Investing in Founders First

Investing In Founders First

In today’s episode of Startup Hustle, we’re talking about how startup founders can attract investors. Brett Calhoun, director of operations at Scale, is in the house with Matt DeCoursey. Enjoy this thoughtful discussion on the specifics of investing in founders and what entrepreneurs should focus on building.

Covered In This Episode

Does the famous phrase, “If you build it, they will come,” still hold true in this modern world? For startup founders, yes, it does. According to Matt and Brett’s conversation, if you’re a startup founder, build a great company, and investors are likely to come.

But how should startup entrepreneurs start the journey towards connecting with investors? How can companies like Scale support business owners in acquiring venture capital or angel investments? And what essential factors are considered by investors when collaborating with founders?

Get Started with Full Scale

All these things and more are answered in this episode. So what are you waiting for? Tune in to the discussion today!

Hear What Entrepreneurs Have to Say in Startup Hustle Podcast

Highlights

  • Brett Calhoun and his backstory (02:44)
  • How to support a non-technical founder (07:30)
  • Thoughts about investing in founders first (08:14)
  • Things to look out for when working with founders (12:06)
  • All about the unique Midwest Startup ecosystem (18:32)
  • Why people should work with Scale (23:24)
  • The hardest part about starting a business (27:10)
  • Access to capital (32:12)
  • Understanding Venture Capital (37:30)
  • Lessons that every startup founder should learn (40:50)

Key Quotes

Some people would think you’re like, hey, if I get two highly driven people on a team with each other, that might be the greatest thing ever. It’s not. They will either take over the world or kill each other trying.

– Matt DeCoursey

And so, I would say, going into it as a founder, you should have all the confidence in the world. If you’re talking to an investor, change the mindset—like you are actually giving this person a job. Like they need to invest in you, or they need to find great companies like you. So it’s nailing the storytelling. Not focusing on the fundraising; focusing on building the business and letting the fundraising come.

– Brett Calhoun

You know what, people are still going to invest in great companies that have great founders. So be a great founder and build a great company.

– Matt DeCoursey
Business Podcast for Entrepreneurs

Rough Transcript

The following is an auto-generated text transcript of this episode.

00:00.00

Matt DeCoursey

And we’re back for another episode of Startup Hustle. Matt DeCoursey here to have another conversation I’m hoping helps your business grow. If you’re a long-time listener or this is the first time you’ve ever listened to Startup Hustle, it’s time for you to know, or be reminded, that this show was created by founders for founders. And there’s so much that goes into entrepreneurship—startups owning, running, managing, and growing a business. But the thing that I am a big advocate of is—when investment comes in—investors think of founders first. And not just trample all over everything that founders have built in and around their startup. That’s what we’re going to talk about today, and I’ve got a great guest to do that with. And before we get started, today’s episode of Startup Hustle is brought to you by Wix. Yes, our friends over at Wix know a thing or two about turning the scrappy startup into a global organization that serves millions of people. And they want to share what they’ve learned with Startup Hustle listeners in their new micro-podcast series called Ready for Takeoff by Wix. When you tune into the Ready for Takeoff by Wix podcast, you get to hear from Wix founders and company leaders. They share super short lessons to help you build better programs and teams faster. And that’s a topic I can get behind. Subscribe and follow the Ready for Takeoff by Wix podcast wherever you listen to this show with me today. I’ve got Brett Calhoun, and Brett is the director of operations at Scale. That is a venture capital firm located in Columbia, Missouri. You can learn more about what Scale does by the link you’ll find in the show notes. Brett’s website is scale-vc.com. Once again, straight out of Columbia, Missouri, Brett. Welcome to Startup Hustle.

01:48.24

Brett Calhoun 

Thanks, Matt. I’m pumped to be on the show and talk about something I’m extremely passionate about.

01:52.99

Matt DeCoursey

Yeah, I’m glad to have you as well. And, you know, I think let’s just go ahead and start our conversation with a little bit of information about your backstory.

02:03.77

Brett Calhoun 

Yep, so, how I got into startups. I did not come from a tech background. I started in the accounting-finance world CPA—was doing work in the valuation world. A lot of transactional stuff, so sell-side and litigation purchase price allocations for small businesses to Fortune 500 companies. I actually got into startups when I came to grad school at Crosby and the University of Missouri. And I had the opportunity to work with a preset fund investing in Missouri founders, and that was with a guy named Bill Turpin, who you might have heard of. Kind of a legend of the startup world. Um, Bill’s actually in Ben Horowitz’s book, and he was on the team that managed to actually write Javascript. So I was immersed in this community of working with founders who were extremely passionate about what they were doing but operating under constraints. And we were helping them get access to capital, which is just one piece of the equation that we’re solving at Scale. I fell in love with that work and did that for nine months till we invested the remaining capital to fund. And then, I had the opportunity to work with one of our portfolio companies called, Patient, which is a VC-backed fintech startup—solving pain points in the healthcare industry. So I got some operating experience there, but I got back into the investing scene, which is more my personality. Really looking at multiple, different deals and working with more than just one founder. And so, I had the opportunity to work with the legal tech fund, which is one venture capital firm focused on legal technology. While I was there, outside of just investing, we actually incubated a company called Cap Gains, which is solving pain points with government tax incentives starting with qualified, small business stock. So any founder listening to this podcast, it’s something you should really pay attention to, especially when you’re getting ready to exit, because you can save one in your capital gains taxes. So we did that around similar times; I also co-founded a lending startup called Charlie Mike. And so, as a little pattern here, in the entrepreneurial world. Most people, you know, think of founders as crazy because you’re always working, hustling. And a lot of times, you’re working with no income, which is kind of what I was doing for the last three or four years leading up to my work at Scale. So co-founded a lending platform where we’re financing closing costs on VA mortgages for veterans. I started doing that about two years ago, got a partnership with a bank during COVID, and since then, we’ve helped a few veterans get into homes.

04:35.95

Matt DeCoursey

And then.

04:38.38

Brett Calhoun 

All this is kind of leading into working at Scale which is my dream job of not only investing in startups but working on the front lines with our founders and um, so what we really do is we invest one checks into companies as early as the idea stage to a preset stage, and then we work with them for twelve weeks um to help them go from one to one and so that’s kind of you know, leading up to my work at Scale.

05:02.20

Matt DeCoursey

So one of the things that yeah and for those of you lesson and I one ran into Brett at a Vc networking event. It was actually the one in-person event that I had gone to. It wasn’t one of our own small gatherings at, and you know, Full Scale events. We do invite people to come up to our suite at a local arena where we’ll do everything from going to a rodeo to, ah, you know, seeing a concert, but I was back at my one-person event in hand. It felt like one of you had gone to an event prior to that. Have you gone to anything with it? I mean, there were like more people at that thing. I was like, wow, this is the one time I’ve been in a room with this many people in a bit.

05:48.42

Brett Calhoun 

Um, not very many events. We did so, luckily, one of our really close friends. He’s actually an LP in our fund is Joe Kaiser, who’s from the Jeff City, Missouri area and invited us to a vend out in California where Mercado partners the fund that he works for. Putting on a festival or like leadership summit for investors and founders, and so I actually took a few of our founders from Scale and flew out there, so that was probably the only event prior. Um, which was a good opportunity for us because being in Columbia, Missouri, you don’t have a ton of VC funds and like. You know all these, um, different organizations to really take our companies to a network with investors that was a good opportunity similar to the one with the flyover.

06:34.96

Matt DeCoursey

Yeah, well, I’m sitting there talking to you, and I wasn’t super familiar with Scale at the time, and you immediately got my attention because you were talking about the fact that if you invest in a tech startup. You. I really needed them to have a technical co-founder, and when I think about investing in startups, and you think about founders, I think one of the best things you can do for a non-technical founder is kind of push them towards having a technical cohort. You know, or as I say, cos say counterpart. But yeah, you get, I don’t know, man, I talked to non-technical founders a lot that don’t have a CTO or someone technical with them, and I’m thinking the best thing you could do, and I tell them this too. The best thing you can do is find someone that’s technical to work with you. When you talk when we talk about investing in founders first, I mean, what comes to mind.

07:34.11

Brett Calhoun 

Yeah, so investing in founders first really kind of goes back to our whole thesis. So we’re investing as early as a founder with an idea, meaning if you’re in the present stage, invest that early. What really drives the business obviously is the founding team. So once you need to have the ability to sell, whether that’s to customers, investors um, or selling to folks to actually bring on talent, and the second is building, so you need to have somebody tech on the team. Um, and if you have the right pieces, the mindset, and motivation. You can really build anything if you’re going for the right market. And so that’s the one thing, so we focus on the founders. That’s probably 80% of the weight of when we’re looking at investing in something is just doing diligence on the founding team, and the second would be the market, so you know is this a multibillion-dollar market opportunity we believe in the power-law at Scale. Um, you know. 99% of companies are going to fail, that 1% is going to reach billion-dollar status, and it’s going to one to 5 x the fund, and so that’s what you know we can’t invest in niche ideas that are only going to do 200000000 exits and then the one is really the market dynamics. What does the competitive landscape look like? What’s the supplying man in this market? Is this the right timing for all that stuff? It really all goes back to the founder because ideas change? So if you’re investing this early a lot of times either. You’re gonna pivot, or the product’s gonna look completely different, and you envision it on day one where we’re investing and so. Constantly focusing on the founding team, and you can see that through our application process where we’re really only asking questions about the founder and trying to pull data points out of their track record, whether that’s their career just like life in general or how they deal with adversity. Do they have the right mindset and motivation to build? Um, a high-growth tech startup, and then the next thing we focus on too is really we do disk personality assessments which are digging into you know what the founder’s personality is. Are they a driver for this business?

09:28.52

Matt DeCoursey

I am cruel.

09:36.59

Brett Calhoun 

Suppose they’re not a solo founder. Do they pair well personality-wise with their co-founder? They’ve chosen, and then lastly, it’s doing an interview with our managing partner Willy Schlacks, another co-founder Jay Malik and myself, and for us, you know, doing diligence on people. We actually, in my opinion, have a very. Unfair advantage because Willie, who is one of the co-founders of equipment share. He’s hired. I don’t know one person over the last six-seven years and so, and they’ve got data points on one person in terms of their personalities, and so they know how to pick winners, and they have a pattern recognition for picking people. And understanding where they fit on with teams and so that aspect has really helped us um, been able to pick, you know, pick some diamonds out of the rough for choosing the eight founding teams.

10:28.58

Matt DeCoursey

It’s interesting that, yeah, I can’t say that I’ve ever had a conversation with a fund or a Vc that mentioned disk and when I talk about the disk, drive influences steadfast compliance. There are some different variants that some use for this. For the personality inventory, I actually wrote about this in my book because there’s, you know, so many people are ridden with anxiety or have problems in their personal or professional lives, and so much of it has to do with the personality style that. They represent compared to the other people that they either work with or live with, and ah so much of it’s about learning how to communicate or understand the people around you. So when you talk about. But what you’re looking for on a disk personality profile and a founder like what are the things that really stand out.

11:26.53

Brett Calhoun 

Yep I mean, there’s ah, there are a few things, so once that’s if you look at someone who has an extremely high d and low c, so d is dominance, c as conscientious. Um, so c is going to be more like analytical people, and d is going to be more sales. Um, and so if you have someone with extremely high d extremely low c, that’s one thing to watch out for because you’re going to need somebody to offset that where um, this person is just. Really really good at selling. Um, but maybe not great at analytical skills and like actually stepping back and being thoughtful and not just driving all the time. Um, and so those are like some things we look for if somebody’s like extremely high s and low and everything else they’re probably more of. Maybe an employee rather than a founder and so um, there are different ways to think about it, and there are different personalities to pair with each other, and one thing that we do focus on at Scale kind of going back to this founder first idea is that sure we’re all about like company growth and understanding how to go to market. Yeah, how to go from one to one. What’s the best way to do this? Some of the steps in the process. It’s not necessarily. Um, it’s not so much like an academic process. I mean, everybody’s way of going from one to one is different. But one thing we also focus on is personal growth as well. And how that mirrors your company growth and so constantly taking some of the learnings from, you know, founders like Willie and Javi slacks of equipment. You are like a way foster of zapier and some of the ways they think about personal growth. Um, and so we have a lot of sessions that you know. Not just about the company, but it’s more. It’s more personal and like how do you continue to grow yourself as a person and how do you put yourself first before actually going out and hiring a team of individuals. Um. And so that is kind of going back to the founder’s aspect for Scale.

13:31.82

Matt DeCoursey

Yeah, when I mentioned disc, and there are some a couple different words that you drive and dominance stuff like that, I’m the ever so rare D and C combo. Um, which, as I said, is odd now. I’ve always associated the D with drive, and that is also dominance. You have influence and all this other stuff. But he’s a highly driven person. Usually wants to be left alone to continue to obsess on whatever they’re working on. You just need to make sure they’re obsessing on the business If. That’s what you’re looking for in a founder and not something else. Ah, and when you talk about putting the personality styles of people together.

14:12.75

Brett Calhoun 

What.

14:19.48

Matt DeCoursey

Some people would think you’re like, hey, if I get two highly driven people on a team with each other, that might be the greatest thing ever. It’s not. They will either take over the world or kill each other trying.

14:31.35

Brett Calhoun 

Um.

14:34.61

Matt DeCoursey

Ah, there are certain types of people like my wife who are on the opposite side of the personality scale as me, and that’s good because you need a level of patience and steadfastness that, um, to put up with my shit, which is pretty much the truth for a lot of entrepreneurs.

14:52.34

Brett Calhoun 

Yes, I completely agree that my girlfriend, and I are similar. My profile is like yours. I have quite a bit of eye, and then Dnc is about the same. So if you look at my profile, it’s IDC, and then I have zero-sum. And my girlfriend has a ton of ass, and so we do balance each other out quite well. And yeah, I mean, it’s interesting. Um, and I know you said something earlier about pushing folks to hire tech talent, which is one thing we do, and it’s, I guess, for a founder. As an idea, they might know you can use a dev shop or whatever but trying to navigate actually hiring a developer is really hard to do if you’ve never done it before you, you might not know where to start, and so even like prescale like if I find a founder that’s. You know we believe that, um, could be a rockstar. It’s trying to help them navigate the understanding of how to hire a c two, and I might even take some time out of my calendar to help them find a CTO. Um, so that they’re in a good position for us to invest in this company. Um, and that’s. You know, in the midwest, that is something you often see just because the supply and demand for tech talent are not um, there’s ah, there’s a lot more demand than there is a supply here. That’s all I can say.

16:19.92

Matt DeCoursey

Well, I know a couple of things about that working over at Full Scale. So that’s ah knew what Brett’s talking about is there’s that one open tech job right now, and I don’t mean sales jobs at tech companies I mean like true technology positions and. You know with that. There’s often a big difference between, and people will look at someone that is a strong coder, and they’ll be like, that’s our leader. It’s not always the right person, and you know there’s you know much as I mentioned with the personality styles about sometimes. Drive means that you know you’re obsessed and focused, and locked in on things. Developers are the same way, and you know, not just because someone’s great at coding doesn’t mean they’re great at leading a team or really even. Formulating, establishing, and executing a plan to accomplish the vision associated with the platform. So um, I just ask you to talk about, I mean we literally. That’s one of our qualifying questions at Full Scale. We said would you rather be on the team or lead the team. And some people will give an answer, and then some people are like, I’m cool either way, and I find that people are pretty open and honest about that. So let’s talk, let’s stop for a second and talk about the midwest startup ecosystem. Um. What do you think makes it unique compared to the other regions of the country?

17:54.40

Brett Calhoun 

Yep, I think one thing that makes the midwest unique is that because of some of these constraints. Um, there’s a lot more adversity in the midwest with trying to build a company. You can’t just walk across the street and get handed a. Ah, a bag of $2000000 from a VC fund, and you know you have to bootstrap your company and really so show some serious traction and then raise money from venture capital funds, and so that has caused a lot of founders honestly to bootstrap their companies. Be hyper-focused on running lean um and not grow at all cost or just not necessarily grow at all costs but only higher when it hurts, which is quote wade said on one of our sessions the other day only higher when it hurts because so it’s forced. Come. Force founders and operators to be more scrappy and build companies based on one principle. Um, really be hyper-focused on the customer and not just getting press or having flashy logos or targeting the top Vc funds. Um, it’s really just building your company and so on. Ah, you see all this stuff out now about, you know, 2022? There’s going to be less funding. Everybody needs to know how to run lean, and you know the best businesses are going to get funding. These are all things that everybody already should have been doing. And the companies that aren’t are going to get burned up in the midwest, I mean particularly for our companies like we’re pretty early stage, so we’re somewhat sheltered by what’s been happening in the markets. You know more downstream series, a plus. Um. But yeah, I mean, I think for us like in our thesis is really you know outlier venture returns are really investing in founders that are strengthened by struggle, and that’s literally founders in the midwest um, and so I think that’s kind of like the outlier and um, the fact that. You can run lean here because it’s not extremely expensive like the cost of living um and hiring talent now. That’s somewhat changed a bit just because there’s a lot of developers getting poached by, um, tech companies on the east and West Coast and Missouri, so I mean, I’ve seen that a little bit where you know a couple of our companies would send an offer to a developer, and then they get an offer that’s double what they just offered them because there was a tech company on the east or west coast trying to hire remotely? Um, but yeah, I mean, I think it kind of sums it up is just really just.

20:37.50

Brett Calhoun 

The adversity forced founders here to build on one principle: if they don’t make it through the adversity, they’re going to fail, and then second, it’s the ability to run lean if you’re forced to run lane, but you can run lean here because of the cost of living and everything else that’s cheaper.

20:53.12

Matt DeCoursey

You said something that stuck out. You talk about basically operating your business responsibly, which is something you should have already been doing. Um. Yeah, that’s important when it comes to funding. Maybe I should work on mine for a second when I mentioned that our friends over at Wix. Yes, the website and business-building platform have nothing or one about turning the scrappy startup team into a global organization serving millions of people. And they want to share what they’ve learned with you in a new micro podcast series called Ready for Takeoff by Wix, where the company’s founders and leaders share super short lessons. 

21:33.76

Brett Calhoun 

Ah.

21:36.40

Matt DeCoursey

Share super short lessons designed to build your better products and teams faster. Subscribe and follow the Ready for Takeoff by Wix Podcast right now on Apple Podcasts, Spotify, or wherever you listen to this show. Hey, founders, while you’re listening. We have a new quick. Short and sweet two-part series about validating your app. It just went live; scroll back one episode if you missed out, and you’ll be able to learn more about it. Um, I’m here with Brett Calhoun, who’s the director of operations at Scale. It’s a venture capital firm. Many of you are looking for early-stage funding, and that’s what they do, um, you know Brett, I think that, but let’s talk about that for a second because I really want to key that you know when you’re out raising capital as a founder. And you’ve got someone right now on the show talking about how they’re looking to founder one. Even the idea phase might not be too early, but Brett, let’s hear your pitch for why people should go to Scale. And tell you about what they’re up to or what they want to be up to.

22:53.16

Brett Calhoun 

Yep, so you said we invest as early as the idea stage. Nothing is too early for us. At this point, we’re almost just recruiting people to come and join our Scale community, and so yeah, we’re. Investing through 2 models. One is an accelerator fund model. The other is a venture studio model on the venture studio side. We have ideas internally that we want to build companies. A lot of them are pain points that come out of equipment shares or some of our advisors’ companies and what we do is we source technical talent to come in and build that. And secondly, out of the accelerator model. It’s an accelerator VC Preet fund incubator, and I’ll kind of walk through why that’s the case. So we invest in companies upfront and then work with them for twelve weeks, thinking of ourselves as silent co-founders. Where we’re coming in, and we’re basically part of that company’s team and helping with whatever is needed to onboard them to our slack community where we have you know of the last one cohort of over 30 founders, and you know we’ve got a ton of advisors on there. But. You know our companies need hiring support. They need help finding tech talent. They need help finding marketing people and help to find finance people. Um, they might need to understand how to talk to investors and how that’s different from talking to customers revamping their pitch decks, or building financial models trying to understand. Financial plan. How much money do I need to raise? What do I need to raise for what’s driving revenue? Like all these things, there are so many questions, and then on top of that. It’s not just us being part of your team and moving and being whatever it is you need. We also have. Um, a technical eir that’s helping our companies on like the product dev side and something else. That work, too, is actually bringing a community of developers that are local to work with scale companies. TBD on details for that’s in the works. Um, and next is really just the level, so we have folks who have built. Billion-dollar companies who are here to support our founders, so think of equipment share who you know William Javvi Schlack started this company in 2015 and Columbia, Missouri last seven years scaled that to over a billion revenue I mean they’ve hired 3 4 but or they’ve. Raised three or four billion in debt in equity from top DC funds. They’ve hired one person. They understand the ins and outs of a business have failed, and you know, learn from those mistakes, and so we have these people who have, you know, built these billion-d dollar companies. Not just any companies but for companies that were built under capital constraints.

25:29.97

Brett Calhoun 

And all these constraints that you’ve seen in the Midwest that we’re trying to spearhead, um, and these people are carving time on their calendars to offer support and insights to our founders, and so this is a white glove, you know, investor and service smart capital that you can’t really get anywhere else. Um, we’re not just a logo for your resume to go out and raise funding. We’re here to be part of your team’s family for twelve weeks, and then you know, after that, it’s not like we just cut off the cord, and we’re done working with you. It’s really just there’s no structure after that. It’s more of marketing, so you come in with a community of founders. Ah, the cohort of founders to build your company, and we continue doing that. I mean, I’m still helping companies from our first cohort raise their next rounds or help them hire their next talent or whatever it is. Do they need it? Um, so that’s really, I mean our pitch at Scale and you know. I would love to. I wish I could have one of the founders come to the show and talk about how you know, we’ve had an effect on the last twelve weeks, or you know what we’ve done. Um, but it’s truly like, for me, it’s such a fulfilling job of seeing these people’s dreams come true and working on the front lines with them. Yeah, that’s a little bit. I mean, there’s a lot more impact there.

26:49.11

Matt DeCoursey

Well, you mentioned a whole lot of things, and I think that a lot of that stuff if you think about being a founder to start up any type of entrepreneur, and the hardest part about starting a business is exactly that starting the business. There’s one thing to go into and consider while, yes, they’re directly related to the business that you started. They’re not necessarily directly related to the business. You’ve started. You know it’s a lot of people. Let’s just let’s get completely out of tech. Let’s just say you started. Freaking pottery business, and it’s because you love making pots. You love working with clay and spinning the wheel, and seeing the final product. Well, if you want to have it be a business, There’s a hell of a lot more that goes into it. You might need a cash register and a website, and you need an accountant. All these different things, and I think that that’s one of the things that overwhelm so many early-stage founders is they ignore a lot of that stuff, or they do it poorly. They’re kind of one and the same. Ignoring it and doing it poorly are really kind of the same. You end up with a crap result, and I think that while it’s easy, I think entrepreneurs are very independent creatures on many days, and we want to learn how to do everything so everything ourselves. I think the thing that I’ve learned as I’ve gotten older is. That it’s really wise and smart to go find people that know how to do all that stuff right away, and you pay them to go do it for you, and you know whether it’s getting help from a fund or an accelerator or any type of business development type support that you can get in your local community. The more you get that help, the more you can get. We talked earlier about that type that drives the dominant personality type that exists in a lot of entrepreneurs. Hey, it’ll let you get back to what you’re obsessing over. And you know these are all things that need to be done, and most of the things that you mentioned as you go down that list are that make up the structural integrity of a business. They’re the same for all businesses. You know, like there’s there. You get this one roll where 80% of it.

29:09.63

Brett Calhoun 

No.

29:16.47

Matt DeCoursey

It is going to be good for all of your businesses. So go out there and get someone to do it, and if you forget, the further you get down the rabbit hole that the bigger that ball of rubber bands is that you not only have to pull out of the rabbit hole. But then you have to sit there and unwind. Guess what? That’s going to be taken away. Your focus is on whatever you really want to be doing at the business or what needs to be done now in regards to raising capital. I’m a big advocate of teaming up. You mentioned not just being a logo for your future fundraising but anybody that can put you in front of people that will listen to what you’re saying from an investor standpoint. Um, as a strong ally and someone that you should really be thankful to have on your team. You know I do this a lot. I just spent. Sometimes putting one of our Full Scale clients in front of several investment opportunities saves them a bunch of time, and that’s time you can get back to doing what you want to do. I want to talk a little bit about some of the challenges that people have raised in capital. Once you get outside of the major capital centers, which are the biggest cities, and you know you’re talking, I mean, obviously, the San Francisco bay area gets the most attention when it comes to that. But I mentioned before we recorded that I just got back from New York City where I went with my wife for the weekend, which yeah, you can just. Walk out in New York City and just look around. You can see the sheer magnitude and Scale of everything that’s going on there, and then you come back to a place like Kansas City, and my wife was like, wow, it just doesn’t, so nothing seems very tall here now.

30:59.31

Matt DeCoursey

Ah, but when it comes to, you know, I’ve got notes here talking about the big. What are the biggest challenges in raising capital and building startups in the midwest? I’m going to just strike the word midwest and replace it outside of the 5 to 10 major cities. That people raise capital, so you know what the biggest challenges that people have are that startups have to raise capital and build startups outside of like one place is. Everyone knows. I mean, what? What comes to mind when I ask that.

31:30.42

Brett Calhoun 

Yeah, so there are a few things. It really just starts with this word access. Um, so access to capital. Obviously, if you come out of the major metro areas where VC funding is, you know you’re not in person with anybody, so it’s all remotely. The majority of investors these days invest remotely. They don’t just look at companies in person. Um, but it’s more than that. So it’s that you have this lack of capital or access problem, and then it trickles down where you have. Startups leave because there’s a lack of capital. These startups are leaving, you start losing these network effects, you start losing talent, you start losing knowledge and so what we’re doing at Scale is we’re really filling all of these access gaps, and it also starts with really what’s important is the knowledge. Um, there’s capital out there, but I like knowing how to communicate with investors and how to approach that capital and what to do before you approach it because there is a point where it’s like, hey, you might get an intro to an investor. But you might completely burn that intro because you didn’t approach the situation, right? or you didn’t tell your story in the right way when investors were going to look at your deck. You know you got one slide. If they don’t like the slides of the product they’re gonna look at anymore, they might be in the and their uber pulling it up on their phone. And if that first fray is on there on your intro slide, it doesn’t sound good. It’s done. Um, and so it’s really one. It’s getting these companies ready and understanding how to talk to the investors, and before that, it’s not just talking to investors and what we do at Scale is not just focused on fundraising. Focus on the founder first. So how do you personally get ready to start this company? How do you have the confidence, the mindset, and the right motivation to build a massive company? Okay, and then it’s building it, and it understands your customers, and then it’s getting traction. So. Fundraising is something that just kind of organically happens if you do all these things, right? Um, you know we’ve had, you know, one company that had issues with raising they had they had an offered poll actually, and then since then they’ve had some struggles, and it’s like you’re doing twenty k month in revenue. Make $1 in profit and like the funds are going to come up and so you know in the midwest in terms of I don’t kind of all over the place here. But in terms of capital problems in the midwest in general, if you’re outside of Chicago. There are a lot of capital issues where you have to 100% get traction.

34:12.92

Brett Calhoun 

And before you can even get funding. Um, and so in order to get funding at the stage that Scale is investing, we’re the only fund in Missouri that invests this early and the two it’s going from. That is like angel friends and family round to like an actual pre-seed round, and there’s not really a lot of pre-seed capital invested pre-revenue or even like 5 k and more rep, and so then it’s like drawing capital here. Um, and which is another thing that we’re trying to do is bring our network from coast to coast and draw that capital here. Um, and sort of, I guess, but I would say for companies. It’s also like changing the mindset, and it’s not being so focused or, you know, having a loss of confidence when you’re talking to investors as well and thinking what they’re like. So important and like amazing people and like they’re so much smarter than you and like you’re in the midwest this investor is in Europe, or they’re in la or whatever they went to Harvard Stanford it doesn’t matter like what they’re doing is they’re like a steward of someone else’s capital, and they’re trying to find the diamonds and the rough to invest in. And so I would say like going into it as a founder you should have all the confidence in the world if you’re talking to an investor and so it’s like things like that like change the mindset like you are actually giving this person a job like they need to invest in you or they need to find great companies like you, so it’s you know, nailing the storytelling. Not focusing on the fundraising, focusing on building the business and letting the fundraising come, so you have like it’s like access like mindset. What’s motivating you all these different things that we’re trying to change, and that’s kind of like going back to this personal growth too and helping influence these different mindsets. Um, at Scale, and then I tried to think there was another thing I was going to say.

36:08.11

Matt DeCoursey

Well, I’ve got a couple of things while you think about that because when I think I think when it comes to you know raising capital in general, I think that people have these really conservative plans and visions that they’re they’re like oh I really want to make this seem like. I’m not overinflating. Don’t be afraid to tell people what your big vision is, you know, and those are words that Sandy Kuemper, the founder and you know CEO of ctwofo um, said to me many years ago that really stuck with me and. You know, it’s like, hey, I’m having a hard time getting people to understand that this is a $100000000 a year revenue opportunity. Well, don’t be afraid to tell people about your big vision. You know, don’t because you talk about venture capitalists and investors out there looking for the diamond in the rough. Make yourself the diamond in the rough and shine yourself up. You know, polish yourself up, make yourself gleam and shine, and then you know, yeah, as you mentioned, there’s a general lack of experience at understanding venture capital, I think. So much of that is people chasing down the wrong kind of investors and funds like you mentioned that you’re at Scale and go to Scale to let them know about what you’re doing, but you have you know? Yeah. You have to point in the right direction if you’re talking if you don’t. If you’re not a fintech platform and you’re chasing down investors that only invest in fintech, you’re going to have a pretty frustrating day every day, and I also think with that. With that lack of understanding, yeah, I dude I talked to, so I got to those events like the last one I saw you out, and I’ll talk some How’s your fundraising efforts going. Oh, it’s not so good. I’ve got turned down every time. I’m sorry to hear that. How many people did you talk to, dude? I talked to one person. Okay, you’re like one short of the average at that point, you know, like you got to get out there, and it’s like, but that doesn’t mean you just need to talk to 67 more people that write investment checks. You need to talk to 67 more of the right people.

38:09.57

Brett Calhoun 

Yep.

38:25.41

Matt DeCoursey

And you know it’s those every time you’re going to get a little better at it, and you know, I think another thing too. As it sometimes it’s just a little too early, and you know it’s like if you’re then this is back to the misaligned investors like. Ah, you sometimes gotta sit down and just do some work. I think one of the things here in 2022. That’s you’re seeing a big fundamental change, and I’ve been saying this for a while. I’m like, you know. Eventually, profitability has to have to come back to the forefront, and I think that. You know this is just my own opinion. But I think that the local and national media over glorifies fundraising. You know, I’d rather hear about the company that was profitable and grew and created a bunch of jobs and added a bunch of customers rather than just like every day it’s like. Company x raises y company x one raises y one. I’m like yeah, I’m going to start spewing f words here in a minute, but I mean some of that eventually you gotta make some money with it, which means you have to sit down. You have to execute the plan. That you’re looking forward to, and in a lot of cases, that means listening to other people’s opinions. Do you know, putting it all together and I don’t know man just trying to to get it popping so you know we’ve talked we talked about a whole did you remember your other things or did I stir up one more during my ah?

39:48.51

Brett Calhoun 

Yeah, yeah.

39:55.32

Brett Calhoun 

I am what I build, boy. I mean, my wheels are spending like usual. You know, for founders, I mean, there’s some unique insight wedge into a market. And you got to tell your bigger vision.

39:57.61

Matt DeCoursey

Dirt.

40:15.80

Brett Calhoun 

And profitability is true. I mean, what you need to look for is like, you know, you hear about the rule of 40. Are you growing fast enough, and then what is your gross profit? Um, another thing to look for, too, would be, I guess. You know what your customer acquisition cost is and what’s the lifetime value of your customer like making sure that as you’re starting this company that, the unit economics actually work and if you’re spending more to acquire users constantly and you rather than how much they’re paying you to actually for your service like this isn’t going to be. Ah, scalable company. Um, so the finances do matter. Um, I would say one thing I would like to say too is, you know, a lot of funds are looking for somebody with a pedigree or a track record like. Their ex-Google or they were an early employee at this company, or they went to Harvard or Stanford or whatever like we don’t necessarily care about that at Scale. Um, you know if you look at some of the folks that are involved with us like William Jabbak who started at Colmanshire and ain’t go to college ah wade foster. Went to the University of Missouri and then worked at veterans united like there’s no like pedigree there. There’s no track record of building a prior company. We’re just looking for people who are extremely curious and have the right mindset and motivation, and can outwork everybody else in their market. Um. And so I just I think a lot of people like to undersell that and don’t you know they’re constantly looking for ways to portray themselves for investors and it’s always you know that shouldn’t be top of mind and like you said like all these companies in the press that get funding from investors and like that’s what everybody looks at and it’s. A lot of time, like these rounds, like if a company raises $5000000, you know they finally get one investor to invest. Let’s say take up half the round and lead, and then you’ve got one coming from other investors who probably just invested because that person invested, and there’s not actually conviction in the company. It’s convincing because there’s some logo that invested in their company, and so it’s just like some of these things I remember, and um, yeah, I think founders just need to realize that it’s not all about investing and that you’re not building this company to raise funding from Vc funds. And I think if you come at it from that mindset and you’ve re-floated your priorities of really focusing on the customer instead of the investor, that will help.

42:49.17

Matt DeCoursey

You know I dropped out of 5 colleges. 5 I did all right once again. Today’s episode of Startup Hustle was brought to you by Wix. Are you an entrepreneur founder trying to figure out how to successfully navigate the rocket ship that is hypergrowth. Do you want to take control over your company’s online presence internally and externally while our friends over Wix Enterprise can help? Wix Enterprise is a platform that provides businesses. With an all-in-one solution for all types of growth and business needs, create high-performing websites for your business, all of which are backed by enterprise-grade security as well as expert support to help you manage and scale online http://wix.com. There’s a link in the show notes for more information. Well, Brett, these ah conversations go by pretty quickly. What about today’s chat stood out for you.

43:46.40

Brett Calhoun 

I think what stood out for me is just the opportunity to really sit down and talk about what we’ve been building for the last couple of months and what’s driving us to work day and night, you know, eighty ninety hours a week for our companies and. And why it’s so important that we continue doing this into perpetuity.

44:07.97

Matt DeCoursey

Yeah, I think some of the things that stood out for me are related to, you know there’s I I think the importance of selling your big vision is you know like. Don’t be afraid to sit down in front of an investor and talk about, you know, hey look, this opportunity could be very big. I think one of the things I didn’t say that I wanted to add was, you know. You can’t don’t be afraid to admit that the things that you’re not good at are what’s going to stop this company and me from getting to $100000000 a year in revenue, and this is our plan for fixing that or solving that problem. And with that, that’s part of why we need $5000000 in investment. Um, I think another thing that stood out was you mentioned something we were talking about earlier about you.

45:02.83

Brett Calhoun 

Yeah.

45:13.33

Matt DeCoursey

The way that people are running their business now. And, you know, there’s all this press and all these media about possible lack of funds or investment that could be coming in the economic downturn. Yada, yadda, yaba. You know what? People are still going to invest in great companies that have great founders. So be a great founder and build a great company.

45:31.98

Brett Calhoun 

Yeah, yeah.

45:32.44

Matt DeCoursey

And that means you’re not doing stupid shit like burning your cash when and where you shouldn’t be. You know, run a good business, and you’ll find that people will be attracted to what you’re doing and how you’re doing it. I mean, you could probably go on and on. One of the things that I want to remind everyone as well as there are firms and companies like Scale that invest in early stuff. I’m tired of hearing that no one wants to invest in early-stage companies because that’s not true. And there are people out there doing it. They may not be interested in your offer because of certain things or qualities about your company, your readiness for the market, or your ability to get there. And that might be what you need to go back and spend a little more time working on. Once again, with me today, Brett Calhoun, the director of operations at Scale. That’s a venture capital firm in Columbia, Missouri. There’s a link in the show notes for that. Brett, I’ll see you down the road, buddy.

46:37.56

Brett Calhoun 

Thanks a lot, Matt. This is a great time, and your last comment there about capital it’s still in the market. It’s a more dried pattern of VC than ever. All this talk about not investing in companies is really more geared towards growth companies. They’ve got a whole portfolio full of overpriced stocks. So don’t be concerned if you’re an early-stage founder.

47:06.48

Matt DeCoursey

Don’t be an overpriced stock. See you next time.

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