Can raising a big VC round block a $100M exit?

hey everyone welcome back to fundraising demystify today we have Dave Lambert with us founder and managing partner at right side Capital Management as well as a exited founder before it was cool you know back in the early 2000s and 90s uh welcome to the show Dave hey thanks it's really great to be here walk us through you know how you guys like what your strategy is so for Founders that you know have an idea of where where right side Capital might come in yeah so uh it's it's changed over time so back in the you know 2012 13 and 14 period when we were just starting to invest most of what we invested in was pre-revenue so maybe maybe even if we step up a higher level the the description I would have given to you in 2012 of what we do is we invest in capital efficient tech companies that are raising sub $500,000 rounds at sub $3 million valuations and in today's world I'd give you almost the exact same description I'd say we invest in Tech you know Capital efficient Tech raising sub $500,000 rounds at sub4 million valuations so not any substantial change in the description but what a capital efficient tech company looks like has changed dramatically so that's the big difference so back then you know it took a half million to million dollars to be able to build most software products and get them to the point where you could go live generate revenue and sort of prove or disprove your initial business thesis so most of what we invested in was pre-revenue they had a prototype maybe some customers using it and a small percent had Revenue but they had like you know 800 a month in Revenue usually but you know in today's world that's very different almost everything we're looking at has revenue and it usually has somewhere between five and 30k of mrr and it's just what you know two things have happened since then one the cost to build the first version of a software product has just fallen through the floor and is essentially almost free for most business models if you're a technical founding team and then the amount of entrepreneurial activity has exploded as it's gotten cheaper to build a product so as there's that many more startups out there that you know and it's gotten cheaper to build a first version there's more companies looking for smaller rounds and the cream of that crop looks better and better every year and I think that's the you really the biggest change that's happened um over the last 13 14 years so let's take a step back give the audience a little more context on the right side like how big is the fun like you guys have a ton of por CES over you know that you guys have invested in over the years and much larger Port have a mass of much larger portfolio than most traditional Venture firms yeah we're on our investing from our sixth fund um right now we have two to 300 million I forget the exact number um under management and we've invested in over 2,000 portfolio companies since 2012 so that you know the most unique thing about us really two unique things one is that we take this quantitative data driven approach to selecting Investments so we gather up a bunch of quantitative data points and then we make a yes or no decision usually in a week or less about most companies and number two is instead of having a portfolio of 15 or 20 or maybe even 30 companies If you're sort of a more active early stage fund we have many hundreds of investments in each of our funds really love the unique strategy that you guys have but before we go into the details let's talk about some of your portfolio wins let's talk about some of the the bigger companies and the big successes that you guys have had with your strategy yeah so I mean we were very early investors in a company called trading view which is a b2c consumer fintech company Financial charting software started out going after at home active Traders mostly stocks Commodities currencies and then you know as the crypto World sort of exploded in the late 2010s uh became one of the dominant players there they're still doing really well we invested back in 2012 or 13 I actually forget exactly when now we sold half in the early 2020s well actually sold half and then all in the early 2020s um and you know that's one great story I can go into some of the details of these let me just reel a few off uh another one was pill pack which was an online pharmacy which was acquired by Amazon um late 2010s uh we're a cool company that just had we had an exit for in the fall of last year was called Camy kamami which is probably one the second most successful startup in New Zealand after canva though pretty big gap between canva there but we invested in them back in I think 2015 or 16 um what's what's cool is that almost every really big success that we have you know it's never been the case that we just invest and everything goes as planned and it's straight up and to the right I would say you know a lot of our really big successes have near-death experiences along the way and sometimes multiple or pivots and changes and don't look anything like what we invested in and I think for all three of those that was you know A variation of the case just in all those and do you guys structure like a traditional like power law theory kind of venture fund do you guys take more of a base hits and doubles like how do you guys think about it so uh it's yes to all of that so it's you know when we when this was sort of an IDE on paper in our head in the late 2000s we were already well aware of power law uh how that worked power law math a little bit different than regular math and more complex so done all our calcul ations then on sort of what diversification we need and how to catch that tail capture that tail with high certainty and so we've always known that it would be these large outliers that drive most of the returns to our fund but that doesn't mean we sort of take the I'll say the ycombinator approach which is sort of more like uh trying to have every company step on the gas raise a lot of money and drive to that sort of uniform home home run or bust um you know I don't think it's bad what they're doing because they very transparent and open to entrepreneurs that that's what's happening we take a bit of a different approach because we focus a little more on Capital efficient Tech so we have a starting point and we' like a lot of our companies to be able to do a lot and achieve a lot of progress without you know massive amounts of venture capital flowing in some subset then goes the Venture Capital route some subset becomes very successful without that and we're open to pretty much all outcomes so we just do enough Investments that the ones that are naturally going to be come these crazy home runs will sort of do so on their own and for the others we're sort of more consultative like doesn't make sense for you to raise venture capital or private Equity or did you go to individual investors and family offices what exit markets are you keeping in play or eliminating you know based on your Market are you taking a lot of risk if you grow Beyond 150 million because all the exits happen below there like these are all sort of nuance things to consider and you know we don't try and force a square peg in a round hole um and and something that's unique about you guys is this kind of price sensitivity as well like you know coming in at sub four million is that is that the case for all your Investments and like how is that you know I guess you guys act quick there so there's you know quick Capital coming in so as an advantage but you know how how do you guys perform and actually sticking to the sub four million yeah so I would say that uh probably 80% of the Investments we make are between two and $4 million valuations the other 20% above or below so sometimes that's investing at four up to maybe six um for higher traction levels and growth rates and sometimes that's investing a little below maybe at like one and a half for something that's a little under our traction bar um or has you know some other unique characteristic that makes it worth doing even though maybe it's technically pre-revenue uh and I would say that there's sort of two reasons that we're able to consistently do that one is the what you mentioned the value of speed so so like we're we're not taking up 3 to six months of an entrepreneur's time and to give them a yes or no which is usually no you know we're doing it very quickly so that's that's one thing um number two it's small rounds so we're not doing $800,000 rounds at a$2 and half million do valuation if you're getting a$2 and a half million doll valuation it's probably usually a $400,000 round or 300 you know and so it's relatively low dilution so that that that's not as impactful for the founders and most of the companies we're looking at have raised anywhere from zero to just a small amount of capital so they haven't been delude that much and then lastly it's uh all the value we bring to the table so we're not just a check we give a lot of Operational Support so you've access to sales expert who's got almost 30 years experience being VP sales Chief Revenue officer mostly at SAS companies same thing on the marketing side you know we have monthly under webinars we've got a person who's built out a network of 1,400 later stage investors from preed BC to late stage private Equity so whatever stage of your life cycle you're fundraising next we can connect you to investors so we just sort of offer more than almost anyone does But ultimately it's that speed and certainty of a quick transaction that I think is most impactful yeah I always found that interesting with being able to compete and get checks in when some many are just like oh everyone's raising at 20 million for because they throw AI you know into their uh name or like a so your valuation should go up 10 million right yeah yeah just like in the late 90s yeah exactly or mention XML in your quarterly report quarterly call and your stock doubles um yeah I think one of the things that's really interesting and we didn't know this when we started we designed this fast transparent funding process just entirely sort of for our own selfish needs to make quick decis decisions but it's an interesting study in sort of psychology because it turns out that our value proposition resonates the strongest with repeat entrepreneurs so if you're a repeat entrepreneur and you've done it before you realize how painful and distracting fundraising is and that's the entrepreneur that's like holy cow I'm going to give you my information and you're going to give me a yes or no next week and close immediately let's do it and if you're a younger team that hasn't done it before you tend to be much more psychological sort of you know enamored with valuation and you don't value your time and you don't appreciate how long and distracting that fundraising is going to be so it it's very interesting we had no idea this would be the dynamic but it turns out it is and that sort of bends in our favor a little bit anyway because we'd rather have the repeat entrepreneurs even if what they've done before didn't work out you've made a lot of mistakes and learned from it yeah as a re founder I couldn't agree more like it's it's one of these things where it's such a grind and like you get so especially first- time found get so hung up on your percentage how much do you own and like you know it's it's become so immaterial if you need money to do what you got to do and build the outcome you're trying to build like you have to bring people along with you and incentivize them to do it so you have to share um but this idea of maximizing you know Equity or ownership at every stage yeah and we're the same way once we're on board and now we're getting diluted at next rounds like we value if someone's going to come in to one of our portfolio companies and make them an offer or they're GNA and they're going to move really quickly like there's a lot of value in that and we make sure we make the founder aware of what that is and the value in just getting to focus on execution instead of having another five months of 60% of their time on fundraising so there's there's value to speed and so when you're looking at this Market you guys see tons of deal flow you make tons of Investments you guys move very quickly so you see a lot of data like what are the trends you're seeing in this you know we call it precc kind of Angel round stage well I mean the biggest Trend over the last few years I'd say two big ones one is obviously there was massive valuation inflation in the late 2010s very early 2020s uh at almost all stages of venture capital we didn't see it that much where we invest I would say our valuations went about 20% higher during that time that we needed to pay whereas sort of preed and seed and Beyond sort of doubled and and tripled and I think that's mostly because just it's a supply and demand scenario like as it got cheaper to build a software product there's more and more companies looking for these small rounds of funding but the reality is the investor Market can't address that well it's all just mostly individual Angel Investors um the professional world doesn't do small rounds with any volume so you know even if you're a preed investor that writes 250k checks you never give that check on your own right you're 250 of a million and a half dollar precede round at least in in the United States that's how it is so you know the biggest things valuation inflation the bubble popping and I think three massive years of pain maybe two and a half mid 2022 through the end of last year so many funders left the market you know a lot of venture firms went out of business a lot of Angel Investors stopped investing you know funds got smaller and that Mark you know that just the marketplace Dynamic around fundraising changed completely because we went from too many much money chasing too few deals to just a lot more startups existing and a lot less money and that underlying Marketplace Dynamic changed everything and how fundraising went for Founders and what you needed to do to get funded so that's that's one big whole story in and of itself and then sort of AI coming on the scene and it is another so I mean and you kind of mentioned ear like the the technical co-founders like do you feel that for for companies to thrive in today's market you historically it's like if you didn't have a technical co-founder building a technical product so always pretty frowned upon if you didn't have that you know technical co-founder are you still seeing that being the case or do you still you know think that you know maybe business only people could maybe get off the ground it's changed a bit so what I would say is if we went back to the early to mid 2010s boy like 95% of the time plus you just couldn't do anything Capital efficiently enough for us to be an investor if you didn't have technical co-founders I think that began to change a bit as we got to the late 2010s you know it became more and more common that startups would have most of their development being done overseas by overseas teams and as you had more developers overseas that had worked with startups for many years that became sort of less fraught with potholes and speed bumps that experience and and I'd say we you know so from that period forward to now maybe instead of 95% it's more like 80 to 85% technical Founders still but that's maybe still doubling or tripling of sort of non-technical Founders I think that could change a lot over the next five years you know as AI you know it's and maybe it's five I don't know if it's five or three or 10 but at some point in the future you know software is going to be written you know by Ai and maybe you don't need that you know the language to write it is English and you explain what you want um is possible and that's going to come eventually and then you don't need to be so technical I think eventually I think still right now like I play around with it you still you still need to know how to deploy manage maintain and scale um but like to get a prototype and to kind of get some you know maybe initial validation you you really can get Prett pretty decently far without writing code but I wouldn't I wouldn't it wouldn't be something i' throw no we're we're not where I was saying already close to there yet but I think it's moving the line a little bit where you know what an what what a outside development team can do or just in-house developers that aren't the founders is just they can do so much more now than they could have three or four years ago so you know maybe it's gone from 955 to 8515 and as you know a year or two ago and you know we haven't done this analysis but maybe it's 75 25 now because of that you're likely having trouble raising money or selling your company personally I've had four exits and I've raised over $145 million if you want a free coaching session with me just like subscribe and leave a comment down below let me know what you think of today's video for a chance to win a free coaching session with me I'll select three winners every single month you just have to like subscribe and leave a comment down below for a chance to win now onto the video let's talk let's talk about AI because that's always the the hottest topic how do you define AI from an investability standpoint yeah so what our view sort of our our official right side Capital View and we decided this sort of like a year a year and a half ago was that most of the companies that investors and and entrepreneurs considered to be AI companies weren't AI companies so an AI company is when you're sort of a foundational company or you're doing real hard science around AI that's an AI company and that otherwise what most startups that are viewed as AI are really doing is they're just integrating those Technologies and tools into either their product or into their the backend operations to make them operationally more efficiently more efficient and I think it's just very similar to what happened when the the you know the worldwide web came on the scene in the 90s in the late 90s you know if you were a really forward-looking business and you started selling goods online and and you were doing that in 1998 99 you were called an internet company even if you're a brick-and-mortar retailer and you know by the time you got to the early to mid 2000s that was table Stakes if you were going to be operating at any scale selling Goods you also had to have an online presence and be selling you know by the mid-2000s and I think that's the exact same thing that's going on with AI is that AI is just sort of becoming table Stakes like having a web presence was for retailers by the mid-2000s and if you're going to be competitive with the other startups you're competing with or the other larger companies in not too long you're going to have to have ai integrated into your product because that's going to provide a better product experience for your customers and if you don't your competitors will and you're going to have to be using AI tools on your back end to be more efficient you know whether that's for you know coding or customer service and supp report or marketing because if you're not your competitors will and they'll out execute you so I think it's just becoming table Stakes toolet just like the web was and if you go back 20 30 years before that just like databases were when they first came out um so sort of that's our view so you're saying if I Addai to my domain name I don't get A10 million doll bump in my valuation anymore yeah you don't but you missed that window there's like a 9month window of craziness to maybe 9 12 after chat GPT was released to the world where anything that had AI anywhere in it whether you know was just viewed as AI by investors and there was a rush to invest crazy valuations paid and I think you know a lot of those Investments aren't working out well because those companies you know investors paid very high valuations and there's still no revenue or low revenue and you can't justify those anymore yeah no I think there there's been a giant Reckoning in the industry which is personally I think for the best for the industry uh to kind of reset expectations there's still so many Founders that are like we're awesome we're amazing why aren't we getting a 20 milon it's like well maybe your data points that you're pulling in are from like four years ago yeah I mean one of the cool things that's happened though is that AI has sort of I think helped partially helped enable a really healthy mind shift among entrepreneurs Because by the time we got to the late 2010s and you know 2020 2021 I think the entrepreneurial mindset had become broken because we had gone so long with without a recession it just been economic Tailwinds Rising multiples that sort of the Silicon Valley TV show had started to become reality like the mindset of most entrepreneurs is my goal is to get my next round of funding right and it never even occurred to them to think oh maybe I should just be a profitable business that grows off my own profits yeah like mindboggling right and you know this this really this two and a half years of just complete pain in fundraising you know you could no matter how quickly you were growing and how good your business looked you could not Bank on getting around raised you always had to have a plan B and C if you could ra had to raise less than you wanted or you couldn't raise anything and I think what that's done is this entire next generation of entrepreneurs they're coming in everyone we're investing in right now by default they just assume that their goal is that they want to become a profitable company and control their own destiny and that is so healthy for the ecosystem and I think AI has really just empowered people people to be that much that much more confident in those views because AI is suddenly something that helps you operate much more efficiently on your back end and that's never existed before like the the cost to build the first version of a software product that's collapsed every year since the mid 1980s and it just sort of fell off a cliff in the 2010s but it never became that much cheaper to scale out a Salesforce or scale marketing if anything maybe it got more expensive but now the these AI tools are suddenly making that more Capital efficient and less expensive and we've just never really witnessed that on the Entre you know in in the entrepreneurial ecosystem and so that's the biggest change that we're seeing in the companies we're investing in people can do so much more with less relative to anytime previous and it's such a different conversation like there there's a there's a group of Founders that raised in 2019 to 2021 and they're now they you know material they got millions in Revenue but they're no longer on that Venture trajectory but they raised Venture rounds and they raised these lofty valuations and they're like well I don't want to do a Down Round we've done everything right we've grown why should we take a Down Round it's like they're structurally broken is basically what it is right it might be a healthy business if it wasn't structurally sort of broken if it didn't have the cap table Yeah Yeah if the cap table was restructured it would be a great business but like so many Founders don't realize that because you took that money but you didn't have breakout Venture growth your Venture invest don't care about you anymore and you're left with a cap table with a a pref stack that's so high that even if you sold for millions and millions of dollars you wouldn't probably make anything it would all go to Pennies on the dollar to your to your investors in terms of the pref stack um so it's been great to kind of see this shift in terms of Founders now going you know maybe a one and done you know as a common theme I'm hearing one round and done yeah or to realize there's a cost to raising around right you're you're and it's not just hey you get money in to execute you're you're you own a lower percentage of your business you've just raised the bar higher to what you need to get to to be able to sell and you've just increased a chance of zero because there's that much more liquidation preferences in front of you so there's I think before it was just viewed as only positive no one even you know factored the downside aspects into raising a next round into their decision-making process and now I think everyone realizes all right there's a basket of pluses and minuses here and let me make a decision more sort of full knowledge yeah and and what is you know maybe you build a good enough business where you can attract healthy debt or different types of debt where you're not taking the dilution you have a payment schedule whatever it might be there's there's and there's also just a lot more flexibility in the market today than I would say traditional Venture uh but yeah the SAS lending world did not exist in the mid-2010s there was very nent just one or two small players and now there's a lot of options there so particularly once you start to get you know around one and two million in AR and above you have a lot of alternative sources of financing these days that just didn't exist 10 years ago so from your perspective you know you guys have this value ad and you have these resources for Founders after the fact uh after you know you invest in them when you're caught in a situation where it's like the founders are you know exploring another round or looking to be profitable like what's your take on those situations because technically markups and you know being able to you know boost your evaluation on your um your Fund performance and things of that sort it's an incentive that you have but like when the reality comes down to it's like how do you guys handle those situations yeah so that's very easy for us so we partially we can do this because we have so many investments in any fund so no single investment ever has that much of a financial impaact but we think our best philosophy is all we ever optimize for is that last check in that's buying the company and we don't try and do any optimation to a along the way so it very much depends situation situationally on that company so it's not uncommon usually when a Founder looking to raise the next round let's say a Founder is contemplating a$1 million round and they're trying to get 10 on 30 or 10 on 40 if they're clearly sort of a venture growth and scale business and they're you know got a path 100 million plus in Revenue let's just go that path we'll give them lots of intros if it's not clear and it's like hey it's not clear if they have a path to much more than 10 million in revenue or low 10 they haven't proven that yet then we'll start asking them questions and sort of you know we'll say hey well how large do you think you can get hey what are your goals as Founders as to what exits you want to keep in play and you're willing to get rid of and then we explain to them what it means to raise that round like most Founders don't realize if you raise 10 on 30 it's a 40 million post you have eliminated selling for1 or $150 million like I think most entrepreneurs think well if I do that r and 18 months later someone comes and wants to buy me for 120 million it's a no-brainer we should maybe consider taking that but your investors don't want 3x back quickly from The Venture world they're going to block that and say let's grow higher so it it mostly depends on sort of that the the segment they're in and and are there you know are there unlimited buyers at sort of every valuation in their in their market and what are the founders desires and wants as far as it's and risk reward and so we'll usually our job is to educate and then sort of go on the path that makes the most sense once they've made a decision with sort of all factors in play and so sometimes that means all right we're going out and we're connecting them to VC investors to try and get that 10 on 30 round done other times though that same company they might come back and say you know what we do want to keep 100 million exit and play and maybe we're recommending hey instead of 10 million if they're Capital efficient maybe let's put a $4 million round together and we'll find you invest that will do it at 20 but they will promise not to block an exit that's at 100 and so it's very common that we end up doing helping put together that deal with companies even though from a sort of a marketing perspective in the near term for our funds you know that's a noticeably lower markup right we' we'd rather have that smaller markup if that keeps if that's what's best for that company Long Term most noble of you I would say most VCS don't fall into that camp um and I think that's you know big reason why I'm an LP because that's almost the exact same mindset that I have in terms of supporting Founders and it's it's you bring up this point that I think Founders just don't realize until they're in the thick of it they're in the boardroom they have an offer and they're ex we're gonna sell for 100 million this is a dream come true and the board's like nah yeah yeah it's like a 3 second conversation and they're just in shock yeah math math doesn't work you need to do this for another five years yeah yeah maybe we'll give you a little couple more options you know just like the thing is that what entrepreneurs don't realize is VC's aren't trying to hide that from entrepreneurs they just assume that entrepreneurs know what their MO is and they'll be honest if you ask it's just the conversation doesn't happen enough because everyone sort of assumes makes assumptions and they never have the conversation so I remember many years ago we had a company that was just taking off quickly and they had you know sort of a Premier VC and their City reach out to them and very quickly give them a term sheet for I think it was like four on 16 or 4 and 20 or something at the time and the entrepreneur is like well this is the easiest fundraise ever it's a no-brainer and I said to the entrepreneur I said well you Pro maybe let me ask you a question if someone came in a year and offered you 60 million for or 80 million for the company would you want to take it and he was like in a year yeah and I said well I'm pretty sure this investor will block it here's how Venture math works and the entrepreneur was like no way no one's turning down three or fourx that quickly and I said well here's the thing they're going to be totally transparent so why don't we just get off the phone call the partner at that firm and ask them and I got a call back 10 minutes and the founder could hardly even speak he was so dumbfounded he's like you're not going to believe what they said they said they'd absolutely block it and they'd want to push to at least 150 or $200 million exit I said all right well now we have to decide is this the right investor for you and he decided no and we helped them find sort of a family office that invested at a lower valuation but promised not to block you know a lower value exit so it just have the conversations because your investors will prospective investors want everyone to be aligned as well so they're not going to lie you say like this this point like have the conversation it's Founders are so concerned like they're like walking on eggshells when talking to their investors or they're bored because they're just they're so worried that they won't get the money or they'll say something something that could potentially you know be misinterpreted or used against them and it's just this unfortunate Dynamic when reality is if you actually have the blunt conversation as you're saying most investors will be you know totally on board and have the conversation they'll be honest it might not be what you want to hear but you at least eliminate the what if you you just brought up a whole another topic which is what is the CEO's role in interacting with the board and I think boy especially firsttime Founders by default they look at the board as their boss and that's who we're reporting to and they want to manage it over manage it and try and only report good news and that's just such a bad that's going to burn you and that's going to burn your relationships with your investors and the reality is what happens is you know corporations are set up where there's a board that sets the Strategic direction of the company their main job is to hire the CEO who executes on that strategic Direction but the CEO is also a board member and the CEO is the only one that's in there operating on a daily day-to-day basis and the board members aren't and the CEO's real job is twofold one is to execute on that sort of strategic goal and the second is to give as transparent a view as possible to the other board members as to what is working and what isn't working and when you actually do that the conversations are so much better and yeah you have to have a lot more difficult conversations sometimes because you're being very transparent when things aren't working but that is what builds confidence in an entrepreneur when you're an investor is that transparent View and messaging everything good or bad and I can tell you that us as investors we've had many entrepreneurs that we've invested in a second and sometimes the third time who's where our investment went to zero the first time and that's because we felt they did a good job and they communicated very transparently you know we don't care about the outcome that's often Beyond everyone's control as much as we judge a CEO by their transparent sort of communication and insight they give us as investors into the business we've also had many entrepreneurs for whom we've gotten a great return on our investment that we would never invest in again because they're like black boxes we don't hear anything from them ever or they only message good Rosie news to us even when stuff isn't going correctly that's not confidence building and inspiring if you're an investor that's an interesting you know maybe counter opinion there it's like have you run the numbers on the Black Box Founders versus the open Founders versus maybe the rosie Founders we have and I unfortun I I wish I could say the numbers backed up what I was saying completely and it doesn't we've definitely had some of our some large successes where the founders were more black boxes but that doesn't mean that the investors along the way had high confidence in them like for some of those Founders and talking to other investors they were not happy always and pulling their hair about out a bit or frustrated so the you know as farre say that again so the founder still delivered like a notable outcome yeah yeah so I think it's it's a mixed it's a mixed bag it doesn't mean that you're mad at that founder when it's a notable outcome but you know it's such a small percentage you know that are that true outlier and are generating that investors don't end up not caring they forgive all their frustrations but if it's it's if it's just a good outcome and you're not into that great category anything there below the best thing you can do as an entrepreneur is have communicated as very consistently and entrepreneur investors know that 90% of the time when they invest in the company company isn't going to hit plan that next year you know that's just the reality and what and just entrepreneurs so feel so bad when they miss that I think they just sto communicating as much yeah it's happened to me I I was a invested in this one company and it was all the hype all of Rage everything was going great everything was Rosy I was like man like these look like vanity metrics these don't look like the real metrics and he went from like monthly updates to then like quarterly updates to then like silence and then like not picking up the phone and even when I met him in person he was just like yeah everything's great I was like is it is it really you know you get the emotional breakdown like you know if you fortunate with him I had the relationship and he finally like kind of opened up and I was like oh you are like yeah and the thing is investors can help the most when things aren't going well usually well and to bring it up faster because like it's okay Founders can't know everything it's impossible but the sooner you bring up to to your board your investors your advisers the sooner they can come in and at least just provide an alternative opinion they might not get their hands dirty or whatever but just plant a seed for you to know there's options and the earlier those seeds are planted the more likely they grow into something material and save the business as opposed to just you know yeah what I would recommend is anyone listening to this go to our website and go to the blog section and one of my partners has written a couple good posts on monthly or quarterly investor updates so one of them is like you know MVP of a investor update or something like that and it gives you sort of what investors are looking for and then the other ones is dos and don'ts of investor updates and the thing is you can do a really good investor update and it can take you five minutes because all investors care about are the kpis they don't need all the froth all the fluffy paragraphs around it if you want to put paragraphs what's going well what's not that's fine but if you're really busy and you just want to spend five minutes take the kpi dashboard you should have anyway and say hey here's our February 2025 report for investors Mr was this you know was up or down from last month cash is this burn is this here some other metrics you think are important if you say nothing else no one's going to Care yep I just like all right you're alive and things to be you know okay or or what the ask is and you know invest updates maybe not always appropriate to have like the dire need ask those should be like probably oneon-one conversations with your most you know closest confidence but um yeah at least everyone you're default alive as opposed to you know default yeah and your investor network is actually has a lot of value and you never know what expertise they happen to have or someone they know happens to have so if you got some weird bizarre ask ask I mean I've certainly had seen company of ours where they make some crazy ass sometimes it's like hey does anybody have uh know someone in this weird bizarre industry that is in this position and I'm like well that's a crazy ask and next thing I know I see some investor sometimes a small investor that times in yeah actually I know my college roommate is in this and I can connect you to this the person does exactly this if you don't ask you never get it yeah what what are some other kind of uh crazy ass that you've seen come across your board crazy asks boy uh I mean almost everything I'd say the the most interesting asks are often you know when companies are trying to explore and find new maybe pivot and they want to talk to people in New Industries or sectors or profile of customer so you know might be a very unique bizarre profile that they're looking to talk to you know the more investors you have the more you're going to get that I think I don't think I mean it's almost no ask is crazy so I don't can't say that we've seen one you should never you know I don't think I've ever seen entrepreneur ask something I thought oh that's bizarre they shouldn't be asking that of their investors because your investors are like family you can really ask them anything investors can say no I don't have that but ask away what about like have you had these conversations like where a Founder basically says I swung and I missed like absolutely so I've along many of the times I mean sometimes we're having that with the entrepreneur too so I mean we've we've have enough portfolio companies over our history we've had everything so we've had I remember once this is probably like 2016 17 we had a company we invested in and seven months later they called us back and we're like hey I you know our Market Dynamic has changed so much in the last seven months the competitive field and our value props just eroded we don't think there's any there there anymore and we've looked at other stuff and we think the best thing is just to wind down and we still got 40 cents on the dollar to return it to everyone we think if we just keep going it's going to zero and we said okay and they wound down and gave us the 40 cents back we've had other ones where it's the opposite where entrepreneurs are trying to make the same business model work and we're having a talk with them saying hey I think you've proven there's no there there we need to you need to just your your one value that you have is you've got all customers that you've got a relationship and you you can talk with I want you to get set up 20 calls with customers and start having discussions with them like what are the pain points in their work life and maybe there's something else or some other product that we should be pivoting to and and sometimes you know you need to hear that as the founder and or Founders don't even realize that investors are okay what do you mean we could just totally switch to something else and when they're like yeah if what you're doing isn't working don't feel any pressure to stick with it you know they don't know that until you have that conversation and they're they're all scared to have that conversation like every time like I I see that happen all the time where they're scared to have that conversation of you know out a fear failure or then they just keep staying the course to try to make something work that shouldn't work um but they keep it's like pounding your head against a you know brick wall it's like why are you doing this to yourself yeah yeah exactly so I mean just the reality is like I I'll give a an example of the you know we didn't have to sort of show them this route but the route that happened for you know the company in New Zealand that we exited recently when we invested in them they were pre-revenue and they had a plugin to Chrome that did something and but they had usage through the roof just accelerating every month and this is sort of you know 201617 it was right at the time where it wasn't so common for us to invest pre-revenue anymore but we're like hey this traction growth they're going to there's value there they're going to figure something out and it was a low valuation then they came back to us you know a little bit later what they did isn't even that important and they said all right we found a new business model we've got these sort of individual sole Proprietors like real estate agents contractors that need that we can help with these workflows and we're selling to this profile and you know as an investor like that really tiny S&B Market where you're charging 60 to $100 a month is very unattractive right most businesses fail but they tried it and they actually got up to about you know I don't I don't remember half million AR or something and then they came back and they're like hey we're pivoting again you know similar product but we've got a new market that we're going after and it's K through 12 education which again as an investor is like one of the harder markets to sell into it's all right great we've gone from like the worst to the second worst target market here but they were trying stuff and changing and they actually got up to like million million and a half AR and then Co hit and it just took off and went through the roof and you know they were wildly profitable with tens of millions of AR when they sold but it's because they they pivoted and changed substantially twice I would say uh you know they didn't you know off their underlying technology but just led the product they offered and the target market they went off after was substantially different um and investors didn't complain any of those times like we assume the entrepreneurs know way more about the business and what's working or not than we do well I think that's so important like when you've seen this probably happen many times and you know some maybe go south some maybe go the in the right direction but what's kind of like a common theme where you see the the founders that have made it and made the right choices and led to a better outcome like have you seen any kind of consistency in terms of like what they've done versus maybe com you know Founders that you didn't succeed in that same effort no uh I don't it's a lot less consistent it's so much more Randomness than like human brain wants to believe like in the startup world I would say the biggest thing that we've realized over time though at early stages is that low cash burn is King and lets you see those pivots and changes so what we've discovered um is that if you have two companies let's say company a and Company B and they both have 20K Mr and Company a is burning 880,000 a month and Company B is burning 15,000 a month but otherwise they're identical company A's Founders are going to feel this really huge pressure to make their current business model work because maybe they're out of cash in 10 months and they're gonna hit a cash wall hard and they need to raise around to get past that and they have to make this business model work Company B and so they're gonna have blinders on they won't notice any other opportunity now the founders of Company B they're burning 15,000 a month you know if they don't get stuff figured out they're not going to be that stressed because hey they could always raise another 100 150,000 and maybe that gets them another 10 plus months of Runway they can probably find that and someone will give them 150,000 no one's giving the company burning 80,000 just 150 which is two months a Runway and so those Founders will just much more naturally see greater opportunity if they're talking with their customers and their customers suddenly mention some other pain points that they and and they seem like bigger pain points the founders will dig in and ask questions and then maybe they'll come back to the investors and say hey we think we could pivot our product and switch to this other thing and it's a bigger pain point and we can make more money and sell quicker they'll just see that and even have the conversation and the ones with the higher cash burn won't see it so that psychology is really important and cash burn is the biggest thing that prevents that from happening well sense why Capital efficiency is a big you know pillar for your investment thesis yeah so you know Switching gears here like when looking at the precede investment Market over the next couple years we just got out of a you know a t a tough situation last couple years but it sounds like you know maybe things are going up you know getting a little more positive what what do you foresee for the kind of venture early stage investing Market over the next couple years well I think I mean I'm hoping it can't be sort of as bad as it has from a fundraising perspective now as as a firm that's writing checks still it's the dream environment to deploy Capital but it's like incredibly painful for all our existing portfolio companies I think we're just starting to see it getting better um but it doesn't mean it's never going back to like it was in the 20 you know 1920 21 time frame we're probably going to end up where we were in the mid 210s you know with sort of which were are going to feel like low valuations but just be normal valuations but the one thing I think won't change is we've got an overhang of a massive number of startups that are out there there's so many more that are here and in the world than were're in 2018 and 19 and the Venture Capital world is still is going out of business slowly like there are you know for all the professional funds that existed in 2021 maybe half of those don't exist in 2026 or seven or they exist but they're not making new Investments and then some new ones come into play so we've still got this Dynamic playing over out over the next few years where there's going to be a historically sort of historic imbalance still in supply and demand when it comes to Capital at the early stages it's going to feel better than it was but it's not just going to probably swing back to the good old times I hope not I feel like like you know it's one of those things where you want that to happen every like 10 years yeah because that you get these high multiples and that's where you want to exit so exit their position 2021 great idea um but uh yeah I think we're in I would say this is a stable and healthy Market that we're going into with a little bit more of a reality check for for Founders to really compare the options are you really Venture capable or Venture scale opportunity if not explore these other options that might still allow you to be you know build a real business that builds real you know profits and whatnot um so I'm curious to see how that plays out over the next few years and and how Venture changes yeah I mean so much of its psychology if we have a few IPOs successful Tech IPOs in the coming six months that psychological change will just reverberate through the system and things will feel a lot better and money will loosen up both dollars F into Venture Capital funds and funds that have been sitting on the sideline not you know holding on to their dollars really tightly will start spending you know people will suddenly get afraid on the investor side that oh shoot I didn't deploy enough Capital during the downtimes and I don't want to be looked at as that one investor that didn't take advantage of it so but you know you need a big psychological change for it to really change and I think that would make the biggest difference no I could which very possible could Happ there's a lot that want to go public yeah I I'm hoping so I think I think the markets are finally ready to say yes to to these Tech IPOs and create a little bit more liquidity back in the market but you know Market's GNA be funny but I think with the current landscape we're in right now uh probably is the best time to go you know at least out of the last like four years or so and I think there's been a reality check on on company sides like they're not going to be going public asking for just insane multiples when they go public anymore they're going to be asking for realistic ones because public SAS companies and public tech companies you know except for the ones in the sort of the AI frenzy right now are tra trading at pretty realistic and low valuations you know when it when historically I I love doing the comps and just being W that's not bad it's like you know you still make money and they can still get to you know deal it's like that's yeah it's actually good for the entire ecosystem like no no players left sort of holding the bag when the Music Stops that's that's the most healthy ecosystem well Dave it's been an absolute pleasure having you on the show what would be the the best way for a founder or anyone that would like to to learn more about you or or the fund yeah if you want to learn more about us just go to our website you know rsid capital.com uh if you want to email me Dave at rightside Capital I'd strongly recommend looking at the website we list sort of everything about us what investment profile we're looking for you know what we say yes to what we say no to we're pretty transparent there no and that's I think what's super valuable for you it's like do you check these boxes yes or no yeah yeah and that's that that if if you do we're gonna want to dig in and look it doesn't mean we're just automatically investing that's sort of price to get in the front door but if you don't and you fill out our form we're just going to give you a really quick no anyway so yeah save your time super valuable to to Founders to get that quick answer if they're in that range but thanks again for being on the show it's been really great to have you on great discussion you look forward to give this out to our community thank you for watching today's episode as a reminder I'm your host Jason Kirby I have built and sold multiple companies with over 135 million in transactions as either a Founder operator investor across multiple Industries I'm currently the managing director and founder of thunder. BC where we help companies and Founders at all stages navigate what capital to raise and who to raise it from and help improve company's odds of raising Capital if you need help reach out to us at help. under. BC if you like Today's Show please share with your friends give us a like or a comment down below and as a reminder this show is published weekly and to get notified new episodes and our newsletter be sure to go to our website at join. thunder. BC and if you sign up today I'll send you a few freebies on how to negotiate a term sheet how to get a free list of relevant VC and much more that's it no more Shameless plugs thank you and see you next week