Ep. #1098 - How to Raise Money in A Downturn
In today’s episode of Startup Hustle, let’s see what we can do about raising money during an economic downturn. Matt DeCoursey talks to Julie Gionfriddo, advisory services director at Fiondella, Milone & LaSaracina LLP, to give us the best insights. Their advice centers on what you should do as an entrepreneur raising capital in an unfavorable economic climate.
Covered In This Episode
So you’re starting a business or focused on scaling one? Well, it may be hard to raise money in a downturn. But it’s not impossible to do so.
Listen to Matt and Julie as they discuss what you must do to be a fully-funded founder. The pros also share wisdom on what mistakes you must avoid when raising capital. And how to use non-dilutive funds so that you can grow your business while still keeping your ownership rights.
It’s the perfect episode for startup entrepreneurs raising capital. Don’t miss this Startup Hustle episode.
- Getting to know Fiondella, Milone & LaSaracina LLP (02:30)
- Common mistakes entrepreneurs make when preparing to raise money (04:01)
- What happens when raising capital during a downturn? (08:22)
- How sexy does a profitable company look during a downturn? (11:58)
- The benefits of putting your eggs in more than one basket (15:28)
- Why awareness of the latest happenings in finance is a must (19:12)
- A different category of investors—family offices (25:40)
- Tips on how to use non-dilutive funding (32:35)
- On collecting badges and building your profile (36:07)
- Companies that are considered attractive investments right now (42:35)
The thing that’s hard to figure out is who’s who. Finding access to that capital, talking with the decision-maker, and getting in the door.– Julie Gionfriddo
So you certainly need a deck. That deck needs to be well organized. It needs to be researched and thorough. It needs to answer investor questions, and it needs to present the market opportunity.– Matt DeCoursey
Today, there are certainly pockets of capital for female and diverse founders and emerging managers. Accessing those pockets of capital can be very valuable because they want to put money to work with folks like you. And folks who either have a track record or can be successful and may not have risen to the top of the other pool.– Julie Gionfriddo
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
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. Recession, downturn, banks collapsing, and VCs drying up; what’s going well for startups raising capital? Not much in early 2023. And that’s what we’re going to talk about and how to raise money during the downturn. Before I introduce today’s guest, I’m gonna remind you that today’s episode of Startup Hustle is powered by FullScale.io. Hiring software developers is difficult. Full Scale can help you build a software team quickly and affordably and has the platform to help you manage that team. Go to FullScale.io to learn more. If you weren’t aware, that’s my business, and we love talking to Startup Hustle listeners. And seriously, it only takes like two minutes to fill out that form. So head on over and tell us what you need help with. With me today, I’ve got Julie Gionfriddo. Julie is the director of advisory services at. I’m hoping I get this firm’s name right because it’s tricky, Fiondella, Milone and LaSaracina. They specialize in accounting and a whole lot of other stuff. Also, in the show notes with the FullScale.io link is a link to FMLCPAS. You can use that acronym for whatever you want right down there in the show notes. Straight out of Glastonbury, Connecticut, where it is beautiful in the spring every year, I’m told, Julie, welcome to Startup Hustle.
Julie Gionfriddo 01:32
Thanks, Matt. Great to be here.
Matt DeCoursey 01:33
Yeah, you know, let’s get our conversation started with a little bit about your backstory. And well, FML, that’s great. That’s I feel that’s kind of what I say right before I talk to my accountant. So I feel like the firm’s well-named.
Julie Gionfriddo 01:50
So I think FML was founded 20 years ago. So the acronyms FML: Fiondella, Milone, and LaSaracina. They’re an entrepreneurial accounting firm and started three of those founding partners. They do tax work, they do audit work, and, in the middle, we do advisory and consulting work. And that’s where I fit in.
Matt DeCoursey 02:14
So you work with clients to help them improve their financial condition. Or preparing for a capital raise. All of that.
Julie Gionfriddo 02:23
So, you know, a lot of times, I’ll get referred clients from our tax group, from our kind of audit clients. They could be companies that, you know, have gotten grant money or are having some work done by our team on their grants. But really, they’re companies that are convertible note, seed stage, companies looking to raise capital, probably have a pitch deck ready to go, and need some advice. Maybe they’ve raised, you know, some friends and family. Early in a convertible note, they’re looking to round that out there, looking for additional sources of capital. So a lot of times, that’s where I come in, and help them with the strategy, structure their deck, answer investor questions, and access some of that capital. And really, that’s through network and introductions, not as a placement agent or anything like that.
Matt DeCoursey 03:21
So when it comes to raising, before we even get into raising money in a downturn, I’ll just take a couple minutes. And, like, you know, this has been such a popular subject on Startup Hustle, and over close to 1100, maybe even 1100 episodes at this point. And, you know, so first off if you want, if you want a lot of context, there’s a lot of shows in the feed as well. And we’ll, and we’re going to talk about some of the same stuff. But I always like to get into some of the things I always like to ask anybody I’m talking to on this subject, like when you look at a company or a startup, or anyone that’s getting ready to raise money, what are some of the common things that you see people doing wrong?
Julie Gionfriddo 04:01
Doing wrong? Hmm, sure. Um, you know, I think everyone has their own way of going about doing things, right? So you certainly need a deck. That deck needs to be well organized. It needs to be researched and thorough. It needs to answer investor questions, and it needs to present the market opportunity. So you know, those are some of the things you could do, right? And hopefully, you can, can check those boxes. I think you need to be very prepared for investor conversations. I think you need to do your outreach in a way that makes sense right before perhaps going out to Angel groups, you should get your friends and family capital in. It’s always great to have a strategic investor who believes in you and understands your space in the market. So you know, it’s not necessarily what you’ve done wrong. It’s like, Are you prepared, and are you doing things there? Ain’t order and in the right way to bring that capital in.
Matt DeCoursey 05:04
I think, well, I’ve got a few things. Lack of preparation is a big one, you know, like, I think a misunderstanding of how the process works is another thing I see a lot. So I like to clarify this with people, especially if you’re aiming for institutional capital if it doesn’t happen quickly. And as an accountant and a financial advisor, I’m sure you’ve seen, we were before we hit record. Julie and I were reminiscing about how experienced we are not told how experienced we are. But with that, I guarantee you that I don’t want to. I don’t like making guarantees. But my bet would be that you’ve probably seen people wait too long to raise capital. And that’s a common error. You know, with institutional money, I mean, you’re looking, it’s usually like a six to nine-month turnaround, if you’re getting it going pretty well, a lot of people will tell you four to six months, often just for a yes or no. And then when it comes to presentation materials, first off, simplifying, you know, like you don’t, you don’t get the deal in the pitch deck, you get the deal because of your way of showing your passion and problem-solving. And you know, some of the things that are in there are, remember, your investors care about a return on their money, they care about the market that you can address, they care about your growth potential. And then most importantly, they care about the founders. And ask everyone you know, like, you know, would you rather people that write checks and said, Would you rather do better you get to pick one bet on the jockey or the horse. And they always pick the jockey, meaning investors invest in founders, so be prepared to talk about your strengths and the strength of your team. And then the last thing is I think people often want to move away from the discussion of what they’re not good at. I recommend that you get right into that because that’s why you need the money. That’s why you need help. I think it shows a level of sophistication, maturity, and self-awareness about yourself. Not always an entrepreneur, but yourself as a business if you can identify what you need help with and say, hey, this is our plan to fix it. So just understand that if you’re chasing big checks and big money, you’re probably going to be talking to sophisticated people that are going to put you through a due diligence process, and they’re going to figure out what you’re not good at. So you might as well just get it out there. So yeah, so that’s a few things. Now, when we talk about raising during the downturn, I mean, what comments do I mean? What do you think? How does that change things for those seeking capital?
Julie Gionfriddo 07:42
Sure. So you know that timeframe, right? So it’s definitely going to take longer during the downturn. And you know, when you talk about four to six months, in the good times, it’s not your first contact, in the first four to six months there, I think, you know, as a, as a really smart founder or entrepreneur, you’ve been tracking the space, you’ve been tracking the investors in the space, maybe you’ve established some relationships before you’ve established this business. So that when you do want to raise capital, you’ve got your sights set on certain investors and certain, perhaps, strategies that you’ve built relationships with along the way. So I think that that timeframe gets extended. And those relationships become even more important during a downturn. And in that, you hit on a whole bunch of things, right, let’s? Let’s simplify the deck. What are you not good at? What are perhaps the holes? Right? So those things are going to be worse in a downturn? Right? Can you attract strategic advisors to fill those holes? What’s your cash burn? Are you really kind if you have an extended runway? Or do you have a very short timeframe? In a bad economy? Right? Those are two things you don’t want to have and have you addressed them? Or have you built the business to withstand this kind of cycle that we’re in now? Just just a bunch of questions, I think right now, for a company well, but being aware of that stuff is, I think, important.
Matt DeCoursey 09:14
And you talk about, alright, so look at my business Full Scale, which is a profitable company with a lot of growth potential, where at a very scalable point, it would be a really good time for me to raise money right now. Because I’m not sitting on top of a cash Inferno. And it was funny, cuz three years ago when everyone was just throwing money at anything, enterprise software, I couldn’t get anybody to even talk to me about the business. They’re like, this is us. We don’t invest in service companies. Now. We built some tech and we actually changed our category to tech-enabled services, but it is amazing over the last year, how many people have called REACH Shout out and shown interest because, you know, as I said, your things change. So if you raised money if you tried raising money before, and maybe that wasn’t the right thing for you, or just didn’t feel like the right time, I mean, maybe it’s different now, I think and the other thing that kind of blows me away is that investment like investors in like a lot of just institutions seem to become more obsessed with other things than profitability. And eventually, a business has to make money. You can’t just rely on burn and investment coming in. You see that, you see that? These drastic shifts you look at like Uber, which I hate when they call it Uber, a startup. So when you’re when the name of your company has become a verb, you are not a startup, but, you know, they got they kind of got forced into rapidly moving towards profitability, because they were burning cash, because they were so obsessed with growth, and they had to really make some tough decisions and change a lot of stuff and get lean. And, you know, and you know, but, you know, when we talk about, like, the focus on profitability, how, how much sexier do profitable companies become during times, like the ones we’re in now?
Julie Gionfriddo 11:18
Yeah, yeah, you’re right, eventually, the music stops. And so to survive, so, you know, being profitable right now is a really nice place to be. And if you want to raise capital, you know, you have a better ground to stand on for your valuation. If there are companies that you’ve been eyeing for acquisition, they will probably be a little bit cheaper now, especially if they had a sizable cash burn. So I think there are opportunities for companies like yours in a time like this. I think he could survey the landscape and, and do some planning and maybe make some strategic moves now. Perhaps a lot differently than you would have previously. Right? You have time, you’ve got accomplishments, you’ve got experience, and you’ve got a different platform to stand on now.
Matt DeCoursey 12:14
Yeah. And well, we see these opinions and sentiments about different types of business, I remember, like, right before COVID, I had a conversation with an unnamed person that was like a big player. I hate tech, Ed, Tech’s Dad doesn’t want it. So blah, blah, blah, blah, blah, and COVID heads had that talk to that same. I love ad tech. And I’m just like, wow, you know, like, I mean, we’re talking about a completely different, you know, you look at and these are Darwinistic cycles, like you said, the music does stop at some points. And, you know, like, maybe we should talk for a second about how to manage or maintain your company during an economic downturn as well. Because, you know, at the data, this coming out, we’re about 556 weeks past SBBs debacle, and here at our recording, the moment of recording, we don’t know how that’s gonna work out. So we’re not going to talk about that a whole lot. Maybe it goes well, or maybe it doesn’t, but it definitely took time. You know, stuff like that sends a lot of shockwaves through. I think a lot of people spent a very sleepless weekend wondering if their money was about to turn into vapor. And, you know, with that, I think I would imagine that a lot of people have that come to Jesus kind of moment, where they’re like, Oh, my God, I might not make payroll next week. And you know, there’s, there’s a lot of that going around, the amount of VC that’s come into the marketplace is part of what SVB’s problem was that these big, Lumpy deposits just come in, day after day after day, and all of a sudden, they slow down. And then the people that have the accounts spent a lot of that money. And next thing, you know, their ratios are all out of whack. And next, and then we have a smartphone bank run. Is this Twitter? Thanks for that. Twitter is probably what they’re saying about SVB but it’s real. Yeah.
Julie Gionfriddo 14:14
So easy. Um, you know, if you look at that, and we talked about mitigating that a little bit, and the thoughts, you know, going through your head, we’ll call it last Friday, for lack of better timing. But if you are that startup, and you look around, and it’s institutional investors, and you’ve got perhaps diverse institutional investors, you’ve got some deep pocketed investors, right? So even if you’re the startup and you can’t make payroll, do your investors want you to survive and can they make payroll? So I think there are some layers of protection in there if you didn’t have all of your eggs in one basket. And if you look, if you look around the table as a kind of well funded, hopefully series A company, and you look at your investor base, and you realize they’ve got, they’ve got additional capital, and they’ve got friends, which is really helpful. But on the other side of it, you’ve got the early stage startups, the early early early companies, right, right now who are looking to survive, so what can they do, and I see a lot of them in the convertible note stage here at FML. And I’ve seen companies raise additional capital in a convertible note. So they’ve raised another note, they’ve closed out their first note, maybe they’ve raised a million and a half, they haven’t accomplished the milestones, they don’t have the revenue. And so they want to extend that valuation timing. So they’ll raise another convertible note. And that’s if you’d have supportive investors and, and people around the table who see the light at the end of the tunnel for you. But that could also be a bit generous. I’ve seen companies just really, really slow down, so cut their burn, significantly apply for additional grant money. I’ve seen startups look to perhaps do a reverse merger with a public company that has cash. I’ve seen them look to be acquired, acquired, you know, for equity and earnouts. So this, this timing, maybe not cash upfront, or if it is cash, is that purchase price, much lower than it would have been previously. And so you know, depending on the business, and, and the future prospects, right, and performance. Those are some of the things I’ve seen happening in real time.
Matt DeCoursey 16:47
I think if you’re raising capital as well, you mentioned companies that might not have hit milestones, or maybe don’t have the traction they needed. But if you are on the opposite side of that, it’s a really good time to highlight that. And I think one of the things that started happening in late 2021, and then through 2022, as you look at the valuation, there, they ran wild stuff. I mean, I’m sitting there looking at some of these valuations. It’s like, every day, there was a new unicorn company, and I’m sitting here going, what, like, how, you know, I mean, it was, it was pretty crazy. I mean, the valuations were insane. And, you know, I was like, how this is going to come back down to earth in a bad way. And you know, there’s going to be a lot of people and 2023 and beyond that are going to be raising capital at a much lower valuation than they got before. Yeah, and that’s another thing is like, if that’s your reality, you got to accept it on some levels. And, you know, like, companies are trying to delay that reality, right?
Julie Gionfriddo 17:49
If they can. And so there’s some extension rounds going on. So they don’t fully have to do that down round quite yet. But you’re right, 2023 and beyond, those are certainly going to shake out.
Matt DeCoursey 18:05
But if you if you have traction or the timings right for what you do, so you look okay, I’ll go back, I’ll use Full Scale and as an example, so we’re a top provider of, of offshore development services, you know, highly vetted, highly experienced and 5000 company, 300 employees plus, and people ask me that I’ve been asking me for the last nine months, or I could well, is a recession bad for you? Probably not. Because, well, first off when you see because people see these headlines, and they’re like, oh, Facebook lays off 10,000 people, those aren’t engineers. Yeah, they’re not. They’re really not because there are 300,000 Open it jobs in the US. And sure, some of them may be engineers, but very few likely are in that regard. So but also, what if you don’t get rid of the most affordable people, and a lot of these cases, and so that hasn’t really affected us. And in fact, we’ve in the, you know, quarter over quarter over quarter, I mean, our leads have almost doubled since mid 2022. Now, some of that is just our approach to marketing, but a lot of it is people seeking more affordable solutions when cash is flowing freely. And it’s just like you’re sitting on this embarrassment of riches. It’s easy as an entrepreneur to turn your focus to other things because you also get people in your ear. And I think that’s one of the things you want to maybe be aware of, and whether it’s a downturn or not, who’s in your ear who’s listening who’s saying stuff to you, because man, if you talk to a VC, you could you can talk to a venture capitalist, and by the end of that conversation, you can be convinced that three plus four equals fish, you know, like it doesn’t always make sense. You fail fast. Then the money grow, grow, grow, grow, grow. And you know, the thing is, though, it’s like, you do need to operate with a sense of where’s that and X deposit coming from if that’s the case, so, you know, no be aware of, of what your what your, what advice you’re taking and what your path is. And I think I’ve really learned that there’s a definite, well, I sleep a lot. So people say, what’s the definition of financial success, financial success is when you have enough money that you’re not worried about money. And the same thing, thing that exists in your business. And maybe that could be a credit line, that could be cash on hand, it could be extended rounds, as you mentioned, or something but knowing that you’re just not going to have things blow up. Now with that, you gotta be careful as well. So you remember when, when COVID first hit, you know, the very first thing when that kind of became a reality, I call it our COO, I was like, should we max out credit lines? And, and I, we didn’t, because we didn’t feel that we needed to, but you saw, like, all these institutions are cutting off credit. Yeah, so things can change in the blink of an eye. And I think that being able to raise capital during a downturn could also be easier if you’re able to show that you understand some contingencies and different paths that could exist for your business.
Julie Gionfriddo 21:14
Absolutely being that CEO who has a handle on all aspects of the business is so important. And I think, you know, the profit profitability aspect, and really having a handle on that. And in growing and expanding in a really responsible way, and having a credit line or or knowing what your receivables are and how quickly they get paid. And just having that handle on the business, especially in a time like this, or even at a time, like the beginning of COVID absolutely important, and also, during COVID When credit did become available grabbing at that, because you just didn’t know when that vaccine was coming out, you didn’t know when, when things were going to change. And they almost changed, you know, on a dime at the end of 2021. It was pretty quick that things kind of took off again, in terms of interest rates and, and lack of ability availability. And then you saw, you know, capital markets start to change in 22. It took a little while. But it all started to happen. Right?
Matt DeCoursey 22:24
Well, here’s the thing is that money is still there, it’s in these funds, they have not been allocating it. But I will just tell you the dirty truth about rich people, they’re still freaking rich. Yeah. And you look at the so here’s the thing is, and I’ve become a bit of a conduit to things in the startup that this podcast is a reason for that. I just say things, connections, introductions, I don’t know me, I’ve hosted 750 of these things myself, I know a bunch of people at this point. But you know, the thing is the stock market returns are crap right now. And a lot and there’s a lot of family offices and a lot of things that don’t, that aren’t the traditional fund, like this charter bound fund. And so part of where I’m going with us is targeting the right investors and the right connections and building the right relationships during times like these are advantageous. So you think you’re like, Okay, well, Matt, that’s great, you know, a bunch of people with family offices, how do I find them? Just assume that the wealthiest people in your region, however, are involved in some kind of family office, because they probably are. And, you know, these are, these are clear, cleaner paths to investors in many regards, like a family office. And if you don’t know what I’m talking about a family offices is essentially a wealthy family or a collection of them or not, it’s not a traditional venture fund, like you’re used to, but they have an investment pool that they have put off to the side, they’re usually industry agnostic, meaning they’re looking for good companies, often ones that can complement the mega enterprises that already made them rich. And if you can, you’ll find that a lot of these places are willing and interested in making investments that aren’t the traditional route to venture capital. So and a lot of them like I know a lot of people that have received family office investments and they didn’t like the diligence process was basically like the people that that are the main contributors to the fun met with the founder that like we frickin love these, this guy or this gal, we feel great about it, and then the money comes pouring in. And then sometimes it can be a lot I don’t know it’s gonna be different. It’s not very predictable, but there’s money out there, people. Yeah, and during the downturn, I’m telling you, a lot of these family offices are looking for alternative investments that aren’t stock market related.
Julie Gionfriddo 25:00
Because how’s that look, and if you put your money in a year ago. Yeah, yeah, family offices are certainly a whole category of investors, right? They invest in venture capital and private equity funds, they invest alongside those funds and companies, and they invest directly in companies. And so you’re the thing that’s hard to figure out is who’s who were right. So finding the access to that capital and talking with the decision maker, and getting in the door. But you’re right, a lot of times the due diligence process, I wouldn’t say it’s lighter, it might be different and less institutional, it could be very, very institutional, you’ve got investment teams, at some family offices that rival institutional investors. But you know, the process may be shorter, the Investment Committee may not take as long and getting that capital in could be attractive, but it is finding the right path. And when you talk about dry powder, what I think is also interesting, again, more on the institutional side is that the funds, perhaps with some of the decades of experience that we have, may have seen this coming. And so they have kept greater reserves for their portfolio companies that they can access because they have seen this before. And so those funds, interestingly, may be back to market more quickly, because of the amount held in reserve, they may have hit their invested committed amount for the current fund. But they’ve got reserves, and then they’ll come back to market and raise additional capital, and from the same set of institutional investors, but kind of one step removed from the companies. Right. And then those funds will go out and invest in the company so does that take a little longer? Is the bar a little higher? For those new company investments? is the path to exit diligence. Still? A little bit harder, perhaps. Right? So that three to five year hold? There’s a lot of pressure on is it really a three to five year hold?
Matt DeCoursey 27:03
Yeah, and I and a lot of the family office, people I’ve spoken to don’t like they don’t feel as bound to that, you know, they’re like, I’ve had conversations at my own business with different family offices and funds that were more interested in being a partner meaning like, providing value and input not just to check like true Smart Money kind of relationships. And with that, you know, they’ll I think everyone when they talk about you talk to a founder about VC or investors, and they’re like, I don’t want to lose control of stuff. Those family offices don’t want to be the operator in the business. Trust me. Yeah, they really know. That’s not, that’s not what they’re looking for. And a lot of those you mentioned, like the people that exist in some of those places, like I talked to one place that has like 40 Ivy League MBAs in their office. Yeah, we were like, Why are you worried about me? I’m not worried about Schiff on that one, like you get, you’re gonna get these three dozen Ivy League MBAs, I’m willing to bet that at a minimum, they can do some stuff that I can trust there.
Julie Gionfriddo 28:15
And if it’s a board member, it’s someone who has a passion for your business and wants to be helpful. That’s really attractive.
Matt DeCoursey 28:26
Yeah. And it’s so Okay, so along the lines of, you know, I think that we can explore the alternate side of things. Yeah, I, according to my notes, you may have some commentary about crowdfunding or some other alternate option for raising capital. What kind of suggestions or input do you have there?
Julie Gionfriddo 28:46
Yeah, sure. There’re plenty of crowdfunding platforms out there today and companies have been . . .
Matt DeCoursey 28:51
Which wasn’t possible 10 years ago?
Julie Gionfriddo 28:53
Not at all. Not at all. So that’s super interesting. You know, founders tend to go at that on their own. They don’t necessarily need FML to get that done. But some of the companies I’ve worked with have gone that route. That’s certainly an option today, which you’re right did not exist 10 years ago. And there’s, there’s more now than there were five years ago, right? There are so many platforms available.
Matt DeCoursey 29:23
So, you know, I think that the government grant side of things is often overlooked. It’s usually not the huge chunk of cash that a lot of people are looking for. But if you’re in the early stages, man, there is a lot of there are a lot of 2550 and 100k kind of checks flowing, and then become smart and clever with that because there’s okay so here in Kansas City, if you can get $100,000 investment, especially from an institutional a true like a fund, I can I can walk you through immediately turning that into 300k Because there’s things that match, there’s like fun, there’s funds and organizations and things that can only trigger when they have something to match with. So if you understand what that is, you can turn a relative 100 Biden, there’s some people listening, they’re gonna do $200,000, I’d be off and running well, for a lot of companies, that’s not a whole lot, regardless of where you’re at, if you can take that amount and multiply it times three. So how do you do that? Well, you got to have an understanding of the landscape in which you’re working with government grants are not going to come quickly. But at the same time, there might be some of you that have, okay, so I’m a white dude, in Kansas, which is not a strong position to stand on when applying for some government grants right now. Because there’s a lot because I’m in a pool, I’m in a demographic pool that’s pretty populated for startup and tech founders. Now, if you’re a female minority founder, X, member of the military, Native American, disabled any of that, like they’re like, you’re gonna be in a different grouping. And here’s the thing like, Okay, I don’t even want to discuss the opinions about that process. It’s just a reality for some people. So find the levers that line up with who you are and what your identity is. And if you have multiple then you’re going to you might be in a very advantageous position to collect grants. Now, this is non dilutive capital, like every time now the follow up cash might not be, but the grants that come in like here in Kansas City, there’s a Launch KC, and we work with Startup Hustle and Full Scale work with them to just do a variety of different things, but they give out they’ll get about a million dollars if $50,000 checks this year.
Julie Gionfriddo 31:54
To start Absolutely, absolutely. So that non dilutive funding is amazing. And actually FML will help with state and local grants. And so if you’ve got an I’m out of my league here on tax, so just contact our tax folks. But there’s payroll tax credits, there’s technology credits, there’s innovation credits, there are a lot of our C credits right now, all kinds of stuff.
Matt DeCoursey 32:21
Yeah, there are ways to extend your cash runway just by hiring the right providers, right?
Julie Gionfriddo 32:25
And so if you’ve got a service provider who could help you with that, or even reduce your tax exposure, if you’ve got tax on on property, but it’s exempt for some reason, and so being smart about hiring the right advisors, but in terms of multiplying your capital and accessing pockets of capital, right, so here in Connecticut, we have Connecticut innovations, they’ll take a look at your company, and you may fit into one of many buckets, and they’ll provide capital, it’s not necessarily grants. But you know, once you’ve got that kind of stamp of approval, raising capital from other adjacent groups may be a lot easier, right? You can raise capital from the angel investor groups here in Connecticut, you could branch off to New York and Massachusetts as well, because they know each other and so you get that first 100 in and maybe your next 100 comes a little bit more quickly. So there’s definitely that access to capital and that kind of multiplier effect once you’ve got some capital in the door. And then on the different pockets of capital. When I started in this business, just being a woman was a unique right. And today, there weren’t special pockets of capital. And there may have been very few I started in and tell you this earlier, but I started in private equity secondaries, which was a very niche market back when I started in 1997. And what we did was we acquired interests in funds across the private equity and venture capital landscape. In doing that, I noticed there were very few female or diverse founders. Today, there are certainly pockets of capital for female and diverse founders, emerging managers, and accessing those pockets of capital can be very, very valuable because they want to put money to work with folks like you and folks who either have a track record or can be successful and may not have risen to the top of the other pool. Right? You just wouldn’t have gotten noticed. And today, I think there’s so many more ways to get to get heard and get noticed and get capital, which is the goal.
Matt DeCoursey 34:44
Well, I think that’s one of the things that that when you look at like the government grants and these accelerator or economic development credits, they’re a lot less picky about the industry that you’re in like you know, here we just Earlier in 2023, launch, Casey did social ventures and these are companies that quite honestly would have a very difficult time in front of a lot of VCs, because they’re there. They’re startups that tackle social issues. And some of those aren’t as beautifully monetizable as other kinds of businesses, but with that, if they can get moving, get some traction. Now, I think that times like that, when things slow down, I also think it’s a good time for you to mention being involved in this or being involved in that it’s time to collect badges. Right now. Your boy scout and Girl Scout badges should be it’s time to start picking them up. And these are the like, that’s the thing. And I was talking when I recorded a show earlier today. And the guy was telling me so yeah, we had a very tough time, raising my first amount of money. And then I got accepted to Y Combinator, and everybody wanted to give me money. And that’s a badge. It’s the same thing like so, here’s the thing is, investors don’t get much like journalists often don’t want to go do the work. They want it wrapped up with a bow and someone else did your vetting. They did assess you as being I don’t know, there’s a lot of stuff out there. And if you don’t have cred, like if you’re not known, and you haven’t done it before, something like that, I think is definitely beneficial to try to get Okay, so like what what I mean by cred, alright, I’ve hosted this podcast for five years, I’m the founder of an inc 5000 company. I’ve written three books. I’ve done a lot of different things that make it easy to establish my credibility as an investor, right now, is all that stuff directly related to the business that I might be wanting to fund? No, but it shows a track record of completion and doing things and acknowledgement and things like that. And that’s a good start. So it’s a good time to build that stuff up. So work on your profile, like, what happens when you google you. Like, try it, Google yourself, I think everybody’s Google themselves. But how do you love because that’s the thing, no one knows who you are yet. So if they Google you, or they Google your company, what comes up? And, you know, I spent years working on that profile myself, because there’s a level of importance to that when it comes to establishing credit. It’s funny, I realized that if you put my name and say Matt DeCoursey, and then the next thing that Google populates is Matt DeCoursey. Net Worth. So you guys are out there listening to this show and wondering what my net worth is good luck finding it online. Because, yeah, I just thought that was odd. And then it says Matt DeCoursey author, I think Matt DeCoursey Startup Hustle. But with that, I’d rather be the Full Scale guy, because that’s my main enterprise. But yeah, so that accumulation of badges and credits is a good thing. And yeah, I don’t think you can have enough of that on Sundays that well, it shouldn’t be what you remember, you’re in business to eventually make a profit, make a difference, build something bigger than you. So you can’t always just be about getting into the next accelerator, the next accelerator, but none of that stuff matters.
Julie Gionfriddo 38:20
It’s not a track record. It’s the credibility, it’s building for the long term. All of those things matter. And with your google 101, I think you’re right on it. Right. Right.
Matt DeCoursey 38:33
Right. And well, that’s the thing too, and you might actually be a lot more quote Google worthy than you think. If you Google my name, you’ll see I have a little side panel. Well, yeah, but in July he gave me a Thumbs Up on the video. But here’s the thing, I had to actually like, claim and click that. Like, it took 10 minutes if that, like they want, like, there’s a little process with that I had to send a picture, I had to verify that it was me. You know, it’s kind of like the blue checkmark before you could buy it on Twitter. But you know, some of that is but that stuff, like assuming that people are going to Google you because I don’t know, you don’t no one knows everybody all the time. But these are the things that just add a little layer of credibility. It’s funny, I know some people. I worked in the music industry for 10 years. So I’ll talk about my Google knowledge panel on the side. And then I talked to my rockstar friends and they’re like, Did you’ve only got like, two? I’ve got like, 12 I’m like, Alright, Mr. Wikipedia. That’s great. But yeah, so podcast, write some articles, do something like, you know, these are the things that stack.
Julie Gionfriddo 39:43
Matt, right, you can start with Newton, make sure that I’ll make sure that’s all buttoned up. And, you know, you also want to make sure your pitch book is pretty well organized. Those guys are pretty easy to reach out to me. You’re right. It’s kind of buttoning up the big picture once in a while.
Matt DeCoursey 39:59
One thing that I want to encourage people that feel comfortable doing this, make a pitch video. Like there’s, you know, we talked about the simplification of a DAC and all these things like, Do you have a one pager? Because I’m not gonna read your DAC? I really don’t I don’t read it. I don’t, I don’t usually read the DAC. Like I want a one pager. And if you don’t know what that is, that means the problem, the solution, the Ask meaning like what you’re seeking, what you’re going to use it for. And then a little bit about the founding team. And look that you don’t win or lose. Well, you can lose in the pitch deck, but you don’t win in the pitch deck, either. Because the one pager and the pitch deck are there to stimulate and create future conversations. But yeah, so I think a lot like No, and by the way, no one wants your 60 page business plan on your first contact. No one, no one is going to read that on your first outreach. And in fact you are sending that as a red flag that you might not know what you’re doing. That’s right. All right. So we raced through another episode of Startup Hustle here. I should remind everyone that Today’s episode is brought to you by FullScale.io. You want to keep those costs down, reach out. We build teams quickly and affordably. Julie, I often end my shows with the founders freestyle. But today I want to do the funders freestyle. Yeah, a little twist in real time here. But you know, when I say I always give people an opportunity to make their closing remarks or arguments, but maybe we could do that in the Navy, we can step into the world of those funding. We’re going to step out of ourselves. And we’re going to take the investor side of things and like what are you looking for as an investor right now?
Julie Gionfriddo 41:55
Excellent question. So I think that’s a hard curveball on a live recording.
Matt DeCoursey 41:59
But you know, it gets me the best responses.
Julie Gionfriddo 42:06
I have to put myself in perhaps the shoes of a fund GP of a fund will answer it from that perspective.
Matt DeCoursey 42:15
I’ll go to the family office, I’ll be at the family office?
Julie Gionfriddo 42:18
Sure. I’m looking at deal flow, right? So hey, maybe it’s an entrepreneur I’ve invested in before, who I know, and I find really interesting, who has established a business and is raising capital today. And I can diligently do that business. And I know, I at least know the founder, I know that they’ve existed previously, that that may be a very interesting due diligence process. And in someone I want to invest with, maybe I’m looking at new companies that are very close to cash flow positive, or maybe they’re very close to a data point or a milestone, that’s going to make them more valuable. And they just need a little more capital during this extended runway time that could be very attractive. It could be a company I looked at six months ago or a year ago, that’s a little less expensive today for various reasons. And that could come to the top of my pipeline. But I think there are three examples of companies that may be attractive investments today. And what type of investment is that? You know, is it a convertible note? Is it equity kind of depends on what the status of the company is.
Matt DeCoursey 43:45
So in our first ever funders freestyle, I will assume the position of a family office, I too am looking to strengthen the investment profile of companies I’ve already put money into because why not? Right I’ve got capital I’m I’m looking for companies that as you mentioned are either on the customer profitability are perhaps may I may be able to retire debt, meaning like old convertible notes or just something that could possibly flex them in to a cash flow, positive environment I’ve also looking at so during times like this, we didn’t talk about this, you’re gonna hear about free cash flow. Companies that and that’s back to those initial things like sometimes cleaning up that debt profile or different things that could exist. Simple changes can sometimes make profound results. You know, so where can i Where can I put my money for that? And then I think the third thing is if I’m, if I’m a family office funder, I’m looking for value. You know, like, we talked about dry powder. So you hear the shittiest investment advice ever? Well, you need to buy low and sell high. Thanks, Einstein. How do I do that? Well, the reason the way you certainly do it is you can’t have all of your money and when it’s high, and then it drops down. So you will run into some family offices that may feel restricted in their ability to free up capital and make an investment because they don’t want to sell things for a huge loss in last that but maybe that’s also a tax advantage for them in some regards, who knows, but, but with that, then if you have the cash on hand, and a lot of these companies and investors do because they’re waiting for the dip, you’re all the crypto people buy the dip, buy the dip, well, the depth exists in stock markets, like yesterday, my regional bank went down 40% At the opening of the bell, and it was up 20% By the end of the day, that is a day traders frickin dream. You know, there are value hunters and people like that, if I see someone that I’ll make sure to pull that video file out, I just saw someone crawl in your background and remove a puppy. We’ve had puppies.
Julie Gionfriddo 46:11
when school is out. You just don’t know what’s gonna happen.
Matt DeCoursey 46:15
You know, we say we publish warts and all here on Startup Hustle. You know, like, you know, with that, you know, you talk about that there’s value. There’s, there’s the dog, there we go. I don’t know if you saw that someone just reached up and held the dog over the banister. So thank you. But yes, so much of, you know, like, Look, if you’re okay with maybe a lower value, offer that flexibility to someone that wants to fund it. Hey, yeah, I think that so many people and so many founders are caught up in this paper’s fantasy of what their company is worth. You know, I think that I learned this lesson when I was six because I was collecting baseball cards. And this is, well, that’d be like this one’s worth $5 down, and it’d be you have someone to give you $5 For right now? I’d say no. And he’d say, well, that’s not worth anything. So you know, your shares, your company, your valuation is worth whatever price the market sets. And there’s not a whole lot you have to do about that. Well, you could go lower. But you can’t just, like, decide that. Yeah, I talked to people that have a company that doesn’t even have revenue that we’re worth $8 million. I’m like, where, you know, spending 18 years in the secondary market?
Julie Gionfriddo 47:30
I certainly saw portfolios of VC and private equity trade, you know, below that reported value. Why? Because it’s not liquid. There’s no one else who is going to give you liquidity. And so what is it worth to a potential buyer and a set of potential buyers, and that’s a whole other podcast, but is there competition for your, for your money and capital here? But one thing we didn’t mention is going out.
Matt DeCoursey 47:59
It’s hard to have an auction with one better. Absolutely. So go out and fight. I tell people that a lot. Actually, I’m surprised and brought that up. And you know, I actually want to take 20 seconds to expand on that. Finding multiple people that are interested can drive your price up. If you only have one better, the price is the price. So you can negotiate that a little bit. But until there’s that fear of missing out or a finite nature to what you’re selling. You got to kind of work that. Well. Julie, thanks for joining me. If you’re interested in learning more about what FML CPAs do, there’s a link for that in the show notes. It sounds like you guys have a lot of experience and great advice to offer. So just scroll down to the show notes and click that link. Julie, thanks for joining me.
Julie Gionfriddo 48:45
Thank you, Matt.