Ep. #1007 - The Real Story of Getting Funded

00:00.00
Matt DeCoursey
And we’re back, back for another episode of Startup Hustle. Matt DeCoursey here with Matt Watson. Hi, I’m out trying to get funded dude. How do you do, man?

00:06.95
Matt Watson
What’s up man! You don’t have a chance. Nope, I’m looking at statistics.

00:16.11
Matt DeCoursey
The statistics of getting funded, what does that have to do with me? I’m not a statistic, I’m a real live human.

00:18.42
Matt Watson
Yeah.

00:25.32
Matt Watson
Ah, well, we’ll see. I want to hear your pitch.

00:28.97
Matt DeCoursey
But I got this idea that I don’t have any competition. And I’m positive that I’ll be able to get like 50 to 80 percent market share in 3 to 6 months so I’m pretty sure people are going to want to throw money at me.

00:36.63
Matt Watson
Ah.

00:46.49
Matt DeCoursey
Yeah I want to talk about it. I think you might change your mind about me getting funded. I think we acknowledge that getting funded sucks. When we started the podcast series that was the title of episode 2, powered by fullscale.io much like today’s episode. Because Full Scale wasn’t a thing then but it is now. And hiring software developers is difficult, Full scale can help you build a software team quickly and affordably. And it has the platform to help you manage that team. So visit fullscale.io to learn more.

You know Matt, so many startup hustle listeners have gone to Full Scale and filled out a simple form. And 2 minutes worth of questions and we’ll be able to match you up with people that can hopefully solve your technical problems and make your technical dreams come true. And maybe that will result to getting funded. But Matt, when you think about the real story of getting funded, what comes to mind other than the fact that we know it sucks?

01:39.96
Matt Watson
I mean it usually involves begging friends and family for money and using mastercard and visa. That was my experience.

01:48.28
Matt DeCoursey
Yeah, well, we’ll come back to that because you’re actually right about that because most people think that getting funded means bringing in actual investors and in the earliest stages it usually doesn’t why because the real story of and of of getting funded is that.

02:05.96
Matt DeCoursey
A lot of the money out. There’s a lot of people looking for money. There’s a lot of people that write checks and provide that money but it comes in different shapes and forms. And inherently when you have an idea on the back of a bar napkin. That’s not usually fundable by other people but it is certainly fundable by yourself and other folks. Ah, did you actually have outside money at any point at VinSolutions which by the way if you’re unaware that was a company that Matt was involved that had a rather large exit in 2012.

02:43.31
Matt Watson
So yeah, so we started that company in 2003 and it was completely bootstrapped at some point in time like two or three years later ah a friend slash customer I think. You know might have put in like 100 grand or something like that when we really needed it and then at 1 point in time we sold off part of the business that we didn’t want to do anymore. It had to do with like a service part of the business and I think we got like another hundred grand for that. So we built we built we built.

03:08.71
Matt DeCoursey
Pretty light, pretty light. Yeah.

03:12.55
Matt Watson
We built a business that did 30000000 a year in annual revenue from I guess 200 grand of total investment that was not my Mastercard or visa.

03:19.85
Matt DeCoursey
Yeah, when it’s all said and done that led to an acquisition of roughly one hundred and fifty million bucks so congratulations on that again, but you there’s you know so here’s the fact so we’re going to tell a real story and and with that I want to give a disclaimer. We’re not trying to be negative about.

03:24.69
Matt Watson
Yeah, yeah.

03:37.53
Matt DeCoursey
Getting funded. We’re trying to be realistic and we’re trying to be honest and tell you what you can expect. So I don’t want the comments that we make today to sound discouraging or negative for those of you that have dreams but ah, but here’s the thing our goal and our experience is. Going to hopefully be useful and help you avoid wasting your time potential pitfalls and then there’s shit falllls too. That’s like getting yourself in a shitty situation. You don’t want to be in now here’s the fact high potential startups attract the most investors. But that capital does come with a caveat. They become your business partners or own part of your business and the real numbers on this is point zero five that’s point zero. That’s a right.

04:21.58
Matt Watson
That’s one in 2000

04:24.83
Matt DeCoursey
Actually raise venture Capital now look getting funded comes in many shapes and forms and in the earliest stages ah is almost always things like personal savings right? I have an idea I’m sure I That’s how it started for me.

04:38.74
Matt Watson
Yep it. So it totally depends on type of business right? If you’re like I want to start a lawcare business or whatever you’re like hey I need enough money to go buy some equipment in a truck or whatever. It’s not a huge capital expense. But if you’re like I want to go buy. Ah. I don’t know create a software company or buy some big building I need or whatever it is for some other kind of business. It can be very expensive and even opening a restaurant now is extremely expensive, right? You like need a grease trap and all this expensive bullshit I mean just been a hundred twenty grand they’re very expensive.

05:09.41
Matt DeCoursey
I think restaurants on almost any level are hyper expensive and that’s that’s why things like food trucks which are still expensive I mean that’s still like ah in many cases, a 50 to one hundred and fifty thousand dollars kind of expense and.

05:15.69
Matt Watson
Yeah. Yeah.

05:23.60
Matt DeCoursey
And you know, let’s let’s define startups a startup is a business that doesn’t come with an owner’s manual by my definition. But in this case could also be like opening a subway franchise or something like that. Your reality here’s the thing. It’s starting a new business from scratch. When I define what a startup is like a franchise comes with an owner’s manual and and ah and an 800 number startups. Don’t you’re usually figuring it out. But I think that a lot of the information we’ll talk about and share today will apply to both now. Um, so we’ve got a list here with some statistics of where startups getting funded and and the top of the list is that makes me makes me honestly question the data a little because it says banks and other loans 35% but here’s the reality banks do not give loans to Brand New businesses I e startups like hey I’ve got an idea here’s my plan I’m going to build this software platform and I need a million bucks to do it unless you have a hell of a lot of collateral to back that loan up. You don’t have a shot at it now if you do have collateral you you can probably if you you can probably get a loan.

06:21.84
Matt Watson
Um, yeah.

06:32.37
Matt DeCoursey
However, you want it. It might not be at the rate or the terms that you’re looking for now. So but the other loans I mean that can that can be a lot of different things so you know, but but please know I’m back into that. Don’t waste your time thing if you have a tech startup that has no tras and no revenue. Nothing don’t bother with the bank.

06:49.14
Matt Watson
Well, and yeah.

06:50.25
Matt DeCoursey
I mean that you have 0% chance they wanted to give ah ah most software companies alone that aren’t profitable on paper yet.

06:58.14
Matt Watson
Well and you got to be careful. You don’t want to just get a second mortgage on your house and cash out your 401 k and all that kind of stuff which people do and I ah one company I invested in as an angel investor a couple of the founders did that actually they cashed in their four one k and there was some like special government thing for that that.

07:01.91
Matt DeCoursey
Um, yeah.

07:15.91
Matt Watson
They could take advantage of and they’ve been really successful the companies exploded So nice.

07:17.27
Matt DeCoursey
I did Matt I did that Jill and I did that when we were building gigabook before you came in before you came in and partnered with us because you are and look this isn’t financial advice because we’re not qualified. We aren’t not financial advisors. We’re not. Ah, dealer or brokers of that kind of services but there is you can reshape your retirement savings into reinvesting into stock or stuff like that and ah, you can repurpose some of it.

07:43.50
Matt Watson
Who.

07:48.84
Matt DeCoursey
And and you know do it with your your retirement savings meaning you can take a 401 k which if you’re not fifty nine and a half years old. You have to pay a bunch of penalties on so you can avoid those and that is I don’t honestly even want to get too far into that because that’s complex. You’re going to need.

07:56.76
Matt Watson
Bright.

08:05.27
Matt DeCoursey
Ah, financial advisor and an accountant so advice but you can you can do it. But next on the list is personal savings and this is the one that is I think is 100% because mad all the businesses I’ve started are involved in now definitely started with some level of personal savings. This is easily.

08:17.21
Matt Watson
Um, yeah.

08:23.49
Matt Watson
absolutely absolutely yep definitely did that 1

08:23.88
Matt DeCoursey
The most common bet on yourself if you want this is that’s really what that comes down to you? Yeah, be careful though, do be careful like and Matt like Matt said like taking the second mortgage out on your home or putting your life savings in I mean it can be hard to get that back. I mean the real story of getting funded in startups in general is you have a much greater chance of failing than succeeding, which is part of why it pays richly in the end for many of us. Um, so just know it.

08:46.98
Matt Watson
Yeah.

08:56.40
Matt DeCoursey
Ah, but yeah, that’s the easiest path. Why? Because it’s your money. You can make your decisions with it and quite honestly I think that when you’re using your own money for a lot of people that’s well that’s a huge stressor and for others, it’s a big driver.

09:12.39
Matt Watson
Wait. It’s very stressful to use other people’s money. That’s for sure. Absolutely yep. Ah.

09:13.54
Matt DeCoursey
Next on the list man friends and family I don’t like the family one I’m just being being honest I have overwhelmingly avoided that part.

09:21.81
Matt Watson
No.

09:32.37
Matt DeCoursey
Because here’s the thing if you fuck it up, you gotta see em at Christmas and Thanksgiving and whatever and I’ve I’ve been exposed to a couple situations where parents or sisters or cousins took a brow beating because they invested in and and.

09:36.19
Matt Watson
Yep.

09:51.21
Matt DeCoursey
And their kids or their family or whatever just be careful with it right? Just be careful with it.

09:55.51
Matt Watson
What’s I mean it’s hard because you also want your family to be successful right? So if you’re doing something and there’s going to be a lot of reward from it. You’d rather spread that reward around to the family but it’s also balancing the risk associated with it. So.

09:57.72
Matt DeCoursey
Um, yeah, nothing.

10:07.35
Matt DeCoursey
I have had friends and family in on things but they were They weren’t like the initial day one kind of stuff as an investor it was later that there were things that it was really more so things where we were leveraging different financial things.

10:13.91
Matt Watson
Um, yeah.

10:26.92
Matt DeCoursey
And I just wanted them to benefit from it too because why not you know, given given money to if you if you’re if you’re ah know that it’s going back I’d rather give that interest to someone else than maybe the first bank of who of wherever okay the next next one This is my favorite.

10:36.30
Matt Watson
Yeah, yeah, absolutely.

10:45.35
Matt DeCoursey
Credit cards. Um, if you’ve read my book million dollar better which by the way dude I just reduced the I I don’t care about making money on that book and it is ¢99 on kinddall right now and that’s the permanent price because I’d rather that’s the that’s the cheapest that Amazon will let me make it.

10:54.75
Matt Watson
Okay.

11:04.53
Matt DeCoursey
Both of my books are because I’d rather have you read it I want it’s you’re $10 people. It’s not as valuable to me as that ¢99 is going to be for you if you read it but I started my first business in the extra bedroom my home with no money. I was like the worst time in my life I had a credit card with an $8000 limit and that really is truly where my entrepreneur journey began and everything we still do has roots to that original credit card in many ways. And if you are in the business of buying and selling things or like you mentioned like a lawn business or something like that mean you go buy a fricking lawnbower with a credit card and get started and and with that I leveraged my friends and family’s credit cards because I was a ticket broker at the time.

11:46.76
Matt Watson
Yep, Yep! absolutely.

11:55.94
Matt DeCoursey
And we were buying and selling tickets so we were paying the money back and everything and my friends and family benefited from a shit ton of points when I when I walked away from that business. My friends and family were like dude I mean I had one of my buddies tell me he had kids. He’s like I haven’t paid for a diaper yet.

12:03.35
Matt Watson
Yep Rewards baby.

12:14.62
Matt DeCoursey
Because he was using all of his points for stuff like that and so that’s an easy one once again, they’ll be careful because what we’re talking about here is Leverage leverage means.

12:14.97
Matt Watson
Um, oh Wow yeah.

12:26.21
Matt DeCoursey
You’re using opm, other people’s money, to get where you want now that can be a very powerful principle but we’re on the wrong side of that lever and it breaks or doesn’t move the object. It can be ugly is that fair.

12:42.79
Matt Watson
It’s a lot of risk. Yep, especially if it’s at 20% interest

12:44.55
Matt DeCoursey
All right next? Well, that’s my point and right now you know here we’re recording this and and in the fourth quarter of of 2022 and and rates are the highest that they’ve been and my that I can even remember and they’re getting ready to go higher so all that stuff ebbs and flows with it.

12:54.13
Matt Watson
In a long time. Yep.

13:02.29
Matt DeCoursey
Right? next angel investors these are little tiny sentient beans that come down from the heavens with Halos and grant you cash right.

13:10.73
Matt Watson
Well that that I think the reason you would call them an angel investor is they’re usually investing at the very very earliest stage like before you know you’ve even built something you have no customers I mean it’s an idea. Oh I mean I’m an angel I’m an angel.

13:23.16
Matt DeCoursey
They’re not actual angels. They are a little bit in your world they will They will feel like an angel I think that’s why they call them angels So this has a lot of different meanings to some people you know an angel is like I I see it the same way as you.

13:30.60
Matt Watson
Yes, for sure.

13:41.90
Matt DeCoursey
Mentioned Matt some people will also refer to this as seed investors and some stages like they’re the earliest stage now look that comes with the highest risk for the investor because once again, you have yeah you haven’t proven shit at that point. So if you’re going to bring in angel investors just know that that’s a real thing and.

13:42.20
Matt Watson
Um, yeah.

13:49.54
Matt Watson
And the highest return.

14:00.68
Matt DeCoursey
You’re going to probably give up more than you might want later. But if you’re not going to get to step 5 without this being step 1 or 2 then it’s way it goes 5.8% of startups. Get funding from angel investors I agree with I think that number’s probably about right? Do you? Yeah well and so here’s the number that that this is conflicts with the the prior stats that we saw.

14:23.20
Matt Watson
I’m actually surprised it’s that high I mean that’s like 1 in 20 So.

14:35.15
Matt DeCoursey
And it says venture capital is for over four percent it could be yeah that? Yeah yeah, so as opposed to number of businesses. Okay, yeah, and then here’s the thing though we’ve had episodes about this. What the fuck is a startup.

14:36.80
Matt Watson
This might be the based on the total number of dollars. Not the percentage of the companies I think this is based on the dollars. Is where the money come from.

14:54.93
Matt DeCoursey
Because they were I were at the wall Street Journal this morning and it was referring to like they still refer to uber as a startup is we weren’t exist is that a thing I do too.

15:01.97
Matt Watson
Is we work still startup. I Think they still exist. Yeah.

15:12.38
Matt DeCoursey
You well speaking of funding did you see the former wework founder raised hundreds of millions of dollars and precede capital I’m like hey that zip hey you know what? I.

15:15.23
Matt Watson
Has a new thing for a mystery new thing.

15:25.23
Matt DeCoursey
I might I might have invested in Adam Newman I mean that dude’s experienced some shit man. He’s definitely. He’s definitely got a brand around it whether you like it or not all right and then the last one government related. So what is government where that’s at 2%

15:28.40
Matt Watson
Yeah.

15:37.69
Matt DeCoursey
Ah, man, there are a hell lot of grants programs a ton of stuff. Yeah, if you’re not aware. We record this episode in all 4 of our recurring hosts are in Kansas City we have things like launch Kc go to launch kc.org. They’ve actually sponsored this podcast a lot and they will. And November of 2022 give out. Ah there give though I work Matt you’re going with me whether you knew that or not there is an event where they will announce their quote cohort so they’ve got I think it’s 7 or 8 companies that they’ll give 50 they give them 50 grand all of them now look that.

15:59.98
Matt Watson
Yeah, yep.

16:13.45
Matt Watson
There’s a.

16:14.29
Matt DeCoursey
This is a real thing that’s non-dillutive capital in that case meaning it. They don’t become a partner that’s straight cash Straight cash. Yeah yeah, a lot you got to look for them and they’re not going to be fast.

16:21.58
Matt Watson
And there’s a lot of these types of programs all over the country depending on where you live based on the city or state level. So definitely look for them. Most people don’t know they exist.

16:33.92
Matt DeCoursey
Just know they’re not going to be fast. Yeah because they don’t get use Google and look for it. Um I mean there really is so much of this stuff around and then with that I also want to. There’s a lot of programs too that um are.

16:37.16
Matt Watson
Um, yeah.

16:48.99
Matt DeCoursey
Are hyper specific meaning like they fund female entrepreneurs or or ah or just any level anything. That’s a diversity I use air quotes. They’re kind of category or group them together and if that’s you flex it go for it because.

16:52.42
Matt Watson
Right.

17:09.66
Matt DeCoursey
That’s what it’s there for I think it’s awesome now look when you get some so the cool part about the government and these grants so we mentioned launch KC go to launch kc.org. You could be considered for that. We also have a thing here called digital sandbox which are $20000 grants um, there’s I mean there’s a bunch of stuff like that now the cool part about being involved in those things is that’s kind of like a boy scout or girl scout badge and it gives you some validation some street cred and there’s a lot of you have ah you have a high likelihood of getting a follow on now.

17:38.57
Matt Watson
Yeah.

17:47.98
Matt DeCoursey
There’s a couple of things too that aren’t government related. You have things like y combinator tech stars I mean there’s incubators accelerators. We went to a dinner the other night out of Columbia Missouri they’ are huge startups. Yeah scale hyphenvc.com Brett’s been on the show with with us before.

17:52.83
Matt Watson
Different incubators.

17:59.31
Matt Watson
Scale.

18:07.00
Matt DeCoursey
And that’s a seed that’s a seed funding mechanism and an immersive twelve week course that has people like Willie from equipment share. That’s a 2500 person company the founder of Zapiers involved with that zapier. That’s a megacorp man like it’s a huge enterprise I mean we’re we’re getting involved with it.

18:18.21
Matt Watson
Yeah, yep.

18:26.26
Matt DeCoursey
And this and so there’s some really cool stuff out there. But so Matt you know we’re talking about the real so funding. So this is where some of it comes from. But how’s funding work like how does it actually work. Do you just like hey dude you funded here’s your check good luck. Is it that easy.

18:41.16
Matt Watson
Well I mean sometimes with those grants. It’s that easy. Um, you know a lot of companies these days. Yeah, but it’s it’s harder grants are probably gonna be a little easier right.

18:43.82
Matt DeCoursey
Well, it’s not that easy because it’s an exhaustive process to get to it but when they say yes, they might be like here’s some money.

18:54.75
Matt Watson
Um, because you’re not giving up equity and stuff. But when you when you’re giving up equity. You’re gonna have to deal with doing some sort of convertible note or safe agreements which are real common these days. What you don’t want to do is spend an an amazing amount of money on a ppo or or whatever it’s called and all this stuff that nobody does anymore. But some lawyers gonna.

19:02.41
Matt DeCoursey
Wait I’m gonna do with that pay here on peak here.

19:12.83
Matt Watson
Might convince you to do that and charge you a fortune for it.

19:16.18
Matt DeCoursey
I’m Goingnna um’m going to decode your your your acronyms safe a fe note simple agreement for future equity. It’s a very common. Ah, early early stage form of structuring the investment so we see how does funding work. It does have to have a structure around it in most cases. Um and you know but I don’t know man so you know I owned part of ah I was an investor in a fitness equipment delivery company.

19:42.61
Matt Watson
Um.

19:43.29
Matt DeCoursey
That was just a straight transaction I just bought equity. There was no convertible note but be familiar with these terms. So convertible note means that turns it it actually at first is structured like a loan and then at some point there are things that would trigger it converting.

20:01.73
Matt Watson
As in and as an investor convertible notes are interesting because like I just said one recently and I’m getting 8% interest which is pretty good and then at some point time.

20:02.22
Matt DeCoursey
And to shares and those come of those triggers can be different in every situation as the.

20:13.50
Matt DeCoursey
Pretty good is that the same one I did yeah.

20:17.78
Matt Watson
Yeah, and then at some point in time I have the option of saying you know what? I’d rather just have my money back and have the interest or do I want to convert it into equity and I I maybe I might have the ability to say if I want to or not to or I may not depending on how they structure it but sometimes those are nice and they’re also debt. So if anything happens I have to get paid back.

20:23.98
Matt DeCoursey
First yeah and I i.

20:31.58
Matt DeCoursey
The first one but some head those in the night end up dead. So. First yeah and so that is one yeah of of debt based stuff within version of the re vertical notes saint for former.

20:37.56
Matt Watson
First and so that that is one of the pros of debt of of debt based stuff with doing convertible notes. The reason that convertible notes and safes are used a lot is when you’re starting out a company. It’s really hard to figure out what it’s worth and you could spend forever trying to figure out is this worth half million dollars million dollars ten million dollars wherever the number is and.

20:53.69
Matt DeCoursey
And it a thisran look they want.

20:55.89
Matt Watson
It just makes it easy for an angel investor to say look I’ll give you a $100000 we don’t really know what this is or what it’s worth or what it’s going to be yet. So we’re going to sign this safe agreement that says once we figure that out and we figure out what the valuation of it is later. This is kind of how I expect to be treated later.

21:12.80
Matt DeCoursey
Simplified version of that I want to invest in Matt’s company we don’t know what it’s worth I give him $500000 and we sign a very simple agreement that says that my that my price will. Reflect or reflect a percentage of the next money that comes in so and when ah, an investor comes in at a later round and these things often have terms like caps on them so in in this fictional agreement I give Matt $500000.

21:28.20
Matt Watson
Um, yeah.

21:37.28
Matt Watson
Who.

21:43.64
Matt DeCoursey
And the the cap would be a 5000000 valuation now what I want to see is Matt go to work kill it and then get a 10000000 admit money at a $10000000 valuation but that cap is the investor it protects me as the investor meaning I’m going to max that cap out and that’s.

21:52.38
Matt Watson
Yeah.

22:02.60
Matt DeCoursey
I will I would own roughly 10% 500 k into 5000000 is in that ballpark where the next. So the cap is there to protect the investor. There are also discounts on the downside in case, it comes in below. So.

22:04.88
Matt Watson
Yeah. I Got a discount. Yeah.

22:16.86
Matt DeCoursey
Um, and the thing I like about a safe note which is kind of a new thing over the last decade which is really a Silicon Valley creation well I think so yeah and I mean these are these are like a few pages not like complex shit and.

22:21.53
Matt Watson
It came out of y combinator right? I think it did there.

22:31.76
Matt DeCoursey
It’s intended to be fair and equitable for both parties and it’s really the main thing is it’s like hey I think we might be onto something but it’s not fair to you. It’s not fair to us to try to truly peg a value on that right? truly.

22:42.34
Matt Watson
Or spend thousands of dollars on legal fees trying to do a bunch of crap. So the safe the safe agreement you can just like go Google it and download a copy of it and use it doesn’t mean you shouldn’t have a lawyer doesn’t mean you shouldn’t have a lawyer but you don’t need to spend a ton of money on legal bills to do this.

22:48.21
Matt DeCoursey
Yeah,, there’s that safe remain than you? Yeah yeah, like for real’ not volume. Yes, doesn mean for real right? rightly? Yeah, like yeah yeah, and like once again that the lightweight nature of that you might be thinking? Oh do it is that really that big of a deal I Want to look. And these things get complex in a hurry and they get expensive expensively and we you.

23:10.53
Matt Watson
Well maybe you’ll spend a few hundred dollars on a lawyer instead of a few thousand dollars on a lawyer. That’s the that’s the key. Did they do anything for a few hundred dollars yeah

23:18.44
Matt DeCoursey
You’re my attorney. Do they do anything reviewer. Maybe do you? Yeah, okay, you’re not my attorney darrel our Ceo at full scale is on some days like. It’s I mean that you why because like we have to review a lot of documents agreements and stuff like that. It’s the struggle’s real on that one man. So okay, so you know we’re telling the real story. We’ve kind of outlined a lot of this stuff in the reality that comes with it. But how do you get it. Is is the thing that we need to talk about in the second half of this and what’s going to likely happen along that path so look when you go out to do this. The the people that you’re wanting money from I want to encourage you to come proper be prepared show. What the problem you’re solving how you’re going to solve it. What is that business like and then the important part of you got to demonstrate if you want if you want the best conversations and the best possibilities you need to demonstrate how someone how your investors are going to get a return on what you’re doing that the people.

24:24.60
Matt Watson
The problem is most people start a company and honestly none of them will ever raise money from Venture Capital because the idea is not big enough and so for example, when we had dinner with the guys from scale the other day so they’re.

24:29.61
Matt DeCoursey
And honestly.

24:36.17
Matt DeCoursey
Correct.

24:42.00
Matt Watson
They’re an incubator here in Missouri like you just mentioned. Definitely check them out but he told me he’s like you know what? we’re only looking for ideas that have the potential to be a billion dollar company so your little lawn service business. Not going to make the cut right.

24:42.10
Matt DeCoursey
Scale Hyphen Vc dot com will put a link in the show notes for that. Yeah, just could imagine.

24:55.10
Matt DeCoursey
Um, yep for business. Not yeah yeah, so it it. It’s not be because don’t think that.

24:59.78
Matt Watson
So it’s it’s it’s got to be a a company that can really scale to be really big because most venture capitalists have no interest in investing you know a half million dollars in something that maybe one day you’ll do a million dollars a year in revenue like that is like that’s peanuts to them. They’re not going to waste their time talking about it. It’s got to grow to be.

25:05.18
Matt DeCoursey
This Ah since I will have.

25:11.88
Matt DeCoursey
Um, me.

25:19.70
Matt Watson
Tens of millions hundreds of millions of dollars in annual revenue before you’re going to get and and attract that kind of investor.

25:23.97
Matt DeCoursey
Um, but let’s break that down for a second because we’re mentioninging a fund So what? what’s consists of these funds. Why were at dinner these people with these people that the fund managers and organizations ah go out and look for people that want to put their money into the quote fund.

25:40.39
Matt Watson
Yeah.

25:42.62
Matt DeCoursey
Knowing that that fund which will have a specific amount in this case, it was $5000000 that they were raising and they they were courting us as investors to put money in where Matt and I may or may not choose to do that but they also wanted some involvement from us. So it’s a value. Add there. Which is interesting and attractive to us because realistically that they’re going to do the the hardest work of going and finding. Let’s just say 20 companies to put two hundred and fifty thousand dollars into what we would get as investors. There is a diversity of portfolio companies that that.

26:15.65
Matt Watson
Yeah, yeah.

26:19.45
Matt DeCoursey
We’re hoping down the road end up getting acquired sold or something that money gets returned to the fund the fund will pay us according to what percentage of the fund. We put our money in at so $5000000 if we put in 500000 we may have 10% of the fund.

26:28.71
Matt Watson
And those.

26:36.13
Matt DeCoursey
Which yeah, so that’s the mechanics of how that works. Um, and I mean for me that’s attractive because it gives it’s ah it’s it’s in some ways like it’s similar to a mutual Fund. It’s going to have a diversified approach. So I’m not.. It’s not like just putting all that money in one company, you’re like God that better come in big.

26:56.25
Matt Watson
Well and the problem with being an angel investor from my experience is it’s It’s a huge hassle to meet with a bunch of potential to meet with a whole bunch of people to invest in due due diligence in them meet them decide to invest and then go you know, go through all that process.

27:00.20
Matt DeCoursey
Is he to do one. Yeah to do.

27:11.83
Matt DeCoursey
Both roll in a process where like.

27:13.34
Matt Watson
Where otherwise I can go to someplace like scale write them a check and then never talk about it over again and they put my money to work. Yeah.

27:18.86
Matt DeCoursey
Yeah, and like well or or maybe even be involved which for us like we do that anyway and that were attractive partners and involvement there because we’ve got stuff like this podcast or yeah and ah.

27:28.00
Matt Watson
But there and that’s why you have a lot of a lot of Angel Investors pull their money together in these kinds of funds because it’s It’s so much work. Especially if you want to invest say.

27:37.57
Matt DeCoursey
Yeah, um.

27:40.20
Matt Watson
$10000 each and 20 companies like the amount of work it takes to meet all of them and find all of them and yeah much easier.

27:42.22
Matt DeCoursey
Like yeah, oh dude that sounds at this point that sounds like a fricking nightmare like I mean that’s a lot of paperwork. It’s a lot of coordination and here’s the thing is like from an investor side of things like. If you’re going to get an investor or get funded. You need to give strong consideration to like do you want that person involved. Do you not want them involved like what does that mean because some people are going to want do and we don’t have to name him. But do you remember when we had a a guy come in that wanted to invest in full scale and he’s like yeah but I’m going to come here and work.

28:03.87
Matt Watson
What value do they bring.

28:15.36
Matt DeCoursey
One day a week I want to get paid I want to be involved and we were like I don’t know if you’re the rights that for what we do. So yeah.

28:17.56
Matt Watson
Yeah, no, oh no, ah we didn’t need a babysitter.

28:28.10
Matt DeCoursey
So by the way I want to expand on this too because we’re actually participating in a really interesting event and we did I did a podcast called midwest startup funding if you want to look for the title. But so a flyover capital which Dan Kerr the people from flyover multiple different people have been on this show over the years. Their supporter what we do and we’re helping them sponsor an event that they’re calling mid by Midwest if you want to the Url is midex midwest.com and and see what I love what they’re doing because they’re vetting companies. They’re looking for companies that are going to really really have a possibility to like move instantly if they get funded. And they’re so they’re bringing in 50 companies and fifty funds I mean dude that for me if I was raising in an earlier stage that would that sounds like a fantasy wonderland. Yeah well. But and we’re going. We’re going to participate in it but the but out on a founder level man like.

29:13.82
Matt Watson
Yeah, I’m excited for that event coming up soon.

29:25.34
Matt Watson
And.

29:25.41
Matt DeCoursey
So look for stuff like that um other things too is like Matt I haven’t been involved with it like you have, but we have a thing here called what was it midwest american angels or something so in that case that that that was really attractive for that’s just a whole bunch of.

29:34.20
Matt Watson
Mid America Angels

29:42.79
Matt DeCoursey
Pre-qualified people that want to write checks either individually or maybe even together and they’ll put you in front of all those folks as yeah, so my point is is there’s a lot of things where you can rather than we’re talking about how do you go get the money. Well either gonna have to reach out.

29:49.19
Matt Watson
There are angel groups like that all over the country.

30:01.30
Matt DeCoursey
And find these things individually apply pitch go through that whole bit. Ah but what dude would you rather go to a place that has ten fifteen fifty of them all in 1 spot there with the attention of wanting to talk to you or do you rather go out and grind.

30:12.11
Matt Watson
Yeah. Well and a lot of them can bring other things to the table right? You’re like oh I’m creating some kind of software I want to sell sell in the k through 12 schools right? Well chances. Are you go to these angel groups. Maybe there’s an investor there that’s done that before whatever that might have some connections or whatever. So if you go to these.

30:19.42
Matt DeCoursey
Love Yeah, great, yeah sell fools right already. Maybe done that before yeah that that understands and appreciates the problem you’re trying to solve. Yeah.

30:36.94
Matt Watson
Yeah yep, so.

30:38.64
Matt DeCoursey
And then ah and then a lot of those people too like I don’t want to discourage you from having your investors involved. There’s 2 terms that are kind of that they caught a lot of people talk about smart money or dumb money dumb money is a check that doesn’t provide anything other than money.

30:50.27
Matt Watson
Um.

30:53.65
Matt DeCoursey
Smart money is when you get the kind of investors that are also advisors. They can do a lot of things. So what does that look like that could be introductions advice. Maybe maybe they’ll become your first client. Yeah.

31:03.57
Matt Watson
Yeah, absolutely, it’s.

31:06.61
Matt DeCoursey
You know and then some cases too like we actually and were allowed to talk about this by the way you and I just invested in lending standard who’s a client at full scale. Yeah, so my point is is like you look at that they there’s these options exist around you.

31:14.58
Matt Watson
Yep.

31:21.70
Matt DeCoursey
You have but you have to be peripheral. You have to be looking around and knowing that they’re there and you know Andy at lending standards been on the show before but we got to know him I mean it wasn’t fast and that’s that’s what I want to talk about next Matt. If. You think you’re getting funded quickly or you are put yourself in a spot where your business is about to run out of money if you don’t get funding in the next month ah you’re fucked this stuff. Whatever the Angel Angel investments are your only real chance. Of getting someone else’s money in your account quickly other than maybe a loan or a credit card. Yeah, probably yep yeah angel can write you a check tomorrow.

31:55.93
Matt Watson
Yeah Vc type investments probably take months and angel type investments may take weeks. So ah, they they can move pretty fast. You know, ah, especially if it’s somebody you know? yeah.

32:06.65
Matt DeCoursey
They can write you a check today tomorrow and honestly so what we found have you noticed that like okay the angel options that have that I see they often don’t get into anything they’re like betting on founders like almost purely on founders. So.

32:19.12
Matt Watson
Yes.

32:23.96
Matt DeCoursey
Um, one thing we didn’t mention that I thought so at full scale we didn’t actually sell equity Matt and I own it like fifty fifty um and we didn’t want us. We needed some capital at one point and we created venture debt. We created our own lending pool and people we knew.

32:37.25
Matt Watson
And.

32:41.68
Matt DeCoursey
Ah, put money on and we paid them an amortized return and they got a good return like Sandy Kuemper was well Sandy Kuemper from CTwofo was one of those people and he acknowledged the last time I hosted him he was like thank you. That’s been a great thing and now with that.

32:44.10
Matt Watson
Yeah, paid him a high interest rate.

32:56.93
Matt DeCoursey
1 thing I noticed is none of those people looked at our pitch deck or our proposition of it those were those were people that were pure players in Matt and mat right? Yeah and and that was it and you know and and hey look dude that came together quickly and effectively it’s been good for us. It’s been great for the lenders.

33:05.79
Matt Watson
Yep.

33:16.40
Matt DeCoursey
I say lenders because you’re not like they’re not investors at that point because they aren’t they aren’t they don’t have a best interest in shares but you know there’s some things you can put out there and and put together once again I Want to let you know that if you’re going to do that. Be careful though because.

33:18.34
Matt Watson
Right? They don’t know equity.

33:30.51
Matt DeCoursey
When it comes to angel investors, we should have mentioned this earlier, there are some restrictions around that that you might add some levels that you need to be aware of. A credited investor, which by the way, has a moving target definition over my lifetime as an entrepreneur. It’s evolved and changed. But um.

33:35.22
Matt Watson
Well they have to be a accredited investor. Yes.

33:48.32
Matt Watson
They must make a certain amount of money a year or have a certain net worth.

33:50.26
Matt DeCoursey
Yeah, like that your sister that works part-time at Mcdonald’s and is in college is not an accredited investor unless she has inherited a shitload of something that is sitting somewhere on the side which probably means she ain’t working part time at Mcddowell’s is it. Mcddoald’s or Mcdonald’s and come into America it was mcddowell’s.

34:07.90
Matt Watson
Macdo.

34:09.17
Matt DeCoursey
Almost the same right? Okay, all right? So I want to throw a couple quick definitions out there because I think it’s good to understand this. We mentioned Angel that could be like also precede or, in some cases seed funding. It’s the earliest stage and it’s usually you. And might be other people close to you and then you let’s talk about true seed funding is for a lot of people where the real funding journey and rocket ship begins. This is where like we mentioned the organization like scale we’ll get go to scale hyphenvc.com um, and you know there these are organizations that are comfortable with writing a check and to an early stage company right? So in my world and our notes are like they they usually go between 3 and 6000000 rays not not in my experience. These are usually checks that are. 50 to 500 k um, and your oh valued up. Yeah, you know if I knew how to read I would be so much better at this show on many days. So think that so many.

35:05.80
Matt Watson
Well this is the notes here say that’s what the companies are valued right.

35:14.53
Matt Watson
You know the most the most interesting thing here is it says even companies that are raising seed funding. Those companies are on average 3 years old already.

35:23.38
Matt DeCoursey
Yeah, yeah, and so there’s that evolution that comes in now look if you’re brand new. That’s not a selling point. It’s not when it come when it comes. Yeah yeah, so.

35:31.35
Matt Watson
I Want I Want to see that you fought for this for at least a little while.

35:38.56
Matt DeCoursey
But but the seed money comes in and and and this is this is this is the stage that many people get to and that might be it now when I say it a lot of businesses become self-sufficient after a seed round. It’s not uncommon and then a lot of them get the seed.

35:50.10
Matt Watson
They don’t need it. They don’t need it.

35:56.74
Matt DeCoursey
Comes in and and things don’t go the way that they hope um speak like they hire developers that aren’t productive which feels like a good time to mention if you need help finding expert Software developers. That’s what we do at full scale. Go to Fullscale Io and we’ll help you build a team so quickly and affordable. It only takes a couple minutes to answer a couple questions we put expert people in front of you can help you build that team people sometimes ask me like what do you sell at full scale is it like programmers websites. Whatever I said we sell peace of mind. We go through. We do the vetting and find qualified people that can help you go and get it done now I mentioned seed rounds falling apart one of when I talked to people who have had things implode at that round they almost either. They realized there wasn’t the Market. Or the competition was a little stiffer than they thought or they brought in the wrong people and kept them around too long. What I what.

36:49.61
Matt Watson
Well and I think one of the things we should talk about as we as we start to wrap this up is when you’re have an early stage company. There’s several different avenues you can take you know you don’t Necessari necessarily need to go raise a bunch of money I Love the the incubators and going through the incubators like scale or or.

36:54.90
Matt DeCoursey
So having your early paid company. There’s credit out you know.

37:08.97
Matt Watson
Tech stars or y cominator all these things obviously it’s really hard to get into y common. Error’s be a lot of competition for that. But there are a lot of those accelerator programs and there’s been a lot of them in Kansas City like um, what were those called.

37:14.70
Matt DeCoursey
Was ever. We want.

37:22.24
Matt DeCoursey
What like launch Casey was back to ah digital sandbox is one. We had a fountain innovation fund. There’s I mean there’s there’s a lot of things that I mean really a lot like this is not an uncommon thing people like I mean they exist.

37:22.62
Matt Watson
Well, there were some other incubators that we had to? yeah yeah, there’s been a few of them. Yes, those are great.

37:38.99
Matt DeCoursey
All industries for all verticals now if we get outside of Kansas City there’s things like arch grants in St Louis gives 50 grand to 20 different companies, a million bucks and then the thing is is if you give a little bit of consideration. There’s a lot of things that’ll match that kind of money.

37:55.20
Matt Watson
Yes, well.

37:57.92
Matt DeCoursey
So you can turn I could turn 50 grand into 150 grand in the state of Missouri alone because there are other things that’ll tack money on because once one person so that’s the reality of this is one the first checks the fucking hardest to get man my right.

38:12.29
Matt Watson
Well, absolutely so there’s definitely a herd mentality with all of this and you mentioned earlier like oh we got a grant for lunch Kc we got some money from this thing we got this one angel investor next next thing you know the herd starts to. To collect and other people are willing to put money in because somebody else has already put money in and yeah, those first couple ones are really hard. But once you start getting some money coming in, then those first investors also become your allies because they’re like ‘hey I don’t want this thing to fail.’

38:33.32
Matt DeCoursey
Yep.

38:41.40
Matt DeCoursey
Coins with Nmar availabl.

38:42.96
Matt Watson
Got to find some other people to put money into this thing to make this work like they become almost part of the team whether they realize it or not right because they want to see it be successful.

38:46.69
Matt DeCoursey
Yeah, the real story of that is rich people often just mimic What other rich people are doing.

38:57.57
Matt Watson
Well, you have a lot of people say Yeah, just.

39:00.66
Matt DeCoursey
I mean on some levels. There’s a lot of truth to that like we’ve seen that and it’s like hey if if John’s going to write a check I will to right? right? Yeah I I really thought that know.

39:06.85
Matt Watson
Well especially if it’s about something they don’t know right? like oh I I met with this tech company. This sounds pretty cool I don’t know anything about tech. You know I’m a lawyer and I make money doing that or whatever. But I’ve got an an extra hundred grand I’d love to invest in tech. So if you know Matt Decoursey says this is a good investment then I’ll do it. You know you you’re definitely going to have that that happens a lot.

39:26.42
Matt DeCoursey
Yeah, and and you know we’ve actually done investor meetings with people and they’re like hey I want to come in but I’m bringing 2 other is it? Okay, if I bring 2 other people that often do follow ones with me. Yes, thank you in fact, let’s do that you know speaking of of given a couple shoutouts and bringing people along.

39:33.41
Matt Watson
Um, yeah, absolutely.

39:46.17
Matt DeCoursey
I want to give a shout out to lane rockley who is the founder of digit who sent me a message on Linkedin this morning and thanked us for doing our 52 part series about how to start a tech company lane. Thanks for being a listener man. He he sent a really. Great message I posted it and startup hustle chat I want to encourage you to come join that on Facebook as well. Ah, but lane mentioned in his message that that 52 part series especially while starting a tech company within within the context of a pandemic helped them. Like he said literally said it helped us feel like we’re not alone and all of it ah reason I’m bringing that up is thanks for paying attention lane. We we acknowledge that and we hope things do well at digit that sounds like too. That’s of all things that I never would’ve guess it. Ah it is a startup that helps make archaeology.

40:37.63
Matt Watson
Oh wow.

40:38.16
Matt DeCoursey
Records Paperless who would have who would have thought bro. There’s witches in the niches. Best luck with your startup lane and thanks for paying attention. But you know my point here is they’re a dude there is an unlimited amount of information. Maybe even just on this podcast about this kind of stuff. Scroll back through the feed.. There’s a 2 We have so many episodes about funding getting funded and then we had a 52 part series about how to start a tech company as well and we cover some of it in there case in point there okay look dude I dropped out of 5 fucking colleges I don’t have a degree man I’ve done great without it. You know why.

41:03.52
Matt Watson
Yeah.

41:15.27
Matt DeCoursey
I know how to Google stuff I’m good at googling hey you agree? Oh do? Well my degree is I’m hoping as soon you google I definitely have a b us and something. Um.

41:21.20
Matt Watson
That’s your degree I’m going to get you to a little plaque that says that you have a BS in Google um.

41:34.41
Matt DeCoursey
Yeah, I’m holding out I’m not accepting that degree map. My next degree is likely to come as an honorary degree from some school in the Philippines where we’ve signed 6 full scale signed 6 agreements with computer science schools to work with them to try to? yeah.

41:47.81
Matt Watson
Yeah, hired a lot of talented people.

41:50.90
Matt DeCoursey
Bring in some awesome people. Yeah, that’s a thing but hey look there’s there’s a ton of stuff out there I’m going to go through a rapid fire list of some other stuff because we’re about out of time before these are other places where people get funding. Whatever as a quick reminder today’s episode of startup puzzle is brought to you by fullsca io hey we got a lot of great stuff going on a lot of great people that want to help you build your tech only go to full scale io it takes 2 minutes to fill that out really cool stuff that’s going to match you up with people all right here’s some other suggestions. We didn’t mention we we didn’t mention the Sba. It’s a small business administration. That’s a gut that’s under the government category ah Sba Micro Loans what’s a micro loan. These are like ah it’s funny. They refer to up to $50000 as micro. Feeling a lot of people listening right now don’t $50000 in their world isn’t micro but a true microleder are private and nonprofit lenders that basically pull money together and use different platforms to give these loans out in small scale. They’re going to probably come with a pretty high. Ah, rate of return. Um, you know it’s possible. You can leverage regular loans. Although there are some better options. We didn’t mention crowdfunding when I first started at my first true company I started as an entrepreneur equity crowdfunding wasn’t even legal.

43:08.70
Matt Watson
Yeah.

43:19.18
Matt DeCoursey
It wasn’t like because it wasn’t possible and ah those laws have been changed relaxed and restructured So what’s crowdfunding there are literally platforms that will vet you as a company and then let you sell equity through that to people that it’s almost like go. It’s like go fund me or kickstarter.

43:33.42
Matt Watson
That are not accredited. Yeah and those are those are investors that are not accredited.

43:38.66
Matt DeCoursey
For this? Yeah yeah, and that’s that I don’t know what the workaround is with that or whatever but it exists and that’s a real thing man and that’s gone. That’s it really. Gone. Well so all right Matt so as we close this out like I mean what are your first off this could be like ah like a day long episode. So hopefully we gave you some some real tips and with the real story being the title here. Um, ah you know can some candor involved but what are what are your so. What? What do you? want to say on the way out. Dude.

44:10.38
Matt Watson
I Think when you’re starting your company. You’ve got to decide very quickly if this is a company that has to raise capital or not and if it’s a company that has to raise capital. For example, if you’re trying to create Uber or something, this is going to have to be big and be in a lot of places and whatever, and it’s just going to have it’s going to be capital-intensive right?

44:18.51
Matt DeCoursey
And across 3 have over.

44:26.90
Matt DeCoursey
Smart is just not sharply just have sensitive right? That’s a different ofly with what.

44:30.32
Matt Watson
That’s a different path. Ultimately what you want to do is set yourself up for success where if you don’t raise Capital the bill. The the business could potentially still be successful. So many people like.

44:40.48
Matt DeCoursey
People like add their type of out or.

44:41.29
Matt Watson
Instead of finding a technical co-founder or somebody worked part-time with some sweat equity or whatever to get us moving forward and and building the product or doing or what we need to do they just become like professionals that trying to raise money and they never actually accomplish anything and then they never raise the money. So I think you also have to have a path there where you have like.

44:56.99
Matt DeCoursey
So I had to year all that now we have better have.

45:01.19
Matt Watson
Path abc and 1 of those paths is like look. We’re going to bootstrap this thing and we’re going to figure out how to make it work even if we never raise any money.

45:09.85
Matt DeCoursey
Well so well said and I agree with all of it a couple taglongs with that. It hey look get ready to be humbled is a humbling process of beginning to go raise capital um, ah, get ready to hear no and get ready to. Talk to as many people as it takes to get what you want if you’re not prepared or ready to do that then you’re not going to get funded um in the history of the show as I’ve talked to different people I’d say and I’ll ask how many different pitches or whatever you get. It’s usually between 5100. It’s not 5 you know so. Um, some people might be at that lower number. But the reality is it’s going to be a lot. Um, you know much like Matt said um if you don’t need to raise it then don’t on the flip side of that I hear a lot of people. They’re like no I’ll never do the Darth Vader venture capital stuff I don’t think that venture capital is a bad thing. I don’t know why are they evil these are like really well-connected experienced people that want to put a lot of money in your company and that have a vested interest in your success I’m not really sure what’s terrible about that. So um, but if you do decide to bring on investment. You need to remember that these people are your business partners and it is harder to get rid of them than it might be to get rid of a spouse. Yeah, so they’re going to be I mean I wrote that and I wrote that million dollar bedroom like it is easier to get rid of your wife or your husband.

46:27.89
Matt Watson
Um, yep, sad as it is yes yeah.

46:38.95
Matt DeCoursey
And it is to get rid of a business partner. So know what you’re getting into. And know that there’s a situation that exists I do want to strongly encourage you to get good advice and legal advice. And with these agreements, I remember they should include sunny and rainy day provisions. They shouldn’t just be written in a way when everything’s awesome. You have to think about what happens because there’s a lot. We hear a lot of stories I hear more horror stories about people that have nonproductive cofounders than shitty investors in the end. But.

46:55.14
Matt Watson
Yeah, yeah.

47:10.52
Matt DeCoursey
Think about what you’re doing and think about just just sit down and try to consider 10 different outcomes based on 10 different scenarios and give yourself time and remember this isn’t a fast process. Um, if you’re going after institutional money like venture funds and stuff like that realistically you’re looking at four to nine months ah the the smaller number might be that long just to get a yes you know and then you got to go through a process to get the money completed and none and and and. And the final thing I want to say I’ll give you give you the mic back here most of these deals fall apart before they actually happen. Yeah, look.

47:47.76
Matt Watson
The the most important thing is networking and look at the opportunity of everybody who says no to ask them like hey do you know, somebody else who does invest in this type of thing or knows something about this that I should talk to right because just like you’re going to meet with somebody. That’s like oh I don’t know anything about investing in Tech and this scares me to ask them, “Well, who do you know that does?”

47:55.40
Matt DeCoursey
Right? Investigate that.

48:07.75
Matt Watson
Right? It’s just all about networking.

48:08.64
Matt DeCoursey
Um, yeah, and and you know hey do it do it do it? do it do it do it okay that was only 5 or six like that’s a rep. Yeah, like you’re going to need to get to 100. That’s how many pitches you’re going to get.

48:16.76
Matt Watson
Hustle.

48:23.92
Matt DeCoursey
I’m out of here, man. I’m all fired up. I’m gonna go raise some capital even though you told me I couldn’t.

48:26.36
Matt Watson
All right see ya.