Raising Capital in Later Stages

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Ep. #768 - Raising Capital in Later Stages

In this episode of Startup Hustle, join Matt and Matt for Part 46 of “How to Start a Tech Company” as they discuss what it’s like to raise capital in the later stages of your business.

Covered In This Episode

Businesses that reach late-stage funding sessions are pretty much winning at the game. At this point, it’s all about raising capital to scale and venture into new territories. Founders need to learn how to show off their traction as a pitch for capital investors.

Matt DeCoursey and Matt Watson dive deep into the next stage of funding for businesses. They talk about the do’s and don’ts of raising capital in the succeeding funding rounds. Drawing from experience, the Matts share tips on what to focus on when it comes to raising capital and how to use that acquired capital wisely.

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  • Raising money in the later stages (4:01) 
  • VinSolutions’ exit (4:46)
  • Established businesses (6:18)
  • Profitability at late stage (7:18)
  • The rule of 40 (10:11)
  • Full Scale’s financial challenges (10:39)
  • Changes in capital requirements (12:25)
  • Debt-option financing (14:37)
  • Venture debt (16:37)
  • Full Scale’s venture debt (21:02)
  • Setting metrics for later-stage investors (23:39) 
  • Raising capital to fund new products and ideas (26:04)
  • Pitching to investors (29:26)
  • Learning more about business funding (34:00)
  • Having experienced people on your side (36:11)

Key Quotes

When the rocket ship is flying, you’re just trying to hang on and hire people to put butts in seats and take phone calls and do work right. And that’s when it’s a lot of fun. But it also can be really crazy.

Matt DeCoursey

You’re raising capital at later stages because you’ve got an excellent product, you’ve got the team, you’ve got product market fit, you’ve got all of it. And you’re just trying to scale.

Matt Watson

You’re already a winner, right? But you got to have all that in writing, the numbers have got to backup the story. The investors are just looking to double down on that and continue the growth.

Matt DeCoursey

Let the money do the talking; big growth phase investors want concrete evidence that a business has the ability to transform markets. At this point, they’re not betting on whether or not you will be a success. They’re betting on how big you’re going to be.

Matt Watson

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Also, check out the other products and services of Startup Hustle partners.

Rough Transcript

Following is an auto-generated text transcript of this episode. Apologies for any errors!

Matt DeCoursey 0:01
And we’re back, back for another episode of Startup Hustle. Matt DeCoursey here with Matt Watson. I’m out. What’s going on, man? I’m thinking about raising a little capital. How about you?

Matt Watson 0:11
I think it’s time we take this podcast to the next level and do an arena tour. And we’re gonna need to raise some money for that. Like, we got to pre-pay for all these arenas, right?

Matt DeCoursey 0:22
We are definitely going to need capital if we’re going to do an arena tour during a pandemic.

Matt Watson 0:27
And I’ve seen your speaker set up, those look expensive. The wall of sound, yeah, we’re gonna need some money for them.

Matt DeCoursey 0:35
What Matt’s referring to is I made a joke. I actually got the schematic from the grateful dead’s wall of sound. And then I relabeled it to be the 2022 Full Scale Christmas party karaoke setup because we’ve had to cancel our Christmas party two years in a row. And I figured if I go bigger go home after that two years in a row. So yeah, by the way, if you want to enjoy the many, many laughs and bonus content, items that come out, come check out the Startup Hustle challenge on Facebook. There’s 2500 people in there right now. And yeah, we post videos and polls and a lot of other stuff there. Yep. How-to stuff, not a bunch of spam. It’s not self-serving. It’s a pretty good community. So come check it out. Now speaking of good things, Matt, do you want to let people know about today’s episode?

Matt Watson 1:30
Absolutely. Today’s episode of Startup Hustle is sponsored by Wix, helping you create a website you’re proud of discover the platform that gives you the freedom to create, design, manage and develop your web presence exactly the way you want. Go to wix.com and check it out. Can you believe they have like 200 million people that use Wix? It’s crazy. Blows my mind.

Matt DeCoursey 1:51
I know I think about they raise the

Matt Watson 1:52
money. I bet they got some funding. Holy shit,

Matt DeCoursey 1:55
Probably in all stages long. Oh, yeah. That’s what happens. Now, before we get into like raising money at the later stages. Let’s do a quick little review. Now, the last episode in the series. So this is part 46 of 52. And for those of you listening, I’m still trying to gain traction on getting my voice back. So I know hang on, let me drink some of this energy. Oh, there you go. Nope, didn’t help. No. So episode 45. In the series of 52 parts, there’s now we’re almost done with this thing. But we’re getting through it.

Matt Watson 2:31
Coming down the home stretch.

Matt DeCoursey 2:33
In the last episode, we talked about a time to quit. Now, this is the opposite of that. It’s time to go big when it’s time to write. Yeah, it’s trying to raise money or, well, this is another option for when it could feel like it’s time to quit. You need resources. Rocket ships to the moon require expensive fuel. So where are you going to get it? And we talked about, you know, you have all different types of stages of funding, you have preceded funding seed funding, a Series A, Series B, Series ABCDEFGH, just like all of them get into venture debt, and mezzanine financing all of it. What is the later stage man?

Matt Watson 3:21
Oh, man, you know, it’s all over the board. And so the focus today is supposed to be later stage. But, you know, here in Kansas City, raising like a seed round or a Series A seems to be a little different than say raising a Series A in like, San Francisco, they raised like a $20 million series, a round or whatever craziness. Or it seems like in Kansas City, if you raise like $20 million. It’s like series G. Like it’s just different. I don’t know how to say but the key here is you’re raising capital in later stages because you’ve got an excellent product you’ve got, you’ve got the team, you’ve got product market fit, you’ve got all of it right? And you’re just trying to scale.

Matt Watson 4:06
And honestly, this is where VinSolutions was when we sold it. We were doing about $3 million a month in revenue. We were making money, but we’d never had any kind of venture capital. We didn’t have any money in the bank. I mean, we were making money, but we didn’t have enough money to say hey, we need to go hire the next 50 People 100 People develop this new product go into new market vertical, like we couldn’t do any of those things. We didn’t have the money. We were like run around with our chickens with their head cut off, right, just trying to keep up with it. We didn’t we had no padding behind us right to help us. And that’s where the capital in the later stages comes in. It’s usually to help take to the next level right to go from like, okay, a $30 million a year company to $100 million company or a lot of times, it’s founders trying to take money off the table to like you’ll hear about so and so raised $100 million. You know what 80% of that might have been to buy out you know, series A For investors or the founders, and it’s secondary capital that people are taking money off the table to, they don’t ever talk

Matt DeCoursey 5:06
about that. But a lot of that is owner’s liquidity, there’s liquidity, that’s a…

Matt Watson 5:11
Big reason to take later stage, round two. And I never forget, we talked to Sandy Kemper from C2FO. And that is one thing he told me, he’s like, Hey, man, and every at every stage, you take a little bit of chips off the table, right, your your, your derisking, a little bit series, ABC, always take a little bit of money off the table as you go. Because you just never know, like, the whole thing could blow up later. And that’s a big part of raising money in the later stages as well.

Matt DeCoursey 5:38
So when we say later stages, we’re just gonna say established businesses. This is usually like, often growth capital, but there are other reasons that this stuff comes back, you know, and like, there’s I don’t know, much like snowflakes. Every every business is different, has different needs. It’s got just all of its different. So, you know, businesses that make it to things like Serie C, are usually pretty successful. What word is discussed today, is this, these are the situations where, well, when you’re in an early stage business, you get pissed off that you’re not at this stage, because you’re like, no one will give me money when I need it. But when I Why would I need it? When I’m already super profitable, rather than ever reason. So all right, so when we talk about like, raising money at this stage, I think you’re gonna start by showing that your revenue is going to outpace your current expense structure. And that’s why you’re bringing the money in

Matt Watson 6:38
At this stage, some companies could be profitable, or they may not be profitable, right? You know, it depends on if they’re partially owned by private equity, or kind of who owns it and what the corporate goals are. And it could be like, Look, the company has to be, you know, at EBITA, breakeven, like you can’t lose money, but we’re willing to invest, like, depending on these companies, as they get to these later stages, could be totally different, you know, mindsets and how they’re run, some are just like, look, we’re gonna burn cash like this is rocket fuel, go acquire as many customers as possible, we don’t care if the company ever makes a single dollar in profit. And then you have some, they’re like, look, no, we’re gonna give you this money, because we want you to take this product and develop it into a new vertical or whatever. But the company should be profitable. Like it’s just all over the board.

Matt DeCoursey 7:28
And well, in some cases, like you mentioned, VinSolutions, for those of you listening, you know, Matt and his partner sold that business for 150 million bucks. But you’re looking at a business that’s, you mentioned, having $3 million a month in revenue, and you don’t have Jack in the bank. Nothing. And you know, some of that to like that. I mean, here’s the thing is one that will stifle your growth. And also, it’s risky. Yeah, during that case, you could have been in really, really bad shape. Yeah. Yep. How many employees? You guys have an exit for? 500?

Matt Watson 8:02
I think we’re close to 300, something like that. I mean, we in that company now, it’s 500. Yeah, at least over 500. Yeah. Yeah.

Matt DeCoursey 8:12
So Matt mentioned the term EBIT off for those of you that might not be familiar, that stands for earnings before interest, taxes, depreciation and amortization. That is not the bottom line. Now, it’s not beneath, and different does this is to are gonna get like, so Matt and I, on Full Scale, go to FullScale.io If you need help with software developers now, so what we do now, that’s a tech services business, that’s gonna be a completely different approach and Outlook, not only from a management ownership perspective, that as well as an investment standpoint, so like, EBIT, ah, really matters to us at Full Scale, like a whole lot. Where it because we, we aren’t a 10x valuation software company. So we need to be, right, yeah. profitable and like, and there’s an acceptable range for it not being profitable, and there are acceptable reasons for it not to be profitable, like, here we are in 2022. If we decided to not be profitable, that’s because we were plowing all of our profits or positive revenue back into future growth. Yep. That isn’t that is a potentially acceptable reason for eliminating your EBIT, ah, as opposed to hey, we’re just here we are four years later. And we’re trying to make $1.

Matt Watson 9:31
And by the way, there’s a great terminology for this, they call the rule of 40. To consider to where if you’re a high growth startup, you should be growing 40% a year, or the combination of your growth rate plus your profit should be 40. That’s your goal. So if your profit is 20% a year, like EBIT margin is 20% or whatever, plus your growth rate is 20. You’d be at 40. And so that’s another kind of rule that they use is that rule of 40?

Matt DeCoursey 9:59
Is good Nursery mount, Full Scale grew over 40% last year. Oops, while being Bravo, you heard it, you heard it here first. All right. So, you know, when you’re looking at raising money as well, you got to look at things,, don’t hold back on capital expenditures, you know, expenditures, you know, these kinds of capital investments can be amortized over a long period of time, but in the later stage, smart investors fully understand and expect that, you’re going to need to address some serious infrastructure needs to grow your business. And that’s like, that’s one of the things we’re dealing with at Full Scale right now, like we just went through a pandemic, where all over the world are trying to expand into other markets. And, you know, we have to look at that very carefully about where and how we spend money. And one of the things over this last couple years with the pandemic was, we had an office expense that we could have just basically decided to stop paying, and just let them come after us for the money, we chose not to. And then recently, a super typhoon hits the company, and the office became invaluable. And it kind of made me rethink some of the future because we did move to an all remote kind of thing. And I’m like, maybe we just don’t need offices at all, or whatever. And some of that was like, maybe we do, you know, maybe it was data smaller. It could be our Marmore, or just something I don’t know, um, you know, there’s, when you look at raising later stage investment, it’s because sometimes you need to be able to get the things that you couldn’t or wouldn’t normally afford without the money coming in, but are pretty imperative for you to be a big, big company.

Matt Watson 11:45
Well, and, and obviously, the type of company changes your capital requirements considerably, right? Like, our focus is more on tech companies, but think about Tesla for as an example, like, we need to build another battery factory, like a giga factory. Okay, we need like a billion dollars for that, please. Like, it just requires a lot of cash. Right. And maybe they can get that from banks even and almost do bank financing for that. That’s another option. You got to pay that back. But yeah, I mean, it’s it’s debt, right? Yeah. But it’s just tech companies don’t usually have physical assets that are buying that they’re, they’re leveraging and getting debt for like a factory, or se inventory. If you’re selling a physical product, you’re like, oh, I need money to buy the product, manufacture the product. For software companies, it’s usually for sales and marketing. It’s like, I need to hire a bunch of salespeople, I need to spend a bunch of money on marketing, I know what my customer acquisition cost, or I know what my lifetime value of my customer is anything about Netflix, and you know, you know, it was $7 a month, and you got your red envelopes in the mail back then, right. But all the advertising they had to do to get us to sign up for their DVD mail service. And you know, they weren’t making much money, but it was first to market, right? They want to, they want to buy customers, basically, they want to own the market. And they got to spend a ton of money on sales and marketing to get all the customer signed up. But they know the lifetime value of the customers is high, and eventually they’ll get the money back. But it takes capital.

Matt DeCoursey 13:17
Well, that’s where you see this, you know, Company X gets a $300 million investment at a 1.5 billion valuation and you know, it’s easy to look at that and be like, What on earth are downy 300 million bucks for but when you break it down? I mean, there’s a bunch of different reasons, there’s a bunch of different things that, you know, that could be now one of the things to keep in mind, is this kind of investment, like a Serie C or whatever, you’re selling equity, you’re not the alternative is debt-based stuff where you are paying that back. Well and we should talk about do you want the liability in the repayment go ahead go ahead man,

Matt Watson 13:57
Debt has become more and more of a common thing now like venture debt has become much more common. Stackify used it. Full Scale used it and then you’ve got people like cabbage and and others that aren’t the same as venture debt. But they’ve made it really easy to go online and get business loans like unsecured business loans that are debt. Usually, venture debt is paid back. A lot of it is revenue-based financing, where you pay back a percentage of your monthly revenue. Another one that’s common is based on your merchant processing. So there’s people like American Express and stuff, they’re like, Okay, we’ll give you we know you do a million dollars a month in American Express Billing on your credit cards, like we’re pretty sure we’re gonna get that money back because you’re gonna keep selling stuff and keep taking American Express. So we’ll front you a bunch of money. But then you just, you know, pay it back as a percentage of your proceeds like, hey, instead of getting a million, we’re gonna give you a 900,000 and we’re gonna keep part of it or whatever until you pay off loan. So there’s, there’s there’s some other creative ways to do financing and things out there that aren’t just equity. There are debt options out there. And we mentioned earlier, mezzanine financing, mezzanine was an option that VinSolutions actually considered where it was a mixture of of kind of debt, and equity both, it was kind of both cobbled together. That which was kind of crazy, it’s like, we had to give equity to them, they’d give us money, and we had to pay the money back both kind of felt like we were getting screwed twice. So that’s why we didn’t do it. So there’s different structures, all these things out there. But there’s, there’s a lot of different options. And private equity is another option that we didn’t have on our list. But where it’s like, Look, we’re not selling the whole company, we’re selling part of it, we’re bringing in private equity. So like, maybe we still maintain control, they’re a minority owner. But now we’ve got a financial partner that’s really backing it.

Matt DeCoursey 15:57
Well, let’s talk about venture debt for a second too, because I think that’s something that a lot of people aren’t familiar with. And honestly, I wasn’t until a few years ago, so venture debt comes in different forms. Probably the more the more popular and mainstream is RBF revenue based financing. Yeah, where they’re gonna say you, here’s a million bucks, and we’re gonna take 4% of your revenue, until that’s paid back. And there’s some tears and that you can, why don’t you give a little outline of what that looks like? And like, why that why that was a decision that you made in the past?

Matt Watson 16:33
Yeah, we looked at it because it was hard to raise equity, right? Like we if we were gonna go raise a million couple million dollars or whatever, that’s kind of a hard number to raise, like most people want to write smaller checks are much bigger checks, we’re kind of in the middle there where it’s harder to get investors. And then frankly, our numbers just didn’t line up. Like as far as like, we didn’t have the perfect, you know, customer acquisition cost and, you know, margins. And we weren’t profitable, we were burning cash, like, we just weren’t like this perfect company that somebody’s gonna throw $10 million at in a Series A or Series B or whatever. So venture debt was a great option for us to go raise 500,000 million dollars, a million and a half, 2 million, whatever it is. And these companies will let you kind of lever into it’s like, hey, we’ll start at 500,000 with one tranche. And then if you do well, and you hit your numbers, we’ll give you another tranche on another tranche, right? And that’s what’s great about it too, is you don’t have to go take $10 million worth of equity or whatever, if you don’t need it, and take all that dilution. Instead, with the debt, you’ve got to pay it back. And so

Matt DeCoursey 17:40
you keep the equity that you keep. Yeah, and I remember, I remember view laying on the couch of my office, which was not uncommon. By the way, if you work with Matt, and you have a couch in your office, you can count on him probably laying down on it. Like for about 80% of the day. Yeah. And the other 20%, he’s just circling the office looking for a different…

Matt Watson 18:03
couch pretty much. Sounds like you’re getting concerned about getting coffee.

Matt DeCoursey 18:07
No, but you sitting there, yeah. And he never brings it back. He’ll just go and get a coffee, and then for himself, and then come back and lay on your couch. And you’re kind of like, Dude, can you bring me a coffee? Nope. But or No, I don’t know. Yeah, that’s hopefully in 2022. Well, we don’t have an office with a couch in it. What would you do we have an office with a lot of couches in it, but none of them are in an office. So to follow on with what what we’re talking about why you want to you’re like, why would you take a million bucks, and you want to pay it back? Because the equity that you would have given up is going to be worth way more than then than the money that you would have sold equity for. And that’s a pretty easy proposition. Another thing too, is, like Matt mentioned, the path to the deposit in your bank account is is a lot less treacherous.

Matt Watson 19:01
Well, that’s because it’s debt, they’re first in line, right? So they know that worse comes to worse, the million dollars or whatever debt you have is the first thing that has to be paid back. Where if you’re an equity holder, you know, you’re you’re behind the debt. So if you’ve got a company that on paper, you know, based on standard valuations like okay, this company is worth arguably 5 million 10 million, 15 million, whatever, they’ve got revenue and all this stuff, like giving them $500,000 In venture debt doesn’t seem quite as risky, right? Versus plowing $5 million into it and becoming, you know, and buying equity that has higher risk portfolio to it. And honestly, these companies that are doing venture debt, the one we worked with, I later invested in them. So I’m actually a an LP partner in that firm now, and their internal rate of return for their investors was about 25% a year. So that’s a really good return for their invest jurors, and honestly, it’s probably not too different from private equity, like I’ve invested in private equity groups rounds before. And their rental returns are usually 1520 30% a year. And so the people that are doing the venture debt are getting similar rates of return with perceivably less risk because it’s debt. So it kind of works well on both sides is the point.

Matt DeCoursey 20:22
I want to I want to talk for a second about a different kind of venture debt. So this is why we did it Full Scale. And you mentioned Sandy Kemper earlier. So Sandy Kampers, the CEO and founder of C2FO, which is I don’t even know what that company there. That’s a unicorn. At this. Sandy’s, Sandy’s been an amazing mentor and friend to both Matt and I Full Scale stack by pretty much everything we do. And, and thank you, Sandy for that. But it was actually, you know, we had, that was one of the things that Full Scale, we didn’t really know, well, we were having a hard time putting a value on the company, you know, and we didn’t want to, we didn’t want to sell the company sell a bunch of shares at pennies on the dollar. And I actually emailed Sandy, I said, Can I just bend your ear from it and said, Sure, come on over, I was like, okay, so I went right on over to his office, and he’s in talks with regime, Madison said, you should create a venture debt pool. And in the basically, in the end, the the, what that is, is we created our own loans. And, you know, we did $750,000 worth. And we got that all really quickly, from friends and family. And it was an amortization kind of loan, and we paid a percentage return the payment goes out to them every month, and pay the money back. And that’s how that goes. And that can be a very, it’s a win win. One, if you have believers and people that, like what you do, you know, and that means you then have lenders and not investors. It’s different. So you know, and that’s it.

Matt DeCoursey 22:00
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Matt Watson 22:56
They raised some money to

Matt DeCoursey 22:59
200 million. Okay, so something in here is working. So yeah, that’d be a good metric to tell later, a later-stage capital investor, how many users do you have? We have 200 million,

Matt Watson 23:13
all of them.

Matt DeCoursey 23:15
Yeah. That’s about how many people to give you some contacts. That’s about the same number of people that in all of the United States that are a monthly user of Facebook. Holy moly. That’s crazy. Crazy, right. All right. So you know, back to back to like, why raising capital in later stages. I mean, one of one of the things that a lot of companies do is they’ll raise money, because their current business model is generating revenue, insert and servicing clients and specific vertical or however it is they do it. And they have they realized, and they know that they can, they can create their own verticals, they can expand, they can find new potential streams of revenue. However that might be or however that looks, but in order to do that, they kind of have a startup inside their own startup. And they don’t want to rob Peter to pay Paul, they don’t want to. And this is where you got to be careful, because we’ve talked so much about entrepreneurial ADD and distractions and stuff like that. You can create a little side stuff in your business thinking you’re going to expand it and then it doesn’t go the way that you wanted it to. And now you’ve got a boat anchor attached to your speedboat that was cruising pretty fast. And now all of a sudden, you’re like, wow, what did I do here?

Matt Watson 24:36
By the way, Wix raised $58 million before they went public. And they did a series D round was their last round. So it was a D Yep, they went all the way to D.

Matt DeCoursey 24:48
Yeah, and once you go public you don’t really that you’re in a different world, you’re gonna get different types of financing, but you sell shares. Yeah, I mean, that’s basically what that is. So that

Matt Watson 24:58
answers the question. Yeah, I love.

Matt DeCoursey 25:02
By the way, that’s the 50 million bucks sounds like a lot of money for a company the size of Wix. That’s that’s the they did it well

Matt Watson 25:10
says when they IPO they were worth $600 million. million $600 million. Yeah, that was a while ago, though. Yeah, it was 2013.

Matt DeCoursey 25:21
Yeah, probably a whole lot more than that. All right.

Matt Watson 25:24
Well, I love what you just described of companies that raise money and to kind of fund a new idea, a new product, you know, attacking a new vertical, right? Like, that’s a great way to grow a business and invest in yourself, but kind of almost spread the risks you right, and I have, that’s why I believe Autotrader required VinSolutions they’re like, Okay, we do an auditor does online ads, but what happens to that business? What if Craigslist kills this business? Maybe we should buy some other things and diversify. Right? So that’s another good reason to raise money and to do acquisitions. A lot of people raise money, I was gonna

Matt DeCoursey 26:04
say maybe acquire acquire a competitor, and yep, found the market out just boost things, you know, and other ones, too, is is focusing on markets where you may have attained or you feel like you have some maturity? Yeah. Yep. Hustlers at that point, customer acquisition becomes a much well, it will use a real life example. Alright. So Full Scale. About half of our clients are here in Kansas City. Why? Because we’re here in Kansas City. We know a lot of people here. Yep. And, but But with that, we’re pretty deep down in the bucket. So you know, looking for new people and doing stuff like that, if we wanted to reach them, or go out and get them. We’re gonna have to do some things that are a little outside of the range of what we normally do, which is word of mouth referrals, Startup Hustle, stuff like that. And maybe we’re like, Okay, we got to spend a whole lot of money in our own market. And then that might require a different type of capital, or we want to make Okay, another one is, maybe you want okay, so most of our clients are in the United States, right? Yeah, maybe but but we and we have quite a few in Australia. And we’re like that we look at Australia. And we’re like, wow. But that’s on the other side of the world, like we might have, we wouldn’t say we need to have some people over there to not open eyes there.

Matt Watson 27:30
And honestly, actually, an even better example would probably be if we said with Full Scale, it’s like, we want to go focus on the Japanese market. Because we don’t speak Japanese. So let’s start there. Right. And like, we might need to go hire a couple people that live in Tokyo that we’re salespeople and whatever. And, you know, we’d have to have money to fund that right now, for us, like hiring people is not not a big deal, probably. But for some of these other companies we’re talking about, they’re like going into a new market might mean hiring dozens or hundreds of people. Right? So

Matt DeCoursey 28:03
well, I’ll give you an example. So you know, Austin, Texas is booming right now. And you know, like big time. And with that. So Facebook, literally just so they’re building a new like the, the tot the new soon to be the tallest building in Austin downtown. Facebook just agreed to lease the entire building. Oh, wow. Now, they might not be raising capital for that. But that’s a good example of like, the kind of stacks of cash

Matt Watson 28:36
will match me employed people, you gotta hurry to fill that thing up? A few. Is it more than one? Yeah, more than a trillion.

Matt DeCoursey 28:46
Okay, so when it comes to this stuff, and you’re trying to raise money, I mean, let the money do the talking, you know, and like, I mean, big growth phase, investors want concrete evidence that a business has the ability to transform markets, you know, and that, I mean, this point, they’re not betting on whether or not you will be a success. They’re betting on how big you’re going to be.

Matt Watson 29:08
Yeah, you’re doubling down at this point, right? Like, you’ve got to have all of your proof of your customer acquisition costs and lifetime value, and like all these different metrics that you would expect, and you’re already a winner, right? But you got to have all that in writing, the numbers have got to backup the story. But the investors are just looking to double down on that and continue the growth.

Matt DeCoursey 29:29
So you know, this next thing is something that’s pretty important. And you need to know like, at this point, also, I mean, when you get into serious rounds that have letters in front of them, you need to be prepared to be, you know, so one of our advisors along the way was my friend Greg Crowder, fell who is a well known startup attorney. And you know, I remember him telling me specifically, it’s like, you don’t ever put a round with a ladder on it unless you’re, you’re ready to sell 20% of the shares. You know, so boring below that is a little low. And the question is why it’s because because the people that write checks that are this size, they want skin in the game, they don’t want to buy 1%, they don’t want to buy 1% now

Matt Watson 30:12
worth their time, they’re not going to show up for a board meeting for something they have 1% of

Matt DeCoursey 30:18
I talk to investor type folks a lot, either through Full Scale, and this isn’t because I’m seeking investment, it’s because they’re on the podcast, or they have, I don’t know, they want to recommend us to some of their portfolio companies or something like that. And, you know, it’d be all I always ask us, uh, you know, what, what kind of checks Do you guys like to write? And I mean, it’s not I was on a call two weeks ago with someone they said never less than 20 million, and never more than 50. That’s a lot of money still, you know, and it’s

Matt Watson 30:51
takes just as much effort to do due diligence and all that to write a $2 million checks that does a $20 million. Check. So yep. Yeah, that’s how I prefer to write the $20 million checks.

Matt DeCoursey 31:03
You do? Yeah. When can you come by?

Matt Watson 31:10
I’ll be why later.

Matt DeCoursey 31:13
All right. So I mean, but that’s pretty, that’s pretty common, you know, 15 to 25% of shares need to be offered? It’s, you know, I don’t know. And you got to be serious about getting some serious money on at that point.

Matt Watson 31:31
And money, money, man.

Matt DeCoursey 31:34
All right. So Matt, as a quick reminder. Once again, today’s episode of Startup Hustle is brought to you by Wix, where you go, when you want to create a website that you’re proud of discover the platform that gives you the freedom to create, design, manage and develop your web presence exactly the way you want. Go to wix.com. And check it out. Once again, you know, thanks Wix for being one of our newer sponsors here on Startup Hustle, we definitely appreciate that. And for those of you that are, you know, getting something started, I mean, that’s a great, great place to go get a website. I feel like Matt Watson may have built a Wix website, while we were recording these last couple episodes, because Matt’s pretty clever like that.

But well, I was gonna say, this is a guy that really knows how to write code. But you don’t always need to write code, some guy. Now it’s a sophisticated world of being able to set this up and want to say one other thing with us. And if you spend time with me, you’re eventually going to hear me say, you need to look like you’re in the business of doing whatever it is that you say that you’re doing or want to do. We I literally exclude people who email me about being Full Scale clients from Gmail addresses. Because if you don’t even have a website, you can’t even email out at your domain, you’re not ready for what we do. And just think about that, like you are not representing yourself. There are tools like Wix that are going to get you right on top of where you need to be. And they’re sophisticated. They’re used to dealing with your unsophisticated person on some levels and get helping you get something online and sometimes building a basic website is a lot harder than you think it is. Without tools like that.

Matt Watson 33:16
Makes you look like you’re legit.

Matt DeCoursey 33:20
Legit, you know what, I’m not legit, legit to quit. I’m not too legit to quit, because I’m gonna keep going. Wait, wait, I am too legit to quit. Because we’re back into serious? I don’t know. You know, man, I think as we kind of a lot of this funding stuff. If you’re listening, it’s okay to it’s a little confusing. I mean, a lot of us you get into ANGEL rounds precede seeds and series A and venture debt and mezzanine financing and revenue based funding and like, you’re like, Oh, my God, like, where do you start? I will start with getting I mean, look, there. We have probably at this point, done an episode on everything I just mentioned. Yeah, there’s a world of free information and people talking it through with you. At some point, Matt, neither Matt or I got it. And then we either did it, learned it, figured it out. And that’s what you need to do. Because if you want to get yourself into these funding conversations, you got to have a basic grasp on what you’re doing. Because you might get yourself in a bad spot, if you don’t know what you’re doing. And also, I think just to make the most informed decision possible, you need to understand what all the options and avenues are.

Matt Watson 34:32
Well, hopefully, if you’re in this later, the later stage like we’re talking about, hopefully, you’ve already done a couple rounds and you know what you’re doing and you’ve got the right advisors, you may have a CFO, you know, you’ve got probably a board. The great thing about a good attorney. The great thing about raising venture capital, is you have now people you have people that are now invested in the fact that helping you raise more money, right. So when you have that series A and you have Series B you’ve got Got some institutional money, you’ve got people that are willing to help you go get the next money, right? Even they may invest it themselves. If not, they know people that they may partner with, like, hey, we write the million dollar check and our friends down the street, they write the $10 million check. So we’ll bring them in now, right? And so the good news is, you’re going to have help in the later stages, and you probably are going to have a CFO by then I would hope to,

Matt DeCoursey 35:26
Well, you probably won’t get the money if you don’t.

Matt Watson 35:29
If you’re talking big money. I mean, I’ll take it out, no one’s gonna write you.

Matt DeCoursey 35:31
No one’s gonna write you, Watson isn’t gonna write a $20 million child, he doesn’t feel that there are adequate management and accounting people there. And yeah, on the couch, what is your use of funds, I’m gonna spend 90 million on couches, in coffee, and 1 million on 1 million growth. And once we get on coffee, there you go. There you go. And where could that go? Wrong? Every step of the way, sir, every step of the way? No, ma’am. When I look at, I look at a lot of this stuff. And I mean, the reality is, is most people don’t get into these conversations. Now, let me know why this is this is this is very, this is. And so with that, you know, one of the things that has been refreshing and helpful to not only be a business partner with you at Full Scale, but also hosting these shows with you, man is, is you have navigated this territory, with multiple different businesses. And one of the things I think is really important is you get people around you that may already have that roadmap. Because I think that it says a lot about your company because you have the experience. But I also just think it will make you feel a little better. I am not afraid to ask Matt Watson a stupid question.

Matt Watson 36:53
With everything in life, you don’t know what you don’t know, right? I mean, nothing frustrates me more. When I’m at the store with my kids. And they’re acting like crazy assholes. And you got somebody telling me how to parent my kids, and they obviously don’t have kids. And I’m like, just shut up, right? And there are so many things about life that you don’t understand until you go through them. Just like having kids. Like nobody can appreciate what it’s like to have kids until you have kids, you read every book in the world, every blog post every mom, none of that matters. So you have kids just shut up, you know, no thought about it. And it same thing with like raising money and navigating all this stuff until you’ve been through it, you just will never understand it. And when you’re doing this, you want to have people on your side that have done it before that, that understand like, the little things in the term sheet, they’re gonna screw you, and all the little differences and details and all that different stuff and how to negotiate it and all that and experience goes a long way.

Matt DeCoursey 37:48
It really does. And, you know, that’s I mean, that’s, that’s important. So, all right, Matt, so we’re gonna get back after this. Well, we’re hoping to get the series done. Now. What by the end of 2022?

Matt Watson 37:59
Yeah, yeah, maybe.

Matt DeCoursey 38:02
Next more. So no, no, we’re gonna try to get this down. Hopefully, my voice comes back because I know that’s the brighter part of many of your days.

Matt Watson 38:13
yeah, I missed that second so…

Matt DeCoursey 38:15
He’s smooth nature. Oh, yeah. So all right. Well, I’m gonna get out of here so I can let that healing begin. See you next week. Matt.

Matt Watson 38:21
See ya.