Big exits are important for venture investors because they require large distributions to make up for any underperforming investments.

How much capital is burnt to get to those big exits impacts the return multiple a venture investor will realize.

Startups that grow in a capital efficient manner and achieve a big exit become the real needle movers for a venture investor’s portfolio.

Let’s dive into some of the best research in looking at the top-down exit numbers in the venture capital landscape to see how this has played out in the past.


Let’s start by looking at what qualifies as a big startup exit.

According to CB Insights 2016 Global Tech Exits Report where they summarize what they found from analyzing 3,358 startup exits, 54% of startup exits were below $50M while 22% were above $200M.

Even for small early-stage VC funds, it is unlikely that distributions realized from exits below $50M will move the needle for investor returns.

It’s the bigger $200M+ exits that can move the needle, especially the 10% of exits which are greater than $500M.


So how long does it typically take for a startup to get to a big exit?

According to SaaStr’s research, the average time it has taken for a startup to get to a $1B+ exit has been 11.7 years.

There also appears to be some correlation where the less capital a startup raised, the longer it took them to get to a $1B+ exit. A great example of this is Mailchimp which sold to Intuit for $12B after bootstrapping their business for 20 years!


To achieve big exits, venture investors must often hold their portfolio equity positions for ten or more years.

Given the long hold times, what are some of the leading indicators that a venture investor may use to determine if startups in their portfolio could be on track to get to deliver a big exit?
1) Has the portfolio startup demonstrated an ability to deliver capital efficient growth over a long period of time? (strong indicator)
2) Is the portfolio startup achieving high Net Revenue Retention from its customer base and is the high NRR likely to continue for a long period of time? (strong indicator)
3) How consistent is the growth of the portfolio startup quarter over quarter, year over year? (moderate indicator)
4) Does the portfolio startup have significant expansion revenue opportunities as it scales? (moderate indicator)


How should this impact early-stage investors decision-making framework?

Expect for venture capital portfolios to take significant time to mature when making fund investments.

Patience is required to maximize your equity in startup investments.

As the saying goes, the way you go broke in venture capital is selling your equity in your winners too early.

The Q1 2024 NVCA-Pitchbook Venture Monitor reveals activity levels similar to those in Q1 2023. Investors have already poured $36.6 billion into 3,925 deals. Although 38% of venture capitalists withdrew from deal-making in 2023, they still control over $300 billion in uninvested funds. This situation creates an intriguing dynamic with abundant capital but few investments. 

What does this mean for startups?  

While deal counts have remained consistent, the median pre-money valuation for funded startups slightly increased in Q1 2024. This shows that quality companies are still getting funded.  What does “quality” mean in this funding environment? Venture capitalists now advise startups to prioritize profitability over the traditional growth-at-all-costs strategy.   

The “Goal Posts” Have Moved 

In 2021, the market saw a surge in investments where startups were funded at high valuations despite having relatively low key performance indicators (KPIs). The period has been followed by a correction, where the multiples for valuations have dropped. As a result, startups now face more stringent requirements to attract investors. To secure funding in this new era, companies must demonstrate stronger KPIs, showcasing solid traction, revenue growth, and sustainable business models. 


This shift encourages a more disciplined approach to growth, where startups are not just chasing valuation but are building long-term value. I am optimistic about funding levels as startups and VCs respond to the correction in the market.  

Source: NVCA-Pitchbook Venture Monitor 

Great North Ventures is an established early-stage VC fund with $70M in AUM. GNV is investing out of its recently closed Fund 2 into high growth startups across the spectrum of early stage (pre-seed to series A.) This head of finance and accounting role presents the candidate with an opportunity to gain deep experience in every aspect of venture investing (fundraising, portfolio management, investor relations, deal sourcing, due diligence, transaction management, and portfolio support.) GNV invests across many different industries and a candidate will have the opportunity to utilize their past industry experience as well as develop new areas of expertise. GNV also operates an incubation studio that will present the candidate with opportunities to work closely with management teams to build new startups from the ground up.

Position Summary

The Head of Finance & Fund Administration will support the organization and its national portfolio of investments with respect to financial analysis and modeling, valuation, business case development, and coordinating deal structuring and documentation with outside counsel. The successful candidate will demonstrate the ability to assess market opportunities, develop business cases for equity investment, lead business planning exercises, and provide ongoing performance monitoring and forecasting insight in a fun, fast-paced and entrepreneurial environment. 

You will perform financial and operational due diligence, prepare professional presentations in PowerPoint, support deal structuring and negotiation, and provide post-close investment performance monitoring and documentation to inform executive decision-making. This is a data-driven organization, and this position requires an individual who is comfortable analyzing financial statements as well as operational metrics and can communicate findings and recommendations crisply.

This position will work closely with GNV’s managing partners; however, a great deal of independence and autonomy will be required.



● GNV encourages all candidates to apply regardless of educational background.
● 4-7 years of professional experience in accounting, auditing, and or startup finance are preferred, but not required.
● CPA and/or JD will be helpful in this role, but are not required.

● From home (we are a remote team)

● Competitive salary plus participation in fund’s carried interest
● Benefits – Medical, dental, vision insurance
● 401(k) contribution
● Statutory holidays + 4-weeks time off each year

Application Procedures

For interested candidates, please send the following items to Rob Weber at

●Updated resume

●Optional-A hypothetical investment memo for one of Great North Venture’s portfolio companies – This is intended to provide some insight into how you think about startup investing. This is open ended and you can include anything you find relevant or information that would be important for you to complete a more thorough analysis

In the second of a two-part episode, we cover the most common concerns startup founders run into on fundraising, from our guest Mike Schulte, Principal and in-house legal expert at Great North Ventures who holds a JD/MBA from St. Thomas University.

Schulte at St. Thomas, covered the Healthcare IT sector as an MBA student manager for the Aristotle Fund. Next, he spent 20 mos as a Venture Associate at Soffer Charbonnet Law Group where he worked with clients of all sizes providing advise on legal matters ranging from offering memorandums for private placements to mergers & acquisitions. Mike has led legal and actively contributed to investing since joining Great North Ventures in January of 2018.

In this episode, we talk about fundraising, liquidation preferences, SAFE notes, and board structure.

Who does Schulte see executing? Brian Schoenborn at Moss & Barnett & David Winkler at Koley Jessen.


Welcome to the execution is King podcast where we talk to successful startup owners, investors and ecosystem builders to uncover insights and best practices for the next generation of freight global startups. I’m Joseph Siebert, your host, with DTS, my co host, Rob lever managing partner at Great North ventures. Hey, Rob, how you doing today?

I’m doing great. How are you?

I’m great. Yeah, this is this is new ground. For us. This is our first two part episode. This is part two, part one we brought on Mike Sheltie, who is a principal at Great North ventures. And he shared a lot about entity creation, settling on a name, and also tax implications for founders. But we just went on and on and we decided to bring them back. What are we going to talk to him about this episode rather?

Well, this time around, we’re going to have Mike, provide us with some perspective on fundraising. We’ve been a part of many fundraising rounds since we started Great North ventures a few years ago, and I think he’s in a great position to kind of comment on some of the things that he’s seeing and just share some stories. And so but you know, remember, this podcast is not for legal tax accounting advice. We’re just sharing stories. definitely consult your, your lawyer or tax accountant if you need guidance on these matters.

Absolutely. Welcome back to the podcast. Mike, let’s talk about fundraising.

And what are some of the things entrepreneurs need to be thinking about when they are looking at raising early stage venture capital? What are some of the things you see in working with a portfolio of founders in Great North ventures fund?

Sure, absolutely. Look for the companies in our portfolio, I think, and I think you probably see the same thing. I think, maybe the first time we meet them, they’re a lot more green in terms of fundraising. But then, as they continue to work with us, and as they go out and raise new rounds and meet other venture capital funds that invest in the company, they start to understand the landscape a little bit more, and they get much better at it. When would you agree, Rob?

Yeah, I think so. I think it definitely, you know, fundraising, like a lot of the skills, you need to be an entrepreneur, to be good at fundraising, you need to you need to experience it, you need to learn it, learn how to do it. But I think you can come to the table with a prepared mind, you know, by just by and probably just help yourself to move more quickly and not make mistakes or make better decisions, and maybe make your make it a little bit less fuzzy. But I agree with you, I do think the founders that typically, they do, they do get a lot better over time.

I think for those first time fundraisers, one of the biggest things I see that trips them up and causes them problems, is they’re just not familiar with what they’re actually doing, and what they’re actually selling to investors. So I think it’s really important to, on the front end, get familiar with that there’s, and one of the best ways I recommend to do is there’s a book out there called Venture deals by Brad Feld, I highly recommend all founders read this before you go out and raise capital, it’ll just help to orient you on what is each specific term that you’re going to be negotiating mean, and how does it affect you?

So Mike, what sort of rights or preferences are normal? Are there standards or things that are required to be included when you’re fundraising?

Yeah, there’s absolutely, especially in seed stage, early stage venture financing. There are, let’s call them standardized terms. There’s obviously a lot of circumstances where arrangements can divert, but let’s just walk through some of them. The first one, let’s be clear you, you are going to be selling a class of stock that is different from the class of stock you own as a founder. So as a founder, you most likely own common stock, but you’re going to be selling preferred stock to your investors. And the purpose of this is the preferred stock is going to have certain rights or preferences or privileges that they serve to incentivize the investor to take on the major risk that your business presents to them. So I think just upfront, get caught comfortable with it that the preferred stock you’re selling to founders is going to be more attractive than your common stock. Let’s just dive right into what I think is probably the most important preference that we’ll attach to the preferred stock. And that’s the liquidation preference. It’s pretty standard. Now, for your first round of preferred stock, let’s call it Series C preferred stock to have a 1x liquidation preference, it can go up to 2x 3x. If you get an offer for something above one at a 1x liquidation preference, you should definitely talk to your advisors and ask them. Does this make sense? The answer is probably no.

Obviously, we most of the investments we make are actually probably all have liquidation preferences. Can you talk about the different types of liquidation preferences and what a founder needs to be kind of thinking about with respect to negotiating their round?

Absolutely. So let’s first just say like, what is the liquidation preference, and really what you’re saying with if you give somebody a one next liquidation preference, what you’re saying is, you are going to pay that person back before the common stock or the founders before they get anything. So basically, if somebody invest some million dollars into your business, you’re going to give them that million dollars back before you distribute any proceeds to any of the other shareholders. And this is important for investors, they want to know that when they’re investing in a small team, and maybe a single founder team, they want to know that they’re not just giving this person a zero interest loan. And well, for that the founder is going to pull money out of the company, they want to feel like there’s a good chance they’re going to get their money back instead of just going to be the founders or the owners of the company. Yeah,

I think there’s this. So I have to say a couple of points on these liquidation preferences, because I’ve been on both sides of the tables. So when I was set up as my first company as an LLC, ran for 16 years, everyone had common membership interests, we just had one small angel round, and all the angels got membership interest, so there was no preferences. And I was really adamant about that one, because we contributed some assets and some cash to start the business. And I just felt like I wanted everyone to be treated the shares to all be treated equal. And it didn’t ultimately, I don’t think it really mattered that much. At the end of the day, we have different bases in the business. Because of that, you know, but it didn’t really matter as much. But now, you know, on the other side of the table, I can say as a VC, what I see happening generally in like, say, let’s say your preferences are really going to generally matter the most. And when exits aren’t that great, right? Let’s say you have a company that you’re selling for basically the cash that you invested, let’s say you raise 3 million, and you’re selling it for 3 million cash and maybe some earnout, or something. What I see end up happening from the acquirers is often they’re loading up as much employee compensation, after the acquisition, to basically put as much value into the entrepreneur into their pocket and into the state team, I call it whoever’s working at that startup that they want to keep. And basically, they don’t have any incentive to pay back the investors. So I actually think this creates kind of a balance that I think is fair, you know, in my mind, you know, if you if we didn’t have preferences and VC deals, then the acquires on these on the downside deals, would likely just push all the consideration into employment and investors would get nothing, not even their money back. So I actually think this balance of having a 1x preference, I actually think in the down cases, it actually it creates a more fair environment for I think both sides of the table, but then in the really upside cases, you know, everybody’s happy, no one who has 1,000x exit is gone. Man, I wish I would have got 1000, you know, 1,001x? Right. So I think it’s so in these cases, I think, I think I think the 1x preference that the market has kind of come to you I think in this recessionary time, you know, part of me thinks maybe we’ll see VCs trying to push that up a little bit, maybe a little bit higher preferences. We don’t see a lot of that right, Mike, but it does happen sometimes.

It’s it’s still something that I think VCs are trying to figure out. Sometimes we do see, we have seen preferences getting pushed up lately, just with the valuation inflation that has occurred, and it’s made it easier for founders to say yes to small acquisition offers because those small acquisition offers aren’t as small as they were 10 years ago. So the economics of the deal are a little bit different. Whereas maybe those offers 10 years ago, were say, 7 million dollars and there was a $7 million liquidation preference. In a scenario like that the founder wouldn’t get anything. So they would just say no to that kind of offer. And you can see that the founders incentives and the investors incentives are aligned to grow the business bigger. Whereas as we’ve seen this bull market continue to rise, and we see valuations go up. Now, these founders, they still have a $7 million liquidation preference. But these early acquisition offers, they may be 10 million or 15 million now, in which case that can pay off pay out their liquidation preference, and then there’s still money to distribute to the founders. A lot of times, it doesn’t produce good returns for the investors. So 1.0, maybe we’ll start to see a 1.0 a x liquidation preference, meaning you have to return the investors money back plus an 8% annual return. This is something that’s common and other types of private equity funds or real estate funds, basically are telling your investors, you’ll beat the market if you invest into us. We have not really seen that yet in venture capital. But I talked to a lot of funds who are talking about how do we bring these incentives back into alignment, and everybody seems to be talking about liquidation preferences might be where it happens, I am not seeing it on mass yet.

Right. So I think that’s a there’s obviously can go really deep on these preferences.

And they can get very complicated, especially in later series D stage deals, just be hesitant to stack preferences, big preferences in your earliest financing rounds. Because if let’s say you give somebody a 2x participating preferred stock early, you’re gonna have to give that to your next round of preferred investors, and then the next round of preferred investors. And eventually, you’re going to have this huge liquidation preference that you have to pay off before you get anything. So be careful about giving anybody more than 1x. If you’re going to give somebody more than 1x, there has to be a really good reason to do it.

The let’s thanks for the quick kind of overview on preferences and these fundraising rounds. Can we shift gears a little bit and talk about some of some of the other terms I know, a common term that is often negotiated between VCs and founders is board seat rights and the rights centered around governance of the company. Can you talk about kind of what you’re seeing in these venture deals? What kind of what are what do you typically see in a seed round or a Series A round in terms of board rights?

Yeah, so this looks a little different for every company, it kinda depends on who the founding team is, how many of them are going to be on the board. But when you raise your first round of VC capital, it’s, it’s very common for that first round of preferred capital to have their very own board seat, so that they have a say in the major strategic discussions that and the major strategic decisions of the companies making really this is hiring, firing of officers, fundraising, preparing for fundraising, your board should be a critical part of that project to fund your next fundraising round. But when it comes to day to day, your board is not going to be heavily involved. And I don’t think most founders should expect them to be.

You know, actually, I think, Rob, you have a ton of experience. I’d like to hear from you and your perspective, what you look for when adding someone to a board.

Well, I really liked how Mike framed it there. Because I think you had when you think about the stage of your business, you have to think about what is your organizational needs. And I think a board is sort of a fluid thing, what you need it at the seed stage is different than what you need when you’re prepping for an IPO. Right. But as Mike alluded to, the primary responsibilities of the board will really their is really centered around their fiduciary and kind of governance of the of the company. I think a lot of founders that are maybe setting up their board the first time they’re looking for, like operating advice, or how do I start? How do I you know, how do I build the right product or different different operational things, but that’s not probably the way you want to use your board, you might want to set up like an advisory board of people who can provide you more operating guidance, although I would say an early stage startup, it’s okay. Maybe you’ll have a little more operating, you know, kind of board, that type of that type of background, but you shouldn’t only have that even in the seed stages. So often you’ll want to find someone who probably like finance or legal experience to join the board. And maybe ideally, they also come from the history. So they bring some perspective and connections, but they have that kind of legal or fiduciary kind of mindset. But then and then from there, I think, you know, there’s, there’s you could go on maybe we’ll do a whole nother podcast episode on how do you get value from a board? Because oh man is so different, you know, the the number, there are so many different ways to run a board. Let’s get into that on another episode, maybe we’ll bring Mike back, or we’ll, we’ll have to do that. But I think there are board seats that actually have a vote. And then there’s often observer role seats. And I would say, if multiple VCs are requiring board governance or board voting rights, often you can negotiate them to just observe a rights, they just want to be in the room where it happens, right? They want to know what’s going on, they don’t want some funding round Devi orchestrated at the board meeting, and then they get they get, they don’t get their pro rata rights, or, you know, they’re not able to participate, or they don’t have as much time as the others because they weren’t in the room, you know, and they’re not prepping for it. So I think this is why board observer seats are actually pretty common when you’re getting multiple VCs, especially when they’re investing large amounts of money in a round, or is that pretty typical? Mike? Or have you seen that?

Absolutely, absolutely. Like our, our kind of view on it at Great North ventures, as is if we think we’re in a good position to add value, sure, we’ll take a board seat. But no matter what we need an observer seat, we just need to know what’s going on with the company. From a founders perspective, I would say the biggest problem I see with their initial board construction is add, they add people to the board, as you mentioned, who should probably be in an advisory role or bring on to consult on special projects, but your board, I think it’s really important to make sure that they have a vested interest in the company. Usually, this means they’re either an owner or an investor in that in the business. If you don’t have somebody with that vested interest, I think that it’s hard to get the value that you should be getting out of your board.

And one other little thing that we see, you know, once in a while that investors might pull on their on the founders is that is negotiating compensation for like their board seat, so that they’re getting paid. That’s pretty unusual for VCs and investors. Right, Mike, it’s kind of a, that’s kind of a catch a, you know, kind of moment there. If they if you let them put that in the agreement, that’s not really market, your Vichy should be participating in the bore because of the you know, to protect the investment they made, not as a way to get additional compensation, right,

exactly. It’s not uncommon to cover travel expenses, like plane and a hotel. But for these companies, you should not be spending $100,000 on your annual board meetings, you should not be paying a stipend, even to these board members, they should be participating because they want to see the company do well. That’s why where I mentioned, it’s important that they have a vested interest.

Like I want them to pick me up on the private jet on their way to the Yellowstone club. So we can go and watch a herd of buffalo before the morning board meeting, right?

I thought all the board meetings were now virtual. So there’s not even any there’s nothing even to give them reimbursement for. But yes, reimbursement is common. Honestly, when we participate, we don’t even ask for reimbursement from our founders, we would rather have them put that money to use elsewhere. With employees, I think it can be, it can add more value.

I’m not super experienced with this type of governance. But you know, I’ve heard stories about people like stalking their board with like their grandma, you know, or their mom or their their boyfriend or something just like for like to maintain control of the company? Is that something you guys have ever run into?

A couple of times, I’d say I don’t know about Mike. But I mean, I think as a founder, though, you’re, you’re always you’re kind of always trying to promote the business. And I don’t think that’s, you definitely don’t want to do that. I mean, it just makes you look kind of silly. And it actually can create a dysfunctional board. Like, I don’t want to get into specific examples here. But it’s definitely like, you know, when you’re on a board, you want to be surround yourself with people who can help you build the business, right? So, so put people on the board that have either scaled what, you know, been through it before, or bring up some other functional knowledge, like, you know, at least if you unless your grandma was like, the world’s best lawyer, or, you know, for startups, or, you know, former CFO of Google or something, you know, you probably should probably be on your board. Not to mention there’s a conflict of interest there. You know, when you’re dealing with family, and you don’t want to have those conflicts and you don’t want to have you don’t want to have underperforming board members. That’s just think of that as this being an extension of leadership of your company, right?

Absolutely. We do see it a lot and it’s not always As an issue, sometimes I see a lot of like Robin Ryan, Rob, Rob’s twin brother Ryan and him have built a lot of businesses together. And it makes sense that they’re both on the board. And that’s the case with a lot of other startups. But if it is, somebody who maybe doesn’t need to be on the board will usually have that discussion. And upfront, when we begin a financing round and talk with the founder and be like, Okay, we think the board should be restructured, here’s what we’re thinking, and why. And for founders, I think, be open to those discussions, I think it’s easy to look at this as it’s the investors versus me, but now you really want to go into it with the mind of it’s a partnership. And they have the my company’s best interest to,

I do have to take a shot at my brother Ryan here. So a couple of little funny stories. When we started our company, this is kind of a tangent from the board discussion, but I decided I would be the CEO. And he would be like the chief product officer. And the main reason was, is I spent some time in business school, and he didn’t. But the joke we used to always tell everybody is that when the armwrestling match, that’s why even though we had the same equity amount, I was stronger than him. But really, if you are looking for a Weber brother to join your board, you definitely want me versus Ryan, I’m definitely a lot smarter than him. And you know, it will bring a lot more value in connections to your board. So just keep that in mind. You’re picking it to him to join your board pick, Rob,

when was the last armwrestling match?

We might have to redo that one for maybe a future episode, we want to write an AI and come on and we can arm wrestle or something I

don’t know. I’d love to see that.

Mike, there’s another form of investment that is kind of become more popular. Of course, Y Combinator I think was really one of the big. I had a big influence that kind of adoption of safe nodes. Can you kind of talk about the differences in raising like a price round versus a safe note? And maybe any things that founders should know when they’re raising a safe?

Sure, absolutely. Studies have become a very common way for early stage startups to fundraise I think they came about in like 2012, somewhere somewhere in that that brands Y Combinator created this document to obtain equity and some of their cohort companies. And the really, the purpose of it was is obviously when you’re I think founders and investors struggle with this, similarly, in these early stage companies is, how do we really value them, there’s no cash flows to value, there’s not really even a lot of comps to value them based on. So it’s just really tough to value. And what the safe does is it kind of kicks that can down the road, it says so basically, how it works is you say I’m going to invest $100,000 with a valuation cap of 7 million, let’s say for round numbers, I’m going to invest $100,000 with a valuation cap of 10 million. And what this basically means is that you don’t have any preferred stock, you get put in the next financing round your set, your $100,000 safe note will convert into that class of preferred stock. And it will no matter what that valuation is, you will you will not convert above a $10 million valuation. So you’re not setting the valuation in a safe note, but you’re setting a ceiling on it, so that it can’t go above it. And this gives the investors some that gives them some level of certainty as to what they’re buying. So if you say I’m buying $100,000 In a on a $10 million cap note, you know you’re buying at least 1% of that company $100,000 divided by 10 million is 1%.

One of the other terms of safe notes that we see founders trip up on some time is just whether or not it should be a pre money safe or a post money safe. Can you describe what that what that means? And you know, kind of what you see is sort of the market in terms of deals using safes.

Yeah, sure. So the first Y Combinator says we’re pre money. And basically it means that they were included a pre money valuation cap, not a post money valuation cap. Now, for an investor, they want some certainty as to how much of the company they’re buying, and they need the post money valuation cap to do that. In the early years the pre money it was close enough big As founders were maybe only raising a couple of $100,000 on safe notes. So really, if you’re raising a $10 million pre money cap, and you raise $200,000 In safes, the post money valuation cap is $10.2 million. It’s the pre money, plus the money raised on safes equals the post money valuation cap. So in the early years, there wasn’t too big of an issue, it was investors still felt pretty comfortable that they knew what they were buying. But as time went on, founders realized, wow, these safe notes are just way easier to raise money on, they’re way faster, they’re way cheaper. They don’t need to pay their attorneys 3040 $50,000 to put together a deal documents, and they don’t need to pull together, these complex closings with all these with my finding a lead investor. So founders started raising more and more and more on the safe nodes over longer periods of time. And they weren’t converting for several years, sometimes I’ve seen some companies raise $6 million on safe notes. If you’re raising $6 million on a $10 million pre money valuation cap that makes your post money valuation cap $16 million 60% higher than the VC was initially bargaining for. So Y Combinator saw this. And they were like, Okay, well, if founders are going to raise this much money on safes, let’s change the terms of the to align incentives. So they changed it to a post money safe. If you’re using a pre money safe, because they’re still out there, I still see him all the time, just know that your investors are probably going to catch it. And they’re probably going to ask you to change it to a post money valuation.

That was super helpful, Mike, thanks for providing that perspective. I think, you know, I think one way to think about how you would use a safe is really more as a bridge towards a price round. And I think founders sometimes get away from that they think, hey, let’s use a safe just as our this is like going to be our big funding round. No, generally, safes are meant as sort of a bridge to that next price round. Right? Isn’t that what it was ultimately kind of created for that to be your your actual round, but kind of?

Yeah, I think that’s what it was created for. And it’s kind of, I think we’re seeing a lot of changing dynamics in the early stage financing. World safes are one of those. And I don’t know if that’s how founders are still looking at it. And I think that VCs have gotten a lot more comfortable with raising large numbers on space to not always I know from Great North ventures perspective, sometimes we’re okay with 1 million to $3 million rounds being raised on safes, just because of the administrative ease. But there’s other times where we may have reason to, we want to set the terms of that preferred stock up front. Rather than wait for the next investor to set the terms. I’m talking about terms other than valuation. It could be like liquidation preference and things like that, that we talked about.

One more question about safe notes for founders to think about, do all the investors that have come in on a safe note end up getting the same terms? And does that ever create conflict?

So there are a couple of different ways that I see as common. Now, as I mentioned, I’ve seen companies raised $6 million on these things. They don’t do it all at once they do it over several years. So imagine for founder’s listening, imagine your company and let’s say in 2020, maybe you were raising on a safe with a $10 million post money valuation cap, let’s say a year and a half later, you want to write and you raise $1 million at that valuation cap, and then a year and a half later, you want to go out and raise some more money. So why would you issue the same? Or why would you raise at the same valuation cap, presumably your company has appreciated in value and you can now raise at a higher valuation cap. And in theory, and in practice, you can issue says at all different terms, and you don’t need to wait for any set period of time. So today, you could issue a $10 million post money safe, and then tomorrow, you could go out to a new investor and issue a $5 million post money safe as an Bester, I always asked to see everything you’ve ever issued. And then I looked at when were they issued and at what price if I see a whole lot of fluctuation, I don’t want to say that it makes me distrust the founder. But it makes me not trust the valuation so much as if they’re just being opportunistic. So I think it is in the founders best interest to set a valuation cap, and then only increase it when your operating performance supports that increase.

I was just smiling when I hear opportunistic, you know, because I think that’s a great way to think about off, sometimes, both sides of the table are trying to create an advantage, you know, it’s absolutely negotiating So, and I can think of many situations where founders were particularly good, or more so on that side, where they are very opportunistic, and leveraging the terms to their advantage and whatnot. When should you be thinking about raising on a safe note versus a price round?

Yeah, I get this question a lot. And my answer has changed over the years as the landscape and as investors more and more investors are now comfortable, they’re familiar with safes, whereas just a few years ago, that a lot I was getting a lot of questions from investors is, what’s the safe? I don’t want? I don’t want to invest in that I want equity in the company. So my answer has, it has changed over the years. So I say, definitely have when it’s a small capital raise, like if you’re raising a million dollars or less, I think a safe is usually a good vehicle to raise that money, there’s very little transaction expenses, you can actually download these documents directly from Y Combinator website, you should probably have an attorney look at them. But there’s just way less legal work that goes into it. So you can actually focus on going out and meeting investors and getting them to say yes, and then now that they’re all comfortable with saves, it’s a very quick sign on these couple of lines and wire us the money. And everybody feels comfortable with that arrangement. So I think for small raises, it makes sense to use a safe, it makes a lot of sense to use a safe. However, if there’s ever an investor who isn’t comfortable, because I still do see that a lot too, who doesn’t want to do a safe wants to do a priced round. And there’s a several different reasons why investors will want to do price rounds. I don’t think you say no to them, because they want to price the round. And I see a lot of early stage founders struggle with this, as they say, Well, I want to do a safe so I don’t have to pay $30,000 in legal fees, and it’s like, are you going to turn away a million dollar check? Because you don’t want to pay $30,000 in legal fees? I think that’s the wrong decision. So if an investor’s ever an important investor who’s writing a significant check is ever saying you have to do a price round? I think you do a price round.

So Mike, every episode, we have someone on we asked him, you know, the same question, Who do you see executing can be a startup or an individual can be someone who’s flying under the radar, or someone who is really how high profile in the news all the time, but who do you see performing?

Yes, so I don’t know if you’re looking for one person or multiple. I’m gonna give you multiple and we have talked here about legal a lot. So I feel like I should talk about some attorneys that I think are doing a really good job in, in their work with venture clients, specifically entrepreneurs. Two of them that I work with a lot that I really like working with our Brian Schoen born of moss and Barnett, he’s in St. Cloud, Minnesota. And David Winkler with koley Jessen is in Omaha, Nebraska. Both of those guys. They know how to structure venture capital deals. But more importantly, they do an excellent job of educating their clients on the best way to raise capital the best way to structure their companies. If you’re ever looking for an attorney, I highly recommend these two they know the venture space well. There’s another guy that I’ve gotten to know over the past six months or so, his name is Darren king and he is a venture investor in Louisville, Kentucky, and I really love what him and some of the people he works with in Louisville are doing for that startup ecosystem. Rob I know great North Ventures is is doing it in Minnesota so I’m kind of partial to people who are who are doing what We’re doing in the middle of the country. I respect that a lot. And if you’re not familiar with unbridled VC that’s Darren kings venture capital fund. Check him out. He does a really good job of coaching early entrepreneurs and investing and a lot of businesses and just pulling together all the right people in the ecosystem is making a big difference in cities like Dayton, Louisville, Lexington. It’s pretty cool what they’re doing there.

Well, that’s awesome. Like, thanks for sharing. I don’t know Darren and Dave, but I’m excited to learn more about them. I’m gonna try to follow them on social and kind of learn more about why you’re excited about them. I do know Brian schoenborn quite well. So Brian schoenborn at Moss and Barnett, when I was I met him when I was about seven, maybe 18 years old, and the dorm rooms of of a state college in Minnesota. And Brian was a young guy, young attorney at the time. And I just, he was really a key mentor my life, Brian, and he and he still is we still work with him today. A lot of our portfolio companies work with him and what I liked about I started episode talking about service providers who have like an entrepreneurial mindset and are focused on creating value. And Brian, like, embodies that. That’s why once I’ve been working with Brian, my entire entrepreneurial career, it’s because he takes that approach. It’s and it’s really refreshing. And I think if you find not only that, I guess what it feels like to work with someone like Brian that has that approach is you feel like that, that attorneys is always got your back, always advocating for you really cares about your success, you know, as as opposed to just how much they can bill you. And I guess I’ve experienced it the other way many times too, you know, in various I mean, I’m on. I’ve been on 40 or 50 cap tables in my life as an entrepreneur as an investor. So I’ve had a lot of experience with different service providers, accountants, lawyers, whatever, but so anyway, huge kudos to Brian, I can I cannot let a mention of him, you know, be sad Without me, you know, just sharing what an influence he’s had on my life. So thanks for recognizing him. We should get him on an episode of some kind down the road here.

Brian is probably one of the best attorneys I’ve ever worked

with. And he’s just a great guy to be around. All right. Well, thanks so much for joining us on this episode of execution is King Mike.

Happy to be here. Love to be back sometime.

In the first of a two-part episode, we cover the most common concerns startup founders run into on startup formation, from our guest Mike Schulte, Principal and in-house legal expert at Great North Ventures who holds a JD/MBA from St. Thomas University.

Schulte at St. Thomas, covered the Healthcare IT sector as an MBA student manager for the Aristotle Fund. Next, he spent 20 mos as a Venture Associate at Soffer Charbonnet Law Group where he worked with clients of all sizes providing advise on legal matters ranging from offering memorandums for private placements to mergers & acquisitions. Mike has led legal and actively contributed to investing since joining Great North Ventures in January of 2018.

In this episode, we talk about picking a name, choosing between an LLC and a C-corp for incorporating your company, and the benefits of 1202 Qualified Small Business Stock.

Who does Schulte see executing? Brian Schoenborn at Moss & Barnett & David Winkler at Koley Jessen.

The second part of this two-part episode will cover fundraising, board structure, and more.


Welcome to the execution is King podcast where we talk to successful startup founders, investors and ecosystem builders to uncover insights and best practices for the next generation of great global startups. I’m your host, Joseph Siebert. I’m with my co host, as always Rob Weber. And he’s a partner at Great North ventures. Hey, Rob, how you doing today?

I’m doing great. How are you doing? Joseph?

I’m doing pretty well. I’m excited for this guest. You know, we get all kinds of inbound questions from founders. When you’re dealing in early stage, you run the gamut of entrepreneur requests, right from people sitting in their garage with an idea to people who have actually taken million dollars in funding and had previous exits and are thinking about doing something to people or raising like their Series A. So it’s really, really great to have this guest on today. Rob, you know, maybe you can speak a little bit more to like, why exactly, we’re bringing them on? Well, I

think being a founder of early stage company, you really have to be more of a generalist. And that means you need to understand across the kind of gamut of the different functional skills just enough so they can get your business off the ground. So you got to know a little bit about legal, a little bit about operations, a bit about sales, a bit about marketing, a little bit about technology, design, all these things finance counting

just enough to be dangerous, right? Yeah, that’s

right. And I know when I was 20, I started my first I call it my first real company, I had some like tinkering projects as a teenager on E commerce and startups. But having never scaled a business before. On the legal side, we made a few mistakes. And we’ll probably talk about some of those in this episode. But it’s not, you don’t really notice those mistakes when you’re getting going because they don’t really hurt you. But then as you start scaling, the amount of like I like leave, you know, sometimes you’re talking about technical debt, you can have legal debt, too, if you’re not setting up your business the right way. Or if you’re not raising money with the right terms, things can come back and bite you. And so what we’re going to do with our colleague, Mike here, is tried to share some of that wisdom, so that for founders, you don’t make those mistakes that others like myself have made. And we can save you a huge amount of headaches down the road by just paying attention to some of this knowledge that is gonna be shared with you.

Before we welcome our guest on, we just need to put up a disclaimer that today you’re going to hear a lot of legal accounting, finance and tax stories, right things that we’ve done. But none of this is to be taken as advice, because it’s so particular to your individual situation, that if you need advice on this, go to an advisor. We’re just sharing the stories about what we face today. So our guest today is Mike Sheltie. He is principal at Great North ventures. Welcome to the show, Mike. And Joe.

Hey, hey, Rob. Excited to be here. I’ve been listening to the show for a while. And I’ve always wanted to be a guest.

Mike, why don’t you start by telling us a little bit about your background and experience?

Yeah, sure. So I actually get the question a lot of how did I end up at a at a VC fund. And I think that that journey is a little bit different for everyone. Mine’s not too uncommon. But I started out as a lawyer, and I didn’t practice law for too long. I went to law school in Minneapolis at University of St. Thomas, where I got my JD MBA, and I kind of the whole time knew I wanted to work with investment funds. Although I was at the time I was thinking real estate funds just because that’s kind of the world I came up in. And that’s what I was interested in at the time. So I started practicing at the small law firm in Minneapolis. And it was a great experience because I got to work with a ton of different types of clients. And what I found out is I loved working with the entrepreneur clients, the ones who are building businesses, scaling businesses, and these were businesses of all types. So some of them are family businesses where they’re trying to figure out how to hand that off. Some of them are startups that are just launching their first internet company and one of them is actually it was actually a legacy business that was providing services to produce farmers in California but he took advantage of, of the changing cannabis laws and started servicing cannabis farmer clients and that was actually a really interesting business to work for for a couple year period and ended up going really well for him. What I really liked Working with these entrepreneurs of all types, I got to see a lot of stuff. What I didn’t like, was the business of law, you talk with a lot of lawyers. And it’s the same story every time. It’s a very tough business to run, even though the work is very interesting. So I decided I wanted to jump to a different position, it gave me an opportunity to work more on the value creation side. At about that same time, I saw great North ventures was just launching their first fund. So I called up Robin Ryan, and we had our first conversation. And shortly after that, I was working with great North ventures as their first analyst hire, and then with them ever since. And now I’m a principal fund,

we’re really lucky that you made that decision and fortunate to have you on the team is incredibly valuable to have you as a part of the team. And I think, you know, what I think about that client service model that a law firm has, I could, I think I would feel the same way as you were probably back then Mike, where it was, you know, I think about, you know, it’s like the hourly bill rate grind. And this like, it’s not even about, it’s not so much about the value created, it’s about maximizing how much you can bill, oftentimes, I feel like not even just to rip on lawyers, but like just service providers, in general, it’s just like, so many of them get it wrong, where they don’t focus on the value, they focus on just, it feels like they’re not in, they’re not trying to complete things or complete things in a way that maximizes value. They’re just trying to build as much as they can, when you find the rare service providers, if you want to think of it broadly. And I’m, by the way, we’re a venture capitalist, we’re also a service provider. Now, when you find the rare service provider that actually focuses on value and things like an entrepreneur, it’s like gold. And that’s why I think it’s like, really, you know, Mike’s been just a huge addition to our team, from really, very early on, we were very fortunate to this kind of our past is crossed, and it was perfect timing. So really excited. Yeah,

you’re absolutely right. And even in my role at Great North ventures, I’m, I’m working with a lot of service providers, as you know, and it is I love the service providers that we work with, and we continue to try to work with them as much as possible. Because when you find one that’s good, that’s actually creating value and not just trying to build ours by being a practitioner. That’s you need to hold on to those people because they can help you.

Mike, can you share alike, specifically what you do at Great North ventures now?

Yeah, that’s actually a really hard question to answer, Joe, because anybody who’s ever worked on a VC fund knows that you do a lot. But one thing that I do a lot of fund operations, and legal and finance, to do a lot of that side transaction management. So every deal that we do, I’m really leading the transaction, whether it’s from the legal diligence side, whether it’s from structuring the deal with the company’s attorneys, that that’s kind of where I’m at. And I want to say, since joining Great North labs, we have done 38 initial investments, and I can’t even count the number of follow on deals or the number of broken deals. Unfortunately, it just happens a lot in this business. But I’ve seen a lot of seed stage series, a stage venture capital deals. And at this point, I don’t feel like I’m running into stuff anymore that I haven’t seen in terms of deal dynamics and things that can throw a little wrench into a venture financing round.

So Mike, let’s start at the beginning here, when a startup is just starting to form, I mean, one of the first things they need to do is just pick a name, what are some of the considerations you think, with respect to picking a name that startups need to be mindful

of? Yeah, Rob, I actually get this question all the time. And I’m gonna I’m gonna be real honest, upfront. For most companies, I think this is not the best way to spend their time and resources. But nonetheless, a lot of them do need to pick a name. So I like to tell them where they can search for names and just come up with a list of potential names. I honestly don’t like when the spelling gets too funky, because then it’s hard for customers to find online. And we’ve all we’ve all had that issue. How do you spell this is So make it something that’s easy to find. But then just from a pure technical perspective, every state is going to be a little different, but you do need to incorporate in that state. And if you just do a quick Google search with say, for example, I do a lot of work in Minnesota, if you just type in Minnesota Secretary of State business filings. You will it will it will be one of the top Google results to get to that website. And then you can just type in your names and you can find out if there’s any other companies Has that are already incorporated under that name? So that’s how I would search.

Okay, so you find an available name. What do you do after that?

After that, I think you start building the company, I get a lot, a lot of questions about whether you should trademark it or not. And when we talk about trademarks, this is quite a bit more complicated than just finding a name that is available for your business. If you’re going to pursue trademark registration, you’re going to want to work with an attorney, it’s really not that expensive, there are some filing fees with the USPTO, you can try to do it yourself. But these applications, they’re, they’re kind of a beast. And then there’s usually a lot of back and forth with the examining attorney at the USPTO. And if you don’t know how to manage those communications, they can drag on for months. And that can take up a lot of time. So I highly recommend finding a small business attorney, it’s really not that difficult of a job for them to do. But they will get it done faster. I also don’t think it’s time to trademark any of your logos in any of your slogans or your business name, until you started to actually build up some brand awareness, there’s really not a whole lot of risk that somebody’s going to come in and infringe on your business name. Until you’ve gotten to that point, unless your business is something maybe like one 800 flowers, or, then maybe you have a better case for early trademark protection,

though it’s not a good strategy to just like say that your slogan is the best software company and trademark that

yet it’s not and honestly, Joe, unless you can prove that you actually are selling software, which a lot of startups, you know, they try to get these trademarks in there, like pre revenue, pre product stages, you can’t even get a trademark at that time. So it’s just a waste of time.

That reminds me of this great story. The Beatles used to have this drummer very early on named Pete Best. And sometime in the 60s, after the Beatles had found success, he released a solo album after leaving the Beatles around Christmas time called Best of The Beatles. He made a ton of money, right? And they tried to sue him for all this infringement. But they had no grounds because that was literally his name. He could prove, hey, this is my name. And I was from the Beatles. And yeah, that was a good workaround.

So maybe the answers to change your name to a well known person?

Yeah, my name, my name is Intel, Microsoft now.

Nice. I love it. I love it. You know, that’s part of being entrepreneurs being creative, right? So I think the so now you have this name picked out, you cleared it. Now you gotta go incorporate your company. Well, what do you founders need to be thinking about at that time?

So there’s typically two types of business entities that they can incorporate as there are more than just two. But there’s two main ones that most people are deciding between. That is the LLC, or the limited liability company, and a C Corp.

So how are those entities different? Like,

let’s actually first talk about how they’re similar because I think that’s, that’s the quicker one and then we’ll go into their differences. But they’re similar in the terms that they get, they provide us a shield of limited liability protection for the owners of the business. For the most part, I think that they both provide quality protection for the owners, a lot of founders I talked to think that they can just do anything, once they have this shield of limited liability. That is not the case. If you are acting in a way that is in bad faith or clearly breaking some rules, or you should know not to act that way. Customers or investors or partners in your business, they can sue you and they will try to sue you. So the best way to limit your liability for an entrepreneur is just to not act in a way that would make somebody want to sue you. That’s that’s the advice I usually give in terms of limited liability, because you can never completely eliminate your liability in these types of businesses. As an entrepreneur.

That’s actually my motto.

Don’t act in a way that people will want to sue you.

It’s done me well this far in life.

Well, thanks, Mike. I think this is incredibly important. When I was 20 years old. The first real business that I started out of the dorm rooms was it was called at the time, but anyway that’s not really important. What’s important was I got back had advice, I set the business up as an LLC, I didn’t know any better, I’m coming out of the dorm rooms. And that business went on to scale from zero to 70 million in annual revenue and be profitable for 16 years and 170 employees. And that simple decision of being an LLC would go on to haunt me multiple occasions over the 16 years. And I’ll give you two or three examples. Number one, we were created a pass through effect, so that all the taxes became liable to me as an intern, or the other member ship unit holders. So we constantly were wrestling with the tax related consequences of that decision. And so we’d have to make tax distributions and just all this messy stuff. Secondly, and we were not running this to be a lifestyle business, we were running it to create venture scale from the beginning. And we wanted to have employee stock options, we can’t have stock options in an LLC, the closest you can do is this kind of weird substitute thing that lawyers have come up with called usually called, like equity, appreciation rights, or sometimes referred to as like phantom stock. And there’s all kinds of Yeah, profits interest, makes it incredibly more complicated. And then the third one, we didn’t really raise any money. So this one didn’t impact us, thankfully, much. But you also investors because of that pass through effect, if an investor has say a VC has 100 investors in their fund, by the nature of you being an LLC, you’re passing through all that income through all the funds investors, because it’s a pass through entity, and VCs is that does well, for most VCs, I think that might not be true for VCs that have all institutional money, because I think there might be but in any event without getting into detail, like that was my number one advice for a startup that is planning to create, like venture scale is just do not be an LLC. And if your lawyers telling you to do that, you might want to find another lawyer, right? That’s like my litmus test for lawyers that are providing bad advice is that they’re advising a startup to create an LLC, it’s like they that shows they don’t know what they’re really they’re doing right.

Yeah, Rob, I think you’re right. And I’ve you actually hit it on the head. And I’m kind of a tax nerd, I’m always shocked at how entrepreneurs aren’t aware of this distinction, because this is the big difference, when the rubber meets the road between the two entities is corporations that are double taxed. So that meaning the corporation, there’s a corporate tax rate on C corpse, I think it’s around 20% right now. And then they are the owners of the business are the shareholders, they’re not taxed on anything unless the business kicks out distributions to them. So if the business decides to take their profits, they pay the tax on those profits, they can reinvest that back into the business. However, if they do pay it out to the owners of the company, then those owners will pay personal income tax on those profits. That’s where the double tax comes in, the money gets taxed at the corporate level, and then it gets distributed to the owners and taxed again. Whereas LLCs, like you mentioned, Rob, pass through taxation, no matter whether you even if you reinvest the capital from or the profits from a business, and you don’t distribute it to the owners, the owner still have to pay the taxes on that income. That’s why you’re talking about having to do tax distribution so that the owners are able to cover that tax bill that they have from the products, the business.

And so maybe you said differently, or, you know, I think the reason most startups don’t really need to spend much time caring about that double taxation in a corporation is startups usually don’t want to make money. They want to take any profit margin that they’re generating or gross profit and just reinvested in their own growth. And oftentimes, they’re raising money because they want to run at a loss to keep fueling their growth. And so you don’t really that, that double taxation isn’t really an issue. So is that then when you would want an LLC is if you’re just building like a cash cow business that you’re gonna draw a lot of capital, you can get a little bit marginally better tax rate because of the bad effect.

Oh, actually, actually, where it’s tempting to be an LLC at the beginning for these tech startups, is because you’re right, they are in the first couple of years generating pretty big losses sometimes, so that they and not only do you pass through income from an LLC to its owners, you also pass through the losses. So let’s just use an example with a business and let’s say it generates a loss. Or let’s say there’s a founder who owns 100% of the business, and they pay themselves $100,000 a year salary. The business itself actually generates a lot I have $100,000. So that founder has personal ordinary income of $100,000, from his salary, but then he can write that down with the $100,000 loss to zero. So essentially, he’s paying no taxes, that’s $35,000, roughly, depending on his tax rate that goes straight back into his pocket. So if you try to tell a founder, that they should be a C Corp in those early stages, it makes sense to them to be an LLC. And then they’re thinking, Why should I be a C Corp, but that’s $35,000 that I potentially have to pay in taxes then. And in personal taxes, if they’re paying themselves that salary. However, there are certain other considerations, whereas a lot of times, it does make sense to be an LLC for business. But if you’re trying to raise capital from venture funds, or other investors, most VC funds or institutional investors, they are only going to invest in C Corp. So they are going to require that you convert to usually a Delaware C Corp. It can be it can be a C Corp in any other state, but it’s typically a Delaware C Corp. So if you’re, if you’re planning to create venture scale and raise venture financing, you’re going to eventually need to incorporate as as a C Corp, I do see some companies who want to take kind of who want to have have their cake and eat it too, where they’re an LLC, up until they raise venture financing, and then they convert to a C Corp. That’s absolutely a good approach. And that works. But you need to do it before you go out and raise venture capital, don’t try to do it in the middle of a financing round, it just throws another wrench into the deal that we’ve seen a lot can make a mess.

Mike, there was this other issue I had. Actually I didn’t discover this one until about, I don’t know, after about my first eight or 10 Exit events, I was just kind of I didn’t realize there’s something called qualified Small Business doc, and then section 202 of the tax code that can you know, help save you some money down the road in taxes, right? Can you kind of, you know, just talk about what that is? And, you know, how does that impact founders?

Yeah, I always talked about to when there’s a founder who doesn’t want to be a C Corp, they want to stay an LLC, so they can pass through losses to themselves. And what I tell them is, look, you’re you’re not going to get these great tax benefits from being an LLC up front. But on the back end, here’s what you can get. And we talked about 1202 qualified Small Business stock. Really, it’s a great rule to incentivize investment into startups. And there’s a few requirements to qualify as 1202. Q, SBS, it’s generally referred to as an acronym. And there’s a there’s a lot of requirements, but the big ones are that you need to be a C Corp. So the stock needs to be issued a primary issuance from a C Corp and a primary issuance means it’s new stock that the company is creating and selling, it’s not a secondary sale from somebody who already own stock in the company. Another requirement is you have to hold it for five years. So it’s the this rule is designed to create long term investment and startup so it has to be held for five years. And then the third big one is the company has to it has to be a small business, it has to be a startup type business. Luckily, most small businesses qualify because that threshold is actually 50 million and fixed assets. So no, none of the companies that we have invested in Great North ventures exceed that threshold at the time of our investment. So pretty easy to qualify if you know what you need to do.

So basically, if you’re investing in a startup, as an angel investor, you’ll meet these requirements, generally speaking, right?

It doesn’t work for real estate companies. A lot of people trying to do that. But it doesn’t refer to state companies.

What about for venture like, does it work for venture capital funds? Can they claim this credit or investors in venture capital funds? Can they claim the credit?

Absolutely. So without putting you guys all to sleep, a venture fund actually can claim this credit. And then the venture fund itself is not a C Corp. The Venture Fund is a pass through entity and they pass through this the tax benefit to their limited partners or their investors.

So Mike, what are the benefits of this Q SBS the 1202 qualified Small Business stock, the benefits

It can be huge. Let’s say you sell a company on year six, and you put that on that stock, let’s say your basis in the stock is $100,000, you invested $100,000 into a company or as a founder, your basis is going to be zero, most likely. And then you sell that stock for let’s call it $10 million. As a founder of businesses, you’re gonna have $10 million in capital gains long term capital gains that gets taxed at between 10 and 15%. For most, most people who are running startups, what the QS BS allows you to do is it allows you to exclude up to 100% of those capital gains, so you don’t need to pay any tax on those gains. And what this does is an incentivized founders to start businesses and funds and Angel investors to invest in them and grow businesses and create jobs. So the benefit is actually huge. If you just if you just run the math, if you’re the capital, if you let’s say you have capital gains of $10 million, that’s going to be between 100,000 Or sorry, 1 million and $2 million in taxable capital gains tax.

Yeah, thanks a lot, Mike. I think the for additional summary information I know you contributed to this post on the angel capital Association blog, so maybe we’ll put that in the show notes for those that want to really study up on this.

Yeah, I also want to throw out there because they are in Congress right now. They are trying to reduce this benefit from 100% exclusion to I think somewhere around 60 to 70%. Exclusion. Everybody, Google how to email your Senator, I, they are actually trying to reduce this 100% exclusion down to 60%. I’ve already mailed my senator and I encourage everyone to I think this is a win win for everyone to keep 1202 around as long as we can and to keep it as beneficial as we can. Because it works not just for investors, but also for entrepreneurs. So I do want to add because Rob, I know we have talked about this. How do entrepreneurs take advantage of this? And you want to talk to your attorneys up front and ask them about 1202 Ask them how do you qualify for 1202 stock because on exit, you don’t want to get hit with a huge tax bill. I know Rob’s probably got some horror stories about that.

Oh, man, I believe I’m a great American citizen in the eyes of the IRS, I paid a lot more than my fair share by not just setting things up the right way at the beginning. So

alright, thanks so much, Mike. This is a lot of stuff that we’ve covered here. You know, talking about naming and your entity and tax implications. We’re gonna have to have you on we’re gonna make this a two parter. Next episode. Let’s dive into fundraising. How does that sound to you? Are you willing to come back?

This is awesome. Yes, I’ll come back with let’s talk some more.

All right, our first ever two parter. We’ll see you next time on execution is king.

In this episode, we talk about management styles and goal setting, and uncover some gems about granting equity and hiring from our guest, Orazio Buzza, Founder and CEO of Fooda.

Orazio has taken the startup ride from early on through exit twice already, before founding Fooda. Fooda is a food technology platform that connects restaurants to people while at work, has received $45M in funding, and currently has 250 employees in 20 cities. 

He has a great take on goal setting that keeps people accountable, brings transparency to the entire organization, and keeps the team moving in the same direction. 

Orazio’s milestone approach to managing growth (vs. a calendar-based approach), makes sure that expenses don’t outpace revenue as Fooda scales to new locations. 

Who does Orazio see executing? John Bauschard, at Darwin AI.



Welcome to the execution is King podcast where we talk to successful startup founders, investors and ecosystem builders to uncover insights and best practices for the next generation of great global startups. I’m your host, Joseph Siebert. My co host today is Rob Weber, managing partner at Great North ventures. Hey, Rob, how you doing today?


I’m doing great. How are you?


I’m good. I’m good. I just I just read this, like tiny little distillation. It was on this app. I don’t want to name drop the app, but it has like, it’s like the Cliff Notes of Cliff Notes. It’s it’s like one or two sentences distillations and it was talking about OKRs, you know, and it got me thinking about goal setting and everything. And I was wondering if you had any, any goals for the summer, my goal is more about culture setting, right? Like, I just want to have a relaxing summer, you know, hanging out, I’ve got a repaint my deck, I was gonna finish it. But now we’re gonna paint it because that’s a whole bag worms anyway. Yeah, that’s, that’s my big goal, I think my stretch goal would be to actually make all the plants that I planted in my garden grow. Yeah, that’s


really that’s awesome goals. Maybe I could talk about my personal goals. And we’ll talk about my professional goals this summer, on a personal standpoint. So I have kids ages 1012, and 16. And I’m just such a big believer of entrepreneurship, that I know I only have a few more years with my kids. So I’m trying to help them experience entrepreneurship. So one of my goals, that’s one of my goals this summer, is to really take the real serious plunge of helping my 10 and 12 year old boys are joining us at the nationals the treaty, the biggest trading card conference in the world, which will be in Atlantic City in late June. So I’m bringing my 10 and 12 year old boys, so that they can exhibit with this trading card startup we have and try to sign up users for the app. And you know, it’s supporting this, you know, venture studio company, but the personal goal is really just trying to impress upon my two boys, you know, the value of sort of their efforts and being a part of scaling a startup at a young age. And they can relate to it because they’re kind of into trading cards. So but then, you know, outside of that, that was a little bit work related, but it’s more family related. I’m also I’m doing father daughter dance with my daughter. So I’m hoping to be front and center because we’re the best at dancing of any of the father daughter combos. And then the third one is I this is every summer for me, I want to catch just a little bit bigger or better fish than I’ve ever caught in a previous summer. So, you know, early season is like crappies, but then it’ll turn into like northerns, bass, walleye, maybe some lake trout in there. So those are, those are my three kind of areas of goals.


So I noticed you didn’t use the you know, like the phrase ology for like stretch goals or anything like that. Do you use OKRs? Do you buy into that framework? I know it’s been really popular. People have written about it way more intelligently than I am talking about it right now. But I mean, what has it come in handy for you? Or do you use some kind of other framework for setting goals when you’re when you’re managing employees?


I guess what I’ve always found is you don’t have to be so enamored by the process or individual frameworks. There are a lot of leadership frameworks and a lot of management frameworks. It’s just sort of the Do you have one? And then are you able to sort of iterate on it, make sure it works well, for you. I don’t think there’s anything particularly magical about OKRs versus a any other management system. Or same thing with like, you see this sometimes in the startup world with like, the focus on MVPs. And like lean startups. And, you know, I was listening to a podcast the other day with a former executives of Amazon wrote a book about managing and they said, Be careful about the MVP trap. And like the lean startup process, like an Amazon, it took them two years to iterate on AWS before they launched it. And the team wanted to put it out. And basil and other large tech players started launching, you know, cloud services. But Jeff, you know, felt like they he slowed the team down and said, We really need API’s, you know, we need to get these things done. And sometimes, I guess what he said about that, that MVP was, it’s the V part of it that the startups get wrong, the viable, right, like, you know, you can launch something in two weeks, but are really viable and viable for what how big of a market, you know what I mean? So I think that’s really a key is, I love these kinds of frameworks, but just don’t get trapped in the process for the sake of process. Like, you still got to use your brain at the end of the day, right.


Well, I’m really excited for this episode today because we have a fantastic manager. He was recommended for actually from a previous episode, when we interviewed Jonathan treble of print with me, which is now known as with me, which you know, full disclosure and transparency. That is one of the Great North ventures portfolio companies from fund one. Anyway, he recommended this guest and we’re really excited to have him on rasio BUSA is the founder and CEO of Fouda. Welcome to the podcast or Azio.


Thanks, guys. Great to be here.


So for our first question today, Orazio, can you walk us through kind of your journey up into the point of starting food? How did you how did you become an entrepreneur?


Well, you know, I was one of those guys that even as a kid, I was always had a side hustle going on, I had paper routes for those of you that remember what it paper route was, I sold baseball cards, kind of like a physical version of a precursor to NF T’s, right. But I always was doing something on the side. And, and, you know, I started my career at some large companies. You know, one of them was Amoco, you know, before was bought by BP was the largest company in Chicago. But then, you know, over time, I realized that I wanted to be closer to the product. And eventually I became the product that was in the consulting, I was in the consulting space, primarily doing technology implementations of ERP systems in the late 90s. And then all of a sudden, thing hit and a friend of mine that was a former colleague had gotten funding for a company and, and said, Hey, do you want to join the startup and I found my home, I found my people. So starting with around 2000. And you know, for the next 22 years here, I’ve been in various startups over the years, and I’ve been lucky enough to be part of a bunch of exits. And so I keep kind of going back for more punishment. Yeah, that’s


similar to my own journey. You know, you even if you have a few exits under the belt, it’s, you know, you’re a serial entrepreneur, and you just keep going back to the well, right, so. So tell us more about food. Can you describe kind of the genesis of how you came up with the idea and kind of tell us more about the business today?


Yeah. So you know, to describe food at first of all, I was at a previous company, I was before food, I was a company called Echo global logistics here in Chicago. And I was part of the founding team, I was a president, that company at the time, and we were looking to provide additional food options for our employees, we were in a little bit of a food desert here in Chicago, where the company was located. And one of our employees had this great idea to start inviting local restaurants and to sell food to our team. And every day, a different restaurant would come. And it was a couple day a week program to start in over the next several years. It was one of the most used perks I would say at that company, the company continued to grow initially, we had, you know, maybe a couple 100 people when the program started. And fast forward about three years, that company had about 800 employees. We had gone public the year before. And I was getting ready to transition out of the company. I loved it at Echo. But I was 38 years old. And I thought if I don’t leave here soon, I’m going to die here. And I thought, you know, maybe I’ve got another startup left than me. And so I started the process of transitioning out of the company. But I had agreed to a long transition. And as part of that transition, I was still going to management meetings and one of those meetings, our head of HR came in and said, Hey, I want to talk about our food program. Because the lines are getting too long other people that work in our building, are walking to our lobby and buying food from from the vendors. And I didn’t think much of it at the time, our high tech solution was to hang a sign that said, if you don’t work for Echo, you’re not allowed to be here. But then, you know, maybe a week or two later, I was laying in bed thinking what I want to do next. And I thought, You know what, this is a b2b marketplace company, where I can, you know, use some kind of technology and build a marketplace where on one end, we have employers that want to provide access to food. And on the other end, we’d have restaurants that want access to that different audience. And so I put two and two together and decided to that was gonna be my next venture. I, you know, started the process of working it out. And then a couple months later, Echo came back and said, hey, you know, the transition is good, you’re free to do whatever you want. And so I decided to launch Fudo right away, and echo became our first client, and then it’s still a client today. So that’s how the idea came about. I had nothing to do with it other than I was a customer and I was at the right place at the right time. But at the end of the day, it’s a b2b, b2c marketplace that specializes in food at work primarily for larger employers. Remember, we don’t cook food instead, we partner with restaurants we cook, transport and sell the food to our clients at their clients sites. Our target market is larger employers and all kinds of industries. We have a vertical software platform that includes a point of sale system that our restaurant network uses To execute the events, and Fouda acts as a financial clearing house and provides a consumer rich experience and includes mobile ordering loyalty and real time feedback to the consumers. We have various product offerings based on the size of location. But a key to our offering is that there’s high quality foods, a wide range of restaurants that provide food at reasonable prices, you know, it’s designed to be used every day, you know, one of the key features is variety, users get a different restaurant each day, a typical site gets 15 to 20 unique restaurants per month. And, you know, regardless of the company, you work at all employers, you know, they care about recruitment and retention engagement of their teams. And, you know, since COVID, now, they’re also thinking about motivating employees that come into the office, you know, more and more, whether it’s, you know, the great resignation that we’re all hearing about, or the, you know, the idea of wanting their teams back and sharing a meal. from a physical standpoint, either way companies care about the food component of their office or workplace. And then food as model allows for companies to subsidize all or part of the food. And but it’s not a requirement to subsidize any at all. In fact, most of our business historically, was 100%, employee paid. So it can be very economical. You know, depending on, you know, the needs of a client,


for clarification sake, with your business model of Fouda. Are the employers do they pay any kind of a fee or a subscription for this service? Or, and or do they end customers? Were the employees do they pay for their meals? Or what’s the typical business model?


Yeah, so it’s a mix. So when foodist started, it was 100%, employee paid. Frankly, companies paying for food wasn’t really a thing in Chicago, way back in 2011, as employers have been competing more and more for talent, we saw an opportunity. So we started providing programs that had fully subsidized meals. And so you know, some companies will pay for 100% of the food. And then over time, we build technology that allowed for partial pain. And so now we have a mix, it’s all over the board, you know, we have companies at both ends of the spectrum. Overall, our programs are very economical with the food being representative of what would appeal to a certain site. And so we have an algorithm, we have an AI algorithm that does all the scheduling and the restaurant selection. And so as a site is live, we start to understand more and more the preferences of the people that work there. And so the matching of restaurants and menus to sites is all done by using artificial intelligence and machine learning.


So it was kind of you kind of answered the type of type of restaurants that engage you know, that you that you that you work with? It almost seems like you don’t need to have a physical restaurants, right? Have you had any ghost kitchens using Fouda?


Yes, so we partner with all kinds of restaurants, about 50 to 75% of our restaurant partners are local, independent, or local chains, but about 25% are regional or national and size. And a portion of both of those are some ghost kitchen operators. And so whether you’re purely a ghost kitchen, in the new model sense of the word where you’ve got a commissary, and you don’t have any brick and mortars, or you are a brick and mortar operator that operates a commissary, essentially, it goes kitchen and you want to service food as business through that location as opposed to a physical store. We’ve worked with all kinds so so ghost kitchen, operators make great partners for us.


So Fouda has about 250 employees or so is that right?


Yeah. So we we’ve raised about $45 million to date, we were founded in 2011. And we have about 250 employees, and we operate in about 20 cities across the US.


Great. So I’d love to kind of shift gears here a little bit in I had this experience as an entrepreneur turn professional manager, so to say it was like accidental, and I learned a lot, you know, in part by, you know, just reading a lot or you know, trial and error, but then part of it was bringing on other leaders and managers around me, so I could learn from them. But can you talk you know, start maybe we can dive down this rabbit hole a little bit on different leadership and management topics. Given your experience? Can you talk a little bit about goal setting and how how that works at Fouda?


Yeah, absolutely. So um, you know, as an individual I’m very much someone who sets goals and measures against it in all facets of my life. You know, my friends and family and co workers make fun of me for the way I run my my life. It’s kind of funny, but but food you know, one of our values is we set goals and measure everything. If there’s no data then it didn’t happen. We literally Have that you know, written on our walls and various documents around the office. So we do measure just about everything. But when it comes to goals, I like to keep them very short. And a list of just a handful of, you know, very key items, you know, generally three or four items per year max. And then you know, maybe as you accomplish certain goals, you know, you might replace them. And you don’t, one of the things that probably makes us a little different as a company is we’re very transparent, we literally share our board decks with our entire company every quarter. And as part of that we share our goals, the same goals that we present to the board, we present to our company. And when you think about transparency, you know, there’s a couple things to it. One is, you know, that goal sharing not only holds people accountable, but also it’s an effective way of getting teams to all move in the same direction. And so it just makes our life as a manager much easier, because you know, that information is getting out there. So that’s kind of how I like to think of it one of the things that we added just this year, is that we’ve now started sharing our department goals to the company as well. So not just our, you know, Fouda level, Hey, everyone, this is what we’re aiming towards. But each department shares their key goals in front of the entire company in the beginning of the year. So we really believe in it.


That’s awesome. I was one of them when I was in my mid 20s. And when we made the company a my brother and I had started off at dorm rooms, we were at around 50 employees. And in my early 20s, some of that we started to get some negative feedback about how we were managing the business. And it was because we kind of kept key information really guarded. And I didn’t really know any better. And then, at this point, we brought on an outside CEO to help us just grow the business. And he had a lot of management experience, one of the first things he did was just like you described, he basically coached us to kind of share all the key information about the business really openly in the organization. And it was absolutely, you know, a complete one at like changing the culture. And we really became more centered around accountability, which was sort of always one of our, I would say our most important value. But it was just like, we didn’t know how to create a structure or a system that would orient around that, you know, that accountability? I think that’s what transparency provides. It’s awesome to hear that I actually haven’t I don’t think we ever distributed our whole board deck. So that’s like, oh, no,


we don’t distribute it. But I do present it, I go through slide by slide on Zoom and person, you know, depending on, you know, our people in Chicago here, I will tell you the first time we did it, it was pretty scary, you know, from a sharing of the actual deck, but we’ve been doing it now for probably about four years. And so it’s second nature, and if you think about it, public companies do it all the time. Right, yeah, they share, you know, a ton of data and, and still, you know, their businesses are defensible. Their employees are motivated, you know, good news. And bad news is they feel, you know, a deeper connection because there’s a level of trust that’s, that’s gained.


Oh, it’s awesome idea. I mean, now everyone’s in the room where it happens. So they can’t make excuses, right. It’s all about accountability. And then, I think related to that people, like managers and companies put so much effort into producing good board materials, like this isn’t that much extra work to just present it to your team? Right? Because you already have to produce this quarterly anyway, for your investors, and, and so forth. Right?


Absolutely. It’s, you know, I think the the whole idea of presenting to a board to begin with, since we’re on that topic, whenever it comes up, right, whatever that quarter is, and the team is preparing, it’s always an effort, right? You have to pause other things that you’re doing to do this step of taking a step back, thinking about the big picture, and then putting board materials together. And as time consuming as it is, as a CEO that, you know, my tendency is to be very involved in the business day to day, it forces me to take up to pause, take a step back and evaluate what’s going on and say, hey, you know, what is the big picture? What’s going on with the business? What’s the tone, what’s the messaging, and I find it really healthy. And you know, as a manager that be forced to do that once a quarter. And then you know, you already have the materials, you might as well double dip, right, you get additional use out of it and take the time to present to your team so so you’re right, it’s it’s getting that second use, and it’s it’s really beneficial for everybody.


Do you use like the OKR framework? You know, like we’re talking about, like KPIs and stuff, do you use that framework? Or do you just kind of do use your own? Is it similar?


Yeah, we use our own. I think there’s a couple of things you know, when you think about goals, as well as, you know, whether they’re stretch goals or budgets, etc. And what KPIs do you measure, we do measure a lot. As I mentioned before, we like to have very few goals but they’re, but they’re written out. So we write them out and you know, it’s the The same concept of SMART goals, right? You know, the there’s been books written on making sure they’re measurable and achievable, etc. But I think more importantly, when I think about goals, and and how they differ from budgets, right. And so and I see this a lot, I mean, I’ve made this mistake before. And at some point in my career I was coached. But I think startups, especially earlier stage, you need to separate your budget, from your stretch goals, you know, there’s no reason why you should, you know, miss a budget by a material amount, let’s just say more than 10 or 15%, if that happens, then you might not have a great handle on your business, right? Especially, you know, we’re a later stage company at this point, right. And so we do have, you know, all the mechanisms in place that allow us to do really good forecasting. And so we shouldn’t be missing our budgets by that much on the high end or low on right, either, you know, beating by a lot or missing by a material amount. If that happens, I think, you know, other than maybe COVID, right, and some existential event that happens, you should be able to nail your budget, you know, relatively closely. On the other hand, people shouldn’t use budgets for bonuses and goals, right, for, you know, personal bonuses and goals. That’s where the stretch part, you know, comes in. And so there’s the, you know, the table stakes of achieving the budget. And then there’s, you know, what are the extra goals that we have documented for each department, or each person or the company that allows us to go above and beyond? And so I like to make sure that those are addressed in variable competence?


That’s really interesting, because I mean, I don’t know a lot about OKRs. But it seems like, what you do is you you set all of these goals, and you’re supposed to set ambitious ones, right? Where you set I think, what is it three or four goals a quarter, and then they’re supposed to be pretty ambitious, so that you’re not hitting 100%, that you’re hitting like 60%. Otherwise, if you’re consistently hitting your goals, quarter after quarter, then you’re not like reaching, right? You’re not stretching your capabilities and stuff. But what you’ve outlined, is is fantastic, because you’re hitting what you need to hit. But then at the same time rewarding, you know, everything beyond, which is the whole idea of you know, OKRs, the whole idea of setting these kind of longer goals is to have people reach to, to exceed just hitting the budget, right to actually reach and get these greater achievements. This is a really interesting framework. I think you actually I heard you on a podcast, where you talked about your milestone approach to growth and scaling. Can you tell us a little bit about that?


Yeah, so we’ve adopted a concept that we call the milestone driven plan versus a calendar driven plan. And so for example, and how this became a more mature process here is, food is a market based business, right. So we have certain operations that exist in each city that we operate in. And so there’s a process of launching a city or launching a market. And so before we started that process of adding markets at a regular clip, we talked to some third parties, other market based companies like Uber at the time, that you know, was launching cities, you know, once a week or so. And we had some feedback from them and some other companies in regards to how they did it. And what we heard time and time again, was, you know, in the first two weeks, you do this, and the second two weeks you do this, and the second month, etc, right? You know, it was it was calendar based and time based. So that’s what we did, we built a plan based on some of the learnings that was driven by that. And so what you find is, what we found, is that, that works really well, if you have a highly predictable process, but ours was not. Once you introduced, you know, a b2b sales component of building of a restaurant network, launch calendars at you know, large enterprise sites, things were a little squishy. And so the other thing that you find is when you have a calendar based plan, is that the team tends to always hit the timeline of the things that are fully within their control, like hiring, but they tend to, you know, be behind if anything, and things they don’t control, like sales and client launches. And so all of a sudden, you get, you know, expenses are going up faster than the revenues catching up. And so over time, which we try to, you know, think about how we can do a better job of matching those two. Now, the key is that these the steps are not linear, but there are dependencies and so For example, we put together a revised plan, maybe a, you know, a year after we were doing this, which was more milestone based. In other words, you first had to sign 10 contracts with clients. And then after that, you started to onboard restaurants, and then after a certain number of restaurants are on boarded, then we’re actually launching the sites. And so, you know, you can, you know, obviously, those steps are not happening independent of one another. But there’s these milestones, and you don’t hire the replacement team, until you get 10 sites launched. Right. And so all of a sudden, then, you know, the market becomes more profitable earlier, there’s more attention given to those, those dependencies. And so, you know, overall, we found that the process is working much better. And so we continue to use that, you know, what it really says is the milestone plan is more, you know, is a plan that has guardrails. And so as we were coming out of COVID, and there were a lot of unknowns on like, you know, maybe our business was know, leading up to COVID, which was, you know, very predictable, we started to adopt the same model from a budgeting standpoint. And so now, we not only use it from a market launch perspective, but we also use it in budgeting. And so, you know, a simple example would be that, you know, you know, a certain role doesn’t get unlocked, to be hired, until that department reaches a milestone. So, you know, it could be revenue driven, it could be based on some other metric that, you know, once something happens, then it unlocks dollars, to hire a role. And so if something’s ahead of plan, then the roles open up faster. And if something’s behind plan, then you know, just takes longer for that role to be to open up and so it kind of, you know, is the checks and balances or guardrails?


That’s so great, it sounds almost gamified, like, as you’re describing it, in my head, I’m imagining, like, video game, progressing as you like, build your Sim City, or build up your character or something like that, I can imagine it’s pretty attractive for the employees, you know, once they get a little bit competitive, to start reaching these milestones start pounding them out.


Absolutely. And, you know, with any growth organization, you know, things are always kind of up into the right, you know, when whether it’s revenue, or other kinds of sales metrics or operating metrics. But you know, when you have a manager come in and say, hey, you know, I want to hire this role, and it’s the middle of June, right? Well, you say, Well, let’s take a look at the plan, you know, because, you know, we, that role gets unlocked when you hit this metric, and you haven’t hit it yet. And so it allows the decision makers to be disciplined, as opposed to living in the moment and feeling pressure to do something, obviously, you know, we break our own rules periodically, and you have to have a feel for the business, right? Like any good manager would, but we try to stick to the plan. And so it’s an easy way to think about those decisions in the middle of the year, which is, you know, could be 567 months removed from when you put your plan together.


As both entrepreneur and investor in a lot of companies kind of in the middle of the US, one of the cultural things that is really kind of bothered me after spending time in other markets, like San Francisco, is just the value that equity based compensation can have in supporting growth companies. Have you had much experience, both in the early stages? And then in more of the growth stages? How do you feel equity compensation is? Is it properly utilized? Are there any tips on how to manage equity? Referring to


stock options? Yeah, stock or whatever else? Yeah, yeah, of course. So it’s actually a really good question, because I dealt with it personally. So when I was, you know, at a previous company, and the way a lot of companies do it is for executives is you join a company, you get a big option grant that vests over three to five years, depending on the company. And as you get towards the tail end of that, you might get some refreshing of shares here and there. But relatively speaking, it’s a it’s a small component in comparison to that original grant. And so as you get on the tail end of that, it’s all about cash comp. And because you’re fully vested, right. And so, I believe that if you’re going to use equity effectively, you have to have two components to it. One is it needs to be widespread. And so we give options to everyone from an hourly person that works at one of our locations all the way obviously to the executive team. The other thing that we do is we do annual granting. And so we have a process where every summer in July, we do we you know we do a big grant where everyone in the company gets a new stock, right and they’re pretty material and so it doesn’t mean that we don’t that we have really small grants when someone starts But relative to that traditional ratio, our initial grant is probably a little smaller, but we communicate to the team that we hire that, hey, you can expect roughly this based on, you know, each year, you’re here, you’re gonna get more of a grant. And so what that creates is a ladder in effect, where every year, you have a bunch of shares, vesting, and so, you know, one of the keys as an executive, and I’m a large shareholder, I was, you know, not only the founder, but I put a lot of my own money in to start as a shareholder, I want to retain our team. And so there is a big incentive to stay at FIU to because at any given time, you are giving up lots of equity, right, and you’re giving up more equity in the future. And so it’s a tough decision, right? You don’t have that scenario that I might have had earlier in my career, where, hey, I’m pretty much fully vested, this next new shiny object, that is another startup is going to recruit me away. So that’s pretty important here at Fouda.


And one of our prior episodes, we spoke with Joe Stryver, who was the first UX hire at Google. And Joe told us after moving from Minnesota to San Francisco to be the first UX designer at Google, that he observed how talent would move in packs around San Francisco and Silicon Valley. And, you know, I think part of this might have been due to stock options, right? Like, if you have a group of people who all work together and they invest their shares, there’s, you know, that incentive to stay retained at a company kind of starts to go away, and why not go build yourself a nice venture portfolio and go from company to company. So this is really interesting approach. I, I can’t think of too many companies, if ever that I’ve seen this approach, but it really solves a big problem of retention, that the standard kind of, you know, four or five year vesting plan with, you know, all parent, you know, that, that, that kind of that really just encourages people to leave after that period. Right?


Absolutely. And, you know, I will say that we didn’t make that decision lightly, a lot of work went into designing the plan, and what the amounts would be, and we, you know, the way we looked at it is, if someone’s here, you know, seven to 10 years, you know, let’s say on the longer end, what does that exit look like, and bait, you know, based on each role, or each level, we have a target of what we want to see each person get over time. And so we have a system where they build up to that over time. The other thing is, is took a lot of work with our board, to you know, to agree to put this in place, because we’re we’re giving out a lot of options. And so I think if you were to compare the size of our option pool, in comparison to maybe some other comparable companies, you probably find that it’s bigger.


So you’ve been a part of two companies before Fouda, where you were one of the first 15 employees and the startup scaled through IPO. How does this inform the way you hire and develop leaders.


So, specifically, you know, regarding hiring, there are a ton of great books out there on hiring, but I like to address you know, one tangible a call it a tactic that I believe moves the needle for us. So it involves addressing the fit for the first role in the company, relative to other characteristics like long term potential culture, fit, intelligence, you know, work ethic, etc, that concept evolves, addressing if, you know, your company can easily promote or move people around the organization, the more flexible you are as a company, then the lower priority you can place on that first role. But if you have flexibility that is limited, then high likelihood of success for the first role is a much bigger priority. So as an example, you know, we we don’t do well, we don’t do it food is hire someone based on what we think we might need later on. So it’s, what do we need now. And so not only does the current role matter, but those other characteristics I mentioned earlier, and so we don’t create jobs for great people. So you know, so I meet great people a time I love networking. But just because I meet a great person, we’re not going to go back and create a job, you know, based on we think we might need later we focused on the now. And the reason is, is that at both those two companies that you mentioned that IPO they were centralized were fruit as a market based business model. And so at companies that are centralized, you can have a general hiring strategy, that you just hire, you know, the best and brightest. And they tend to get promoted or rotate through other functional areas over time, you know, based on their skill, set their goals and the company’s needs, the fit for their first job within a company where it wasn’t as important at those, you know, the places not saying that you don’t evaluate that and you just bring in miscellaneous people, but there’s more flexibility to bring in people that you believe have a high ceiling and you’re like, Hey, I’m going to start them here. And I’ll eventually move them on. What we found here is that it did not work very well. because we didn’t have that flexibility or as much flexibility, it turns out that, that people really don’t want to move, like maybe they used to years ago. And so if you hire someone into a certain market, whether it’s a city we operate in or centralized here in Chicago, moving isn’t really a thing. Now, obviously, this doesn’t pertain to remote work and jobs that are remote, that’s more of a recent phenomenon. And that’s, that can be helpful, that’s more like a centralized where you could work anywhere, but in a lot of jobs, that food there depend on the market you’re in. So a lot of our sales and operations jobs, and even some of our managerial jobs, you know, if you’re managing a market or region, you need to be in that city or region. And so we find that that first job, and the role is really important. And so we make it a requirement that you have to be a great fit for that first job.


I love this approach, I think this is one of the areas, if you’re going to create a growth company, you want to create a culture centered around your people growing, right. And I remember in my prior business, I used to draw a few goalposts. I’m a big football fan, so and I would kind of rank entry level talent, you know, everyone had a develop into the first two or three rolls of skills, they’re sort of slotted, but then you sort of have this field goalposts. And you could grow into two different tracks, there’s the management track, and then there’s technical proficiency. And you’ll notice, it wasn’t just one track of management, we did not want a company that the only way to grow your career was to become a manager, and then an executive. You know, for example, when you’re in a technology startup, you want you also want to value the chief data scientist and the, you know, chief architect of your platform, that’s a technical track, they don’t necessarily need to have a lot of managerial responsibility. And so I think it’s super important to clarify, you know, the growth opportunities, and then you can kind of, in your one on ones with employees, I found, it was just really honest, I’d say, you know, what do you want to do, and a lot of people, they, you know, if you don’t communicate that, and I found in this field goalpost that everyone thinks, the way they grow their career is to become a manager. And there’s there is like, a significant amount of talented people who are just never meant are not going to be great managers. But you know, what, they might be freaking awesome engineers, so why not provide growth opportunity for them to right, and I don’t know, I just found like, once we it was almost like a relief. Sometimes we’re like, great example would even be sales. It’s not just technical skills, like, you can have a really, I’ve seen a lot of people try to promote really awesome salespeople into sales managers. And a lot of times the best sales managers are not the best individual sales contributors. Right. So I found this like analogy, I don’t know, to steal from football, you know, to just kind of like this to try to be really direct with people about what what their future can look like.


Absolutely. So it’s funny, I haven’t heard that analogy used before, but I am going to borrow it in the future. I totally agree with it. And I think there’s a sentiment that management is sexy, and it’s easy to get sucked into that. But a lot of organizations and including a lot of roles here now and historically, the highest paid people within a certain function, we’re generally not the managers, right, from a cash comp standpoint, I you know, we’ve had engineers that were not in management make more than, you know, the leaders of the department, we’ve had sales people that, you know, make more than the people running that region or that product. And historically, I’ve seen the same thing. And so, you know, getting back to that topic earlier of equity, I think equity is a bigger driver for management tracks, but cash should be a bigger driver for, you know, individual contributor tracks, whether they’re technical skills or sales or operations, etc. hitting certain stretch goals, you know, could could provide more cash comp than maybe equity.


So, when your book on management comes out, I’ve got a couple of titles for you, either Busan business, or make management unsexy.


I like to make management unsexy now


wow, that was awesome. You can tell that Joseph went to journalism school although you wouldn’t maybe pick it up off of this episode so far, but before he went to journalism school he was actually in the food industry so he’s probably he if you ever need help with naming or branding and, and different products for food, or you could give Joseph a call.


Nice, nice. I didn’t have any food experience before food, but I always tell my friends I could run the best hotdog stand ever. And now I believe I’ve done it.


One of my board members from my my last startup, we kind of had the odd shouldn’t pick a board member is working with a we had a private equity fund by a third of our business early on. And and the first guy they brought in, was I forget, I don’t remember the name, but he had this background of from some mega conglomerate holding company from, you know, the internet 1.0. And he had raised billions of dollars and flowing through it all in bus. And I was like, he was talking about all these high profile stories of like, whatever he was doing blowing all this money. And I was like, Nope, he’s not our board member. The second guy, they introduced us to this private equity firm was actually he he was an immigrant political refugee from like, I think it was I rack. And he ended up in New York. And he was basically like, pulled himself up by the bootstraps, as literally his first business was a bagel, like a bagel street vendor. And I have so much respect for him. It was like, right away is like, You are our board member. I mean, I just love stories like that, like, and he was the only board member who would curse in a board meeting. And but it was awesome. It was just like something about that, you know, that kind of progression. Like, you can have humble beginnings, right? Like as an entrepreneur, I think most entrepreneurs have humble beginnings. It’s not, you know, I don’t know, I’ve always could relate to add a little bit more. So.


Yeah, I agree. I agree. And I think the whether that’s the workout that goes along with the that profile that you mentioned, you know, the grid resiliency, that’s that’s where the value is, and whether it’s co founders or board members, investors that just really understand that.


Yeah, I’m really excited to ask you this question, or ossia. We ask everybody who comes on the podcast? This question, actually, we asked Jonathan treble. And unsurprisingly, after listening to how you develop frameworks and how you manage your team, Jonathan said that, what’s the quote from Jonathan, you, you are the best operator he has ever seen. So I’m excited to turn around and ask you, Who do you see executing right now? A startup or an individual? Maybe it’s someone flying under the radar? Or maybe it’s someone we’ve all heard of? Maybe it’s, you know, Elon Musk? But who do you really see performing?


So I’m gonna give you one Elon Musk story first, since you brought that up. So valor Equity Partners is our largest investor and, and I remember early on, I would be sitting in board meetings, and they were the, I believe the first institutional money into Tesla and later SpaceX. And and I would get, you know, comments such as, you know, Elon wouldn’t do it that way arise. Or not, I’ve had to live up to you know, Elon, as a competent in a weird way, right? I am not Elon. And actually, my example of someone who I believe is executing is not arouse do so just, you know, different styles, different ways of doing things. And so the person I, you know, that came to mind was, I’d like to give a shout out to John Bouchard at Darwin AI. And so they’re an ad tech company based here in Chicago. They’re about 70 people, you know, John and his team, they’ve been heads down executing for about four years and bootstrapped a company from the beginning. So John is an accomplished founder with several exits under his belt, and gets calls from VCs all the time. He easily could have taken an early investor, but he stayed true to his plan is and they’ve self funded the business. And, you know, they kind of keep putting one foot in front of the other each quarter and have built a great business and have a lot of runway. So that’s why I’d like to give a shout out to


can you give us his phone number? I’m just kidding. Thanks so much for joining us a rasio. I’ll make sure to link to John Rashard and Darwin AI in the episode description for everybody. Thanks so much. It’s been great having you on.


Sounds good. Thanks, guys.


Thanks a lot Roz.

Welcome back to the Great North Ventures newsletter! The big news this month is the closing of Fund II! 

We have closed our $40M Fund IIGreat North is excited to build on its Fund I success investing in startups from Seed to Series A, with a new, larger fund.

Fund II Snapshot:

Thanks to our investors, founders, team, and to our community! Read more coverage here and here.

“Great North Ventures has a strong track record,” said Rob Weber, Founder & Managing Partner. “Our investors have given us a vote of confidence by coming out strong for Fund II, with a 70% increase in fund size, and we are grateful for their continued support as well as the support of new investors. Our strategy as a thematic, network-driven investor focusing on opportunities in underserved markets is resonating, and we see this successful Fund II raise as proof of this theme and our ability to execute.”

Interested Founders can apply for funding consideration immediately. Are you looking for early-stage funding?
Do you fit one of these themes:

Visit our site to view our criteria and to apply.

Need to learn more about early-stage scaling and venture funding? Are you working on scaling and thinking about VC funding? Listen to the latest episode of Execution is King.

It features Eric Martell, Founder of Pear Commerce, former founder of EatStreet, and former Venture Partner at gener8tor. As a successful founder, investor, and now repeat founder, Eric has valuable insight on what it takes to scale and successfully utilize funding. And guess what? He shared it with us.

Like this tidbit on what remaining focused on the problem looks like: “it took some patience and dozens, if not hundreds of customer conversations, and not being super in love with any individual solution to the big problem that we were trying to solve until we found that correct solution. And it’s almost like, you know when you know, because then the business really took off.” 

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In this episode, we talk about early-stage scaling. What it looks like, how to think about it, and what it takes to generate growth.

We are joined by Eric Martell, Founder of Pear Commerce. Eric is a former founder of EatStreet, and a former Managing Director and Venture Partner at gener8tor. 

With a background as a founder and as an investor and startup mentor, Eric has a lot of perspective on early-stage growth. He talks about what it takes to succeed: being obsessed with solving a problem (not with the solution), getting traction by creative means, and good old-fashioned hustle.

He also shares how to land VC money: by demonstrating the aforementioned traction, hustle, and creativity; being willing to swing for the fences by taking risks; and understanding that the math that drives VCs means your business needs to be capable of reaching a tremendous valuation.

Who does Eric see executing? Adam Choe, a former Managing Director at Gener8tor, current VC, and professor at University of St. Thomas.


Execution is King Podcast (with Eric Martell) Edit Round 1

Tue, 5/17 3:42PM • 35:06


founders, company, investors, building, startup, people, customers, big, problem, rob, crazy, work, vc, retailers, generator, turkey burger, eric, diners, restaurants, scale


Welcome to the execution is King podcast where we talk to successful startup founders, investors and ecosystem builders to uncover insights and best practices for the next generation of great global startups. My name is Joseph Siebert. Today, my co host is Rob Weber, managing partner at Great North ventures. Hey, Rob, how you doing today?


I’m doing well excited about our guest today. Yeah, me too. You


know, this is a topic near and dear to our heart. I can’t imagine a topic near or Dear actually, we’re going to be talking about early stage scaling, right about how to generate growth, what to look for in like founders, what it really takes to be able to scale at an early stage, you’ve got a lot of experience with this, Rob, you must be excited, hey,


I think that people who haven’t founded a company or a startup, the thing that that often goes unrecognized is just how dedicated you have to be. And this is why I feel like you probably shouldn’t start accompany if you’re not visibly enthusiastic about that idea. And that problem set that you’re solving, because the amount of energy, you know, hours and time it needs, it really is all consuming for most of the founders. And when it’s all consuming like that, and working crazy hours. And sometimes that’s when you’re working when you’re not even working. You’re just you’re constantly thinking about scaling the business and growth. And you know, those first couple years are often so physically draining. I think this is why you often see founders, you know, they don’t just like they don’t go from startup to startup to startup, they take a break, because of just how draining, you know, you get some gray hair my case I started probably lost my hair a little faster than I otherwise would have. You know, it almost just because of how consuming being a founder can be in those early years. It’s I think it’s like a positive stress most of the time, like, but it’s still stress. And, you know, I think it’s why people get off the hamster wheel after they have an exit for a while, they usually come back to it because they’ll miss it. But you know, it’s often nice to get a breather after you’ve been on it for a while.


Well, our guest today is someone who can definitely obsess over a problem in a by obsess, I mean in a very good way and who has all the hustle and the ability to do this as a serial founder. This week. Our guest is Eric Martel, founder of pair commerce. How’re you doing today,


Eric? Oh, I can’t complain. Thanks for having me on, guys.


So Eric, we’ve known each other for a few years now. I met you when you first moved to Minnesota from Wisconsin. And you’ve had a pretty diverse background as a founder and then organizing the accelerator now founder again, can you kind of provide a little bit of background on kind of your journey to what you’re doing now?


Absolutely. So yeah, Rob, I think we met each other back in 2016. When I moved here from Madison, I don’t consider myself a Vikings fan. I’m a Packers fan. But in every other way I consider myself to be a true Minnesotan at this point.


Oh, that sorry. Sorry to interrupt, but the podcast is now over. Thanks for coming.


I think the first Packer fan we’ve had on the podcast, but you know, you did move years. So you know, we let that we let it slide.


Yeah, absolutely. Forgive me my faults, and I’ll forgive yours. But yeah, so I’ve been in the entrepreneurial Universe since 2009. Myself and two of my college friends started a company called Eat Street. The summer between our sophomore and junior year at the University of Wisconsin Madison eat street powers the online ordering of 15,000 restaurants nationwide, primarily in college towns of 100,000 to a million residents. I like telling folks even here in the Twin Cities, we don’t have much of our presence, the city is too big for us. But if you ordered some celebratory pizza in Lawrence, Kansas after the NCAA championship, there’s like a 95% chance that that food was delivered from my old company. So I was there from 2009 until 2016. That was the point when I decided that Madison wasn’t cold enough for me. So I moved up here to the Twin Cities and joined generator the startup accelerator As Rob mentioned, I had been a participant to the generator accelerator with my first company eat street, love the team love the vision, and was really honored to help open up the first office here in the Twin Cities along with a guy named Mark McGwire. I was there for two years, but I knew that at the end of the day, I was going to have the entrepreneurial bug again, I was really inspired by working with all these founders, so I decided I had to do it again. And I’ve been with pear commerce ever since. So that’s like the I don’t know maybe 62nd overview of you know, the last 13 years of my life I’ve and I’ve worn a lot of hats. I’ve been both an investor and investee, and I love every second of, you know, building companies. And


so tell us more about pair commerce. What was your inspiration? And, you know, how has that evolved since focusing on launching peer commerce?


Yeah, at my first company eat street, it was a two sided marketplace, we had to have restaurants. And then of course, we had to have hungry people ordering food from us. And the hungry people side of it, the diners, we really built that customer base with digital advertising, Facebook, Google, tick tock, I mean, you name it, we’ve probably spent tons of money on that ad network. And the great thing about building that giant list of consumers was that everything was really transparent to the digital space. Like somebody would click on an ad, we would capture their information as they actually went and checked out and bought some pizza on our website or app. And that allowed us to do things like remarket back to these people say, Hey, are you hungry? Again? Do you want to buy more pizza, and really helped us learn who our customers were so that we could run more effective digital advertisements to acquire new diners? Pair commerce came about because my fiancee, who has worked in CPG, for the last half a decade, was actually at the time Head of Marketing for a turkey burger company called Mighty spark here in town, that company was running digital ads, but they didn’t actually sell turkey burgers on their website. So she was like coming back to me every day and saying, Oh, my God, you are so spoiled, because you’re able to actually like see what your digital ads do for you. Whereas for us, if somebody clicked on our ad for a turkey burger, where they’re going to take you to a blog post, that’s just information about a turkey burger, I mean, who the heck cares about that. Or we can send the traffic to a retailer that sells our product, but we get no confirmation of sales out on the other side, we have no idea how many people buy the products, we have no idea anything about the products. And she’s like, you know, it’s totally worthless restaurant digital ads. And I was like, totally worthless. I mean, that’s, that’s an upside down understanding of like, the value that I see in digital ads. So I set out to build a company that basically provides the same kind of transparency and benefits to digital ads that are for companies that sell through retail, as I myself had been, like, super spoiled with at eat street running ads that were more or less direct to consumer, where we were the ones both advertising and selling the product. So basically, pair Commerce has tried to be a company that provides the benefits of direct to consumer performance marketing advertising, to companies that sell their products, primarily through retail,


well, you’re making us look like bad husbands, Eric, I gotta say.


She’s like Beyonce at this point. So I don’t, I’m neither a good nor a bad husband. I’m just


as Eric knows, I spent 16 years in both consumer app world and then also building mobile ad tech where, you know, dealing with AD attribution, and building and developing digital performance advertising systems and technology. And so I know the there’s a lot underneath all of it to make it work. And to try to do that in a market that doesn’t have, you know, have that infrastructure yet. It’s, you know, it sounds like a mountain of a task, I imagine you have to probably work with online retailers as well as the brands Right? Or how does it all work?


That is the biggest crucial piece of what we’re trying to build is, we want a retailer to provide transparency into the purchase, if a CPG company sent the traffic to the retailer in the first place. It’s like a clean trade, like, we’re going to help you as a retailer, grow your business online. But what we need as a brand, you know, Hershey, us who’s spending millions of dollars on advertising, it’s sending this traffic to retailers, is a little bit of transparency into what’s actually happening with the retail. So of course, there’s a whole lot of complicated technology that goes into like, you know, capturing and exchanging this kind of information. But really, at its core, it’s more a human problem than a tech problem. It’s approaching retailers and aligning incentives so that they understand the value of receiving traffic from brands in exchange for more transparency. And I’ll tell you, I mean, we’ve been at this for like two and a half, three years now. And it’s not been until the last like six months, that we’ve really gotten massive buy in from retailers. But at this point, we work with three of the top six grocers. We work with the largest club store, we work with the largest electronics retailer, the largest alcohol delivery company, we’ve really been able to get them to see the value of exchanging a little bit of transparency to the products that they sell, and the companies that you know, make those products in exchange for receiving, you know, massive, massive amounts of traffic that helped them grow their own business. So it’s a tough problem, but it’s a human problem. And yeah, it’s probably taken a few years off my life and I’m finding my first gray hairs. Now, Rob,


welcome to The Club.


How would you go about validating the idea for pair? After you? So after you talked about the inspiration and recognizing that there’s an opportunity here, but I imagine you had to like, you know, there’s a little bit of iteration and formulation, when you’re trying to figure out exactly how to figure it out, especially with a two sided marketplace like that. How did you know that you had like, kind of hit on the winning formula?


Yeah, admittedly, we fell in love with the problem, because it sounded really complicated. And nobody else was like, really delivering value on that problem of like providing CPG companies that sell through retail, the transparency and performance marketing playbook of direct to consumer brands. And we loved how that sounded on paper. But we had no idea originally exactly how we were going to go about what we really did as immersed ourselves in a network of mentors and potential customers. And what I found is, you know, maybe even the easiest way to get sales is to come to somebody for advice in their perspective. And, you know, have them say this is a good idea, or this is never going to work. And if they think it’s a good idea, they might sign on as a pilot customer. So for us, I mean, I think that we could count no less than four iterations of the product. And I mean this in like, significant ways where, like, we totally reinvented our way of following through on this goal, and this problem statement that we had fallen in love with. But it took, like, you know, building an MVP, bringing it to customers and saying customers, you know, there’s somebody that I’ve been talking to in the CPG universe, who got all four of the pitches, and on the third one, he was like, Uh, you’re almost there, but like, it’s not quite going to be able to deliver the value that I’m looking for, I don’t think it’s gonna work retailers aren’t gonna say yes to it. But, you know, the proof is really kind of in the numbers. And what we did is eventually found a strategy, where we’ve aligned incentives correctly between the consumer packaged goods companies and the retailers, we built the necessary technology to, you know, facilitate that, you know, alignment of goals. And it’s been off to the races for us since that. And so we’ve been growing 30% month over month for the last nine months. But God, it took some patience and dozens, if not hundreds of customer conversations, and not being super in love with any individual solution to the big problem that we were trying to solve until we found that correct solution. And it’s almost like, you know, when you know, because then the business really took off.


Oh, that’s one of the things I’ve always enjoyed speaking with you, Eric, is you have the two characteristics that I think are most important, you know, if to be successful as a founder, and it’s, it’s really centered around creativity and being analytical. And it’s sort of like, I mean, if you can tackle, you know, the CPG industry, you know, the brands and these mega, you know, monolithic retailers, like it takes a certain amount level of just insanity to want to, you know, to go into that space, you know, but, but I mean, that is an all, you know, in the best ways, like, it’s not an easy, it’s not easy to get big companies to move. But I’ve just really enjoyed seeing this, you know, analyzing the problem falling in love with the problem, but then also kind of, you know, the creativity that goes into finding the right solution, right, like, like you said, you’re on your third iteration or whatever on, you know, on Pierre now, right?


Yeah, number four, actually, and thank you, blushing, and you’re probably giving me too much credit. But I mean, I also, you know, it would be worth calling out that, like, we’ve been very grateful to create north from, you know, day one for the support that you guys gave us, after we had a little bit of traction, we’re still kind of searching for our true north, and you guys believed in us as leaders, you know, we could not be in the position that we’re in right now. If it wasn’t for the support of, you know, our investors on our precede and our seed round. So, thank you guys for helping me pay my bills, as I’ve gone, you know, looking for the solution to this massive problem. And, you know, we’re pretty confident to this point that we’ve cracked it.


Yeah, let’s jump into that a little bit more in Thanks for the kind words, we appreciate it. But if you if you think about, you know, what are some of the lessons learned? So you raise quite a bit of capital while at each street, then you have been on the other side with generator and as an investor, and then back to being a founder again, what are some of the things that you’ve learned along the way for, you know, how to raise venture capital, and just, you know, things that maybe gaps that you see that maybe some founders struggle with? Is there anything that stands out to you?


Yeah, well, the first one, and this is just something that we said repeatedly generator is that traction speaks the loudest, and at eat street, we were relatively significantly entrenched by the time that we went out to raise money. You know, we had paying diners. We had restaurants. You know, the concept was working on a pretty small scale at the time, but you You know, the concept was working? I mean, then the question just became like, how large can this go? and pair it was a little bit different because enterprise sales do take a long time, you know, what I think that we had going for us, in addition, of course, to a track record of being repeat founders, and was the fact that we were learning so much by the day, from these customer conversations that we’re having before they were even customers. So when I would talk to you guys, or when I would talk to other investors, you know, when we do our check ins, it’s like, you know, listen to like, you know, this new revelation, like how much closer we’re getting to solving the problem, you know, having people initially committing for pilots, you know, that was a pretty good proxy for, like pure revenue traction for us the first time around. But I think a lot of people think that like, you know, the extra 10%, that goes between, you know, being unsuccessful and successful and raising around is like, you know, the quality of the Photoshop of the deck, and like, what really speaks, you know, the loudest is probably like, you know, the progress that the company is making. And you don’t get that without rolling up your sleeves, and just putting in a tremendous amount of hard work. So I think that that’s the first thing that comes to mind. The other thing that I would say, that comes to mind, when it comes to fundraising is like, your investors are counting on you to be a big success, or at least they’re counting on some of the companies in their portfolio to be a big success, you know, they’re placing, you know, that’s with every single company that they invested to, but you need to justify that you can be a big enough success, that, you know, the fund math actually works out. I mean, if you imagine that an investor is investing out of a $50 million fund their investors because it’s not coming out of their own pockets, like they have people who invest into them, those investors are expecting, you know, at minimum, probably $150 million, coming back in 150 million is a staggering amount of money, when you consider that VCs are only taking tiny slivers of companies in terms of ownership of themselves. I mean, you know, great North labs does not own pair commerce, great North labs as a sliver of pair commerce, and realizing from the onset, that your company needs to exit for hundreds of millions, if not billions of dollars, is the only way that, you know, you can probably like position your story in such a way as to attract venture capital. And you have to be honest with yourself from day one as well. Because if you’re like I can’t make a justifiable statement that this company is probably going to be, you know, a $500 million company, why put yourself in a position where you accidentally successfully fundraise. And now you and your investors incentives are misaligned. So I would say, you know, dreaming big, having the justification to dream big, like going after an opportunity that’s big enough to necessitate, you know, venture capital dollars, it can make money for the VCs, coupled with some traction. I mean, those are like the dyed in the wool ways to go ahead and like raise some venture capital.


I couldn’t agree more, Eric, you know, you show this, this sort of lack of understanding from a founder as a VC, if I put on my VC hat when, you know, you kind of see in their pitch book, this sort of 10 year plan to get to like 3 million in ARR. And unless there’s some really special technology that, you know, that is going to cause the company to be valued more than beyond its revenue, like, that’s just not going to get to the returns, that a VC is going to need to have almost any size, it shows a lack of understanding, right? Like, that doesn’t mean you can fake it and say, Hey, we’re gonna get to 100 million in ARR. But there’s no underlying plan, you know, what you want to be able to understand, I think is, you know, it’s that sort of upside scenario, like, how does this look like a 50? Or 100 million run rate company, right? And what’s the path to get there? And what are your assumptions and be able to walk through, you know, rather than even go through a deck, if you can have that kind of a conversation? And there’s substance behind it? You know, like, kind of the way you’re describing it, I think you’re gonna have a much easier time raising money. Right?


And totally, and for founders, Eric, I mean, what kind of advice would you give to them? Or if there’s numbers aren’t saying that, you know, they’re venture backed ball? I mean, would you say, hey, figure something else out? bootstrap it? Or would you do more of the, you know, swinging for the fences? approach?


I think that totally depends on you know, what the founder kind of wants to get out of life, I made that sort of as a try to answer but look like, I think that the majority of us would probably be pretty happy 10 years down the road and Rob scenario, to be the sole owner of a company that’s making $3 million a year and maybe a million of that is profit, I mean, shoot, like, you know, I’d be paying myself a whole lot more. If I had a company that I owned 100% of I could put a million bucks in my pocket every single year. And I know a lot of investors you know, who, you know, built their businesses now. are leading the good life right now. I think, you know, in the case of me and Alex and the reason why we keep on doing this crazy venture capital like world, really is just because Like, we like solving massive problems with like, you know, tons of moving parts, because like, that’s just what gets us fired up. You know, I mean, some people get fired up, you know about their job because they enjoy like managing people, some people get fired up about their job, because they’re artists and you know, they’re creating art. For me and Alex, like, I just, I mean, I shouldn’t speak for him. But for me personally, like, I wouldn’t be happy if I wasn’t solving a problem at massive scale, because like, I like puzzles, and I like challenges and that kind of stuff. And you could still face big challenges and come up with creative solutions when you’re building a like smaller, you know, business that you own 100% of, but I think Alex and I like this idea of like changing industries and turning them upside down. And that’s why we’ve gone after like, such crazy problems are day wide. What do you look around


at, like Midwest startups? Do you see other founders doing that? Or do you see more of them slipping into that, like value protection? Versus like growing value growth, or creating value growth mode?


Yeah, that’s such a good question, Joseph. So I’ll speak from, you know, some degree of experience here. And I think we did a ton right at eat street and I eat street continues to thrive. But if you do the side by side comparison to a company that was founded two years after us DoorDash, which is now worth $40 billion, more than Target Corporation, I think the difference probably in certain chapters of our life is that we looked at things that DoorDash was doing, and we were like, that is crazy. Like, why would they ever do this? Like for instance, they were listing restaurants that they didn’t have a relationship with, and just collecting the orders, and then they would call in the order over the telephone. And they wouldn’t make any money on that. In fact, they lose tons of money. And eventually, they got sued by the In and Out Burger for like doing that. Well, you know what they did, they provided like a ridiculous amount of value back to their diners, because now all of a sudden diners could order In and Out Burger online for the first time ever. They worked it out with it at Burger eventually, where I think that they’re like back to being best friends forever. But the point was, would we would look at that, we would say, oh my gosh, this could put the entire business in jeopardy. What ended up actually happening is that, you know, DoorDash is like Elon Musk style, like a bet the house over and over again, it’s like, you know, we’re not big enough. So like, Let’s go big on something that sounds crazy, you know, eventually propelled them to be probably one of the top five startup successes like the last decade, this time around, you know, Alex and I are trying to take that mindset where it’s like, you know, $1 million in revenue, $10 million in revenue, $100 million of revenue, like, you always have to just be like striving so hard for like the next milestone, and doing things that might at first seemed like, they’re super crazy. Now, again, that’s not a knock on Easter, because he’s really created like a ridiculous amount of value for its investors for its shareholders. For the founders. I mean, it I owe everything that I have in life, probably to that like, you know, startup career launch opportunity. But in some degree of hindsight, you know, the venture capital universe is built on people taking big crazy, that’s just betting the house over and over again. And I have newfound admiration for my former competition. And I’m trying to learn like from what’s worked at eat street, and also from that mindset that some of those crazy aggressive Silicon Valley companies take to become like multibillion dollar businesses.


So Eric, that’s really interesting. You think about this sort of growth at all cost mentality, you don’t, I’ve gone through a couple of cycles, market cycles, you get bust in my early 20s, that I lived through as a bootstrap founder. And then the financial crisis of 2008 is timeframe. Now we’re heading into this recessionary period. You know, I guess, in my past experience, it seemed like that grow at all costs, mindset was perhaps disadvantage more so in like recessionary times. And perhaps then the advantage can start to swing back to the more a little bit more of a lean approach versus the where they call it the Blitzscaling. But I think I think there is a role for Blitzscaling I think, I think sometimes it’s just situational, right? You got to know like, when’s the right time to blitzscale? And when is it not? And you also see these massive flame out companies that they blitzscale with a bad business model, that just never works. And they all they do is burn up a bunch of cash. And it’s very nuanced, right? It’s not like, it’s not like the default is always just blitzscale. It’s sort of like the economic period has affected a role. The business model and strategy has a role, even how competitive is the space you’re in, you know, has a role. So it’s kind of I find that always really tough to kind of try to gauge


I totally agree. And maybe I should even rephrase like my thinking on the previous point. My co founder, Alex, also used to work at Facebook, and their original slogan for their engineers was move fast and break things. And then they changed it eventually to move fast with stable infrastructure, which I think you know, is a good analogy for like the blitzscale laying, slash, like taking bold bets. What I was trying to kind of say is, you know, don’t ever write off an idea is a bad idea because it sounds crazy, like you owe yourself crazy ideas that can 10x your business. But it’s got to be done on top of like a solid business model. And like, you know, doing crazy things, does it always be like spending more cash like DoorDash, listing In and Out Burger as, you know, place that you can order from and then they just call in the order? I mean, they probably spent some money on that. But that wasn’t like a, you know, we need a billion dollars to listed up burger it was more like they took a first principles approach to like, is this going to add value to our diners? And the answer was yes. And on face value that might have seemed like kind of a crazy idea, but it actually wasn’t. And so my argument would be, never write off ideas as crazy. Give them the time of day because they can really help grow your business. And don’t at all try to blitzscale until you have product market fit because otherwise you will like giant piles of money on fire. Our approach is just like, you know, once we’re rolling, like we’re not planning on spending more money than we have. But what we are planning on doing is like really doubling down on crazy opportunities to grow the business even more quickly.


What are some of the things that you did to hack growth when you were at eat street? So you just talked about like, strategically, you know, this idea of swinging for the fences, right? Create that infrastructure? And then give yourself the opportunity to 10 acts by pursuing these these crazy things? What are the some of the things that you did just like a level down from that strategy, some of that tactical stuff when it comes to like creating growth? Yeah, straight?


Well, you know, I mean, I think statute of limitations from 2009 is all up. So the complete transparent thing is that we like, we hustled our ass off, I mean, we, you know, I think put out over a quarter million flyers over the course of like, six months by actually, like, you know, working our way into student housing, like waiting for somebody to have the door open, like sliding a coupon code under everybody’s doors. I mean, we, you know, got a call from the massive police department at one point saying, Hey, you guys got a cool and otherwise, like, you know, the next time we see you, we’re gonna like pick you up off the streets. And we were always on the right side of ethical, but we were doing absolutely everything in our power to scale, in some ways very inefficiently at first, but like, You got to kickstart the flywheel your first customers are not going to be the same as the customers that you acquire after you’ve hit like some massive scale, you got to work your ass off for them. Thinking back to Madison, like we ran some very deeply discounted food deals to like get people to order from our website, where it was like, Hey, you can get $1 subs from like, you know, a Jimmy John’s style restaurant, but only if you order through us. And Matt, Alex and I were like working part time jobs at the time, like other part time jobs. And we were like funding that out of our own pocket. I mean, I remember my bank account went negative, because I bought so many sub sandwiches for other people. Well, that was what she had to do to, you know, again, get that initial spark that could turn into a giant fire, I would encourage founders, you know, especially in the early days of their company, like just like, work really, really hard. I mean, you don’t have to be so strategic about it. And then once you have some scale, then you have to start thinking, okay, how can I get 10 times 100 times bigger than this without just passing out 10 times, or 100 times more flyers that we’ve already passed out. But we just we were, we were wild. Back in the Madison days. I mean, we were skipping Saturday nights going out to the bars. And instead, we were, you know, passing out flyers, and that’s what it took to get our business off the ground.


So Eric, I think your description of of growing in the early days is really consistent with my own experiences, and that of what I’ve just observed, I mean, you have to do the things that don’t scale to get that spark going. And every behind every great startup is some kind of something that doesn’t scale or, or maybe it’s a creative, you know, method that doesn’t scale, or isn’t going to work forever, but it can at least work for a while. So you have like, you know, whether it’s Tinder and how they got started at, you know, certain like parties or you had like, it’s famous kind of how Airbnb got started by you know, like auto posting on Craigslist, or Pay Pal. You know, infiltrating eBay sellers. And just like the, the back and forth and, you know, there always seems to be these, like clever ways of, of sort of faking it till you make it right. I don’t know. So I, I it almost seems like more more of the exception. You know, I can’t even think of very many businesses that maybe maybe there’s some just vanilla like enterprise SAS kind of businesses where you could just, you know, but even then you still need to, you still need to get your first customer and you got to do whatever it takes, right.


Yeah, Rob, I couldn’t agree more. I think that the ultimate founder combination is a growth hacker and you know, somebody who thinks strategically and you know, sometimes they’re the same person and sometimes, you know, it’s a team of people. I’m really grateful to Matt, my co founder back at eat street and Alex, my co founder through both of my companies for help rounding out my strengths and weaknesses. And I think that together, you know, we’re able to check all those boxes. But honestly, the strategic thinking, like really plays its part once you hit a certain size, and then you’re like, oh, I need to think about how I can scale efficiently to be 10 times or 100 times bigger. But let’s be real, like 99% of startups don’t ever get quote unquote, big in the first place. You don’t have to overthink growth hacking, you just have to put in the time and the elbow grease, I mean, you know, you got to come up with some clever ways of connecting with your first customers, but a lot of the times, that’s just gonna be like, a whole ton of like, manual work and effort. So I would say to founders, you know, kind of getting their businesses off the ground. Like, don’t overthink this, you know, strategic, like, how do I scale to a billion dollars, like workouts scaling to your first $100,000? And do that in ways that don’t necessarily scale permanently? But like, usually, it’s just like, how many hours have you put on the clock, like trying to get those first customers and work relentlessly and you’ll get there. And then once you’re there, then you can start thinking, you know, a little bit more strategically about how to scale a general but like, I mean, you know, I guess if I had to summarize it, it’s just work your ass off of the early days, and you’ll be very, very happy with the result.


So from your time as an investor and working with early stage startups at generator, is that advice you would give? Or is that like a tool for screening that you would lean to? What do you ask them like about their first customers? And how many hours they’re putting into it? How did you filter like, I’m enamored by this idea that this is entirely required, that you have to be able to do this stuff? And I’m sure there are a few outlier examples where, you know, like, like Rob said, some of these b2b companies may be where they didn’t have to have this kind of hustle. But is that something that you saw across the board when you were working with early stage and something you would like filter for and encourage and startup founders?


Yeah, totally, you know, I’d say that hustle and early traction were like the number one things that we were screening for a generator, VC has a low hit rate, I mean, a generator probably has a lower hit rate than anybody, because we’re investing at the earliest stages, but like, a lot of the companies are not going to work out. And you just kind of have to build that into like, your understanding that not every company is going to necessarily be a home run right off the bat. But, you know, probably the strongest indicator that we would have in the future was just like sitting down with the person maybe even after the original interview, like getting drinks and asking them about how they got their first customers that if they told that awesome story right there, I mean, that’s gonna go extremely far, I would say in terms of like, probably getting you into generator, you know, something that I would recommend to anybody who’s like looking at those programs, or, more importantly, anybody who’s getting a business off the ground, you know, get creative and work super, super hard.


So for founders, hustle, swinging for the fences, right? And when you’re pitching your story to Vc, pitch them that dream, right? pitch them those big numbers, that a good synthesis.


I’d say you captured it all in probably 10,000 less words than I’ve gotten.


So when it comes to people who are successfully swinging for the fences, and who are able to hustle, who do you see executing right now? Maybe it’s a startup, maybe it’s an individual, maybe it’s someone everyone’s heard of, maybe it’s someone nobody’s heard of, who do you see executing right now?


Yeah, I’m gonna give the hat tip to my very good friend and former coworker, Adam Cho, who came up through generator with me, he was a managing director, as well as myself, we both worked at the Minnesota office, what impresses me so much about Adam is that he’s gotten like multiple lines in the water. I mean, I’ve never been able to have more than one line in the water personally. So I don’t know if he doesn’t sleep or what. But, you know, he’s actively working as a venture investment right now for tundra ventures, which is an upcoming VC in the Twin Cities. And he’s, you know, running basically like a community and working for an NFT community, you know, in the crypto space. And then, also, he’s teaching at St. Thomas. And what I what I love about Adam is that, in addition to building a lot of value himself, I believe is that if T project is going to be successful, I think that tundra is going to be successful. Adams, the kind of person who’s like lifting up the creating entrepreneurs of the ecosystem. You know, I think he’s inspiring students that say, Thomas to begin entrepreneurial careers. He’s very generous with his time for any founders looking to get something off the ground. And I just think that, you know, he’s kind of superhuman in his efforts and couldn’t say enough good things about it.


Well, thank you so much for joining us on the podcast, Eric.


Awesome. Well, thank you for having me, Joseph.

In this episode, Josef and Rob talk about the Metaverse, and how important it is for founders and investors to learn about it.  They are joined by Tipatat Chennavasin, General Manager and Co-Founder of The Venture Reality Fund. Tipatat is a former founder, creative innovator, and VR/AR developer. His background in Metaverse runs deep, including the gaming industry, the first VR/AR-focused incubator, and his six-year old venture fund. He talks about the developing Metaverse, the idea of “the third place”, and the economic opportunity presented. Tipatat paints a picture of what the future will bring, and explains where the opportunity will lie for founders (and investors).

Who does Tipatat see executing? Jadu, a company that creates and sells utilitarian NFTs- virtual items that can be used in the Metaverse.

Full Transcript:


Welcome to the execution is King podcast where we talk to successful startup founders, investors and ecosystem builders to uncover insights and best practices for the next generation of great global startups. I’m Joseph Siebert. Today my co host is managing partner at Great North ventures, Rob Webber. Hey, Rob, how you doing today?


I’m doing great. It’s a pretty rocky out there with the ups and downs of the stock market as it relates to tech companies. But, you know, overall, I’m as bullish as ever on the startup space. And, you know, the ability to kind of change the future.


Yeah, and the next big thing I mean, at least all the hype on the horizon is Metaverse, that’s why I’m so excited for today’s episode. We have an expert in the field, this is going to be a great deep dive longer episode. I’m just really excited to learn a lot more. Rob, why do you think it’s important for founders and investors to educate themselves about the metaverse and the opportunity?


I think when you have these big, you know, market changing technology forces, you can be a casual observer and kind of develop like a fuzzy understanding of what might be possible or what the future might look like. But when you talk to someone who is spending the entire all their days, nights, weekends, over many years, really immersing themselves in one of these new technology trend areas. They can bring a lot of clarity and maybe eliminate some of that fuzziness. And I think this is such an important opportunity, not only for founders of startups, but also just anyone in the world. Because I think I do think in the next 10 to 20 years, you know this sort of movement towards the metaverse or this trend towards the metaverse is going to impact everything. It’s sort of like, like the internet data in the late 90s. Or like, you know, the iPhone and Android did in, in, let’s say 2007 through the next immediate years after. This is one of those kind of mega trends. And I think the opportunity to learn from someone who’s so knee deep into it to kind of bring clarity is just a really great opportunity. Well,


let’s get started. Today’s guest is Tim Potat innovation. He’s the general manager and co founder at the venture reality fund and he invests in VR, AR AI and the metaverse. Welcome to the podcast, Tim potete.


Thank you for having me excited to be here.


Great. So I know we’ve known each other for probably about 10 years to Potat. But for the benefit of our listeners, can you tell us about your background? And what led to you founding the VR fund?


Sure. So it’s a combination of things? Yeah, honestly, I’ve always been in love with gaming and animation and technology. And, you know, I think about things that have been evolving in my lifetime, and, you know, gaming kind of being this brand new thing. And then the internet being this brand new thing, and kind of wanting to be involved with it, and seeing how the world is changing through technology, and especially through entertainment, and tech, and media and technology. And so, you know, I did, boom and bust. And then I worked in interactive entertainment and gaming for most of my career. And then when we’d met, I just started, you know, left the company to start my own mobile gaming company. And this was, you know, during the very early, well, earliest days of mobile gaming, but then it was interesting to kind of see how big that business became so quickly, and how the startup opportunity closed pretty quickly for small, you know, early stage startups, and then really thinking about what’s next? And what are the opportunities that come when there’s a huge shift, like the shift from mainframe to desktop computers, or desktop computers, internet, or, you know, desktop, to mobile, computers and smartphones. And so then, really, it was backing Oculus on their Kickstarter, really, you know, seeing John Carmack who, you know, the god of modern video games and 3d graphics and talking about, oh, hey, you know, VR might finally be a thing, we should check it out. And so I was like, okay, that’s worth like 250 bucks. Let’s check it out. Let’s see what it is. And then, you know, got the Kickstarter played with it. Then it was the next development kit, the DK to have positional tracking, playing with it. And again, my experience, you know, my background, I know, a little bit of programming and a little bit of art enough not to make super polished experiences, but enough to be dangerous, and, you know, hack together something that could be interesting. And so I started experimenting, playing with different ideas. Like if you could go anywhere in the world or anywhere in the universe, where would you want to go? And I was like, I really love the matrix. And I would love To be in the matrix, not just watch Neo, but be Neo need Morpheus, dodge bullets jump across buildings, I felt like yeah, that would be the coolest experience possible in VR. And so with some friends, built a little simple demo nights and weekends, just have some fun, and just to see what it would be like to live a movie, you know. And in the process of making a program, I accidentally cured myself of my real life fear of heights. And so that was my aha moment of like, wow, this is unlike anything I’ve ever experienced before. And that the ramifications of it not just for gaming and entertainment, but how we live, how we work, how we learn how we heal, that there is going to be so many things that you know, this type, this new computing revolution, will enable and enhance. And so that’s, you know, when I decided to go all in on the spatial computing VR AR technology, see what was possible. I ended up starting, you know, the first incubator that was focused on the VR AR space. And then that gave me a platform to really think about how a venture fund really focused at that at the forefront of this emerging space could be really valuable. And I was fortunate to partner with my partner marco de miras, and we started and launched a venture reality fund, gosh, six years ago now to create you know, the fund that invests in, you know, the future of computing and the future of the internet. So VR, AR AI and the metaverse


Have you come across any startups that are teaching people, Kung Fu,


actually, I’ve seen a couple that do games, and there’s a guided Tai Chi application. And I’ve seen other companies too, that are actually, you know, trying to solve phobias and productize, that that idea of, you know, treating people and doing these kinds of activities.


Yeah, not quite the plugin download of Neo, but super interesting.


The Matrix was my favorite movie in college. I’ve literally watched it, I think 30 or 40 times at least, it’s a great movie. Yeah.


It was just so eye opening. It just did so many things. I mean, it was fun. But the philosophy, yeah, the ideas that they brought out at the time. And, you know, what’s really interesting to like, back then, right, the internet was just starting out, they still use like, dial up modem sounds in the meeting, right? And it’s just like, but they were really prescient, and, you know, thinking about all these things, that would just become huge, huge issues. I don’t know, did you get to see resurrections? The new Matrix movie,


I don’t get, I think I watched it, you know, must not have been that memorable, because I think I watched it. And I can’t really remember I have to go back and check it out.


It’s hard to live up to something yet. But then when it was that impactful when it came out, I think has some interesting ideas. But it’s just not as fun or exciting as the matrix was. But the one cool thing that came out of it, I don’t know if you get to see this. I don’t know if we talked about this yet. But epic, you know, the makers of fortnight and Unreal Engine, their CTO, Kim libreria was actually one of the you know, on the special effects crew of the matrix got really close with the Warshawski Spass sisters and, and also, so what they did was they released this tech demo of the latest Unreal Engine five, that’s playable on the new like consoles, the PlayStation five and the Xbox X. And it’s, you know, this recreation of the matrix world. It’s almost like a little teaser of what a Grand Theft Auto could feel like in the matrix. And it’s just unbelievable. When you think about that progress of, you know, Pac Man 30 years ago to now honestly, the effects that the visual fidelity that they could do on a $500 piece of hardware is better than the visual effects in the matrix two and three movies like it’s crazy. And you’re just like, wow, we’ve come such a long way in such a short time. And this idea of like, virtual worlds being so realistic that you would believe it is not that far away.


So I have this feeling that really the metaverse started with gaming, you know, maybe as far back as even 40 years ago, or I can remember like, I don’t think I had Atari. My first system was a Sega eight bit. Maybe my parents had Atari or something. But like, it felt like to me like, we’ve had the metaverse for a while, but it was in 2d on a big council or whatever. And it’s been evolving. Does it feel that way to you? Because it feels like we’re just changing the how immersive the experiences it’s, you know, but it’s a lot of the same. Seems to be heavily influenced by gaming. Right?


Absolutely. I mean, just the idea of like, virtual worlds, right, like really, gaming has taken to that next generation. And, you know, with upgraded computer processing, it’s not just the visual fidelity, but the interaction fidelity, right, like the things that you can do now, but also to the scale that you can interact with other people, right. I think the thing that separates remede, the metaverse from traditional like online games and virtual worlds that we’ve seen in the past, is this idea that it’s not just for playing games and like leisure activities like gaming but encompass more hangout leisure activities. This idea of I’m not sure if you’re familiar with that idea of a third place where it’s like a public space where you hang out where your first and second spaces are your family your home And then your work or your school, but then the third place where you socialize and congregate, right? It used to be in the past like parks or malls. But now we do this more online. And then to have these like virtual worlds, where it’s not just centered around like gaming, but this is where you meet your friends, hang out with your friends, go to concerts, do these other activities. But then the biggest component that makes to me the metaverse truly the metaverse is this idea of economic opportunity. And that now people can make a living in the metaverse building experiences for other people, or even just playing the game, and then getting in world currency, but then being able to translate that into real world money that improves their real life situation, right? And what I’d say World of Warcraft had, like all of the previous little worlds had bits and pieces of this, but to bake it into the system, and then to bring it to mass scale. I think that’s the opportunity that really the metaverse does. So it’s not necessarily saying it is the first to do it. It’s about taking the best of these ideas, and then really making it mainstream.


It’s interesting. When you think about players and games and having an appetite for these more hangout spaces. I mean, you see it in everything from like, Twitch, which is like people just hanging out and watching other people play video games, to people going on to these online worlds and a cost playing NPCs. Right. They don’t need to be the hero at the center of it anymore. Like they’re they’re fine, just pretending to be a guard and white run and Skyrim you know, things like that. So that’s, that’s fascinating. And third place. I hadn’t heard about that before. You know, I wanted to kind of pick up this this his thought on the matrix, because, you know, of course, the the metaverse there, if we call it that was hiding this dystopian nightmare behind it right. You know, and that’s part of all the hype and the headlines. There’s Zuckerberg and the main shift for you know, Facebook, the creation of the parent company meta net ownership they’re trying to do to put their stamp on it. But also that, you know, people have criticized the metaverse and cast it in dystopian terms, right like this is this impending doom? So like, you know, between like this public perception where we’re at now, and where we’re actually heading, what do you think the world at large is getting wrong? And what do you think will be like the most surprised about over the next, like, three years or 10 to 20 years?


I think there’s so many different levels, or places where this can go. But I think fundamentally, right? Like, why I think that the metaverse is so much more interesting than the real world in so many ways is because the metaverse is not resource constrained, like the real world. And in the real world, like we know this, right, like, there definitely hasn’t have not been so many times, it’s based off, you know, where you were born, you know, who you know, within your like, little like, the area that you were born are the resources that you have accessible to you in the immediate area that you live. And what we see with the 2d Internet, you know, online world is it lowered the barriers to that immensely. But still not enough, right? There’s still so many people, there’s still this huge digital divide that’s happening. And, like fundamentally, right, like, we still have to get connectivity, you know, solve some of these fundamental underlying issues. But this idea that now, you know, before the internet, most of the people that made money from the internet were developers, people with CS degrees, right. And now we’re kind of seeing a shift. And now there’s the Creator economy and people that don’t have CS degrees, but people that are not coding, but people that are designing or creating content or artists and, you know, other people can make money from the internet now, right? And I think the metaverse is a continuation of that idea and expansion of that idea where now you know, the tools. The way to access and live in the metaverse will be much more natural than a keyboard or mouse or even a touchscreen. It’ll feel like the real world, right? Like you see a digital item and you just grab it and you know what to do with it. And that’s going to make that’s going to lower the barrier of entry for creators for people that are developing content in the metaverse and really democratize this idea that anyone can make money, provide value in the metaverse, right? I love this idea you brought up, you know, people playing NPCs, right? Well, people should get paid if they’re going to be NPCs. Right? Like, it’s almost like, can you imagine an online dinner theater, right? Or like, you know, a dungeon master in d&d controlling all of the different characters in your quest, but then you pay for that experience? Because it’s gonna be great, right? And I think that’s gonna be a new way we’re gonna think about, you know, what is theater? And what is video games, and it’s like, a merging of the two and creating these brand new experiences are just going to be amazing. Fantastic. And I look forward to that like it for me. Imagination is infinite. And that’s the only thing that’s constraining the metaverse, right? And that’s why to me that Metaverse world will win. Because again, there’s going to be infinite opportunity for everyone.


Wow, that’s, that’s pretty all encompassing. I think it you know, the closest I ever had this feeling was like, you know, maybe in the mid 90s, when you just had millions upon millions of consumers getting on the internet for the first time, and you had that sort of sense of the same feeling I get hearing you describe, you know, the sort of infinite potential of where we’re headed. And we try to sort this all out, I saw in your LinkedIn profile, you had this really great market map from 2017. Kind of categorizing the VR and AR space. I guess. I’m curious if you were to either update this now, how do you break down the different categories of the metaverse in terms of a market map?


Yeah, I mean, honestly, I stopped doing because it started being too complex, right. It was like, it was easy to manage when they’re like hundreds of companies. Now there are 1000s of companies that again, met this criteria of like, yeah, and they made over a million in revenue, or did they get millions and investor money? And yet, what were they working on it? I think the fundamental idea was to kind of show the different applications of these technologies and that it wasn’t just gaming, I think, yeah, most people when they think 3d online worlds and you know, VR AR technology, they immediately go to gaming and well, definitely, it’s one of the biggest opportunities. It’s clearly not the only one, right, like these technologies were developed originally for by the military for training and simulation, right? And it’s just like all the offshoots of that encompass so many different opportunities. And then I think it’s interesting to like, you know, when most people talk about the metaverse, you know, like, Zuckerberg and so many others like Tim Sweeney, and like Roblox, it’s definitely a consumer focused metaverse. But then you also hear Microsoft talking about an enterprise Metaverse, right? Or you hear Nvidia talking about their Omniverse, which is, you know, what their take on the enterprise in Metaverse and this idea that, you know, just as big as you know, playing and doing these, like, consumer foot facing things, right, there’s also going to be this huge opportunity for enterprise and b2b applications of online worlds with presence with people connecting and yeah, I mean, still hasn’t been cracked yet. But if we can get that experience, where virtual meetings, especially collaborative meetings, where you’re not just like presenting our PowerPoint, but we’re actually doing the work together, once those can really be done in a very, you know, productive way in the metaverse, then that’s going to have huge, like, environmental positive environmental impact, right. And we’re seeing this already in like a certain scale with Ford. You know, for car reviews, I used to fly all other people from all around the world to one location. So they can do an in person review of a car, look at the clay, physical sculpt of the car, you know, and they’d have to do this, it would take a long time to get everyone’s calendars together, fly everyone out there give people feedback. But for the past, even like, almost five years, now, they’ve been doing it virtually right, they put on the headsets, they can do it. And then they can make changes on the fly, right? And then they put everyone behind the wheel, see what they need to see adjust the things and it’s just like, okay, like when VR headsets in the VR equipment, and the software upgrade, it costs millions of dollars, it makes sense that it should be done for products that are, you know, cost millions of dollars to create. But now as all of that hardware and software gets cheaper and cheaper, then it’s gonna make sense to design more and more cheaper products in that way too. And I think what’s also interesting too, is to see like this idea of virtual production, right, like all of the major Hollywood films right now. And TV shows everything Yeah, Mandalorian, Lion King, you know, the Marvel movies, they all use VR AR tools in the process of making them. And you know, the idea of like, visualize the world, let the actor see. So they don’t have to just imagine everything, and then get the camera crew and the director is really like understanding and getting the right shot. All that kind of stuff. We’re gonna see kind of trickle down into the mainstream. And it’s going to be the way that more and more content and games are created. And that’s going to be kind of going back into like, what is the killer, like application of the metaverse and it’s creating content for the metaverse. Right? It’s kind of weird, but if you kind of think about it for computers, too, right, it was like, what was the killer app for the you know, the internet, obviously, right? But why? Well, it was not just for consuming the internet, but also for creating and continuing to develop on the internet, right? You need the computer and that’s why it became essential and that same way we’re gonna see like VR and AR especially because that’s the best way to create 3d content not just consume content but but but create 3d content. We’re gonna see it really kind of take off.


There’s a lot of opportunity, but there’s the with all the chaos there’s there can be a lot of confusion, right? I mean, we have multiple, you know, gigantic companies competing over the new device types. Of course, they got Oculus for Facebook now, Apple, Google snap and others. Building 3d glasses, then you’ve got other platforms for more of the operating system or other layers, like, you know, I guess you could put steam in that boat, or you could put, maybe maybe the gaming companies come up with their own. Of course, there’s, you know, elements of creation in Roblox or fortnight and their own sort of communities. But when you think about all this, if you’re running a startup or thinking about launching a startup, how do you decide, you know, which device to target? Which platform to launch on first? And then I guess, you know, do you have any, you know, any predictions on who the winners will be for some of these platforms? I mean, usually we don’t have I don’t, I don’t think anyone would, would believe we’re going to have seven different 3d glasses that end up hitting critical mass to millions of consumers around the world, or, or 10s of millions, it’s probably going to be a small number, right? Or how do you think about these forces in terms of, you know, how we get from where we’re at now to maybe a future with, you know, with other screens or other other form factors beyond what’s available today?


If you think historically, like, where it’s gone from, like, desktop computers to now smartphones, I think it’ll look a lot more similar to what happened with smartphones, right? I think Apple has really proven the right model. Everyone wants to be like Apple, right? It’s like, you want to own the hardware. But you also want to own the first party, you know, App Store, you get to approve what goes on there, and you get your cut. And then you also have some of the best applications like the browser, and some of these main fundamental applications, right, that people use it the messenger and things like that. Right. So I think that Apple model is what everyone’s eyeing, and you know, honestly, that’s why I think, you know, what, yeah, formerly Facebook, very much in that same way where they’re, like, they lost out on the mobile phone. And you know, they’re always kind of beholden to Apple. And so if, you know, if anything, right, like Apple’s switch of the pipe of privacy information, and that hurting, you know, not as quarterly revenue, like, you can see what impact it has when you don’t own the platform. And so, Oculus by x was, that was a $2 billion bet, which again, small bet Fermat at the time, to say, hey, is this the future? Could we be a part of it? And I think, you know, after, you know, the six, five years, since that’s happened, you know, they have the data, right? They’ve seen the usage, they see what other opportunities out there, and they realized, now’s the time to really double, triple, quadruple, you know, 10x down on that bed, and really try to own this next computing platform and the next internet. Now, can they do it? Will they do it? I mean, honestly, there’s a part of me that’s like, like, no one owns the internet today, right. But at the same time, when you’re the most used application on the internet, in a way, you kind of do own a lot of it for a lot of people. Right? And so I think we have to really be cognizant about that fact. And think about okay, yeah. And this is also why, you know, course apples investing, Microsoft, and all the major tech companies are investing, but also to like, don’t discount, you know, bite dance owners of tick tock, you know, they recently bought the PICO the Oculus equivalent in China, right. And so, you know, snap, and others have been talking about hardware and trying to be that hardware platform player and create an integrated, you know, hardware software product. And I think that’s gonna be That’s the dream, right? Like, that’s the goal. Now, if your startup, honestly, if you’re a hardware startup, it’s just so hard to do. It’s so expensive, I get Oculus hadn’t gotten bought by Mehta. Would there be this big? Could it be successful? No, probably not. Right? Like, it needs a lot of backing, it needs a lot of money, but also to it means that foresight of someone at Zuckerberg, even when it’s a loss, you still have to invest because again, 10 years down the line, you don’t want to be caught not being one of the major players in the nest ecosystem. Right. All that being said, I like the way I view it is startups in particular, right? It’s all about leveraging other people’s big investments, and then writing on top of that, and saying, okay, you know, what, like, yeah, make the apps for the next iPhone, right? Like, make the apps in VR, leverage the billions of dollars being invested by the apples and the matters and the Microsoft’s of the world, right? And really come up with that great use case, that application that’s going to get, you know, millions to billions of people excited about using this device day to day, right. Like, I think that’s the big opportunity.


I think for me, it’s hard to imagine with the advantages of Apple, Google, and maybe to a similar extent, even Microsoft, with their reach with developers, that how Facebook could overcome that with their relatively limited reach with developer communities, do you but of course they have a head start with Oculus being pretty developed and iterating on that. Where do you see developers hanging out now? And I guess, do you really feel like this is gonna work for meta and you think that Oculus is going to be be when Apple comes out with their 3d glasses? is our people just gonna, you know, are we gonna forget about Oculus? You know, and that cycle? I just because for me it’s, it’s hard to see it’s just seems like apples especially just so dominant as for developers that it’s, it seems like it’s it’s almost insurmountable it feels like even with even with starting well behind you know where the Oculus is already at right?


Yeah. Well, I think that’s the play that right like these shifts are the opportunity for that time, right? Remember before the iPhone, right? Everyone’s like, wow, Microsoft is dominating computer unless they are in the best position to create a, you know, pocket computer device, right? And what’s interesting is yeah, like Apple really took that opportunity and really flipped the script, right and really, you know, succeeded where others had failed before. And what I will say too, though, is today’s Apple, the same apple that did that? No, not saying that Apple can’t do it can’t pull it off. But it’s not a sure thing. Like, yeah, it was right. Like, it doesn’t have, you know, like, Tim Cook is amazing. But he is not Steve Jobs. Right. And in terms of like that Apple of today is not that like, you know, they haven’t really launched a significant new platform, right, like the smartwatch the Apple Watch, great product, but it’s not a platform, there’s not millions of developers making money off of that ecosystem. Now, that being said, Do I think like, I don’t discount, you know, Apple and their ability to do something significant, but at the same time, I would say to like, Facebook hat or not SRE has put in the work right, like 10 billion a year. Yeah, that’s, that’s more than Google would dare spend on this, like, you see Google abandoning projects left and right, right. So I think, you know, the fact that meta has built an ecosystem where there’s a billion dollar spent in the App Store, there’s over 100, developers making over a million dollars in revenue, and, you know, top developers making hundreds of million dollars in revenue. Yeah, I think they’ve done a good job of proving that this can be a thing, but at the same time, you know, you’re right, it’s still early, it’s still anyone’s game, right? It is that thing, like, they could be the palm, or the handspring, right. And it could be, you know, an apple, or it could be someone else, right? I think that’s what’s exciting. But if you’re a developer right now, and you want to play in the space, like you definitely have to pay attention to, like, you have to develop on the meta platform or a think about playing, you know, there’s, of course, a PC VR ecosystem that uses steam. But that form factor is very limited, that price point is very limited. And then of course, I will also say, you know, Playstation VR, and PlayStation VR two was Sony is going to be amazing. But that’s really game centric and consumer centric. So a lot of enterprise stuff are not available on that. And so, right now, you know, for better or worse, the meta is still probably the best platform. But again, like, yeah, you start off as a, you know, PC developer, then you become a Mac developer, you go where the platforms are, and I don’t see it fundamentally changing from the form factor. And so I don’t think it’d be too different developing for an apple, you know, mixed reality device than it was developing for him that a,


technically are most of the AR and VR projects, still using kind of these 3d engines that came out of the gaming space, primarily, like Unity, and epic and so forth. And I guess those are cross platform. So it would seem then this portability across these, if there ends up emerging a couple of, you know, two or three major hardware devices, that it’ll be easier for the developers, right.


Absolutely. Absolutely.


So, you know, we talked about some of these big shifts and thinking back to a few, you know, it’s kind of like, divided between software and hardware, like, Yahoo, Google came along, and it was search, right. And then later on, another big shift was social. And I think about that like, like, you know, that was ways of accessing this information that that weren’t that weren’t hardware, it was like software, right? So then we talk about form factors when everybody’s talking about virtual reality. And and AR, people are obviously fixated on headsets and, you know, Google Glass and all that. And people are more fixed on that hardware being kind of like that, that catalyst for that big shift to happen. From what you’ve seen, if you had to bet on one. What do you think will be driving that big shift a piece of software and a change in paradigm shift there or the right piece of hardware?


I mean, honestly, it’s tough. It’s like both of them are important. And both of them will, and huge improvements in both will lead to brand new, huge or bigger opportunities, right? Like you’d say, like the internet. before smartphones, internet was still huge. It was still a great opportunity, right? Like when it was just connected desktop computers and laptops. But when it got the better form factor of a smartphone, and their apps and yet web two was created and it was much more easier with the interface that changed the game and made, you know the internet, everything, right? And so in that same way, I kind of feel like Metaverse will be the same way or thing where, with a PC and a desktop or game console or a mobile device, you can connect to the metaverse today, and you still get a pretty good experience. But man, when it’s in a very light, comfortable VR AR System, and not just what you see, but also the interaction and how you touch and how you move in the world, and how you play those experiences, that’s when oh my gosh, it’s gonna be billions of people. And the next big trend truly will be the dream fulfilled, right?


Speaking of, uh, you know, like, the tactile stuff and things you touch. Have you ever, like destroyed anything or hurt yourself for somebody using one of those VR headsets?


So funny. So fortunately, I have not, although I just today saw an article where it was like home insurance claims had jumped up 30%. And they’re attributing a lot of that to VR and the rise in popularity in the VR. This is from The Guardian. So like a reputable news source. But I found that hilarious for Yeah, you definitely have to watch out. Ceiling fans and TVs. Yeah, I mean, you see pictures on Reddit all the time about these things happening, but I’m very good and very lucky to have enough space. Yeah, and a dedicated space to use for my VR AR activities.


Yeah, that’s the exact article I was talking about. It said it was like 650 pounds was the average amount of damage, which is like $883. And all I can picture is those little kid videos, whip in the week controller straight into the screen, you know.


So speaking of week controllers, I know you’ve invested in you know, several the real breakout consumer VR entertainment apps, you know, ranging from BT games, which Mehta acquired rec room, and so forth. If you think about, you know, the the trends impacting in particular VR gaming, I guess, look at AR gaming with the success of like, Pokemon Go, I thought Pokemon Go is dead, by the way by 10 and 12 year old boys, they’re like playing it more than they ever did. I don’t know what they had some update that came out. But when you see the games that are really influencing the culture, what are what are the what are they doing? Or what are the trends that are really catching on right now.


So it’s really interesting, like, again, I kind of would, on right back to like, the history of games isn’t about so much about the display. It’s not necessarily about the TV. But it’s about the input, right? The joysticks, right? Like it was a bigger jump from, you know, going to a digital pad and a couple buttons to having the dual analog sticks, right, that it was going from a regular CRT, to HDTV, right in terms of like experiences, the types of experiences that you’re gonna do. And so in that same way, you have to really think about that for VR, where sure everyone looks at the headset, and like, oh, my gosh, the immersion, you feel like you’re there. But then it’s that those gesture controls that one to one, you know, delivering on the promise of the week, right, like we saw with the Wii, and they have a cute bowling game. And I only got this amazing to actually do the thing. But then it’s like the tech was kind of clunky. And then when the people try to make like an actual like a sword fighting game or something, it kind of like fell apart. But then with these true gesture controls all of that now as possible, and then seeing it in a real 3d world and being fully immersed in it makes it all that much more compelling. And so I think it’s like people that are really getting it. Start with a VR first game concept and VR first interaction design. And they’re not just trying to create, hey, the VR version of this popular PC game, they’re really creating their own lane or their own Avenue, or they’re taking more cues from physical games, like the things that you do in the real world with real gestures. Then they are thinking about, what buttons are they pressing right? And so that’s why, you know, beat Sabre, I think you did it the best and has the most success. They did that combination of Yo, easy to pick up hard to master. But there’s no button presses except for to select the menu, like you’re swinging and it’s all about control. And then they also realize to how to make the movements feel good. Like I feel like that understanding of, okay, you don’t want to just do one motion over and over like the Wii and spam it. And you really want to encourage people to move in a way that makes their bodies feel good, right? I think that’s something that I never would have thought of, you know, initially when you’re thinking about a video game, but now it really makes a difference. And I think beat Sabre of the myriad of things they did, right that that to me, has helped with the longevity and why it didn’t just become a cool flash in the pan kind of thing and it’s still the most popular game in VR.


You know, that’s the first thing that I think about when I pick up a classic NAS controller So you play it for like five minutes. And then it’s like blisters. And like, I don’t remember that, you know, back in the day. But nowadays, you notice immediately,


yeah, I was thinking about because I, we sold our business, which is kind of ad tech for the gaming, mobile gaming space really, back, I don’t know, about five years ago. And I remember at that time, I spent a lot of time with game publishers and developers around the world. And it seemed to be this common understanding that unity as a game engine was sort of surpassing epic as a game engine on the 3d side, because they were less fixated on like, on just having the absolute best graphics in the games from their engine, but making it easier, more approachable and easier to develop games. And I don’t know if this is true or not, I’m not a developer. But I wonder if that sort of changed, because then fortnight came out? And it was like, okay, you know, maybe the visual graphics do matter. But I don’t know, I guess it kind of stuck with me that, like the the actual experience matters more than, you know, say you’re in high def doesn’t really matter. If you go to 4k or, you know, it’s more that it’s more of that experience that matters the most.


Yeah, I mean, I think fundamentally, right? When you’re talking about a game, it’s the interactivity that makes it different, right. And it’s like, I and this is the thing for VR, boisterous. It’s not about the visual fidelity, it’s about the interaction fidelity, and making sure that it’s rich and an ending, right, like, that’s what you really want. And that’s, typically, those types of experiences do better. But that’s not to say that visuals aren’t important, and you can’t, you know, underestimate how impactful it can be when done right. But just saying, especially when you’re a small startup, and you only have so much budget to spend, it’s like I would put much more on the interaction side. But yeah, it’s really interesting that you say what you say about like, yeah, epic, unreal, it’s really changed so much since Yeah, we were actively in that space, like, yeah, I startups. And, you know, I think fortnight proof, not necessarily not just that visual fidelity is important. But also to that they’re crazy engine that was built for that digital stuff could be performing well, on a mobile device. I think that was kind of the always, like, people always was like, Oh, he can’t, it’s hard to learn unreal, and it’s so much trickier. And I think that was the thing that unity had, at least when I was looking at engines was like, oh, so easy to just like Google and find a tutorial on unity. And it was, yeah, they spent a whole bunch of time creating really nice accessible tools for small one to five person teams. Whereas the epic was more like, oh, we come from triple A and 100 person teams. And that’s kind of like, what you really need for epic, or for the Unreal Engine. And I feel like it’s a combination of unity wanting to be more like Unreal and unreal, real, like they need to be more like Unity, or at least, you know, Unity back in the day. And it’s kind of like equaled out in so many different ways. It’s kind of strange to see now. But one thing that’s really cool, though, are that’s really impressive, just to see, like the quality of games in both engines, right? Where you’re just like, wow, and especially like running on mobile phone hardware, or like, you know, even like basic, you know, the quest type hardware, like, wow, you’re getting really cool, really amazing experiences on pretty inexpensive. Hardware. It’s cool.


I don’t know, I remember the first time I saw Infinity Blade, you remember this game, it was like the visual, just how stunning it was. I think this was like apples Game of the Year, and probably like, what 2010 are way back. But I remember I didn’t play it very long. I’m still I don’t really go out to discover new games that much anymore. I you know, I’m like a typical suburban dad in the Twin Cities, whatever. But there’s like still a couple games from five years ago. And we were in the game space like I played. There’s this little numbers game called merge that Zynga publishes. And it like gets me in my Zen state where it’s just like a really simple numbers game. And I am so addicted to and I still don’t know, I don’t know why, I think and it’s not the visual studies. This is really like, it’s like rearranging dominoes. It has that kind of appeal. But I play it over and over again. I usually listen to a podcast and then I just play the super simple game from Zynga. And I don’t know why five years later, I’m still playing it. I can’t explain it. There’s something about that. The interaction pattern that just, it’s doing something to my brain. It kinda I know. And I don’t know, I’ve started to read some research on just some of the neurosciences around gaming. Have you read this book? The gamers brain from I think it was Celia Houghton, okay,


I need to check it out. Okay, so exactly you’re talking about fundamentally though, but


she was director of UX at Epic working on fortnight, but she’s actually a psychologist and neuroscientist. I are not psychologist I think that I think she’s a neuroscientist. It’s actually a really hard book to read. So this isn’t going to be like a bestseller. But it goes from like the neuroscience and then it gives you practical UX design. It goes from like, like it’s it’s chapters are organized around like neuroscience, like facts and like scientific kind of information, and then application to gaming and I’m like, oh my god, it’s so hard to follow though because it’s like, so I’m not I’m not that I’m not a neuroscientist, so it’s hard to but I checked that one out. It’s really it’s pretty cool seeing like a neuroscience kind of view. And she worked on fortnight. So she’s got a, she’s been thinking a lot about, you know, the brain and the impact on you know, and how it relates to gaming. Right. So


what you’re describing, and again, I could be putting words, your message, let me know what you think. But like, for me, too, like when I play games, and you get like this level of mastery of the game, that almost you get into like a second state of it. And it’s flow state, right? It’s this experience of like, your brain kind of goes on autopilot, and you just start doing really, really well. And it’s almost like a meditative trance. But it’s super nice to get into, right. It’s like, it’s interesting, like, pianists or musicians, right, with, like, when they’re really in the flow state, you know, they feel like they meld with what they’re doing. And when you’re playing a video game, too, you can get that same kind of sense. And I get the most in beat Sabre, I don’t know, if you actually played it, or, like play it, play it and get to that level where you can start doing like, expert difficulty. And it’s funny, I’ll see blocks, and my brain can’t process it. But my body responds, and, and then I do it. And it’s weird. It’s like, I didn’t think I was gonna do it. Subconsciously, something switched. They’re controlling my body, but it’s that flow state, and that, like, things happening on that subconscious, and it’s very satisfying, right? If it’s such a great feeling.


Yeah, I played games, since I was probably like five years old, and I’ll 42. So there again, like, I don’t like to play newer games with my kids, cuz I’m not ever gonna get to that flow state, I think you’re you like very eloquently put it. For me, I like to get my kids, you know, into like, the 90s games where I’m like, I you know, it’s just like, it’s like muscle memory. It’s like, it feels so good to play those games. And maybe that’s a factor of also just getting older, where I know you have the brain, you have a tendency to learn more slowly. Now, I think you can address that by, you know, there’s certainly ways to kind of try to maintain an ability to keep learning, but I think I think the natural tendency is you’re going to learn at a slower pace as you age, right?


Yeah. Going back to what we were talking about before, if you haven’t yet, play half life Alyx on a VR, like a bit, you need a high end gaming PC to play it, but you can actually stream it wirelessly to your quest headset. Or if you have, you know, the PC VR headset. But that is like playing a game from 10 years in the future. Like it’s, you know, triple A quality visuals, but with a full rich experience and like the interactions that you’re doing. It’s so good. And it’s funny. I have a bunch of friends that are gamers, you know, love gaming love VR. And they’re like, oh, have you played half like, Alex, what do you think? Oh my gosh, it’s amazing. I couldn’t play it. Because it was too scary. I had to stop. And it was like the immersion was too good. They couldn’t overcome it. But it was just like, wow, like, it definitely is that like, as someone that grew up playing Pac Man playing Atari and all that kind of stuff. You’re just like, wow, this is the future. Like, this is the masterwork of what video games will be are becoming and you’re like, it’s the Citizen Kane. I think. Like, I feel like, for me, yeah, there’s certain pivotal video game moments, right? It was definitely like, for me, it was like, Yeah, you know, Super Mario. And then it was like, Yeah, Halo, or like Doom and Quake, and then you know, Grand Theft Auto. And now I feel like everything’s kind of been based off of like, these paradigms I’ve been created now polished for like a decade and a half life Alyx builds on top of a lot of that by bringing it into full VR, full immersion. And you know, and again, Valve builds the hardware, right? Like, they love this stuff. They’re not just trying to cash in on this, and half life out. And half life, honestly, was one of those epic video game franchises, right, that brought story into like, you know, first person shooter type games, and it’s like to see them, do it for VR and do it in VR, and say, like, this is the pinnacle of video game, all of our knowledge and to be able to like experience that is so satisfying.


I gotta check that out. I haven’t seen that yet. I do actually have the I have a nice PC with the like Oculus plugged into it. So I can I’ll check that. Check it out on that,


dude. And then we’ll be on another podcast just talking about your experience. Yeah, we’ll do kids in it, too.


We’ll definitely try that. So I have a I keep thinking about though, with Compute paradigm shifts. I mean, usually there’s the thing that happens, I think, where things really get to like I keep thinking about when do we get to a billion people wearing an Oculus like headset? So I had the Oculus Rift when it came out, I think probably maybe a little after when you bought it probably I got it. I got the wired one. It was expensive. He had a really nice computer. And then like two years late, my kids stopped playing it by the way, they were just like, oh, whatever, just sat there and then all of a sudden their friends got that quest to for like a quarter of the cost that you don’t need a PC and you go wow, okay, you can see this. You know, if the cost keeps dropping, you know, maybe that is what ultimately is that what gets us to a billion devices, you know, on a billion different humans, like how do we get to the? How do we get anywhere near the kind of penetration of the smartphone with these 3d glasses? Or is it? Is it something else beyond the 3d glasses? Like how do we? Is it going to be that ubiquitous? Or how do we get to that? And when does that happen? I’ve been wanting that I think for people who are really into VR and AR, we’ve probably been wanting this to happen for like, over, like, for 20 years, or at least 10 years now. But like, is this like, Could this happen in the next two or three years? Or is, is this ever gonna happen?


So the way I think about is less about the technology and more about the function it provides right in your life. And we can say like, Okay, we know, video game consoles, right, like devices that people buy, just to play video games, that’s about hundreds of millions of devices, right? Like the top selling, you know, gaming console 100,000,200 million, right? Now, it becomes not just an entertainment device, but a productivity device, like a desktop or laptop computer, then that’s like, a billion to 2 billion devices, right? But now, if it becomes a communication device, something that you need to connect with other people, that’s when you get into like smartphone territory, and then everyone needs that. And that’s when you get into like the, you know, 7 billion 10 billion device more more devices than people on the planet, right? Because you have to have a work phone and a person. But that that is how I think about and then you’re like, okay, can VR AR become these things? Right? And it’s like I will say, very clearly like, Yeah, I think Oculus has proven that we’re past the tipping point, it can be a gaming device. So I think going from 10 million now to 100 million. Possible, right? Not not guaranteed, but but possible, right? It’s very simple. Like, I think the bigger verse was going to zero to 10 million was much harder to prove right now can kind of go from entertainment device to productivity device. And like we talked about, like, you know, some of these user use applications that we’ve seen, to me point to yes, absolutely. Right. Now, can it become a communication device, something that will want with us all day, every day? And I think AR could do that? Right? Like, I think there are some, you know, ideas and applications of AR, that could make it happen. Now, I think the problem that we’re getting to is like to make all that happen, too, there has to be fundamental improvements in form factor, and technology and hardware technology that enables these use cases. Right. And we aren’t quite there yet. But I think it’s very clear, like it’s no longer a leap of faith to imagine that. And I think that we’re seeing these technologies. Less so probably, I’m optic side, I’d like to get like AR glasses that give you the full field of view, but still feel like you know, regular glasses, there’s still some physics we have to conquer. But for so many of the other things that we have to do like to have high quality visuals. Well, with 5g, we can stream from the cloud will be low latency. And that will make at least let the computing hardware and the battery life work a little bit better. Right, like so I think there are so many things that’s definitely on the roadmap. And I think within our lifetimes, we’re going to see it we’re going to see, yeah, hundreds of millions of people using these devices daily. Yeah, well, we get to billions. I think it’ll be once you get to 100 million, then it’s a straight shot. And like I said to the driver of that will be the metaverse and creating content for the metaverse, right? If building 3d worlds was as easy as playing with Legos, everyone could do it. Right. If it didn’t feel like CAD, if you didn’t have to go to, you know, a gaming score or design school for like two years to learn how to, you know, 3d model and level design, you know how to use unreal, but instead, you just got a Lego set. And you just put it together? And you could rearrange it right? Like, yes, VR, AR will make it feel like that.


Right? If it was as easy as capturing a photo for Instagram or creating a tic tock video, you know, then we would have the I mean, we would have so many creators, we it would pull the whole market, right?


Yeah, exactly. Like, yeah, well, how new 3d sensing technology will also have AI. So you when you take a picture, now, it could be a 3d game character, you know, and, you know, is that possible today? No. But are there startups working on that? And is it within? You know, five years horizon? Probably, right.


Alright, Joseph, I’m out of the venture business. I’m going to go launch a VR startup on sold AR. We’re away and it’s been great being on the podcast. No, just kidding. Anyway, so I think you have a lot of clarity that I think we’re there’s a lot of us thinking about this, but I think you’re thinking very deeply about it. So really appreciate you joining us on the podcast today. I think Joseph has one closing question which maybe we can ask before this last closing, but around the execution, we try to weave that in.


Yeah, I’m sitting here just thinking about Taking my general iPhone and using the LiDAR, on the back to scan myself, do you think there’s much of a market yet for, you know, like, immersive podcast experiences where you just are standing behind the guy talking for like, half an hour?


Not yet, but there will be but imagine to not only, you know, will you see that, what you said what you say, will be created as graphics in the real world that you could play with and interact with. And so it’ll be like, you know, a real time, you know, infographic as well, right? Like, AI will understand what you’re saying, and then give you the visuals to go with what you’re saying to make it more impactful. Right.


That’ll be fantastic. I like to ask all of our guests who come on here, you know, title a podcast, execution is king. You’ve got such depth of knowledge. And as an investor, you know, you really have a great picture of you know, what’s going on currently in the AR VR, AI Metaverse market. So right now who do you see executing? Maybe it’s a startup, maybe it’s an individual. Maybe it’s someone flying under the radar? Maybe it’s somebody everybody knows, like, Google, right. But who do you really see performing?


It’s a great question. And I think you’re absolutely right, like, ideas are a dime a dozen. It’s all about the execution. And I think more so especially in the XR metaphors and the web three spaces, right, especially when they all kind of converge. And so then I really want to highlight a company that we had just invested in called chatter. So they create AR, NF Ts, and you know, a lot of buzz words, a lot of stuff going on there. But what’s really interesting is, it comes back to the execution. It’s not about the ideas. A lot of people have similar ish ideas. But the fact is, like, you know, they raise money there, they had tech, and they were an AR, holographic startup, working with like celebrities to create holograms and volumetric captured little videos that up on their phone. And then they realized, you know, the NFT opportunity was happening. And one of the things that they realized, you know, people were buying these profile pictures and lefties, and then they were wanting to interact with, you know, different Metaverse worlds, right? And what they really cared about this idea of like, well, NFT is not just as a profile picture, not just as an art collectible, though, if it had used what if was a utilitarian NFT? What if you could actually buy something and then use it in these different virtual worlds. And instead of just thinking about this idea, and trying to pitch people, they just built it, and sold virtual hoverboards and jet packs, and did over 4 million in sales and the FT dropped for these virtual goods that they could visualize an AR and that the people could try it in different virtual world platforms. And, you know, because they proved it out, then investors double down and wanted to invest in them, right? It wasn’t like, they came to us and said, Hey, we have this idea for something. Invest in us. They’re like, No, no, they executed, they’re like, Hey, we have this idea. It doesn’t cost a lot of money to make these things nowadays, we’re just gonna do it. Try it. And when it succeeded, investors lined up to really double down and so they did a $7 million raise. And I think it’s, it’s, it’s funny, I meet so many people, that I love that they encompass a couple things, you know, they did a pivot, you know, they went into an even crazier space, you know, from AR, which was very early into this crazy NFT space. But through execution, they prove that, you know, they could stand out from the crowd of people that are just sitting there talking about it.


Well, this is fantastic. having you on the podcast, Tim Potat. Thanks so much for joining us.


Thank you so much for having me really enjoyed this conversation. And yeah, for being back on after Rob, you’ve either played Half Life Alyx or have decided to start your own VR startup.


Okay. Yeah, sounds great. Awesome. Thanks for joining us. Thanks.


In this episode, Rob and Josef talk about bootstrapping. Rob shares his experience bootstrapping to $70M in revenue by age 32 with his startup, NativeX. 

They are joined by Michael Martocci, who is the Founder and CEO of SwagUp. SwagUp is a company that sells curated swag packages to startups. Michael has bootstrapped his company to $50M in revenue by age 27. He gives advice on bootstrapping and when to hire devs. He also outlines how to build an e-commerce site with free software, which he did himself, reaching $3M in sales after 18 months of operating without a developer.

 Who does Michael see executing? Ramp.

Full Transcript:


Welcome to the execution is King podcast where we talk to successful startup founders, investors and ecosystem builders to uncover insights and best practices for the next generation of great global startups. Today, my co host is Rob Weber, managing partner of Great North ventures. Today we’re going to be talking about bootstrapping. Now, the phrase was originally meant to be sarcastic, right, describing this physically impossible action of reaching down to your own boots to lift yourself up. But entrepreneurs and founders have embraced the phrase. And today it means building your company without taking outside funding. So for instance, like Rob, you and your brother Ryan, bootstrap your company, right?


Yeah, we had the classic dorm room startup, we had been, you know, building ecommerce, businesses and internet businesses in the 90s as teenagers. And by the time we went off to college, and were in the dorm rooms, we had this idea to create this publishing business around PC software, which eventually took us into mobile apps, with iPhone and Android. So as a 16 year journey, I was pretty proud of what we were able to accomplish from age 20 to age 32. At our peak year of what was native X at the time, we were at 70 million in annual revenue, having never raised anything but a small angel round. And we had 170 employees in Minnesota in San Francisco. I learned a lot about building businesses, you know, through through those years and pretty exciting to be a part of I think, for a lot of the people who are a part of the early team, especially, you know, there’s something really magical when you can scale a company like that.


Yeah, and our guest today, Michael Mark Tachi followed a similar path, he bootstrapped his company swag up, up to $15 million. And he just turned 27 years old.


For those people who know me, I’m pretty active on Twitter, Robert J. Weber. And I follow Jonathan treble from print with me, he was on an earlier episode of our podcast, and Jonathan’s a really scrappy founder, you could hear that in the episode that we had him on. And he tweeted about this company swag up, that was rated 23 Out of the Inc 5000 for fastest growing companies in America. And he was 26 Now 27, and at this $50 million run rate, I was so impressed, I had to reach out to Michael and after a little bit of back and forth on Twitter, he decided he joined us for the podcast, I thought it was super cool. You know, here, I thought we had a unique story that we are these young founders that got to this kind of scale. And Michael is five or six years younger than us at the scale. He’s already yet.


Michael mark. Tachi is CEO and founder of swag up. Welcome to the podcast, Michael.


Thanks for having me. You. We have a VP of sourcing and merchandising from the Twin Cities area and you guys say swag up the same way?


Maybe? Is it a little Canadian to it? Or how does that how does that come up? Come out?


Yeah, I don’t know. A little like Midwest like Twin Cities Twain, you know.


Nice, nice. I used to travel out globally. And it would, I would either a lot of people in like Europe around the world would say we sounded Canadian up here. But then sometimes I would also joke around with friends and like the Nordic countries that, you know, at least from a latitude where we’re close, we can be brothers or something. I don’t know. But anyway, kind of the first question I had, there are many founders who decide to bootstrap their startup. I’d love to learn more about your story. Predict, you know, kind of pre dating swag up? What were some of the things that you did to prepare yourself for swag up and just tell us more about kind of what everything leading up to swag up for starters.


Yeah, yeah, I mean, you’re always like that quintessential kind of like entrepreneurial kid. You know, I always love making money for the sake of making money. I don’t know what it was. But there was a there’s a picture of me I’m like four or five years old, standing outside my mom’s house growing up like reselling our groceries to our neighbors, you know, on a little you know, picnic table with a little sign that’s like yogurts, five cents and ICE T 10 cents. And so it was it was a good business because the cost basis was zero. So he couldn’t really lose on that. But that just like snowballed into lots of different stuff. So like I used to set up a little table at the bus stop like baseball cards so that when when kids would come off the bus nothing come by and like shop through my assortment. And you know, I’d gather a few kids to, you know, shovel snow from different neighbor’s houses to make some money. And so I just always like that enterprising type of personality. Yeah, I used to play video games on my computer, but they were like the games where you make money. It’s like lemonade tycoon and roller RollerCoaster Tycoon stuff. But then I actually run 13 I got really into finance. I ended up buying my first stock. Ford at the time, because I like the Mustang. And my mom was at Morgan Stanley for 33 years and her boyfriend at the time was like a big, big wealth manager. And so I got really kind of engrossed If you’re managing money, and you’re learning about s one filings and 10, KS, and you know, discounted cash flow analysis, all that kind of stuff. So I ended actually ended up going to school for finance. I had an internship when I was 18, at a hedge fund, actually commodity trading hedge fund that was based in Illinois, just outside of Chicago. So I got really into that, and then, but it kind of became a distraction. Because deep down I always was like that entrepreneurial kid. And I kind of like suppress that a bit because of this, like artificial desire to go into finance, because it seemed kind of interesting and exciting. And then one of my buddies from high school reached out to me while I was at school, and he’s like, hey, you know, I want to, I want to build an app, I have this problem where I can’t find kids at Rutgers University to play basketball with and I was at William and Mary in Virginia. So we weren’t at the same school. But we were friends in high school, and we have like little side businesses and stuff. And he’s like, you know, like, do you want to do this with me? And I was like, Yeah, sure, whatever, screw it. And we got like this Indian development firm, and we designed and prototype the app, and we work together on it. And we ended up launching it on my campus. And it was like mildly successful, we got like a few 1000 kids from the school to use it and stuff like that, we didn’t really know what we were doing. But in the process of launching that on campus, we wanted to get custom flags to put up in the dorm rooms and like on the walls and fraternity houses and stuff to promote it. And so that was like my first foray into trying to source custom printed materials. So I ended up finding a supplier. The US suppliers wanted, like $130 for the flag, and I found Alibaba and got them for $8 from from an overseas supplier. So at the time, I was like, Okay, we have this app. But why don’t we just get a little side business going sell resell these custom flags and banners from from overseas manufacturers. So that like I said, that was kind of like my first eye opening into the world of custom printing, we ended up starting to do some, like T shirts for fraternities as well, like, we would do flags and T shirts as like a bundle deal and sell to them. So I always kind of had this in the back of my mind. So I ended up actually dropping out of school became business partners with an NFL player very randomly, because I was just like, when I got back into the entrepreneurial spirit, I was like, you know, I don’t want to be in finance anymore. I don’t want to stay at the school anymore. I don’t really care about the degree. So I had this opportunity to partner up with him. And you know, we’re again, even there, we’re doing fitness training programs and stuff, but we’re bundling them with like custom branded shaker cups and resistance bands. So I was still flexing that like ability to source these products. And I ended up going to a VC firm in New York City for like four months after working with the NFL player for over a year. And you know, just being around startups, you just saw how much they care about community and brand building and how swag plays a central role in it. And you everyone was doing it very differently. It was a very kind of stuck in the 2000s type of, you know, industry and supply chain. And just kind of bringing two and two together. Like I think these high growth companies are really looking for a more interesting better way to do it and buy from a brand that really resonates for them. And that was kind of like the initial spark for diving deeper into it.


That’s really interesting. So you have this entrepreneurial tendency going way back to even four and five years old. I’m curious, did you also have graphic design or software development skills prior to starting swag up? Or did you I think I read in a blog somewhere that I think one of your pieces of advice for new founders was trying to rely on more like freelancers as much as possible. Was that more how you got to kind of the technical side of swag up off the ground? Or did you have some of the technical skills too?


Yeah, I mean, you the proliferation of like these, no code tooling has really made it much easier to get stuff off the ground. So you know, I, I’m a relatively good visual kind of designer type person can kind of say, Does this look good? Does this not look good. And that was a great kind of skill set to have. So then I just built the first website on Wix. And the reason I liked Wix so much is one, it’s super cheap. But two, it’s also super flexible, like, you can literally start with a blank white slate and design exactly how you want. And it was good enough, you know, we ended up using that Wix site for like two and a half years, you know, and we and all we did was, instead of trying to build out some sort of like catalogue experience, or E commerce experience, I use that type form. And the reason I like tight formula is because when you can embed it as an iframe on the site, so it looks native and natural to the page. And it’s a very visual form experience. So you can actually use like imagery. You can even do calculators or things like add up the pricing. So there’s like this dynamic kind of logic that you can use in type form that allows you to almost be a software engineer without really being an engineer. So I was like, critical. I had enough critical thinking and creativity to kind of like put different tools together to make it feel like like a productized experience. But I didn’t need to really rely on on third parties mean the business didn’t really take any money to get off the ground. I think when I started the business I had like 25k saved up 30k or so. And we did end up like using it because I hired like a buddy of mine that lived down the street and we pay him and you had we had an office It was a stupid expense at the time. But you know, I think having the resourcefulness to, you know, teach yourself a lot of stuffs, you know, is super viable in those early days so that you can just kind of not have to rely on other people. And just and just make it happen for the first few months, because you just want to see in the beginning, like, do people even care about this idea? Like, is there enough traction there to make us want to dive deeper. And if you just go straight ahead to being like, hey, well, I don’t have resources, and I don’t know how to design and I don’t know how to do this or that, then you immediately like, relinquish power, and you have to give it to somebody else. And you say, hey, I need to raise money now. Right? Right off the bat, because I can’t do anything without people. And it’s like a very, it’s this, just this trap mentality, though, that if you always kind of have that mindset, like I can’t do it, I need other people, I need other people, that mentality will stay with you, as the company grows, you have too many employees, too many people that don’t take ownership, all that kind of stuff. So like, it’s always been embedded in our mentality, like, you have to be able to figure it out yourself, take ownership, just make it happen, learn things, etc.


That’s something I see all the time with people with startup ideas, you know, we’re like, I’ve got to raise money. So I can hire developer to build this thing. And I mean, how long did you go before you actually hired a developer?


About 18 months, and we had already done, like, over $3 million in sales without any technical talent, you know, we used we use that same kind of no code setup, it was. So what it was was, you had a Wix website type form was embedded, I built some Google advertising, you know, sem campaigns to get people in the door. And I use Zapier to connect everything to Trello. And Trello became like this back end kind of project management order management system. And then we have like Google Sheets and stuff to kind of make, you know, presentations and like quotes and stuff like that. I even made like this really big like pricing spreadsheet where it had all of our skews, and then you’d put in how many units you want, and how many colors it is. And then it would spit out what the price should be. So that when we hired like a second salesperson, they could just go in there and make their own pricing. And then we had like these templates that you can make a quote in Google Sheets that like okay, line item, price, line, item price, here’s our addresses our number, and you just like download that PDF, and send it to people. So we did that process to like six and a half million dollars of sales. And you know, it wasn’t great, but it didn’t stop us from like testing and validating that there’s actually interest and you can build a business around it. You know,


that’s fantastic. Because all of these tools that you mentioned, I mean, have free levels, right, like Trello, Zapier, I mean up to a certain amount of connections with Zapier and up to I forget where Trello starts charging, but that’s fantastic.


You can reach out to these companies, even the ones that are more expensive and say, Hey, I’m a startup, do you have a startup program or something and a lot of times they do, it’s like, you know, intercom, for example, intercom is very expensive. It’s like, I think right now, we were paying like $1,600 a month for like the chat feature and the different automation that they have. But the startup plan was like $99 a month, you know, it’s like 1/15 of the cost for all their feature set. And they’ll let you use it for like, a year or two years, until you have like more than 50 employees. So there’s so many of these AI platforms out there now, too. They give you discounts on different services from different vendors and stuff as well. So there’s really it doesn’t cost much to utilize even best in class like software platforms when when you’re starting out.


So on the customer acquisition side, I think you mentioned initially used sem as kind of a main driver for customer adoption. Did that start to change over time as you had success? And I guess, as you scaled up?


Yeah, for sure. I mean, today, about 70% of our business comes from organic and direct traffic and sources. But in the beginning, it’s like it, you know, first off, to really validate something, you need to just go out into the random world and see if people care about it, you know, because it’s very easy. You know, it’s very easy to start something and just ask your friends to buy from you ask your parents to buy from us, like people you know, to buy, they’ll buy at a pity, but it’s not necessary. It’s not necessarily validating that people care enough to like use this if they have no idea who you are. And you do want to use your connection to get a few sales off the ground, because that gives you credibility, you learn how to operate all that stuff. So I’m not saying like don’t do that. But at the same time, you want to just go out randomly, like nobody knew who was behind those Google ads or behind that site. And they still cared enough to like actually put their information in and go down the funnel basically. So that’s what I wanted. I wanted to make sure that random people would care enough and and we tried different things. We tried Google ads, we tried Facebook ads and what was good as I taught myself, you know, digital advertising when I worked with the NFL player, because we were doing like these fitness training programs. And you know, what’s great about fitness training programs is they have no cost or digital program. So it’s just a pure marketing kind of arbitrage. So we’re doing lots of Facebook advertising and stuff and that’s how I kind of learned about multivariable testing and all this kind of stuff. So again, back to the idea is like, you know when you’re starting out like have the curiosity and resourcefulness that kind of figures out stuff stuff out on your own. And the Google Ads worked, you know, like the initial ads worked well, at the time, that idea of like swag packs like, which is what we really centered our positioning around for the first few years, and we still kind of do. There wasn’t even a known concept like people, there was no competition for it. It was getting like minimal, you know, a few 100 searches a month or something. And we just went after some of those, like longer tail keywords. I didn’t, I didn’t try to bid on, you know, promotional products or swag, because they’re just, you pay too much per click for them. So I tried to figure out like, what what would people actually search for, that would eventually lead them down the path of wanting what we have without being so direct? Like, you know, because those are, there’s two wildly competitive those spaces.


One of the things I had read on your blog was, you attribute a lot of your success to just staying focused. And that was one thing you would share with other founders. Can you elaborate on some of the decisions you had to make where you had to maybe there was that opportunity to be, you know, to widen your focus or be less focused? And maybe things that you didn’t do? Or, or maybe examples where you were, you know, you stayed very focused?


Yeah. I mean, it’s still a problem today, especially as you hire more people, because then it’s not only the company’s vision and goals need to be focused, but then you need to make sure that all your leadership and you know, every the focus is kind of driving down throughout the organization. And I think that’s one of the hardest parts of scaling is helping people stay aligned and moving in the right direction. But in the early days, like, so when I when I first learned about the custom printing, and I, you know, we started like that side business with like reselling stuff from from China, we had a little website, it’s like, cheap, custom printing. com is an E commerce site. And, you know, we did like 40 or 50k a year or something off of it. But what I realized there was just, you’re not going to build a business on the premise of like, work cheaper, like, that’s not interesting enough, and the products themselves, you know, it’s just like flags and banners like there was it, you couldn’t come to cheap customs, calm and be like, wow, like, these people are specifically different and distinguished in this specific thing. And we need to be using them for that. And that was something I had in the back of my mind when we started swag up, I was like, How can we niche down to a point where people really, really understand like, wow, these people are the best in the world at this one thing. And we know if we need this one thing, we can go to swagga for it. And in the beginning, the very beginning was just a matter of like, oh, focus on startups, like brand, the experience and design in a way that’s resonates with them and curate the selection so that you eliminate kind of decision fatigue and the whole kind of paradox of choice mentality. And that was good, and it attracted some people, but it wasn’t enough of like, wow, like, they’re truly like changing the game. And and one of our first big orders was for swag packs, like this company was like, hey, we want to put together 100 New Hire kits. And it was a $10,000 order. And it was like a sweatshirt and a shirt and a tote and a bottle and notebook, etc, that every new employee was going to get the same thing. And I was like, there’s so many ways that a company could use these kits. These packs, it could be for welcoming new customers, it could be for venture companies sending it to their portfolio Yoko’s, it could be new employees, it could be work anniversaries, there’s just so many reasons why you might want to send kind of this bundle this preset uniform to people especially in like this idea of remote work, like, you want to have this uniform consistent experience for people across the globe. And I was just like, there’s no way to make this happen easily for a company. If you think about the process, it’s like, you got to find the packaging supplier, the apparel supplier, the hard goods, handled the design, work, pay different vendors coordinate all the logistics, I was like, if we can become this end to end solution for this specific problem, we’re gonna grow incredibly quickly. So that was that was a big moment of discipline and focus, because we didn’t know it at the surface level at the time. It’s like it felt limiting. It’s like, Oh, are we not going to take on like these bulk orders and become more of an all encompassing so I company? Are we are we just going to focus on these kits, like is that a big enough market? Do people care about it enough. And ever since we did that the business just exploded, you know, we went from doing a three to 4000 a month to like 30,000 50,000 100,000. And it was the genesis of really like our growth trajectory. And it was because we said, hey, we’re gonna be the best in the world at this at this one thing. But this, you know, this plays out on a daily basis. Now, you know, we like to think about the swag pack concept as a mousetrap that allows us to get in the door with a lot of companies. And we’ve worked with over 4000 companies in the last four and a half years. And obviously, as you deal with these four and a half 1000 companies, they you know, they constantly asked like, what if you did that, could we do a swag store for employees where every employee gets like points and credits and system? Could you integrate with this system. So every day, you’re kind of faced with these, you know, challenges and we used to actually do stores for companies, we would set up like the Shopify store, we manage their inventory and send it to their employees and stuff. But we realized pretty quickly, it’s just like, we’re not set up to manage that. Like it’s a way to manual process. It gets in the way of a scale we dealing with like the core problem that we’re solving that is already a large market. So we ended up just dropping that and not doing it anymore. So there’s, there’s a lot of stuff like that that pops up on a daily basis where it’s like these are these look like shiny, good opportunities, and they would definitely bring in revenue. But I’m, I’m of the belief that if you can do something at a B plus level at scale, that’s way better than trying to do everything and try or try to be the best at everything. So other things, too, is like, Okay, we do swipe packs for companies, and we handle for new hires, and all these different use cases. But we also don’t try to be like this really customized boutique tea, like, let’s design everything really special, like, let’s use the most unique products all the time, because you can’t provide that level of experience to everyone at scale, you know, so I’m always about like, I’d rather have a B plus consistent repeatable experience than try to be a plus at everything, or try to be your C at a million different things, you know.


So whenever I’ve ordered swag, you know, I don’t I don’t want to pump anybody that I go through. But say you go to like, for imprint. And you get into that. I think you mentioned like decision paralysis or something like that, right? It’s just kind of overwhelming choices and things like that. So that was kind of interesting. You talking about niching? Down, Right, and focusing on just these this Bita b2b target. Whereas like the b2c focus for selling swag, it seems like that’s a pretty crowded space. Did you focus at all on b2c? Or did you go straight to servicing these kind of businesses or other businesses? Did you start out servicing individuals?


No, it was always businesses like and specifically, like high growth startups was the initial target when I don’t know what that percentage is. But it’s got to be like 70% plus of our business comes from software companies, you know, just kind of were where we focus. So we’ve always had like, very large average order values as well, which, which allows us, which is great, because it allows us to invest in marketing if we need to, in a way that’s really profitable. Because if you have 8000 $9,000, average order values, or you know, or they’re spending over 20k A year annually, you can you can afford to spend $1,000, to acquire a customer doesn’t matter, you know, whereas when you do these b2c, you’re going after crowded keywords, crowded markets, only to get $500 Order $600 orders, and then you have to have like either a really scalable e commerce experience, or like a large customer support team to manage those relationships and deal with the subsequent issues that are going to arise afterwards. So you know, I’ve always been a fan of kind of go where the money is, you know, and you know, there’s a lot more money in enterprise type companies and, you know, high growth startups, and they’re, and they’re also willing to pay a premium to get their time back. And we were very much around my calculi make this an end to end experience for them and embed ourselves in like their workflows, and really provide them value versus just being a transactional company that sells them a t shirt, because when you sell somebody a t shirt, now it’s all about price. It’s like, you know, which ways can I get this t shirt for cheaper, and we always wanted to take ourselves out of the price conversation. It’s very, it’s very rare that somebody comes to us and like, Hey, I don’t want to use swag up because I can get this shirt for, you know, 20 cents cheaper somewhere else. It’s like, well, that’s not why you’re coming to us, you’re coming to us, because you’re looking for help dealing with this process. From from end to end, you need help with the storage and the distribution logistics, you want us to help you figure out which items to do. So yeah, it’s just it was a more appealing market and approach for me the way that we kind of went after


I find it just inspiring, like, I’m sitting here like, oh, man, I’ve kind of just starting with SEO and like looking at running ads and like what can I take? And what kind of business could I service? You know, it’s almost it’s industry agnostic, this approach that you took, you can almost spin up any another number of businesses using that same approach that you went with not saying they’d be anywhere near as successful, of course, but


I think it’s really interesting because I I purchased from a for my my prior business that we bootstrapped pretty successfully, we ordered a lot of swag over the years for employees or for customers, and, as always, sort of the old school players. But when I think about that, the by targeting startups your net, you have the potential for pretty high net revenue retention, because these startups are growth companies. So if you can land them and keep them happy, you know, they’re, you know, you have the chance to just keep growing on the back of their own success. And that can happen in other categories. It’s not just startups or other, you know, industries that are maybe have a characteristic where the whole industries, there’s sort of like the rising tides side of it. But also I think startups are probably generally going to be more early adopters of maybe higher expectations for tools they want to use. And I know you have like you have API’s or some of these like No, no code tools, like startups are going to appreciate that a lot more than if you’re targeting some like upper midwest. arcade business that’s been growing by 5% a year for 50 for a generation, and, you know, they’re just kind of set in their ways. Like, that’s probably not a great customer to target industry, that’s been around a long time.


Ya know, it was a very deliberate decision to work with these types of companies, you know, they were looking, as I said, they value their time a lot, there’s a lot of very high opportunity costs in high growth environments. And like you said, you’re placing a bet on them to grow. I mean, we even had conversations of like, we’d make more money if we just started an investment fund investing in the companies that are working with us, because we know how fast they’re growing? We know that they really care about being deliberate about the employee experience and the customer experience? But yeah, I mean, I almost liken it to a tax, you know, like us working with these high growth startups, it’s almost like we’re getting a tax on the startup ecosystem, you know, not maybe not as big attacks, as like AWS, like at AWS is a tax, you know, like they’re taking like a 1%, you know, take rate on all startup revenue, basically, by handling kind of the cloud for all these companies. And we’re, we’re same thing like, every company needs swag, for some reason, you know, and we want to make sure that we’re the vendor with them, and we’re growing with them. Have you come


across any other places where you’ve spotted these kind of inefficiencies, like the inefficiencies that you saw, in your own experience? Ordering swag. But have you spotted anything else when it comes, particularly to serving startups? Like you mentioned, AWS is basically attacks. So I would say that they’re running at pretty damn good efficiency, if they’ve reached that level. But do you see any other places where there’s, there’s kind of money on the table left, specifically, dealing with like startups?


I don’t know. I mean, my mind races every single day with ideas and opportunities. I mean, I think, in general, though, that there’s just a lot of opportunities to digitize the physical world, in general, both from a marketing standpoint, and a product standpoint, you know, I have a friend that, you know, it’s a successful kind of tech entrepreneur, and they’re their newest business, these are these guys sold their last business for $2 billion. Their latest business is a pest control company, and they’re digitizing it, they’re operationalizing it, they’re building out your complex digital marketing programs that are sophisticated at the level of like technology companies, and they’re taking, you know, they’re going into new markets and standing them up for like, $200,000. They’re doing, you know, unique, like routing systems to make sure that the right people go follow up on the leads at the right time. Like, I just think there’s a lot of room to take legacy type businesses that are, you know, that haven’t changed much. And there’s a physical component to them, and utilize technology to make them much more efficient, and then utilize like, true innovative marketing strategy to get in front of, you know, customers cheaply at scale that, you know, traditional companies are not usually great at.


So Michael Kennedy to change gears a little bit, you know, in the last few months in the you know, during this COVID time period, there’s been a real, a lot of constraints on supply chain. I’m curious, with E commerce, businesses or your business, have you? Have you had any really major hiccups, just in terms of your supply chain and servicing your customers?


Yeah, for sure. I mean, we’re in an interesting position where it’s not as bad as like some direct to consumer ecommerce brands, because we don’t have inventory. So we’re very much like a just in time manufacturing type situation where our customers want to place a certain order, then we accept that order. And then we handle it with our supplier base and our supply chain. So we’re able to kind of be insulated from, you know, inventory risk and demand forecasting to a degree because these direct if you think about like a direct to consumer ecommerce brand, if their production times have gone from 60 days to 120 days, and you know, the turnaround time on the ocean went from, you know, 50 days to 100 days, instead of trying to plan forecasting and demand for the next 100 days, you have to plan for almost like a full year. Now, if you get that wrong, and you overbuy Are you under buy, you’re in a situation, because you don’t have that you’re not nimble enough to fix that, you know, and you can either be left with no stock to sell, or you have too much stock and you can’t afford to kind of carry that inventory costs. So, you know, I feel for a lot of other e commerce entrepreneurs that had to kind of deal with that, especially if they don’t have good handle on their data and an on demand, especially as like, digital marketing got more expensive, and it became harder to track the customer with like the whole Apple and Facebook stuff going on. But for us where it impacted us was that, okay, it’s great that we don’t have you know, pay for inventory ahead of time, but we still need that production process to run smoothly. And where it used to take us like three weeks from start to finish the finish like a project and on all the components of the order. Now it’s more like five weeks, you know, and so it’s just taking longer to run through projects and your customers get antsy. They’re okay, it’s been three weeks. Where’s my order? You know what The status what’s going to be the date, the we and also we don’t have great visibility sometimes as to exactly when the order is going to be ready. And then the other part too is, you know, we run, we ran into a lot of issues of like stock outs in the sense of like, okay, we thought we could sell you 500 kits or 500 bottles that are this bottle. But actually, we can’t, the supplier no longer has it. Because you know, what ended up happening at the beginning of the pandemic was the suppliers, a lot of them got nervous about the industry. And they started to hedge their bets by selling PPE instead. So they sold sanitizer and masks and stuff. And they weren’t placing the large inventory buys of their core products. So a lot of them is like demand starts to rebound a bit, or at least for us demand never kind of took a hit because we fill the certain need that always persisted, especially in a pandemic, we found ourselves with, like more demand than they can handle from a stock standpoint, and there was a lot of issues there that we had to then deal with reworking the order, figure out what alternative to put in there do have to credit the customer that we didn’t really have workflows built out for that kind of stuff, because that wasn’t really a problem for us in the past. So it’s definitely been a very challenging, like operating environment to provide like a really high quality customer service, at scale during all these disruptions. And then you also have labor, labor disruptions to it, can you hire people for the warehouse, can your vendors hire people for their production facilities, it takes a while to hire them. And then those people are also much more expensive. Now it’s a higher from an hourly standpoint, where I think going into the pandemic, we started people at like 12 $13 in the facility, now it’s like $16, with people going up to like $25 an hour for some more senior, hourly. So it’s definitely more expensive to operate the business and things take a little bit longer. But there’s also an element of like, being able to pass some of those costs of the customer as well. And also customers have started to become conditioned over the last year that, you know, expect that things are going to be challenging. You know, there, you know, in the beginning, the first six months, people didn’t know why things were taking longer. They didn’t know why they had very high expectations. And I think we piss some people off. But as the pandemic kind of continued, they started to realize, like, oh, I tried to order this thing from Wayfarer, and it took six weeks, and I tried to get this thing from, you know, Home Depot, and they don’t have any more stock. And I think people just started to like, settle into the reality of like, you know, things are screwed up. It’s not just like a side thing. It’s like all over the place. So


Michael, just in terms of founders who are thinking about bootstrapping, a startup, are there any other just, you know, one or two major takeaways or advice you would give to them?


Yeah, I mean, I think some of them mistakes kind of that we made. And if I was like, bootstrapping, again, you know, how I think about it is mostly related to people, you know, I think that the, you start to realize, you know, because this is like the first real major scale business that I’ve run, but you and I’m still young, you realize that people are everything, you know, if you have really strong people and leaders, you know, you get a ton of leverage, you can trust them to go run and build like mini empires within the company. And then when you’re Bootstrap, I think the the impetus is typically like hire a lot of middle level people, you know, try to get deals, like where people are willing to take less, and you’re better off just getting some bodies in the door, how them like, become arms and legs for you and scale that way. But going back, I’d much rather be like, much more hesitant about hiring and invest a lot more in 1234 great people than having 20. People that kind of constantly have to be told, like, Hey, this is what’s important, this is what to do. Like I didn’t really get a lot of leverage in the first couple years. So I would say like, yeah, it can be scary to like, invest heavily in getting great talent. But at the same time, you’re not making you know, if somebody is $200,000 salary or $150,000 salary, you’re not committing that to like a year, it’s like you know, things don’t work out in a few months, then you cut ties, and you move on. And you start to realize that they’re not cost these are people are investments, you know, getting great people are going to be accretive to the business and very quickly prove their worth and be impactful to the company. And sometimes it’s like a trap if you never make those investments to those people because you can never get out of the holes and get out of your problems. So I wish we would have just like brought in, you know, more seasoned people sooner and bit the bullet on that. And then besides that, it’s just like, constantly, you know, constantly be scrappy, and be aware of what your expenses are, you know, it’s very, it’s easy to kind of, you know, I brought in a finance partner suit are very quickly as well, like Artem, he’s one of he’s one of our partners, and he was the first exec that I hired. And I was like if cash flow is going to be so important to us, like I need somebody looking at it day in and day out and you know, optimizing for it. So I felt confident that I can focus on the growth of the business and he would have kind of the safety net figured out how to make sure the cash is in a good spot. If not, what do we have to do? And that gave me that peace of mind to just keep focusing on growth and that I had kind of the yin and yang partner to focus on kind of the downside. So I think you’ll sooner or later getting somebody that can own that, if that’s not your your thing. And watch that so that you don’t feel like you have to constantly be on top of it every single day, or else you’re gonna go crazy, but but also just being aware of what the expenses are, even if you bring in someone like that, it’s not like, oh, oh, I just pay the bill at the end of the month or something, or you should just let me know, it’s like, no, like, what are we actually spending money on? And? And does it actually help the customer in any way? And if not, like, why are we? Why are we spending on it? So we’ve always been very, like frugal, you know, even till today. And even when we write, you know, if, if and when we raise money from investors, like, we’re still gonna be the same scrappy, frugal company that we that we always were and and that’s, you know, Amazon’s very much like that, too. You know, they’re one of the largest companies in the world. At this point. They have plenty of capital. But they’re, they’ve always been so frugal and scrappy, because that’s kind of like their humble beginnings, like they didn’t raise a lot of money when they first started.


I like to ask every guest on the podcast, Michael, what’s a company or who’s a person that you really see executing? This might be somebody under the radar, or it might be Amazon, for instance, but someone some piece of execution that you really see being great that you want to call attention to?


Yeah, well, I’ll bring up to two examples. First off from a company and like founder standpoint that I really admire company called ramp, they’re pretty, pretty well known your fin tech company out in New York City, they’re worth about two or 3 billion. At this point, they’ve only been around for like three years. So I’m pretty close with Kareem, the CTO, and they just move incredibly quickly. They’re really deliberate about how they structure teams, the types of people they hire, you know, getting people that are at like the inflection curve of their growth, like they’re very high potential, what maybe they haven’t been put in a spot to really fully maximize that potential have the autonomy to to go with it. So they’re really deliberate about trying to find those types of really high potential people and then putting them in a place where they have autonomy, and power to directly contribute to to the outcomes. And that allows them to just move really fast, there’s no bureaucracy, there’s no, there’s very limited kind of layering of people where you have to go through them to get to this approval or communicate, they just kind of run in parallel. And I’ve, you know, I’ve really found that to be impressive, and something I try to emulate in how we build out a team structure. And then, and then on the other side, there’s a book that I read, so not necessarily specific, a company, but a book called amped it up that just came out from Frank’s Luqman, that’s the CEO of snowflake, and then before that ServiceNow and data domain, and it’s really kind of like the blueprint for how to build a high performance culture that just executes at a very high level, and how to be a leader in that environment to hold people accountable, set the proper expectations, set people up for success, how to make hard decisions, all that kind of stuff. And I think that, you know, if you can get to that level, quickly, in your career, you’ll you’ll just be in a much better spot because I think a lot of young founders averse, kind of scared to make big bold moves. And that’s kind of what you know, Frank’s learned over the last 2030 years leading companies is that, you know, you have to kind of trust your gut, you have to make strong decisions that you know, that that are right for the business, you have to, you know, set people up for success and help them. And that book was a really good guiding kind of principles for me to, to think about how to lead the company, especially as we scale.


Well, fantastic. You know, we really appreciate your advice and bootstrapping and the guidance for young founders and building teams and hopefully they can reach where you are at this point with swag up but you know, fingers crossed for them. Thank you so much. We’re so happy to have you on the podcast, Michael.


Yep. Thanks for having me on. Appreciate it.

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