Yeah, so that's a little bit about me and where I came from and how I got into comeback capital, And so now we're at. We've invested in 49 companies in about four years, so close to one company a month. That pace has slowed down in 2022. We can get into that and the reasons why, if that's of interest, But Welcome to The Investor, a podcast where I, Joel Palafinkel, your host, dives deep into the minds of the world's most influential institutional investors.
In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. Alrighty, looks like we are live here, ending up the year of 2022. And Tony, excited to have you here really grateful that you're spending some time with me before we wrap up 2023. We've got Tony Olivito from Comeback Capital representing the Midwest. So excited to have you here Tony.
Hope the holidays were well. Yeah. Hey, thanks for thanks for having me. Love what you're doing with the ecosystem and excited to chat with everyone today. Yeah, holidays were good, you know, but now we're roaring into January, right? Like, excited for New Year. I think everyone's excited for the New Year, right? Like the second half of twenty twenty two was not not too not too eventful for a lot of folks, right?
Yeah, no, I mean, so for me, you know, there's everybody has these New Year's resolutions. People want to, you know, lose weight. They want to do things better. They want to, you know, come in hard with whatever they're working on. But something that I actually started thinking about is just little tweaks that I could do to improve things. It's not really as much transformational change, but hey, how can I just provide more value to the community and the ecosystem?
And you know, most of the things are just kind of minor things. So those are things that I've been thinking about. But how do you think about maybe we'll kick this off as a little icebreaker? Like, how do you think about the new year as kind of like teeing up kind of a fresh new start? Yeah, like I I I like I like that concept of tweaking, right? Like as opposed to like, you know, throwing everything everything out and starting new and refreshed, right?
Because think found I'm just talking in general like founders. What can founders do differently in in 2023? And you know, I think because the environment we're in, I think it's going to cause people to be have to be more focused, right? And I think. That implies being making tweets, right? Like it's hard to raise money right now, right? It doesn't mean that you shouldn't try, but you might want to make changes in in your strategy, right? And how you go about raising money, you know.
Maybe getting traction is difficult, right? So completely pivoting might not be the right answer. It would mean like trying to find ideas and how to like, you know, how to tweak your your playbook, your sales playbook, right? What could you be doing different? Like, Okay. So I think people think people are really going to have to like, identify like, think it's prioritizing, right? What should I be focused on this year? What's what's critical to focus on, right?
Because I think, you know, think in past years, right, like, you're just being bombarded by so many different things, right? And, you know, you could probably get by by not being really focused, right? But I think this year I think probably the goal is to is to is to become more focused, right? And that can lead to to greater success. Yeah, no, that's really helpful, and I completely resonate with that.
I think, you know, especially in this in this climate, really cash flow and cash is going to be king at some point. And I think people are going to be looking more at capital efficiency, you know, generating a higher gross margin, gross profit. So those are things that, you know, I personally as an investor look at as well.
You know, many of the founders that have projections of getting to a certain ARR or monthly recurring revenue, know, those are projected, but it's okay to wait a little bit to see some of that traction come to fruition. And I'm even okay with taking a little of a hit on the valuation to mitigate that risk versus kind of getting a heavy discount with the promise of future revenues. And it doesn't happen.
So that's just kind of like my mentality of just looking more for businesses that are recurring and cash flow. But like, you know, before we jump into that and all of those mechanics, don't we just learn about who Tony is? Know, so Tony, why don't you tell me a little bit about your family, your career, where you grew up and, you know, I know you're in the, you know, the, I believe it's Ohio ecosystem. So let's talk about kind of the beginning. Where you, what did you study?
Where did you go to school? What was your first job? And then how did that take you to where you are now? Yeah, so I mean I'll go way back and probably similar to some folks on the phone. I came from an immigrant family, first generation middle school in high school like maybe many people talk about first generation high school country college. What country did your family come from? From Italy. Okay, and you know, dad didn't even finish grade school.
Mom finished grade school, So for me to finish grade school and high school, was a huge success, right? And and you know, I went on to college, went to Georgetown. Actually, I actually I live in in Chicago area. I have a partner who's in Ohio. Anyway, so yeah, I came back to Chicago, worked in finance and accounting, did some M and A work early in my career, and then moved into more kind of operational roles for one of the largest private companies in the country.
And, you know, basically wherever there was a problem, would get sent, right? So I had roles in strategy, finance, accounting, did some supply chain analytics. And then, oh, it's been close to like seven or eight years now. Took the entrepreneurial leap. I helped a different mind, professor of engineering, started out in microfluidics manufacturing company, of like game changing game changing manufacturing technique, and then just got the entrepreneurial bug from there.
Started investing on my own and building up a angel portfolio and through those activities and met my current partner at Comeback Capital, Scott Shane, and and Patrick McKenna and Phil Hagerman. And we founded Comeback Capital to what was a novelty back then in 2017, 2018, right, was investing outside the coast, right? So and so you know we started off and we were started up ourselves right back in 2017, 2018. You know, not a lot of capital.
Folks on the coast didn't really know what was going on in between the coasts in terms of the startup ecosystem. And so we started a small fund to try to get others on the coast interested on what was happening here. And, so you know, first fund ended up being a great success. We invested in that fund close to 27 companies, pre seed seed stage, focus mainly in the Midwest.
And then we raised our second fund about a year ago, more than a year ago, year and a half ago, with a slightly larger geography focused basically in between the coasts, right? So no longer just Midwest, but pretty much anywhere except the Bay Area, Boston and New York. Because you know those areas get. Yeah, those three areas get 80% of the capital, right? So there's need for capital outside of those three areas.
And yeah, so that's a little bit about me and where I came from and and how I got into comeback capital, And so now we're at. We've invested in 49 companies in about four years, so close to one company a month. That pace has slowed down in 2022. We can get into that and the reasons why, if that's of interest. But yeah, I'd say 80 of the companies in our portfolio are pre seed. So we're very comfortable investing in pre seed, but everyone has a different definition of what pre seed means, yeah.
So before I dive in a few of those aspects, tell me what your definition of pre seed is. So so for us, pre seed would be a company that is post revenue. Doesn't have to be too much revenue. Right? Mhmm. So post revenue has raised less than less than a million dollars. Right? So we'd like to be the first institutional capital, like first money outside of, like, friends and family, basically. Right? So that's precede for us.
And, you know, there's a lot of companies out there, but there's a big difference between a post revenue and a pre revenue company. Right? I mean, there's there's not a lot of information at that stage, right, when you're evaluating company with, say, 2,000 of MRR. Right? So there's not a lot of information. But just having revenue and the speed at which you're growing, it is a big information plus. Right?
There's a lot of value in just those two bits of information as opposed to, like, free revenue company. Right? So yeah, that's interesting. Yeah, I usually see seed is like product developed, but no revenue. So that's a helpful take because you're right, everyone just has a different perspective, different prescription of what the definitions are and everyone just has a different strategy. But that's helpful.
Then I think one follow-up question from my opinion is, so they're generating some revenue, there is a repeatable model here, and they probably just need some cash to grow. Where is the cash mostly going? Is it going to just more ad spend? Is it going for more staff, more personnel? And what are some of the type of businesses that you think work best in your model after kind of now having a lot of this data and track record?
Yeah. So, you know, you point something, I'm going go back to one the things you mentioned, right? You pointed out like a big difference, maybe the difference between, I guess, coastal investing and investing elsewhere, right? So, you know, there still are a lot of companies out there who are essentially creating products that are, you know, next generation of like existing software, right? That can get to early revenue without a lot of capital.
I think a lot of the companies that you see that are at sea stage that require a lot of capital or maybe building building a product in a space where maybe that technology still needs to be developed, right, like crypto, let's say, or, you know, blockchain or clean tech, right? If you're looking into like clean tech opportunities, right? So anyway, so I think that's a key difference, right?
Because if you look at a lot of the companies that we invest in, right, you know, there's a handful, maybe one or two companies we've invested in, they're like robotics companies that, yes, a lot of money is going into continued engineering, right? But most of the companies that we've invested in, cash is going to still remains. The cash is going to achieve a milestone. Yeah. And you know, if we're leading a $1,250,000 round.
There's there's still not a lot of like expansion in terms of the company's size, right? A little bit of that money might be going to like engineering to to kind of improve the software. But most of it's going to go to depending on their business models, these are going to go to it's going to go to sales, right? It's going to go to sales and marketing.
And depending on the business model, that's either ad spend or it's like, Oh, well, we need to go to like, inventions, trade shows, whatever they've shown is their best channel or to test out different channels, right? Yeah. Marketing and distribution. Yeah, that's essentially the heartbeat of the business, right? I mean, marketing, marketing and sales. And I I've told many people this and I just look at it as a simple framework. It's just you need traffic.
You need some type of funnel to qualify. And then there's a closing activity, whether that's automated through a website or you have a person actually taking the call. Like in my mind, those are like the three main components. And then, you know, I think product development, you know, if you don't have any fulfillment, right? I mean, need fulfill what you're selling. So if you're selling some type of widget, and there's the product isn't there yet to sell, that's kind of a stop.
That's kind of a stop gap as well. So I think kind of having all of that, all those components kind of working very smoothly, in my experience is kind of where it's at. But you can kind of at least your definition of precede, you're seeing a little bit of data that there's something repeatable and just with a little more money to kind of get some traffic or some, you know, work on the funnel to qualify better.
I think that's going to scale that hopefully to like a, you know, some some type of multiple that's acceptable to you. Yeah, yeah, exactly. And that that's that's our model, right? Like we want our we want our portcos to to graduate, right? Do not need us anymore, you know, really so that we can help them reach that milestone and help them get that next round of funding, which will produce more meaningful growth for them.
You know what we've seen, and I think everyone has seen, and there's key lessons here to learn is that the the dangers of growing of raising too much too soon, right? So, you know, I just eighteen months ago, you probably know better than I, right? Like it was relatively easy to raise a $23,000,000 seed round, right?
Mhmm. But we are and we've seen this, you know, people go out, hire salespeople before they know how to hire people, right, and how to measure those people that they're hiring and how to manage them, right. And so then you end up spending a lot of money, right? And then the venture firm that led around comes in and says, hey, you need to like throttle back, you need to like, you know, reorganize, you need to get rid of folks, you need to cut your burn, right?
So I think founders are in a much better position if they can say, hey, we've tested this and we're really comfortable with this sales motion, right? Like, and we just need, you know, another, know, we need seven fifty to, to show people, right? And then if they are able to show people that it can continue to work, then they can, they'll have more options, right? And more options, better options for raising money, it'll be easier.
And they could still potentially retain more of the company, right? Because, you know, after you raise a big round, right? And you haven't hit metrics that come close, the next round is going to probably be painful, right? To a founder. Yeah. Tell me a little more about, you know, I know we kind of did an abridged version of your career in your journey to number one start a company and then, you know, essentially the additional entrepreneurial endeavor, which is starting a fund.
So I'd like to deep dive a little more on your thought process when you were starting the company. So from my understanding, I took some notes here, you're building a microfluid manufacturing technique. So who was the customer? Was it for the automotive industry? And then, you know, how did that turn into your own entrepreneurial business? Yeah. So, you know, that is an industry right where I have no scientific or commercial background, right?
So the way I approached it was it was technology that's coming out of university, although it wasn't it wasn't created in university. It's like, you know, it is based on really fundamental research that was done by a professor through his through his own company. And so, you know, that's a lot different than what we're talking about, like software. And so for me, what was key was really doing due diligence, right?
I was familiar with three d manufacturing and this technology is related to like three d manufacturing. So it was really doing my doing due diligence on the technology, talking to leaders in that three d manufacturing space, and then kind of having a realistic view of what it would take to create a kind of like a non software startup, right? Because it's a lot harder, right? Creating a company coming out of like research as opposed to creating a software company.
And so, you know, early on, know, I just created milestones, right? Like, hey, I'm comfortable. I have a game plan. Like I I know the steps like to get something like this started is going to have to require support from government, right? Because there's probably not going to be a lot of people, investors who are going to Understand this or buy into it, particularly when the technology is coming from Kentucky, right? Like that's where where the professor was from, right?
So it was about stage gating, right? Each stage, right? Like, can we can we prove that this is novel technology, right? And we do that was by getting NSF grant, And so we're able to get an NSF phase one grant and then prove that that foundational technology and then get an SF phase two grant. Right? So it was a stage gate approach. Then we were able to like, make further progress and get outside funding, right? And then and then focus on commercialization.
So it was it was in that particular industry for that particular company was about understanding how that company could get funded, Because it wasn't funded through traditional measures. And then was there some type of like some acquisition or some M and A event that that it turned into? So the company is still operational. Okay. It it's it was it started as the technology, and then it had to find, like, a commercial product.
Mhmm. So it's it's found a product that it can sell based on the technology. And so now it's in the process of selling to the general market as well as working with strategic partners who can expand distribution. Yeah, yeah, that's great. So you built a, you know, you built something from nothing, you know, took advantage of the opportunities that were available for funding, and you really grew a business to something that is a commercial success. you did that.
Then what was going on in your mind as you started to build the fund? Sounded like in the process, were also just kind of as a founder yourself, wanted to help other founders and do some angel investing. But how did that eventually translate to starting a fund and just tell us what was going on in your mind? It's like what was the logic behind it? When did it make sense? And you know, maybe a little bit on the origin story of starting come back. Yeah, so.
I you know, my background was in finance. As I mentioned, I I, you know, I did a lot of work in M and A back in the late nineties and during the, you know, .com boom as with a wireless company. And if you were if you were around back then, right, like, wireless companies are probably equivalent to, I don't maybe crypto today. Like, the valuations were, like, sky high back then. Right? Or because it was this big new technology, right?
Anyway, so spent a lot, you know, a couple couple of years doing M and A and kind of like high growth industries and. So had experience in valuing companies, although you know different types of companies, right? Anyway, so yeah, as I was looking for funding for for our company, I was networking with other founders in in Chicago area, investors in Chicago area, and I would get pitched myself like, hey, you're interested in our company, right?
And so came across a couple of opportunities that I could evaluate, right? Because my prior background, I'm like, hey, this is interesting, right? And like, this is, I think, this would be a good investment. So I invested in like two companies, two or three companies before I thought like, hey, wait a minute, my my Chicago Booth MBA background is telling me like, there's a lot of risk here, right? Because I'm not diversified, right? I don't have a portfolio like a portfolio of three.
That's a small that's a small end, right? So like I need to decide if I like if I'm gonna like continue doing this or just stop, right? Because long term, know it's not the best. It's not going to be a successful strategy. And so then I decided, I'm going to put a game plan against this. Like, okay, I'm gonna continue to be an angel investor, and build a portfolio.
You know, so that meant continuing to network with other angel investors, with other investors, you know, looking, trying to source opportunities, right? And let people know that I'm, know, that I'm interested in investing. And so that's when I came across my current partner, Scott Shane, who's out in Ohio, and he was pretty much doing the same thing I was doing, Which was like angel, you know, angel investing. It kind of is a moonlighting, right?
And in 2018, there was a bus tour that came through the Midwest and it was from Silicon Valley VCs. There's probably about $2,000,000,000 of assets under management on that bus, Bloomberg beta, Hustle Fund, Cheyenne Bannister, who was with Founders Fund at the time, right? So they did this and and and our current partner Patrick McKenna. And so they did this bus tour, which got a lot of press.
Know, it went through Cleveland and I believe South Bend and so those funds actually did a bus tour to actually just get get familiar with the Midwest ecosystem. Yeah, so keep in mind this was '20. This was after 2016. So, is like 2017. Yeah, 2016 people were like, people were like, oh my gosh, and the coast like what's going on? Like Donald Trump's president, like we don't understand what's going on outside of San Francisco, right?
So you know, like we need to do a bus tour to like see what's going on in the rest of this country. So yeah, so they organized this bus tour. It was actually called the Comeback Cities Bus Tour, right? And so my partner was in Cleveland. He was at each of these local stops. They invite people from the ecosystem. And so my partner was in Cleveland and you know these VCs were really. Really excited about by what they were seeing in in these different cities throughout the Midwest.
But it was uncertain like what they were going to do about it, right? Like, so what's the outcome? Like you think there's opportunity here? So how do you, you know, how you take advantage of that opportunity, right? And there's, you know, several billion dollars of funds under management, but it wasn't worth their time to and they couldn't cover all these geographic areas, right?
So we pitched them on the idea of starting a fund, investing in the Midwest using, you know, partners, my partners right now partners as as as basically the scouts in these different areas throughout the Midwest, right? And and and starting small, right? We were we called it a demo fund, right? We're like, hey, here's our milestones, right? And, you know, help, you know, we're all pitching money and if we reach these milestones, right, then we can, you know, you know, grow from there.
So no different than a startup, right? Like if you hit a milestone, right, then you go for another round of funding, right? So it's kind of the same thing for us. If we hit our milestones, we can raise another fund as a larger, larger fund size. So, yeah, so I mean, that's how that's how the comeback capital fund came together. Right? So it's in our case, it was serendipity, right, of Iowa Yeah.
Us kinda like, you know, kind of doing this activity in our own local ecosystems and then just like a catalyst, which was that compact Cities bus tour, right, which kind of provided the spark for starting the fund. Yeah, no, that's really interesting. And then what what was the infrastructure that was available back in 2017? From my understanding, don't know if like a lot of these fund admins had like the emerging manager packages and stuff like that.
So you know what was the transition that you started to see with, you know, emerging? I mean, with hustle fund being one of them, right? I mean, there's a lot of funds that were these nano funds emerging. Many of the LPs were Angels, and then I think it was only really in like 2020 where I started seeing a lot of these at fund admins. And you know there's technology companies doing fund admin as well. So those those those there's a lot of innovation now in the in the fund ecosystem.
But you know how was how was it when you started? Were you able to ride the wave of some of those innovations? And then what have you been seeing now with other emerging managers? And maybe what do you see happening in the future? Yeah, so you know, with the first fund we started off with, yeah, using back end administrator. Because the alternative was, you know, hiring legal and then hiring a person to manage that for us. Right?
So as a small fund, we were very we were looking for ways to kind of outsource. Right? Mhmm. And so yeah. So early on, we we we we used an outsourced administrator. And because our focus was on sourcing and investing, So and that just seemed like legal paperwork, right, that we didn't want to deal with. And then you're absolutely right. Like then in probably 2020, 2019, 2020 was when rolling funds became like a huge, a huge thing, right? Like SPVs were like really common.
And you see, yeah, and you saw a lot of people get their start by using using rolling funds, like some of these solo GPs using rolling funds. I think I think that will continue going forward. Right? Because, you know, if you're particularly if you're a small fund, you don't It's it's convenient. It's high cost, right? But if you it's it's a high cost, but the alternative is, you know. Doing it yourself, right? And finding lawyer who could do it right in a cost effective way, right?
So it does relieve some of the administrative burden and people are in what I've from what I've seen people are willing to, particularly again, GPs that are just starting out are willing to like make that trade off to get started because I think the thought is, you know, if I get to a fund two or fund three that's large enough, then then I can afford to do that stuff in house, right? And it sounds like you didn't ride the wave of like the syndicates, right?
So that's another emerging thing and would love your reaction on just kind of the syndicates and then now obviously, you you probably heard about Ashore shutting down. So what should like emerging technologies and providers think about as building technology to kind of help people scale? Because that's a great model too. I mean, you did some personal angel investing, you can share your markups, but a good test to starting a fund also is, hey, you know, do you have an active syndicate?
Do you have a community of people that are backing your syndicates? Because that's a good signal, even for yourself, if people will back your fund. So we'll love to hear maybe some reactions or thoughts on just the SPV market and where that's heading. Yeah, you know, so so our second fund we actually did using a rolling fund SP sorry, AngelList rolling fund. And the reason why we did that was because with our first fund we had to hire close, right?
And we found that people, you know, when you're raising a fund, you're talking to a lot of people, right? And there's only a small number of people who will act either act or act quickly, right? Then there's a lot of folks who are just indecisive, right? And so rolling funds are useful for those folks, for those investors who are like indecisive, right? Because with our first fund we had people come back to us and say, hey, it looks like you guys are doing great things. I want to invest.
We're like, sorry, the funds closed, right? You know, the rolling fund allows you to to market, right, and continue to accept investors, right? So so that's those are our two, you know benefits. Know, we've picked up investors through through, you know, AngelList, right?
In terms of dollar amounts, you know, the overwhelming majority of the fund is still going to come from like traditional capital raising, You know, the dollar amount relative to the dollar amount relative to the amount that you get from investors, Through through an AngelList is small relative to, know, the amount that you're raising a fund, So it's not going to be, you know, you can't base your entire fund on that strategy. And I think, you know, it does help with marketing, but I'm not sure.
I don't know if it really won't move the needle with significant investors or investors putting in like significant amounts of money, right? But no, I mean, like, don't get me wrong, like it has increased. There have been like several, many investors who got their start doing that, right? Because again, it provides a way for them to just get started, start making some investments, right? So I would say it's a good place to get started, right?
But I think investors then over time, GPs over time, kind of migrate away from that and start doing the traditional fundraising, right? Yeah. What would be some advice that you would give to somebody starting a fund and obviously going the traditional way, right? So I mean, what are maybe some of the pathways to close capital. So, know, top of my mind, obviously, PitchBook, you can use like those LinkedIn Sales Navigator plugin tools, and there's a lot of cold outreach.
And then, you know, on my end, I would say what I've seen, because I've graduated so many funds in my program, the people that win have the community and then have content. And that attracts people. People want to go to a dinner maybe on AI, and there's other like minded people. So that's what I've seen. But you know, obviously a lot of that content and community, those pathways, you know, there's, there are some regulations that you need to be mindful of as you're doing this.
But like, you know, what are things that you learned? And what would you advise people on if they wanted to start their own fun? Know, the grassroots method? Yeah, I mean, I love the idea of content and community, right? Because ultimately, you have to find out, right, if the thesis that you're building resonates with people, right? And content and community is a way to do that, right? Investors who are putting, you know, significant size checks, they probably have seen lots of funds, right?
They've received pitches from lots of funds, right? So each investor is going to be different. And so you need to like quickly find out like, is my thesis? How does that align with this investor? Right? Like what is this? What is this investor looking for? Right? And so I think pent up in the community, again, is a way to kind of brand yourself and define yourself and and your fund, right, and that'll make it easier.
Swipe left or swipe right, right, to find to find the to find those fits, right? It is an unbelievably dynamic market. Right? Meaning the like our pitch back in 2018 Had a certain thesis and that thesis was around undercapitalized Midwest opportunity for for higher returns. And just focusing on, you know, underserved geography, right? Like that was a theme. Was a theme, right? And and several other funds kind of several other funds raised back then kind of on a similar theme. Right?
And, you know, now that theme, right, is well known, right? And it's it wouldn't be not enough, right, to raise, you know, if we were to raise another fund based on that thesis, right? Because it's like four years old, right? It's like, so from an investing standpoint, like, what investors are looking for is just always changing and moving. And that can be kind of hard if you're a fund manager to try to find what would actually excite an investor. Hands down, right?
Like you have to have like the basics, right? Like investors are gonna know, want to know like, oh, like how are you going to source deals, right? And how is your sourcing? How you're sourcing uncover deals that other funds won't write? Like what's what's unique about you and your process, right? That can uncover deals that other funds can't write and yeah. Track record and like we talked about traction at the very beginning of this conversation, right?
When we're talking about startups, it's no different than than founders when they're pitching investors. Like investors are going to want to know, like, tell me what your track record is, right? Because I don't want to like invest $250,000 in a fund if you don't have any track record at all, right? So whatever you can do to pull together a track record, whether that's like your own angel investing, right? Or maybe you were able to like invest in a handful of companies, right?
Like those things help when you're you're trying to raise capital when you're trying to raise a fund from investors right now. No different than again what we talked about at the beginning, right? Like the big difference between a free revenue company and a post revenue company is kind there's a big difference between the fund that hasn't raised any money, right? Or sorry, that hasn't made any investments prior, right? And a fund, a GP that has made some investments, right?
And has a track record show. Yeah, and then just the overall, you know, thesis about what they're going after, right? Is it timely? Like, yeah, you know, do investors see that there's a big opportunity, right? Like, you know, in some sectors it's going be hard, right? Because investors have seen those themes like AI, right? It's hard to raise a fund that's focused on AI, right? Because that's been a theme that's been around for ten years now, right? And so what's unique about your thesis?
Yeah, no, I think it's important. Think, look, no matter what thesis you have, I've seen so many funds in the last year and a half. And I've seen so many funds that have a very similar thesis. And I've seen weird waves and patterns as well. So like, for example, my last cohort had probably one fourth of the entire cohort focused on climate change. And I wonder if that's going to change in the next six months to something else. And I'm really bullish on the creator economy.
I mean, just posted something on LinkedIn the other day. There's like a very famous YouTuber called MrBeast. He's got one of the biggest followings. And what I'm seeing content creators do now is they're creating their own products and brands because they want to generate more lines of revenue. So MrBeast has the Beast Burger. It's like a burger that he created.
And I think he was doing a pop up model where he was partnering with some of the food delivery companies where people, his fans, he's got super fans, right? So he's already, he doesn't have to pay for marketing because he's built such a huge conglomerate through his fans. So they'll buy whatever products that he's promoting, but why promote other people's products and get a sponsorship when you can just create your own brand and products?
He's got the Beast Burger and I went to this mall, it's like this massive mall in Jersey. It reminds me of like the mall in Dubai. Like this is the first time I've seen this in America. Like this mall has like a roller coaster. Got indoor skiing and I didn't see McDonald's, I didn't see Chipotle, I didn't see you know the typical things you see in the mall, but I saw a Mr. Beast like restaurant.
So it's like there's brands now and creators that are eventually gonna, I think, compete or possibly get acquired by or acquire the legacy, you know, McDonald's and Burger Kings and they may be a more prominent brand because they're more conscious with the culture and the community that that is ever so changing. So I've seen some of that as well, not to go on a tangent, but just thought I'd share that. Hey, you know, I'm sorry, we've been kind of like laser focused on the questions.
And I noticed that there's a couple of questions here. Yeah, so I guess Mason, you've got a question and then iPhone, maybe you can shoot yours too. So Mason, you want to shoot your question real quick and we'll try to cover those? Yeah, absolutely. Great, great conversation, Tony, and thanks. Thanks, Joel, for setting this up. So just as a quick question.
So I know that most funds are kind of actively investing with money and obviously myself as a previous kind of founder, I appreciate how capital is important, but usually beside capital, if you look at the CB Insight reports, most emerging startups fail not because they run out of runway, most of the time they fail either because the product is not that great, the product market fit is not there. Sometimes they have challenges in the team like founder issues and whatnot.
So I think these are the major risks on the investment side. I'm wondering, Tony, like, how do you guys like kind of de risk those major risk areas besides kind of putting cash into businesses? Yeah, so as I mentioned at the beginning of the call, like our our goal is to help these companies. Graduates so they don't need us anymore. We're kind of like kindergarten teachers, we're hoping they get the first grade right?
Like so we're hoping that they can grow or hit their milestones and and and and raise right and keep growing. So you know for the whatever twelve eighteen months first twelve eighteen months like we are involved in. So first thing is that that's really important is that like after we invest, we want our portcodes to send updates, monthly updates, right? Because that's the way that we can see what's happening and where they need help, right?
So if a founder is good at doing that, right, that's a way for us to stay engaged, right? And so there's several ways there, right? What we found, particularly in the last twelve months, is that particularly because the environment has changed, it's helping founders kind of like readjust their expectations, right? It's because we can see, you know, we can see like runway for example, like we hold people accountable, right?
Like founders sometimes have a hard time like admitting that they're overly optimistic folks, right? Like they're like, Oh, Okay, yeah, you know my burn is whatever 30,000 and I'm gonna, you know, I'm gonna run out money in eight months. I can raise money and you know I can raise money in two months or like no, no, no, no, like it's taking a lot longer. So some of the market information right that helps adjust their expectations, right?
So that's that's on the capital planning side On the people side, We can help them identify where they have gaps and we kind of help them at this early stage. They're wearing a lot of hats, right? And so we help them. Start building an org like an org structure, right? Like understand who's doing what, where you have gaps. We'll help you find resources, right? That can help you find, you know, we'll connect you to folks that can help you find resources, right?
So bringing in service providers, recruiters, right, that we've worked with that have been useful. On the product development side we will, and we do this quite often, we will connect them with either LPs in our fund who were former founders or people we know in the ecosystem, right, who are, who work with early stage companies, right? So maybe they're like fractional, you know, fractional COO or fractional salesperson, right? It's like, so sales is always critical, right?
And that's where they need the most help. We often put them in touch with a person, an investor in our fund who can, you know, who can become an advisor, right? So connecting them with advisors, depending on what their what their needs are. That was helpful. And I guess there the other question is what major shift in thinking did you make from switching? Guess from founder to VC. Yeah, you know, so. I would say that. What's the major shift, right?
Like I think I'm a little bit schizophrenic, right? Because like as an investor, like you have to be. Objective and. You know, you have to question. You have to try to poke holes in the in in in the story, right? You need to be a little bit more skeptical. And then as a founder, I think you're you're more optimistic, right? Like you you you believe in the story, in the concept, in what you're building, right? And you have to mesh that with like the reality of the world around you, right?
So, you know, they are I think they're different. They're different mindsets, but I think by having a founder mentality, that's made me a better investor. And by being an investor, that's made me a better founder, if that makes any sense, right? It's because it's. Think the key thing is just understanding on both sides of the table, how both sides of the of the table operate and what it what's useful. On each side of the table to to to be successful, right?
So. So I guess that's the shift in thinking, right? Like so when when I was raising money for for our company, I spent a lot of time talking with investors to try to understand and doing research to learn like, you know, how to like what do investors look for when they're investing, right? So I tried. I tried understanding the other side of the table, right? So that I could, you know, structure the pitch to be more more successful, right? So yeah, and as investor, right?
The opposite side is Okay, well how is this? How is this company going to be successful? Like based on what I know about what it takes to build a company, right? So you know, you definitely look at. So that's informed like the types of things that I look at from it from an investor perspective, right? Yeah, that's helpful.
So I would say there have been successful entrepreneurial stories where people have been full time employees working somewhere, and I just was talking to a student about this, where I personally think it's okay to have cash flow and have a job and slowly moonlight and build the company out and do some tests. And then I think obviously, as you're really thinking about venture scale, investors want to know that like that is your only thing. But I've seen both, right?
I've seen people that were working in the industry for a long time. And then they're like, look, you know, I'm tired of working for somebody else and making somebody else wealthy. And I'm getting a small little piece of the pie and I'm doing all the work. So that I've seen as a driver and a catalyst to have people just kind of go out and do their own thing. But what are your thoughts on that?
I mean, some examples that I brought up was like Sarah Blakely, you know, she, I think she worked at like FedEx or something. And she was building Spanx on nights and weekends. I think, you know, it also is very helpful if you, you know, if you are single and you don't have the responsibility of, you know, family and kids. But also sometimes it is helpful if you do have family and kids because it makes you be laser focused and get your stuff done so you have balance.
So for me, I'm the latter, right? I got two little kids and and a family. So it forces me to kind of like be as productive as I can be. But I know we got three minutes, but maybe any quick points on that or any thoughts around that as far as just kind of starting the business and bootstrapping and then you know just kind of time management. Yeah, no, I mean I I absolutely agree. I think that's a great way to do it. It from a founder perspective, right?
That kind of is a way to like de risk the idea, right? And you can, as you said, right, it'll help founders become more focused, right? And you can do that while not putting your your own, like, you know, career and wealth at risk too soon, right? So if you're focused, you can make a lot of progress and then you'll have to define, you know, the point in time where you're comfortable making that. I would say though that so there's nothing wrong with starting that way. I think though you.
If you're going out raising money. You you you'll you'll be more successful if you do it at a time where you've committed to it full time. Otherwise you're battling. You're battling that question with with most investors, right? It just adds another barrier. Then you have to like find investors who are actually okay with you starting out like that, right? And then ultimately the question is going to be like, Okay, so when are you gonna leave, right?
So yeah, so if you can, if you can stay focused, if you can get it to a point where it's generating some money and it says a lot, right? If you're just generating some money, it might be a cut from like your your full time job. But if you then if you then because again there's information there, there's there's informational value to to investor if you left your job right? Because you're at the point where you're like, I'm only making $5,000 a month, right?
Or $4,000 a month paying myself 4 or $5,000 a month. But I believe in this so much, right, that I'm going to go into it full time now, right? That's probably like the right time to raise, right? But definitely you can have try to have conversations to like learn investors before then, right? But it would, I think it would probably be too early. And I think everyone would probably say it's too early to like actually raise.
Yeah, you know, one of my favorite examples was like the CEO of Okta, you know, I don't know if you read his story, but he put together a pitch for his wife. And I think it's still on the internet, if you look up like Okta CEO pitch deck, but he put together a pitch deck to his wife, he's like, Look, you know what, I am leaving Salesforce. Here's what it is, right?
I can, I'm very highly skilled if there isn't a company, you know, if the company fails, I can go back and I'm employable I can work as like a, you know, consultant in the tech industry, so I can do that but the lost opportunity is me building this on my own and kind of taking advantage of this this opportunity. And I think he put together like projections and came up with a plan.
You know, especially when you're in the pre seed pre revenue stage of investing, you know that planning and that conviction definitely helps. It's much more risky, but seeing a little bit of traction. I agree. I mean, I haven't done anything pre revenue except for like very sophisticated like, you know, moonshot deep tech companies, but everything else I'd like to see some type of revenue. And even if they're generating half of what their salary is, can and you see a little bit of growth.
It's like, you know what, like in six months I can I can fire my I can I can leave my company because I'm making the same amount? And I think internally as a founder, what's helped me when I've launched businesses is, wow, you know what, like if I actually had these additional eight hours, imagine what I could do. I could take like 10 meetings a day and like get closer to revenue creation versus trying to like sneak away from my day job and take a sales meeting.
Know, because there's a lot of planning, especially when you're raising money, but I'll even just generating sales and bootstrapping. You know, business hours are like the critical hours to do that. So it's kind of tough to do that. Absolutely. Time, appreciate you sticking the whole hour. I I feel like I learned a lot in the community did too.
So again, know, appreciate you for all that you do And I guess you know I I know we're already over, but is there maybe like one bullet of wisdom that you'd like to share with us as we as we part ways and head into the new year? One bullet of wisdom. Maybe maybe two like I think the first one like if there's for for founders or advice for founders.
You know, in the last six months we we've noticed that it's still hard for a lot of founders to like adjust their expectations with regards to valuations. And so you know there there's a saying that Dave Lambert from Rights Eye Capital at our conference a couple months ago said he's like, you know, I tell founders that look, it's there really two choices, right? Like it's either it's either you're either. It's either binary choice, right?
You survive or you fail or you're continuously raising, right? Like if you're continuously raising, then you get to like live another day, right? But if you stick for like high valuation, you sold out, right? It's gonna be a binary choice. You're either going to survive or you don't, right? So you gotta make you gotta make some hard decisions. Is what it boils down to, right? And I think 2023 for a lot of companies, there's gonna have to be some like hard decisions that you gotta make, right?
Yeah, and then and then for investors, right? Or budding investors, I think advice would be, look, I mean there there there's opportunity out there. Doing this is really hard, right? So but you know, if you if you stick with it, just look for. Keep seeking the opportunity, right? Keep keep looking for what makes you and the investing that you're doing unique and provides returns for yourself and for other investors.
Just don't give up, I guess, because it's really all about seeking and the sourcing side. The sourcing side is just about meeting founders, because founders ultimately are the that we can invest or the reasons why we invest. If it wasn't for them, right? We wouldn't be able to invest. Yeah, I totally agree. Well, really appreciate it, Tony. So much wisdom jam packed in an hour and wish you a lot of wealth and prosperity in 2023. Let's keep in touch.
Know, if any of us make it out to Ohio, let's definitely get together. If you come out to New York, give me a ring. Awesome. All right.