Dan Martell - October 19, 2015


The 3 Secret Agreements You Make When Accepting Venture Capital


Episode Stats


Length

6 minutes

Words per minute

225.11143

Word count

1,515

Sentence count

67

Harmful content

Toxicity

3

sentences flagged

Hate speech

1

sentences flagged


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, I talk about why you should or shouldn t raise venture capital and why it's important to do so. I also talk about the three things you need to do in order to get the most out of venture capital.

Transcript

Transcript generated with Whisper (turbo).
Toxicity classifications generated with s-nlp/roberta_toxicity_classifier .
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
00:00:00.320 To raise or not to raise venture capital,
00:00:02.880 that is the question I'm gonna address today.
00:00:04.640 It's something that I've been talking
00:00:06.280 with thousands of entrepreneurs.
00:00:08.120 You know, I don't know if you guys know my story,
00:00:09.360 but I've built five companies, sold the last three,
00:00:11.960 and the last two were venture backed.
00:00:14.480 So I had raised capital for those companies,
00:00:16.240 and I learned a lot.
00:00:17.600 I learned about what to do, what not to do,
00:00:19.080 how to think about should you raise or should you not,
00:00:21.440 and that's what I want to share with you guys today.
00:00:22.960 You know, the first time when I moved to San Francisco
00:00:25.200 to just kind of discover what was possible,
00:00:29.200 and then I started a company called Flowtown,
00:00:30.620 and I realized I wanted to raise venture capital.
00:00:32.440 The big reason and motivation for me at that time
00:00:34.880 was I'd never done it.
00:00:36.140 I'd built another company prior, grew that, sold it,
00:00:39.000 and I wanted to learn about venture capital,
00:00:41.360 about taking other people's money to help fund your growth.
00:00:44.380 And that was honestly the main reason.
00:00:46.220 I remember talking to my co-founder, Ethan,
00:00:47.700 and I said to him, you know,
00:00:48.980 we had built a business of $20,000 a month in revenue.
00:00:51.480 We were profitable, kind of ramen profitable,
00:00:53.660 and we had to make that decision,
00:00:55.300 are we gonna raise it or not?
00:00:56.400 And I said, you know, I wanna play a big game.
00:00:58.140 I moved to San Francisco.
00:00:59.580 I want to learn how this whole structure works.
00:01:01.820 Let's do it.
00:01:02.660 And that was the main reason for Flowtown
00:01:04.160 raising venture capital.
00:01:05.140 Now, with Clarity, since I've learned a lot of things,
00:01:08.300 and that's what I want to share with you guys today,
00:01:10.380 the main reason I raised for Clarity
00:01:11.860 is because I truly, honestly believed,
00:01:13.780 and still believe, that we were solving a problem
00:01:16.000 that was going to require scale and growth,
00:01:18.220 and it was really an opportunity
00:01:19.960 to invest capital to grow faster.
00:01:22.320 You know, but what I want to share today
00:01:23.700 is three things that a lot of people don't think about
00:01:26.500 when they think of venture capital.
00:01:27.500 They think, oh, I've got this great idea,
00:01:29.040 I want to raise money, but what's the impact of that?
00:01:31.860 How's that gonna affect your business?
00:01:33.300 How's it gonna affect your life?
00:01:34.620 What is the real outcome of these scenarios?
00:01:36.880 Because it's not always as easy as people make it look like
00:01:40.420 where they raise money and they sell their company
00:01:42.460 and everything was grand.
00:01:43.800 So number one I want to share with you guys is really the,
00:01:47.420 that you, I'm gonna say it this way, 0.99
00:01:49.900 you have to kill yourself in business. 0.99
00:01:52.380 I really shouldn't have said it that way, 0.98
00:01:54.520 but the truth is, is you need to hustle
00:01:57.220 like nothing else matters in the business
00:02:00.120 once you raise venture capital.
00:02:01.120 Because here's the thing, once you take money
00:02:02.960 from somebody else, especially equity for capital,
00:02:05.160 that's VC or angel investing,
00:02:07.500 they require you to do everything
00:02:10.120 in your physical being impossible to be successful.
00:02:13.000 Some people call them, you know,
00:02:14.260 they like to invest in killers or hustlers
00:02:16.300 or whatever it is, but I need you to understand
00:02:18.460 that you need to essentially,
00:02:20.520 if you have to put your head through a brick wall,
00:02:22.520 you are willing to do that
00:02:23.760 because investors only make money in their portfolio.
00:02:26.920 They invest in 12 companies.
00:02:28.440 Every one of those entrepreneurs
00:02:29.580 gotta get up to the bat and swing for the fences.
00:02:32.620 Not get on base, but swing for the fences
00:02:35.900 for their portfolio to work.
00:02:37.940 And I wanna share that with you
00:02:38.780 because I don't think a lot of people think about the risk
00:02:41.300 or the sacrifice that they're gonna have to take
00:02:43.660 in their business once they raise money for their company.
00:02:47.060 Sacrificing the travel.
00:02:48.580 Maybe you gotta go live in another city for three months
00:02:50.760 to build out this division or a new department.
00:02:53.180 Or maybe you've got to move your whole family
00:02:55.080 to a better part of the world
00:02:56.280 where it's going to allow you to build this business.
00:02:58.500 And those are all things that you need to do.
00:03:00.780 It's your obligations.
00:03:01.760 It's honestly your moral obligation to your investors
00:03:04.720 because that's the agreement.
00:03:06.420 That's the maybe undiscussed contract
00:03:09.100 between venture capitalists and the entrepreneur
00:03:11.100 is that you are going to build the biggest business possible
00:03:13.340 with their capital.
00:03:14.520 And I don't think that's always discussed
00:03:16.540 and that's why I wanted to share that with you.
00:03:17.700 So that's number one.
00:03:18.420 Number two is that essentially you need to prepare
00:03:22.020 for a zero-based outcome.
00:03:25.320 Like, you need to understand that if you take money
00:03:27.460 from an investor, you have to give 100,000%.
00:03:30.080 Over the next five to seven years,
00:03:31.420 the goal is to build a $100 million company,
00:03:33.740 and there's a high possibility that most of these businesses,
00:03:37.320 95% of the businesses, will do nothing.
00:03:39.960 They will fail.
00:03:40.800 They will be zero.
00:03:41.640 You will spend five to seven years of your life.
00:03:43.600 Yes, you will have learned a ton.
00:03:46.140 Trust me, the amount of learning that you go
00:03:49.200 from beginning zero to hyper growth, that kind of business,
00:03:53.120 it's a very small percentage of the population,
00:03:55.080 the entrepreneurial population, that gets experience that.
00:03:57.560 So yes, there's value in the learning,
00:03:59.500 there's value in the notoriety
00:04:01.480 that maybe you gain for yourself,
00:04:03.020 but in regards to a financial outcome,
00:04:05.080 most of the time it's zero,
00:04:06.380 and I don't think that that's well understood
00:04:08.680 by a lot of entrepreneurs out there,
00:04:09.740 and I wanted to share that with you guys.
00:04:11.300 Now the third thing that to me is not, again,
00:04:15.180 not understood is that you won't likely
00:04:17.120 be in control of your business.
00:04:18.420 Sure, there are examples, Mark Zuckerberg
00:04:20.780 brought his company public,
00:04:22.020 had complete control of the board.
00:04:24.280 What normally happens is by your A round
00:04:26.760 or for sure your B round,
00:04:28.320 you don't have control of your business anymore.
00:04:30.740 By the time you raise your Series A or Series B,
00:04:33.180 you'll have enough other investors with board seats
00:04:36.020 that fundamentally they control the business.
00:04:38.240 Sure, as a CEO, as you should,
00:04:40.500 you'll be accountable and responsible
00:04:42.100 to hit certain KPIs, key performance indicators.
00:04:44.880 And just realize that if you aren't able
00:04:47.500 to grow and learn with pace of your business growth.
00:04:51.000 If you're successful in the first place,
00:04:52.980 there's a very high possibility,
00:04:55.160 and what's happened many times in the past
00:04:56.780 is that the board will find another CEO.
00:04:59.640 Now that don't mean they're gonna kick you
00:05:00.940 out of your business, although that's happened
00:05:02.440 to a lot of friends of mine.
00:05:03.920 It just means that you will not be in control
00:05:06.820 of your destiny, and I feel like that's something, again,
00:05:08.680 that's not discussed very often.
00:05:10.220 There's all these horror stories,
00:05:11.340 but many times they're not horror stories.
00:05:13.080 They're just situations where, as the founder,
00:05:15.020 you weren't able to grow with the business,
00:05:17.000 and the board said, look, maybe it's better
00:05:19.140 that we bring in another CEO,
00:05:20.440 or sometimes they'll call it a COO,
00:05:22.100 but really they run the business and you're just there,
00:05:25.160 and maybe you don't even go into work anymore.
00:05:27.240 Every scenario will play out, but those three things,
00:05:29.400 just quickly to recap, that you need to understand,
00:05:31.500 is you need to be willing to sacrifice everything
00:05:33.660 in your life to be successful,
00:05:35.320 because that is the game of venture capital,
00:05:37.880 and that's what you're agreeing to
00:05:39.300 if you raise venture capital for your startup.
00:05:42.240 Two, you need to be okay that at the end of the day,
00:05:45.280 it might be zero.
00:05:46.380 You might get nothing out of it,
00:05:47.720 other than the lessons learned
00:05:49.220 and the notoriety building that business.
00:05:50.760 And three, that you will likely not be in control
00:05:53.340 if the company goes public.
00:05:55.320 I wanna give you guys a quick stat.
00:05:56.520 Most people don't realize that a CEO,
00:05:58.520 of a founder that's still CEO when they go public,
00:06:01.080 owns about five percent of the company.
00:06:02.300 Now, the company goes public and is worth a billion dollars,
00:06:04.840 that's a lot of money.
00:06:06.280 But a lot of people don't know that,
00:06:07.620 and that's why I wanted to share with you guys this video.
00:06:09.140 So, to raise or not to raise, that is the question.
00:06:11.860 At the end of the day, I wanted to share with you guys
00:06:13.420 the expectations from the investors, from yourself,
00:06:16.360 from the community, your employees,
00:06:18.180 what the vision is if you take money,
00:06:20.580 because I think that that's gonna allow you
00:06:21.960 to make the better decision.
00:06:23.120 I wanna ask you below to leave a comment
00:06:25.120 and answer this question.
00:06:26.240 What would you do with the money
00:06:28.340 if you could raise the money?
00:06:29.560 Tell me, in your business, what would you invest
00:06:31.700 that money from the VCs in your business to help it grow?
00:06:34.300 Again, five to seven years, $100 million a year business,
00:06:37.320 what would you invest in?
00:06:38.920 I wanna challenge you guys all to live a bigger life
00:06:41.400 and a bigger business, and I'll see you next Monday.