how much landmass Boston, New York and the Bay Area take up. It’s not much. I mean, it’s like probably a fraction of a percentage of the entire United States. So there’s a ton of stuff going on out there. The pricing of running a business on the West Coast or the Northeast is remarkably more expensive. And that’s led over the last couple years, I’ve noticed a lot of funds are either changing their charter or they’re putting a big emphasis on making sure that not all of their investment is in one city or area. So this is beginning to change. But the real question is, like, you said that access to capital, how do you get a hold of these people? There’s approximately there’s between 5,000 and 6,000 funds and entities currently, which 25 years ago that was a three digit number. So there’s definitely money out there. The real question is, how do you get to it? When you raise capital, how did you go about it? Was it from investors that were regional? Or were they all over?

Nichole Montoya  13:55

Oh, you know what, when I first started doing it, obviously tap my network. We were part of 500 Startups. So I did spend a lot of time in San Francisco, talk to so many funds. We were raising money in 2018, or 15, and then 18, or not 15 and 17. And one of our big biggest issues with raising capital on the Coasts was those investors were just so consumed with Venmo. And they had a really hard time understanding how we’re different, which at that time, honestly, we were building features and really working to differentiate ourselves. I mean, we’re we’re very different. We’re a lot of software, we’re focused on groups, paperwork, we’re focused on collecting payments plus information. And we’ve very clearly delineated that now, but back then they were just like, you know, Venmo was hot, and they’re like, I don’t understand. And so anyway, long story short, we did raise capital, we, you know, we raised some money from 500 Startups. We never took meaningful, meaningful money from any other Coastal, Coastal fund. I mean, again, I was, you know, trips to New York, all the things, talk to them all. Just never never sealed the deal. So I ended up taking money from a couple different funds in Utah. Founder group, angels, and then angels. So yeah, we pieced it together. But like Kickstart, Kickstart Seed Fund or Kickstart Fund out of Utah was a bigger investor of ours, as was Royal Street, which actually has a presence in Kansas City, too. And Stout Street out of Denver. So yeah, they ended up being local, which it was, turns out was more my jam. They just really understood the problem. Part of our problem, too, in all honesty, was back then. And still today, the demographic that we serve does tend to skew female. And the problem that I was describing, at least a few years ago, was something that, you know, really resonated a bit more with female. So I was talking to a lot of men, and they just didn’t really get it more so on the coasts than in the Midwest for whatever reason. But yeah, so I mean, as a result, I’m, you know, I’ve got this, Utah holds a special place. For me, I think those folks are really great. And, yeah, so I don’t know, but But again, I mean, it was a beat down, like fundraising was a beat down. So I’m real emotional about it. Like, I’m not gonna start crying. I just made like, I passionate about it, and I have, I have strong feelings about it. You know, right around.

Matt DeCoursey  16:20

Well, I’ve got some more shocking statistics that you probably won’t like, because I don’t like these either talking about seed stage valuation discounts. Okay. The West is the peg for that at 100%, Northeast is 97% of the valuation, and then the Midwest drops down to 65%. Meaning we’re taking, we’re taking a bit of a haircut here in the Midwest. Now, I can say that I’m not sure I buy too much into these stats, because I mean, valuation is such a relative thing. Now, it’s like, what are you really worth I talk to people all the time that think their business is worth a hell of a lot more than it is. I will tell you one thing, you don’t pay your mortgage or your bills or your payroll with a valuation. So yeah,

Nichole Montoya  17:13

No, it’s subjective. I mean, it matters, it matters. But I would I actually sort of agree with those numbers. I think 65% might be a little bit low. But But I think if you’re gonna raise in the Midwest versus the Coasts, you’re gonna get a different valuation, like, period. Like,

Matt DeCoursey  17:27

I think that there’s, I think there’s a defensibility to that. And I’m not trying to sound like Mr. Koester because I’m certainly not but at the same time, that it’s probably 65% is much cost to run my business in Kansas City as it is in San Francisco. It might even be, it might even be less, you talk about somebody that’s the cost of, of doing business in the West in the Northeast is going to be a lot higher. But that’s also what has led so many investors to seeking their out value shopping, and I can’t blame him. I think that they’re smart. You know, one thing I’ve got 325 employees at Full Scale, and it seems like a good time to remind everyone that today’s episode of Startup Hustle is brought to you by FullScale.io helping you build a software team quickly and affordably. There’s a link for that in the show notes. But, you know, one thing we’ve learned as our employees are are all over largely in the Philippines and there are smart people everywhere doing innovative stuff, you just got to know how to find them. Now back to that original like thesis statement I made that some of this could come down to valuation, or excuse me, dent, population and density. That’s the problem is once you get outside of that density area, you’re like, Okay, where do I look? And just imagine a venture capitalist that has awkwardly put on a cowboy hat and is now looking out into the horizon and sees no tall buildings, no coffee shops, nothing like that. And that’s, I mean, where do you find them? And I think that, I wonder if this is more of a regional issue, or if it’s more of a, an awareness issue, meaning it’s hard to get on the radar anywhere, like, whether you’re a fund in Kansas City, and you’re trying to fund someone in New York, how do you get on that radar? I mentioned between 5000 and 6000 right in the middle of that last time I checked was like 5500 different funds.

Nichole Montoya  19:34

Where? Yeah, you’re just referencing deal flow, right, like on the on the venture side, right. Like, how do I find these amazing startups? Is that what you’re referring to?

Matt DeCoursey  19:42

Yeah, a little bit. I mean, yeah. Because I mean, they’re, you know, that’s the thing is, is not everyone that is that would accept an investment is out there beating the drum on that, too. So they’re out there looking and there’s all these signal flares from, I don’t know, where do you start?

Nichole Montoya  19:59

Well, that’s true. And it actually brings up just kind of a cool thing coming from a founder myself. It just makes it gives the founder a little bit more power, honestly, because these, these funds are looking for deals too. I think it becomes really important that and I know, I know they’re doing this because I talked to people who are in, you know, who are investors of Cheddar Up because, you know, we’re very friendly. They’re constantly looking for deal flow. And it becomes really important for different funds to work their own network to collaborate, stay in touch, so that they can be brought in, so that they can you know, these funds in the Midwest, oftentimes, almost always. They know, they know funds on the Coasts, and if they see something really hot, and they like, they like a fund on the Coast, you know, they might bring them into a deal or share a great opportunity with them. I think that’s more important now than ever be just for the reason that you said that stat is crazy. That’s so many. It’s so many funds.

Matt DeCoursey  20:56

So if you’re from the Midwest, like so many people listening probably are, you know, it’s funny, you talked about population and density, where we’ve been recording this podcast from Kansas City for almost six years, to prove the population and density thing, guess where the majority of our listeners come from every month. Then they’re the Bay Area, followed by New York, and then Atlanta, and then our own hometown, just because we’re just out class population wise, you know, it’s just like, I mean, if you have five times the number and the density, yeah. So and we get a lot of listeners local, too. So that says a lot about what’s going on. And how do you how do you get past that? Now, one of the things that you mentioned earlier, you said, Oh, I got I have 100 conversations, and I got 100 no’s, I’ve been doing a very unscientific poll for the last five years, and I find that about 75 is the for people that raised and I haven’t been asking this as much in the last year as I did in the prior years. But for raising capital, like how many pitches, how many vessels of outreach did you have to send in all directions? And seven, it’s set, you know, 60 to 75, seems to be the number. Now, that could mean, you bundle up your stuff and you send it off to a strange fund you’ve never heard of, or you gave a pitch or you did this or you did that? How many do you think you made before you raised any money?

Nichole Montoya  22:31

That’s a good question. And when I said 100, earlier, that wasn’t I wasn’t referencing me. So but it could be 100.

Matt DeCoursey  22:36

Oh, that’s very normal.

Nichole Montoya  22:37

Yeah, no, it’s totally normal. I mean, that’s why I said it. Because I hear that from people, you know, friends and other founders.

Matt DeCoursey  22:43

And by the way, sending your stuff off and getting ghosted count as a no.

Nichole Montoya  22:47

Oh, Lord, so many, so many. I mean, it’s just between emails and actual pitches. Coffees, I mean, this is a lot of networking to get to the email, to get to the pitch. I don’t know. I think it’s definitely like close to 100. Like, yeah, I’d say like 80, 90, 100 comes to mind, but I’m totally guessing. But that feels right. My guesses are usually pretty accurate. But that spread out over, you know, many months, brain damage.

Matt DeCoursey  23:26

It’s still, still, there still no’s though. I unfortunately, I talked to people like somewhat semi regularly that they’ll say, I say, Well, how’s everything going? I have I failed to raise capital, will tell me why that like, Man, I reached out to a bunch of people. And I’ll say, Well, how many is that? And they’ll be like, dude, like 15. And I’ll tell him my first reaction is like, you’re about 80, short, whatever comes out to about 100. Because I tell people that a lot. Now there’s a couple reasons for that. And you know, this isn’t necessarily in the like, there. I’ll tell you right now that whether it’s in the Midwest, or on the Coasts, there are funds looking to put money into your business, but they don’t know who you are. There’s thousands, and thousands, and thousands. Like if you just go to LinkedIn, and you were to filter out just computer software, companies, and that’s just one designation. And then you want to look up how many CTOs there are, there’s like 35,000 or something crazy. So think of yourself as being one in that number. So how do you how do you get out there and how do you get the attention and that that volume of outreach is a key component to that. Now with that, if you are a service-based business and you’re sending your pitch out to funds that are charter bound to only make investments in enterprise software companies, you’re wasting your time and I think I think that that leads to a lot of the frustration. I think a lot of people are sending out sending up signal flares to an audience of the blind. You know, like, they’re just not going to see it because they can’t or they’re not allowed to. And I say that as someone that owns a tech-enabled services business. I mean, that’s what Full Scale is a platform and people behind it. And we don’t qualify for investment on from some of those places. I’ve actually had unprompted people say I would love to invest in your business, but I can’t.

Nichole Montoya  25:34

Because it’s not their directive.

Matt DeCoursey  25:35

They have a charter that says, they can’t. I mean, a lot of these funds are in fact, you hear some they’ll say, Oh, we’re industry agnostic. Sure. That’s, and that’s usually not a fund, that’s usually like a family office or some kind of municipal-type thing, you know, like, they’re going to give you a grant check or something like that non-dilutive. But when it gets into actual funds, and they have to put that they have to put the, the throttle or the harness on that or the blinders on those people to keep them in line. Because next thing, you know, they end up with a portfolio, they’ll end up with a fast-food restaurant, and they’ll end up with a software company, and they’ll end up with like a service-based something and it just doesn’t seem to have that direction. There’s so many different ways and directions that all of this can flow they need to keep so the point is, is if that 100 number of outreach, if 99 of them are to the wrong people, then yes, you should very much expect 100 no’s.

Nichole Montoya  26:38

Yeah, it’s a lot of work. There’s just no way to there’s no way to slice it. And if you’re not getting pretty uncomfortable fundraising, then you’re probably doing something wrong.

Matt DeCoursey  26:46

So when you mentioned being part it was at 500 Startups. And if you’re not aware of that, folks, it’s a accelerator-type thing. It’s similar to Y Combinator, a lot of these we did a list of, of top accelerators. Oh, man, it’s been a while, but they were on it. That’s where I got my familiarity with it. That’s a West Coast organization. Am I correct?

Matt DeCoursey  26:46

Correct. Yep, they’re out of San Francisco. They’ve got a Mountain View in San Francisco.

Matt DeCoursey  27:15

What did you find different about raising from them than you did from your locals? Or near locals?

Nichole Montoya  27:24

You know, you’ve got about a 10-minute window of attention. I find when pitching to VCs in the Bay Area. You know, if it doesn’t resonate with them, if they’re not interested, if they’ve got a bias it, you know, you can kind of you could, I felt like I could feel the energy was either yes, or this was a no, and they just have a really short attention span. I think they’re really focused on the hottest stuff, you know, and if you don’t fall into a bucket that is, you know, falls under that category. It’s, it’s less attractive to them. They’re also they’re looking for certain types of deals. So you almost I mean, the the amount that you raise and the valuations that you raise, you know, they’ve changed a lot since when I was raising, which was a number of years ago. But if you’re not raising a certain size round, if you’re not projecting, like, so crazy hockey sticks, like you’re just probably not a fit for them. And I think that is a difference in some of the funds in the Midwest is, yeah, they want they want a 10x. But you don’t have to look, you know, one way. You can get there a number of different ways. So I think it was just, you know, the ability to fit a mold was easier with Midwest investors alike, which was a wider, it was a wider mold, you know, versus on the East, or the West Coast, it was just you just had such a limited amount of time. Not to mention, being in an accelerator, like 500 startups is just, it’s a culture and a vibe that you either love or maybe you feel a little out of place in. It’s a little bit of a bro mentality. It’s probably changed a lot since when I was there. And it’s super fast-paced and fast-paced is great. That’s my jam. But it was was just it was a lot. And it’s like drinking from a firehose. So you know, you’re learning a bunch of stuff. You’re trying to grow your company at an accelerator like that. Plus, you’re trying to take advantage of all the opportunities that come your way as it relates to raising capital. So it can kind of be overwhelming and again, wildly distracting if you’re just trying to, you know, hunker down and get stuff done for your for your company.

Matt DeCoursey  29:38

Do you think do you think that being a female founder that made it more difficult for you to raise West Coast money?

Nichole Montoya  29:48

Back then. It did, a little bit.

Matt DeCoursey  29:52

It might be easier today.

Nichole Montoya  29:53

Yeah, I think it would be way easier today. Things have changed a lot like pretty fast. And that is amazing. You No, it’s not something that really distracted me or got in my way. But I do think that there’s a lot of male investors on the West Coast. And it’s just a little bit easier for them to say yes to someone who they can resonate with a little bit more. It’s just, it’s sort of unconscious bias. You know, they’re not intending to, but again, our our subject matter was right, we serve PTAs Girl Scout troops, you know, booster clubs, it’s like a thing that they’re like, oh, cool, my wife handles all that stuff. So just even having them understand the problem was just a tiny bit of a leap.

Matt DeCoursey  30:35

Are you ready for more stats? Yes, I am. I like stats I that my our team did a good job of Alright, so you know, first off, this is this is wild. Three quarters of all venture capital invested in America goes to California. We’re working in it. Now, this is these are numbers that at least claimed to be current. We pulled these from CrunchBase. So excuse me three quarters of all venture capital invested goes to California, New York, and Massachusetts. Okay. Okay. So that that doesn’t surprise me. So with that, you’re going to cross off San Francisco, New York, Boston. I’ll tell you what I’ll give you. I’ll give you three guesses to get what the next three cities are. And they can be anywhere. And we’ll see. We’ll see what you come up with here.

Nichole Montoya  31:30

Okay, so I’m ruling out Boston, New York, and San Francisco.

Matt DeCoursey  31:34

Those are off the table.

Nichole Montoya  31:38

Three guesses of how I’m gonna get Chicago.

Matt DeCoursey  31:41

Not aren’t not even in the top 10 are surprising, right? Yeah.

Nichole Montoya  31:47

Shoot. Interesting. Okay. Um

Matt DeCoursey  31:55

Atlanta is also not in the top 10.

Nichole Montoya  31:59

Austin?

Matt DeCoursey  32:00

Austin is number six. So, fourth is LA.

Nichole Montoya  32:06

Oh, that makes sense. Yeah.

Matt DeCoursey  32:07

I mean, this is one of the biggest cities. All right, next is Nashville. What very support Nashville. Sox me, followed by Austin, then San Diego, then your hometown of Denver.

Nichole Montoya  32:24

Oh, yeah.

Matt DeCoursey  32:26

Washington, DC. And then very surprisingly, Phoenix.

Nichole Montoya  32:32

Oh, you know what, they’ve got a little tech hub down there.

Matt DeCoursey  32:34

This is my this is my point for the outlying communities that like our I mean, think about Nashville. Nashville is ahead of Austin.

Nichole Montoya  32:44

That doesn’t make any sense to me. I wish, I need to understand that.

Matt DeCoursey  32:48

I’m just looking at a chart here.

Nichole Montoya  32:50

I believe it. I mean, I believe you. But

Matt DeCoursey  32:52

I mean, well, I mean, I gotta believe it. This is this is from CrunchBase as of April 4 2023. And it says Ernst and Young LLP underneath it. So I’m assuming some of this is certified. I mean, that’s like one of the big however many accounting firms. But yeah, it’s very surprising. Now you talk about the winds that that change the trajectory of investment, like right now, another thing, I don’t have a chart for this, but like the AI stuff, right now, anything AI related that that bucket is bigger than all the other buckets put together, right?

Nichole Montoya  33:33

In terms of what’s being invested in

Matt DeCoursey  33:34

The total amount of cash. And that’s, that is, that is a chat GPT effect. It was already trending in that direction. But that really popped a lot of it off. Now that said, the reason I bring this up is if you failed, maybe you’re in you’re okay, you’re you’ve been around since 2013. Is that correct? I mean, how many different changes of the wind have you seen? Cuz, you know, you look at like the pandemic. And I remember I remember specifically talking to someone in the VC community a couple months before that, and then telling me how down they were on EdTech, I was like, what’s, what are you not putting money in? They said, EdTech. And then two months later, we love EdTech because all of a sudden, that was irrelevant. Now, here’s the thing, I’m just telling you like, what what was hot? You know, some of this is timing related. And you mentioned this, like this, this collective mentality, that trickles, you know, inward from the Coasts and all of that. If you’re an AI company right now, you should be out there raising. You have a better chance of getting money right now than you did five years ago. And so it ebbs and flows. So if it’s your time you need to, I think you need to try to take advantage of it. And if not, I don’t know I used to work with I used to work for this old guy and I sold pianos this is like 20 years ago. And he used to say to me, it’s a matter. As far as advertising went, when things were going really slow, you put your sails up when the wind is blowing. And when it’s not you take him down and you patch him back up. And that’s always stuck with me because the wind is there is a brisk breeze and if not a gale force wind blowing the AI-related stuff. So how can’t you take advantage of that?

Nichole Montoya  35:27

Well, yeah, I totally agree with you. And AI is like, big, big, you cannot do anything in AI without raising a boatload of capital. So yeah, get out there raise some capital.

Matt DeCoursey  35:36

There’s no way that all these companies are going to be all successful later.

Nichole Montoya  35:39

No, no, no, no. And they’re all just, you know, they’re doing what they’re doing. They’re taking taking a flyer, you know, trying to pick the big winner. I remember when it was Crypto, and it was Bitcoin I remember in bed. I remember pitching to people and them asking me, you know, what are you doing on the Crypto front? And I’m like, yo, I’m trying to get people to stop writing paper checks. I’m not there yet. But yeah, yeah. I’ve seen lots of lots of ways to

Matt DeCoursey  36:04

Convincing my wife to use crypto to pay for like to pay for the pizza party. The $5 fraction of it?

Nichole Montoya  36:12

Right. Silly.

Matt DeCoursey  36:13

I would give her $5 That paper check to quit asking me how you started a digital wallet and bought Dogecoin or something? Yeah, let me just transfer it. This is anonymous digitize token that sits on the blockchain. They’ll know you sent your money and

Nichole Montoya  36:34

Let me focus on the demographic I know you do you.

Matt DeCoursey  36:37

Maybe not soo much. Okay, so you know one of the things and let’s go back because we’re here at that we’re about out of time here on another episode, Startup Hustle brought to you by FullScale.io. Hiring software developers does not have to be difficult, especially when you go to FullScale.io We get the people the process and the platform to help you build the team you need and want. So I’m gonna pick on these stats a little bit on the way out because, you know, we’re sitting there going, okay, West Coasts had 15, 125 seed stage deals and Midwest had 281. What’s the population disparity there? Like 281 might not be that bad.

Nichole Montoya  37:19

That’s true. That’s actually really true.

Matt DeCoursey  37:21

Compared to the number of people that are there because you know, you’re looking at Danvers what Denver’s but about 3 million people Metro. isn’t even that.

Nichole Montoya  37:29

Yeah, no, I think it’s at least that. We’re growing

Matt DeCoursey  37:31

Kansas City about 2 million and change and then like, Okay, so we’re between two of the bigger cities in the Midwest. We’re now what up to 40% of LA? So I don’t know. Then when you look at California, it’s got, it’s the biggest population state in the country followed by New York and Boston to the larger cities. So I’m a little surprised to see Chicago not on that list. I do have to say and put your earmuffs on if you’re from Chicago. I don’t feel like I hear a whole lot of news about Chicago. I don’t feel like I hear and I feel like you should it’s such a mega city in the Midwest. And

Nichole Montoya  38:12

It’s kind of weird. I can I can only name a couple of funds out of there, too. It is kind of weird. Now that you mentioned it.

Matt DeCoursey  38:20

Yeah. I’m not really sure what’s up with that. So there is like a, and you know, some of that just might be my own. Please don’t put me on blast, Chicago. But the I mean, you know, I don’t know, there’s some some stats and numbers there. I mean, we shouldn’t be surprised that the hotbed of startup and technology activity has the most deals, has the most money flowing in. I mean, that’s there’s, you know, so when I look at that, and I compare the Midwest to the West numbers 281 versus 1521. So that’s about six times more, five times more, five and five and a decimal point 5.2 Or something like that. My question is, is other 5, 5.2 times more people there? Because I’m not sure that it’s fair to compare Kansas City to LA?

Nichole Montoya  39:13

Yeah. Yeah. So there it is. It’s not. It’s clearly not.

Matt DeCoursey  39:18

I mean, there may be some disparaging numbers there. Now, as far as the we go back, and we look at like the 2021 seed stage, the valuation discounts. I’m not even sure how this is figured on some levels, like, I said, picking on the stats a little bit on the way out because I think that’s fair. discounted compared to what? Because, I mean, I’ve been doing this a long time and your $10 million startup for Cheddar Up or is not the same as to as a different company. How can we say discounted? Yeah, what’s the big time many of these deals were over overpriced? The answer is probably a lot of them if they’re from 2021. In 2021, there’s a lot of stuff from 2021 to imploding in people’s faces right now.

Nichole Montoya  40:05

Yeah, pretty frosty.

Matt DeCoursey  40:07

How’s the insurance tech stuff looking right now? Five cents on the dollar. It’s about where that’s at. Yeah. But hey, that’s the way it goes. Now as far as the overall dollars invested. You know, I think my challenge with that is I’m very surprised at the Crunchbase data. And that’s for top 10 markets in q1 of 2023. Does Crunchbase track all this stuff down? No, probably not. But they get enough sample space that we should probably look at it. Yeah. 25 billion in San Francisco. And then 3.8 in New York, 2.9 in Boston, and then LA is the only other one past a billion. I’m surprised to see Nashville. And there I’m surprised to see, honestly, to see San Diego and there and I’m surprised to see Phoenix.

Nichole Montoya  40:58

Yeah, I am to Nashville, Phoenix. Plus, again, like your point like, how are they calculating this? It may say, but like a lot of these deals are just massive deals. The massive deals are happening on the Coasts, that’s for sure. You know, just

Matt DeCoursey  41:09

And that’s gonna skewed the numbers because there’s startup that’s the thing. It’s funny, because what is the startup? They were calling Uber, a startup after it was publicly traded?

Nichole Montoya  41:17

Yeah, I don’t get that.

Matt DeCoursey  41:18

That’s so I’m not really sure what what falls into this bucket. But you’re right. I think that the mega deals, like, that’s one of the things you don’t see in the Denver’s and the Kansas cities as the $625 million round.

Nichole Montoya  41:33

Right, right. They’re just not happening.

Matt DeCoursey  41:34

That is definitely happening in San Francisco with a lot of these companies. And that’s going to drive that number up, for sure. There is definitely a deal somewhere in this bucket, that outclasses entire city like metropolitan areas, without a doubt. I think in Kansas City, I was like, you know, I don’t really, you know, sit there and try to add this stuff up. But you know, you’re talking like two 300 400 million in a year is a pretty good year. But with that when you get into that, there’s usually one in there. That’s like 150 million bucks or 200 million. It’s like half of the whole pool, we had that. We’ve had that recently, over the last couple years with former guests, Sandy Camper at C2FO, it’s like a, you know, a several 100 million dollar round. And then Payit, John Thompson, also have a big chunk. And when you look at the entire metropolitan area, those those deals in their respective years represented about half of all incoming capital into a city. So yeah, don’t get to, my point is don’t get too hung up in the numbers just because you’re you know, and then honestly, I think if you’re from a little market, let’s just say you’re from Omaha, home of Berkshire Hathaway, and one of the richest people in the world like Omaha, like it’s never gonna rank up there with Boston. But there’s money there. Like there’s money in a lot of places. I think if you’re regardless of whether you’re looking for Coasts, or Midwest or whatever, if your business, here’s everything to you know, a lot of people out there raising capital, I’m sorry, folks, you just don’t have a business that’s an intriguing for investors, that might be the problem, not where you live. that maybe your offering just isn’t as great or competitive as you think it is. And

Matt DeCoursey  41:37

Or, maybe you’ve sent 15 emails instead of 100.

Matt DeCoursey  43:33

Yeah, if you’re just sending emails, I want to send about 300. Yeah, cuz they’re not all gonna reply. And then you got to keep after it. And there’s a whole lot to be a lot to be said about all that. Well, once again, with me today, we had Nichole Montoya, cofounder and CEO at Cheddar Up, go to CheddarUp.com to learn more. And make sure you come back Monday as my co host, Matt Watson kicks off our power of series week, we’re going to talk about the power of AI, the power of vulnerability, the power of the pivot, the power of choice and the power of great leadership. Make sure you tune in. I think I did a couple of those episodes myself. So Nicole, what would you like to say to everyone on the way out here?

Nichole Montoya  44:17

Oh, gosh, as it relates to funding, you know, start local and expand to the Coast if that’s what you want, and it takes it takes more work than you anticipate. And then yeah, checkup CheddarUp.com. If you’re organizing a group school, PTA troop, HOA, you need to collect payments and information go to CheddarUp.com.

Matt DeCoursey  44:35

I liked that a lot. And if you’re out there raising just remember, no one loves fundraising. Even if they say they do. They’re lying to you like strict, call them a liar. If you meet someone that says they like raising capital and why don’t people like raising capital? It’s because it is just a it’s another job. It’s one other thing to do. And I think after you get past that initial excitement, ooh, look at all this capital that can come in, you realize that you got to do another full time job to get it. It’s also it has a, it has a way of exposing all of the things about you and your business that you might not like to openly wrap your arms around. It’s a very humbling process. So if that’s gonna get you down, you’re probably not going to raise capital because you’re going to have to go through all of that. You need to remember that people that are sitting on the other side of the table and talking about investing in your company, it’s, it’s your job to get the best deal you can, for your company, it’s their job to get the best deal they can for their fund, these things are all negotiable, you need to talk about making a win-win. I think any deal that you get into that is heavily skewed towards one side of the table. And to the other hand isn’t really a great deal and, you know, make amicable things. And remember, if just because someone offers doesn’t mean you need to take it. I mean, it’s just keep grinding. I know, some of the most successful entrepreneurs that I know whether it comes to borrowing money, raising capital, any of it. They did, they will tell me, I just didn’t stop till I got what I need.

Nichole Montoya  46:23

Totally. Yeah.

Matt DeCoursey  46:25

I got a buddy. That’s like an expert at borrowing, and leveraging stuff and like that. And, you know, I say, Well, how many? How many banks did you have to go to before you got it done? He goes, as many as it took. And that’s the answer. So if you some of this is Darwinistic by nature, it’s kind of meant to piss you off and weed you out and break you down. And that sounds like a lot like entrepreneurship. So yeah, it all it all it all goes together on. I mean, it does. But that’s the thing is if you can’t make it through that part of it, then you’re not going to make it through the rest of it. And that’s where I get that Darwinistic kind of thing is it’s going to push you out of the process. And by the way, if you keep hearing the same exact feedback from everybody you pitch to or reach out to, they may have something valid there. Listen for that echo. And you can learn to address it if they keep having the same objections and have the same problems. Also, just consider addressing that upfront, like, right at the beginning of the pitch, just, you know, just, just bear it all. Assume that you’re working with sophisticated people that are going to figure out all the shit that’s wrong with your business anyway, so I like to just tell them.

Nichole Montoya  47:37

Yeah, that’s smart. That’s good advice.

Matt DeCoursey  47:40

When they call I’m gonna catch up with you down the road. I’m gonna go sign up for Cheddar Up and send $4 to $6 your way.

Nichole Montoya  47:46

Yeah, that sounds great. I appreciate it.