How do you recover from bankruptcy to a multi-million exit?

welcome to episode 46 of fundraising demystified the show where I interview Founders and investors that are actively raising or deploying capital in today's market I'm your host Jason Kirby in this episode episode 46 I have Rob Hunter on the show a Serial entrepreneur who started his entrepreneurial Journey selling bootlegged DVDs in the late '90s and then started an Ice Cream franchise lost it all went bankrupt and then somehow built a new company got accepted into y combinator from which he's now multi- exited founder and is the partner at a private Equity Firm called speaker Ventures where he focuses on creating win-win deal structures for companies that are no longer on the Venture Capital train this is a fascinating story where we talk about Rob's diverse background as a Founder how not every company is destined to be a unicorn but could still generate material wealth for for Founders he shares what it's like not being able to raise Venture Capital with a growing business doing over 1 million in annual recurring Revenue but is suddenly able to raise Capital overnight with just a pitch Teck for his new company we joke about the realities of being a venture back startup and the alternatives to venture capital money that are available but often not talked about it's an enlightening conversation that any founder who's ever struggled to raise capital or to try to figure out how this Market Works definitely needs to hear so as a reminder to get notified of our weekly podcast and newsletter be sure to subscribe at join. thunder. VC again that's join. thunder. DC now on to the show hey everyone welcome back to fundraising demystified I am your host Jason Kirby and today our guest is Rob Hunter a partner at speaker Ventures but also an exit founder welcome to the show up hey thanks Jason excited to be here no I'm excited to have you and I think this is going to be a really interesting conversation for our Founders that uh you can learn a lot from not just your background as a Founder that's you know came from White combinator raised Venture Capital more than once um but also kind of what that Journey looks like at the end of a company's life and what their options might be when it comes to you know selling the company or exiting their company but before I jump ahead Rob let's hear a little bit about you what's uh what's your background and and what have you beled in your career yeah so kind of a serial entrepreneur from childhood um I grew up in a very small town but always had this this entrepreneurial itch um kind of random but I sold uh bootlegged Japanese pro wrestling and mixed martial arts DVDs and VHS tapes on the internet in the late 90s and early 2000s I was like 12 13 14 years old hacked together a basic website but was making like3 $40,000 a year kind of part-time um and that's inflation is helped uh grow those numbers over time right but it was enough to dabble a little bit um went to business school for an undergrad um watched as all of my friends got into you know Investment Banking Consulting sort of these high status well-paying jobs um I instead was looking for a business to buy or to start hadn't really found a great like startup idea um so instead I ended up buying a franchise I became the uh first franchisee one of the first franchises of marble Slab ice cream um in Ontario Canada where I grew up Marble Slab has about 200 300 locations in the US it's been around since the 80s but they were just sort of getting into Canada uh when I was was graduating opened up one store when I was 22 uh it did quite well and so I opened up another one a year later I said wow how do I how do I scale this right how do I keep going um didn't explicitly raise money for it but borrowed a lot did some creative financing and I open up five more stores uh in the next 18 months and it turns out that was a very bad idea uh the first two very much were false positives the revenue was great from launch and then sort of started to trickle down a little bit a lot of people tried the product and weren't necessarily in a position to be coming back on a regular basis the chain itself struggled about half of the stores that ever opened uh ended up shutting down uh including five of my seven uh and so it was lots of highs and lots of lows uh I ended up closing a bunch down moving back home with Mom and Dad in my mid-20s I had to do the Canadian equivalent of like a bankruptcy uh to clear up all the bank debt that had been borrowed uh and was kind of like having a rough go in life for uh you know the the good chunk of my 20s but thankfully was able to get a really Fresh Start um got into an NBA program in Boston uh did Babson College there which is sort of a top entrepreneurial school and very much fell into wanting to pursue a sort of either the the thought initially was go get a nice safe job and a nice safe job to me meant well let's go work for a seed stage or you know series a tech company um I interned it one over the summer of the the two years of the MBA um it was in restaurant Tech so kind of sort of adjacent to my my experience and uh learned a lot there they had just raised uh you know kind of a post seed round of of a few million um and uh lots of good learnings lots of challenges uh lots of you know sort of how to we actually make money like how do we actually generate revenue for this thing and not just you know impress investors um but out of that experience was sort of the germination of the idea for hire me and I'm sure we we'll get into that but uh that was sort of what led me into into Tech was was an entrepreneurial bent from the time I was a kid so this is a fun fun story and I appreciate your cander in terms of talking about of the ups and downs of your 20s um you you had two successful stores and then you kind of went and scaled too quickly which is a common thing that happens at Brick and morar um you having to go back to your your parents like how like what was that experience like to kind of ramp up have success Taste of success quickly and then kind of having that that immediate kind of kick to the stomach you know kind of like what was that experience like and and what are some kind of the key lessons you learned from that you know it was very humbling um I can remember the summer of the first store opening um this is 6 months in I've sort of got things to where they need to be I did a um a contiki tour it's like this Youth Travel thing um and I remember being on a cruise ship as part of this vacation I took sitting next to what I now assume is like a billionaire Greek Greek or or multi hundred millionaire Greek Greek uh very very wealthy man right we're playing blackjack right we're talk oh what do you do what do you do and I'm I'm oh I own this ice cream store and I'm I'm having all this success and like chip Pat on my shoulder look at me look at me and he sort of very very tactfully just said be humble right be have have some humility right in terms of of where you end up in your career and I I don't know I'm I'm reminded of that conversation now 15 years later uh because I think I needed a bit of that I I very much had this I don't know Heroes Journey narrative in my head of well look at me I my I'm the first on my father's side of the family to go to university my mom was a teacher and look at all this insane success I'm having at such a young age I'm the Golden Boy boy everything I touch turns to gold and I I can't I can't lose right um that that very much got confirmed as not correct uh with with this experience um I can remember though and uh you can just be I don't want to I don't want to mess with the camera but you can just barely see the outline on the wall I can remember um April 9th 2011 um was was sort of right in the heart of when all this was going down and I would get in the habit of just going to the library and sort of trying to study for the GMAT read and sort of remove myself from the chaos of the stores um and I stumbled on a book that was just all about like failure and Reinventing yourself and sort of a search it's called ping a search for a new Pond frog Parable book kind of weird but anyway there was a passage in there that basically said like you know oh I'm I'm going to succeed I will not fail and the mentor says well actually you are going to fail and it's G to suck and it's going to be awful but if you didn't fail well then you didn't try and failure in fact is one of life's great teachings and you need to go through it um you know to to actually become what you want to become and and turn into who you want to be um and honestly Jason that passage moved me so much first of all I broke down in tears reading it uh second of all I got out two pieces of 8 and a half by 11 and a black Magic Marker and I transcribed the you know half a page or so of that um and I brought it with me to Boston I brought it with me to San Francisco to Toronto all over uh and it is now framed and hanging on the wall uh 13 years later so uh very hard uh as you're going through it um you know you worried you've you know disappointed everybody most of all yourself but um I think an important an important part of the journey for sure yeah I I would say doing it in your 20s is a much less costlier experience than you I had a similar experience with kind of my first like Tech startup you know I had small businesses that were successful but I wanted to kind of go bigger in scale as well and got into the you know the the tech startup world and you know just could not be a one could not raise money because it wasn't a fundable idea it wasn't a venture backal idea which I didn't know back the time but when we finally kind of like crash bird and gave up and and shut down the company it was a very humbling experience everything prior was successful everything I did was successful except you know that moment and there's just like couple sequential events of failure and I was like it just like it just takes the takes the breath out of you takes your motivation out of you and it's just about how do you get back up and and go do the next thing which for me the next thing was coming called think guy we sold to Walmart so ended up you just going to stay in there and have uh I think having those failures kind of help shape uh a Founder to what they can ultim ultimately achieve later on in life but uh but I digress Let's uh let's keep going here so um you had that experience you're humbled in your 20s you know but then you go on and you kind of go through the experience of being in a a seed stage startup what happened thereafter and tell me about kind of the the company you took to YC yeah so I graduated in May of 14 Babson was very good about Pitch competitions also on the wall is the you know $20,000 check we got for uh you know one of those those things and it's like oh I think I think we ended up with $30,000 in winnings it's like when you get that much you're like I actually got to do this right I can't just you know cash the check and go get a job I people are actually expecting me to go to go and do this we sort of flailed in the Wind for a few months uh but we're ultimately able to recruit the co-founder of the company that i' had been interning at uh and so Jeff has remained a very close friend um you know in the intervening 10 plus years uh we were actually just in Vegas for his bachelor party last week uh so it's been good to really have that relationship grow out of the The Internship experience but um we got Jeff involved Jeff was actually able to build product for us which is kind of important as a as a tech company um but Jeff's involvement very much I think was was the catalyst for us being able to get into YC uh we had applied um I remember hearing Sam Alman speak and and Sam was running YC at the time at uh at Harvard a few weeks prior to our interview um and it was to the NBA Tech conference and Sam kind of like on NBAs a little bit like basically settled and and for for good reason I think actually a lot of NBAs are like oh we should go do this and go get a get a technical co-founder and give them 5 percent and it's all about the idea right well I I was a little cautious because we had just finished this NBA program but long story short I think YY accepted us because I had owned seven ice cream stores for like seven years right I had been in that business um so I think I had a lot of insights into you know what what problems we were facing as an operator and specifically for me the business was very much tied to initially the the sort of optimization of who you're hiring um in my pitches I always told the story of Kendra Kendra was one of my first employees uh she showed up with a paper copy of her resume which is what everybody did back in the day right you'd have like like dozens hundreds of resumes showing up um at the store and Kendra was 15 she had babysitting and soccer as her you know primary experiences I think she might have spelled babysitting wrong um but she lived around the corner from the store she had great availability and just the most bright and cheerful and like amazing person you could you could see and I saw it because I was physically at the when uh she had uh had had dropped the resume off um and so without that um I I would have totally lost it resume would have hit a pile and uh you know not been uh not ever been seen so that was sort of the inspiration for the company was like how do we go find more kendras we went through a lot of iterations over the years eventually sourcing the K kendras and not just sort of like optimizing the screening and selection of them was a big part of it um but that was very much the inspiration so we applied to YC uh we flew out we did one interview in the morning uh and we were one of the rare batches that said got the call you guys got to come back for another interview so we're running around San Francisco pulling her hair out for like six hours during the day and then we get called back in and it's Sam it's Jessica Livingston like we had the we had the sort of A+ team on the second interview uh but we were able to get in and it was uh again sort of I I'm I'm a I'm a crier Jason I I I got tears of joy when we got into this because it was just a year year or two after the bankruptcy so it's like highs and highs and lows and lows I think we very much though assumed that we get into YC and it's this automatic button that gets you $3 million in funding arguably it's maybe become more of that now but at least back in the day we did YC we we had an amazing experience I don't mean to suggest we didn't uh most important professional step in my life but we were early and we were in a space that was not necessarily all that sexy and so we ultimately uh were only able to raise a few hundred, after immediately after demo day uh and so we had been very much prepare prepared we were GNA like have our wives move out we were going to like live in San Francisco we were going to be all in on on you know Bay Area experience but you know with $175,200 th000 the bank it just it wasn't enough to um to make it a a prudent financial decision right um I had gotten married uh on on the way we actually got married in Las Vegas on the drive out to YC I'm Canadian so I my green my my student visa was was running out but anyway we um we sent we did YC we did demo date great pitch and then another sort of down a little bit of like we we don't have millions of dollars to deploy here but what was sort of a disappointment ended up being I think a bit of a feature um the the constraint that came from only having a small amount of capital to play with was we had to figure out like how do we actually get revenue from this thing and we built and we sold and we built and we sold and honestly we did we did what I would recommend no founder do but it it worked for us was we'd take 25 Grand here 50 Grand here 100 Grand here right a lot of sort of you know Small Checks every couple of months as we'd engage with investors um this was back back in the day by the way um and it's so funny for me now you know you go to demo day and companies are raising at 15 million 20 million cap for basically the traction we had at the time and I can remember in our day um we people thought we were people on the East Coast anyway thought we were like crazy expensive at a six million pre um and it's like crazy how how stuff has has just shot up over time um it is interesting just to get in the weeds a little bit back in the day YC uh almost exclusively did pre-money safes um and so there was a little bit of flexibility baked in to say okay well you know if you end up raising two three million on a six million pre money safe like you haven't completely sold the farm whereas I don't know if you were raising post money two three million six you you've basically given up half the company so um I kept building kept selling kept building up selling along the way in 2016 so this is about a year and a half after um we had uh we had done there we done onyc then we we did get some some a little bit more serious money in uh we had a pretty big angelist Syndicate do about a half a million uh another couple of larger checks came in and uh we did this program 43 North uh we ended up uh taking a million dollars from them in exchange for moving to Buffalo New York uh for a year uh lots of positives and negatives with that program over the years but um that was ultimately I would say what turned us into more of a remote company because we had folks in Boston we had folks in Buffalo Buffalo ultimately did not work out and so I went to Toronto and so we were kind of all over the place by then but kind of kept growing at that you know 40% plus growth rate year after year after year and um by 2018 you know we were million plus in Revenue um had had built out the product kind of straight away from the sourcing piece at one point we had thought about hey we're going to be like LinkedIn for Blue Collar recruitment right Manufacturing Healthcare retail Etc but we kept finding success building hiring SAS tools for uh the restaurant industry and that's very much where we sort of doubl down on uh to be successful uh we were able to sign uh White Castle was a big deal for us early on in those days you know sixf figure deal uh and very much kind of figured out this Bottoms Up sales motion of you know if we can go sell the Dunkin Donuts guy that's got five locations it makes it a lot easier to then go sell the bigger Dunkin Donuts guy that's got 50 100 Etc so um maybe I'll take a beat but that's that's sort of the couple of years post post YC so you know you share what I've recognized as a more common experience for a lot of Founders in terms of this kind of like all right we checked a box you know this case you got into YC now don't we get X you know like don't are isn't just a bunch of money your interest supposed to come my way um what was it like seeing your peers it in YC that maybe had a different experience that kind of like took off and and kind of how did how were you feeling when you know you were seeing that happen while you guys were scraping to kind of get checks at the door what did you kind of see from your counterparts in YC kind of what what was that experience like yeah you know it's interesting there were there were obvious clear winners that you can't feel even a tinge of jealousy or or um whatever for just because they're good guys and gals and their companies are doing amazing right so we were in a batch with gitlab uh which obviously has done quite well since uh the YC days um I remember equipment share um did did very well coming out of demo day and and is still you know done quite well those guys are great um it's funny though the one and and this this this sort of reveals personal bias quite a bit you know there's the odd company where I never got to meet the founders we we were the first batch of a 100 plus companies and then you hear their funding announcement like really that that got funded and we can't get like a million so I think it was more it was more very very small like twin of Jealousy on kind of the the other second third quartile companies right um it's it's sort of like huray and and and and a lot of um enthusiasm for the the sort of top cortile it's it's empathy for the bottom cortile I would argue we were probably like third cortile in terms of fundraising post YC um and it's sort of like there were a few that were like I'm surprised that that would would get funding I do feel like and I I frankly I still feel like this um a lot of Silicon Valley VCS like have not worked minimum wage jobs before right and that we we were playing in a world um that just was not s they were not super knowledgeable about and I think I don't know we we kept kind of getting bucketed into um people would make comparisons to like formal HR technology for white collar workers it's like this is just a totally different ball game we're actually more of like restaurant operations software than we are pure HR in my opinion um because it's just such an ingrained part of of hiring in restaurants you are constantly hiring it's not an HR department off and that's doing it it's the store manager the restaurant manager that's responsible um so yeah little little bit of frustration but at the end of the day like I don't know the ice cream experience really taught me and and sort of moderated the highs are not so high the lows are not so low right when you've gotten sued by multiple you know billion doll multi hundred billion dollar Banks um in your 20s it's not quite so terrifying to have a VC like not get and like what you're doing right um and so it was I I would say back to the the failure stuff like a lot easier to deal with the ups and downs of entrepreneurial life having having gone through it prior and know I'm glad you share that and and you as you come out of YC and you kind of bring in these these small checks to kind of like keep keep grinding you know don't give up keep compelling investors to get you the checks to to keep on going and have other bad at things uh obviously valuations very different than they are now uh but you know I'm starting to see you know them come down but uh nothing to what we've seen before and then um you you go out and you want to raise a series a for for hire me and you know it wasn't you know successful to what you were hoping for um you know kind of walk us through that experience and and there's another story that I want you to kind of bring in and tie into that in terms of the other company that you you followed on with after the fact and raise money you know practically overnight so I kind of want to you know share those two stories and kind of justos positions of how those uh two worked out absolutely yeah so so 2018 was a pretty pivotal year um we had just finished up in uh in Buffalo we're in Toronto and and all over from from remote hires and and we had hit a million in AR which in my mind was like the key to unlocking you know that next round we wanted to go out raise you know 5 six 7 million um and had this big pitch of well we figured out the software side now it's time to go figure out the LinkedIn side and we're going to go and do do all of this right and did the road show um I was away uh for like two weeks from my my one-year-old which I remember being you know not that not not awesome um doing inperson in SF in New York in Chicago Boston all over right and the interest like bluntly just wasn't there right we were growing 40 50% a year um and that just was not a sufficient growth rate for uh for a series a um there's not really a lot more to tell in that we we probably pitched 40 50 firms and um a lot of like Tire kicking there there were a few that said well I'll put in you know 500k a million once you find your lead and we just never found the lead so turned into like what do we what do we do next company-wise and what does Rob do next personally as well and I remember being on on a after the fundraise was not successful we we did a little trip um Switzerland randomly and I remember like running around the streets of lucern sort of with this like aha moment um and they always come on travel by the way like I I told the Greece story earlier travel is I think quite important um when you're in this life but I I kind of realized like you know what I am not the guy to run a 40% a year growth business there's a lot of sort of optimization there's a lot of tactics there's a lot of like honestly people management uh a lot of of sort of operational stuff in the Wheats that just was not my bag I like the big the the vision the storytelling the strategy the move fast try to break things right uh I was very fortunate though um that I had a guy to run the company for me so um Derek had been our our coo he had been with us for a couple of years uh and eventually we we promot to Derrick the CEO in in June of 2019 but here's a real funny story Dereck and I used to own an ice cream store together and dererk and I sold that ice cream store and could not agree on what to do with the poultry amount of money from it Derrick and I sued each other and we were in litigation for a couple of years 2011 12 13 or so uh and very much were able to repair our relationship five years later came on board a CEO is now a partner with me at speaker Ventures so uh good story in terms of you know you you never you never uh Bridge bridg burned Bridges can always be rebuilt I suppose is uh the learning from that but I digress uh I had decided hey I I do want to go you know do something else um you know with with uh my time and the idea of student loan debt in America was just always kind of fascinating to me as a Canadian uh there is 10x more student loan debt per capita in the US than in Canada in Canada it's you know six $7,000 tuition for our top schools clearly much much more than that in the states and so this idea of being you know 40 50 years old and owing $300,000 Plus in student loan debt was like broke my brain a little bit it's like well why don't they just declare bankruptcy right why don't they just just like I did right I was able to get a fresh start i' I've got this like multi-million dollar SAS business now uh because I was able to eliminate debt and bankruptcy well then you go down the rabbit hole of okay if you Google the answer to that question it's like student loan debt cannot be included in bankruptcy which for all int purposes is true but turns out there's a loophole where essentially if you can prove in court if you can litigate against either the federal government or your private lender that this debt is causing undue hardship basically that it mathematically will never be paid off if you're 50 years old and you make $40,000 a year odds are you are never going to have enough money to pay off your $300,000 student loan I found some literature to that effect connected with the author of the literature who was actually like looking at these cases and finding that that the rare times they were filed they were successful uh and was able to recruit Jason actually as a co-founder uh for the Venture and so we called it reset button uh we got the the URL which was great uh and found a technical co-founder Max was was great as well and uh basically in a span of about three weeks from like first email to like wire uh we raised just under $2 million craft Ventures slow Ventures were great Partners in that business um and it's just really to me highlights like I was on the road for months uh with a million dooll ARR business a year prior and couldn't get a term sheet couldn't get any interest a year later with a PowerPoint deck and a big idea and pretty awesome team uh we were able to get millions of dollars in the door basically by by snapping our fingers so it is it is pretty crazy uh the Venture world that that's out there did you know that most Founders waste days of their lives chasing their wrong investors well as a Founder you know your time is your most valuable resource don't waste it on the investors that aren't going to write you a check here at Thunder we built a free tool that identifies exactly which VCS are worth your time to pursue we score your company against 3500 VCS and family offices that have been vetted and are actively writing checks into companies like yours get your AI recommended list of investors that will look like this abs absolutely free by creating a free 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VC now let's get back to the show yeah and it's it's this is something I wanted to bring up specifically for a lot of founders because you know your hire me past life versus your uh reset button life you know there just you know as you just kind of said like you have here's a business that makes money why doesn't anyone want to put money into it and here's an idea uh strictly on a you know a PowerPoint deck crazy idea yeah and when from what I find what I have to constantly remind founders of is you know there's certain criteria you have to meet as a founder and as business to attract venture capital and practical is not one of those criteria it's you know like you what momentum do you have what industry are you going into do you have a shiny object you know that can be flashed around amongst VCS to show they rather have no data and take a shot in the dark for 100x potential or straight zero they're not excited about an established business growing 40% a year you're gonna have to look more for private Equity or strategic capital or grow Revenue to to fund those types of businesses just because you all right you proven yourself you're not a rocket ship you know that that basically deters almost all venture capital money from participating in in that type of company which is unfortunate because these are great companies and they could benefit from some injection of capital but as we've kind of seen and as I see often it's you know reshaping how that founder thinks about their business and what type of capital they really need to what it is they want to do and and you were smart you you realized that that business needed someone different and it wasn't you and you you stepped down from that and I think that's such an incredible realization that so many Founders feel they can't do that they it's like oh it's my baby I have to stay with it even though if it makes me miserable and I was like no you you can divorce your company it's okay you know and I think often it can go poorly right like often it it cannot work out but I think we had everything in play that it that it did um I will say I did stay quite involved on on the finances right so I was still in the bank account you know usually once a week um would still help with the preparation of the statements and sort of the budgeting um and so I kind of shift it into you know qu fractional you know quarter CFO almost in in that role um and that ended up being a very very good decision um we had kept hire me very much um I I fell in love this was right around the time Paul Graham did the the default alive essay and this concept of okay I'm burning $30,000 a month and I've got 300,000 in the bank but I was burning 35 last month and I was burning 40 the previous month and so if the trend line continues then I'm okay and if we sign a big customer next month and burn drops to 20 well then maybe I can make that sales higher and and ramp it back up to 26 or 27 and so constant constant calibration of budgeting and finances was like an important very overnight became very important um when I hear Founders pitching me on like here's my 5-year model at the preed stage and here's like cell 76 of uh you know my my four years tabd right it gets really stupid at that stage but then kind of overnight when you're managing for cash flow and managing for never needing never never being able to raise again some of those like MBA you know Excel type exercises become very important for us they became super important because we were and are a restaurant hiring company and little did Derrick know in June of 2019 when he took over a CEO uh that Co was right around the corner and So Co had some major implications uh for for both companies uh for hire me uh and remember this is a SAS business right we're growing you know C two three four five% a month um in perpetuity right I think we had what one month where where there was a drop in in the company's history um and then April 2020 comes 25% drop right restaurants are not hiring when every restaurant in the country is closed down and so it was kind of a constant I I sort of jump back in almost full-time there to say okay like what are we going to do right like how are we going to get through this and and the proudest moment of my my professional career and it's really more Derek honestly that that did it but we were able to get through Co without any layoffs uh we had I think 15 16 people at that point in time and uh we hadn't raised Venture in two years we had no Prospect of raising Venture you know in anytime soon uh but very very very careful disciplined budgeting literally like day-to-day cash flow statements helped us helped us get through that and thankfully it didn't hit us quite as hard as we had modeled we we had modeled for 50% right um we figured everybody would go away but turns out um Domino's Pizza like really benefited from Co and really needed to hire a shitload of drivers and so we were able to uh you know we duck and weave a little bit there and come back quite strong and we ended 2020 actually 40% year-over-year from a year prior even with the big drop from Co um reset button though had had had more challenges where uh all these these intricate legal arguments we were making uh were not possible uh because of um of uh student loan payments getting paused for three years right and on top of that I will say it it just feels like the consumer was kind of distracted right and like had uh paycheck protection money and had you know the the stimulus money and like wasn't as worried about their debt um anymore and so those two things coupled with just the complexity of legal Tech to begin with um sort of forced that company into a pivot and we basically just iterated to Legal intake software uh client intake software for for bankruptcy attorneys um and so a really interest very interesting year for both companies uh but as 2020 was sort of nearing an end 2020 was coming around um we were sort of heading both companies towards an acquisition uh with hire me though and that's kind of the the main the main part of the story um we had been having some strategic talks throughout 2020 with a company we had partnered with they were maybe interested in building out or acquiring you know what we did the hiring side and we just couldn't quite get there on on um term we got there more or less on High level price but the fine print was was not maybe something we could agree on and then out of the blue uh we saw a post on the Y combinator Forum from another founder uh who had basically raised a search fund behind her and I'd been you know I I'd been passing passingly familiar with search funds from my MBA days but essentially they are for for those listeners that don't know a vehicle that was originally primarily intended for recent MBA grads to go out and acquire a company technically private Equity money that would back these often young entrepreneurs in going out and acquiring a company historically they've been really heavy in manufacturing construction sort of these old school businesses often with a retiring you know founder that started them and has been at it for 20 or 30 years so like we we were a bit of a weird search deal we were Tech we had no iida right like we were building specifically to to break even and grow as fast as possible but with with break even cash flow um I was obviously not a retiring baby boomer entrepreneur uh but it kind of sort of kind of sort of all made sense for all involved um and so it it's funny after months of back and forth with the Strategic um our buyer uh on the uh the the uh search fund site we we got to an Loi in like 72 hours met on Friday Loi signed on Monday and little did I know uh like the diligence actually is quite heavy after that and so it was a good five six months of diligence before we were actually able to uh to execute the deal uh that involved actually driving Derek and myself and our buyer and we met in just based on where everybody lives it made sense to me in Upstate New York so we we met at this empty Syracuse New York Hotel in the heart of the second wave of co uh we were the only ones there but we felt it was important to meet in person and sort of develop a relationship there um and so months of diligence lots of very very heavy heavy lifting there uh but we were able to pull off the transaction in uh in June of 2021 and it was it was life-changing it really was it was low eight figures um certainly not a a even a triple or a home run run arguably not even maybe a double for our investors uh but it was life-changing money for me it was life-changing money for dererk and and the rest of the team um and in hindsight you know I I'm sure we'll we'll get into this in more detail but Revenue kept growing right like they were able to get up to six seven million in ARR um after we were able to to exit um and you sort of guess second guess yourself like did I get out like was was that the right decision to sell but I think for me uh I went bankrupt 10 years prior and at the time of the sale uh my son was just turning one my daughter was just turning four uh and it was kind of like this is enough money that I I don't really ever need to you know worry too much anymore um and yeah maybe there's a 90% chance 80% chance I could get twice as much in two or three years but that didn't compute for me subjectively the 100% chance at half of that had more value to me than perhaps the true objective value of where things were headed so um it was the right call it was the right call in in hindsight that's the thing is like you know from from the buyer's perspective like this is what makes a deal get done is you know sure there's a you know especially from someone on the outside on the sideline saying why'd you leave money on the table it's like you weren't in my shoes you didn't know that I have two kids and I've been grinding for years had it you know bankruptcy all these different things about your life that shape it to where saying yes to a deal now is exponentially more valuable than the unknown you know deal value down the road that you know could be better or could not be you know better and I'm glad you kind of share that personal perspective and journey of what led you to that decision and saying yes to the deal and you know now that you have gone through that process you have created this exit opportunity uh you've also had the other company reset uh which you rebranded and repurposed uh walk us through how you structure that deal because that one's a little bit different yeah so with with with reset button rebranded to Lexa we had this like beautiful product right and and the the um the value prop basically is all these attorneys everything is so manual when you when you take in a client and so you're having to go in and like like fax pay stubs back and forth and like get their tax trans like all this this very manual effort to gather the documentation needed to actually like declare bankruptcy and so we were able to automate that we had a bunch of hooks and apis that would like pull pay stubs automatically that would pull tax returns would would sort of get all the documents automatically which improves conversion rate and and sort of makes it easier to onboard saves the the attorneys a ton of time so problem was we were basically running out of money by the time we figured that out and yes it was 2021 and things were froy and we probably could have pulled off like a a 2.0 fund raise just on that as an idea but I got to be honest our our HS weren't in it we had set out to like change the world and solve student debt and the idea of like SAS for lawyers like it just it wasn't really getting us out of bed anymore um now we had gotten to like you know something like 50,000 in revenue or something some fairly small but basically said okay like if we were to sell this I don't know best case scenario we might have gotten a few hundred thousand for it the VCS involved would have taken 10 cents 15 cents on the we would have gotten nothing it just it didn't strike me as the right move given that the business actually has some long-term potential if someone's prepared to grind it out and so we were able to find another group of YC Founders that actually like were excited about the product and had been dabbling in a few different ideas were were wanting to do some do something but the idea of basically kind of sort of skipping the zero to one phase was very compelling to them because we had a product and we had revenue for the product and we had a buyer for that product and like there was something here that needed to be properly exploited and again like grinded out for a few years and so we basically cut a deal with those guys where they took over they they took over the business and we hold equity in whatever they're ultimately able to do with it and I think that's just a better outcome for us a better outcome for our investors um and a really really good sort of asset for them to take over um without needing to come up with any cash right um and so that was just a very clean easy way to give a soft Landing to this product that has a great potential and they've done great with it since so excited to see where it ultimately goes but uh it was very much the inspiration along with the hire me sale for for what we're up to now so now we've kind of got through your personal experience of doing these types of deals as the the founder let's talk a little bit about what you're doing at speaker Ventures and I would like to kind of spend the rest of the conversation kind of demystifying what these Acquisitions look like from a Founder perspective especially a first-time founder that's ever sold a company like what does it actually look like for them to go through a deal like this in terms of you lawyers and transactions and setting up a deal and timelines all that kind of stuff absolutely and I I will say we really try and aim to be and I know everybody says this in every context but like we we try to be as founder friendly on the buy side as we we possibly can be but I do think one element that might surprise folks is like unless this is some crazy insanely hot space and you've got like Zuckerberg saying we need to get Instagram like tomorrow right like unless it's truly like a a unicorn outcome in terms of not in terms of dollars but in terms of like one in a million buide strategic needs this asset yesterday if it's not that um the amount of diligence and the amount of data that needs to get shared um is is significantly significantly 10x X 100x more than what's involved in a fund raise um and so I think when companies like this get acquired um VC is when they invest right are all about upside maximization downside protection is not quite as as critical right and so you can get to a point where you're excited about where this could go without a lot of data but when we're acquiring a company or when private Equity is coming in when when most companies are are getting acquired part of the calculus is like how can this go wrong what could make this not work and let's uncover every stone let's dig every needle out of every a stack to figure out like what could make this go wrong and so there's just a ton of data that that needs to be shared the other piece too is that our like our our financials i' had been doing everything myself right and I like I got an MBA yay for me right but the the complexity of cash versus rule of um you know net churn versus gross churn versus retention versus like there were so many metrics that in hindsight um we probably could have built a little bit sturdier we we could have built the house with bricks rather than with sticks I suppose or whatever the third the third Pig you right Stone um in terms of just just data structure and sort of like like level of of detail in in both both pure Financial but also just business business data so a lot of that is needed the other thing I'll say um that has been a little amusing for me as I I deal with Founders is like all the fomo that works with VCS like just unfortunately doesn't really work here um you know we've had people say like oh I can I can sell like if you can wire the money in 30 days it's like it it just it just doesn't it doesn't work like that on the m&a side um even the piece is going to be heavy there um and that's the other piece of this too like for better for worse is is attorneys um you you can run up a bill very very very heavily and very quickly um that by the way typically has to be paid like even if the company doesn't sell and so be be mindful of that right it is a little bit of a dance of like how much to lean into this and how much not to the the best way to go into it as a Founder though and and I I think we've very much had this with h me like Leverage is the name of the game if if you're growing fast enough that life is fine if this deal doesn't happen um it's okay and if your lawyers can't agree on something then okay like we'll just not sell right like you you sort of hold the cards in that situation um we were fortunate we we dealt with a firm in in Buffalo New York um that we just really trusted and buffalo as you can imagine has cheaper lawyers than Boston or or San Francisco and so like we ended up not not too bad um you know coming coming out of that my my my number one advice my number one advice to to Founders on when it comes to managing your lawyer is never let your lawyer talk to their lawyer that I think is one of the most costly things especially because in some Deals they make the you know like the the buyer will make the seller pay both legal fees um the the transaction out of the proceeds um and you don't want two lawyers talking to each other justifying why they need to talk to each other to to rack up hour they buil so always build a relationship with the buyer and hash out the actual business terms with the buyer um the person leading the deal and then tell your lawyers what to do and I I'm so many people get caught up and like oh let the lawyers figure it out and they're like you know 100K later uh it's a pretty costly mistake so something that I'm not sure if that happened to you but that's always something I always advise Founders to pay attention to especially early days when your deals are small in the you know seven eight figures yeah build that relationship with the other the other party as best you can to uh to Hash to Hash this stuff out and then the other thing I'd say is just you know have have realistic expectations um I can remember we were talking with a you know an AI um tangential company and you know I think Founders hero like I I get a 10x 20x 30X multiple when I fund raise and so therefore I should expect that when I sell it's like well no guys like if if the the reason VC is paying 20x on the valuation is because they also have like the downside protection in other words like if if you're raising $5 million they and and your company is only worth five million like like there's not as much risk um and obviously if you're able to keep growing 100% then you know maybe you grow into it one day but like a a SAS business growing 30 40 50% a year to a financial buyer is worth you know there's a lot of things that go into this but two 3 four five Sixx Revenue tops right um any more than that is just not like the math the math on earning a return from it just doesn't really compute granted everything's possible with strategics right and and you get some crazy stuff going on here and there and I I imagine AI you know will will accelerate some of that um but I do think having some realistic expectations is important um and the other one as that goes along with that and it actually ties to the legal piece a little bit is you probably are not going to see every dollar of cash up front and if you are um you might not be optimizing for how much you could get out of of the deal so like with the hire me transaction with with some of the deals we do there is this component of like a seller note where you know 10 15 20 maybe 30% of the transaction isn't paid in cash upfront perhaps it's an earnout perhaps it's just a formal note um from our side one of the reasons we do seller notes frankly is to mitigate the legal side we could have the lawyers talk and we could have the lawyers go deep on every number and every piece of data that's ever existed and we could drop $500,000 on on you know on legal but it doesn't make sense to drop $500,000 on legal on a five million or $10 million deal and so if the company owes if if if the if the buyer owes the seller 500,000 or a million and God forbid there be some fraudulent you know land mine that was not uncovered the seller note sort of allows for that leverage and allows for us to not have to spend that money on legal um on on the buy side so don't go in expecting pure pure pure cash for all of it deals get done um because of creativity and there are a lot of different ways to structure uh the transaction yeah and I think that's something to kind of really expose Founders to just come in with an open mind come in with really what's your Northstar of the trans action like what what is it that's ultimately most important to you as a Founder when considering an exit what are your obligations to your investors and shareholders and your team and working with the buyer again building a relationship and making sure that you can create a a win-win situation for all parties involved uh knowing that yeah getting a 100% cash up front is very rare unless you're high growth um there's always some kind of escrow or some kind of hold back for some reason shape or form uh to protect the buyer in some capacity so coming in with that expectation is I think crucial for a successful negotiation because yeah that you hit it all too on the the valuation aspect some many Founders like well VC paid you know $30 million valuation that's what we should sell for like nope you're not worth that much now to buy that's for sure well and I think we we want to move Founders away from this idea of like zero some game on pure on price being the only the only lever right um build that relationship with your buyer have conversations about what you actually want and what you actually value and there are so many different levers you can plug and Pull and tweak and and you know shove to come up with something that actually finds value and finds you know alignment on well okay I I think this is actually going to go really well and so if it does then maybe an earnout is is a component of it or I have some concerns about the viability of this specific I don't know Channel partner and so we can tie we can tie a portion of the compensation of the deal to the further existence of that channel partner oh I I want to still hold Equity okay well like that that's possible you want it to be preferred Equity where the principal's guaranteed you want it to be common Equity where the upside is perhaps more like there there are there are literally an infinite number of different things you can negotiate aside from just the sticker price of uh of the deal and um the other thing to mention and this is this is kind of Back to Basics a little bit but if you can believe it Jason I have the odd founder where um they've raised you know 2 million on a 12 million cap safe and they think oh well I I if if I sell for five million then my investors get 16 and two3 percentage of the five million it's like no guys uh your investors have liquidation preferences and they get their money back first before you get anything and maybe in the froy 2021 days you could saywell guys do you mind taking a haircut on this so I can get some like that's a lot less possible now when things are so tight and sort of every dollar of capital deployed matters in terms of the return these guys make um be mindful of that be mindful of that when you raise um I have seen so many Founders that went through YC with us build great businesses that probably could have been sold for5 or10 million but they raised five or 10 million and spent five or10 million to do it and are now in a position where their Equity is is basically like a mortgage underwater it was my my my ice cream stores all over again right uh so being really mindful one thing we did that was helpful just just to back it up a little bit um was we we I called it outcomes that was my Excel sheet and literally every couple of months I would say Okay Revenue multiple here here's what happens if we sell for 5 million 10 million 15 20 2530 and here's like debt and here's equity and here's investors and here's who converts and here's who does it and it was this rather detailed waterfall like statement knowing that and and and it honestly like I I think um was a bit of a motivator for us of of like breaking down this big goals like oh we want to get acquired for eight figures okay well how do we get acquired for eight figures we get to revenue of three four million okay and then the multiple is this right like that that was a very helpful exercise because it it's very daunting to say well how do I go get acquired VAR Figures it's it's a lot more digestible to say okay if I add $5,000 of Mr like I have for the last six months if I keep doing that for three years then eventually we get to a level where this multiple is is sort of more inevitable right um and so that that can be distracting right you can you can be sort of like thinking too small if if you are venture-backed if that's where you go but I don't know personally I found that stuff uh pretty valuable yeah I would agree and you as we come to to a close here on on the on the episode what would be some of the parting advice that you've already touched on a lot of tips what would be some of like The Parting advice for for a Founder that you know is sitting at that point maybe where you were at at hirey where you're growing you're just not growing fast enough to attract what you know as far as capital options and Venture you know what what should they consider how should they start evaluating and reflecting on their situation yeah I mean so if few things no number one I'd love it if they gave us a call right if if they ultimately decide uh you know that they want to get off the train we we acquire and operate uh what we call VC detox companies so if you've raised Venture but aren't necessarily feeling like you're up for the next three four five years of the journey uh we' we' love to have a chat but I think the subtext to that though is determine what you want out of your entrepreneurial journey and you get to Define what success looks like I would imagine like a lot of they are investors from hire me probably like was not a failure but it was you know 1X one and a half 2x for for some of them um you as the entrepreneur though like get to get to figure out like is a few million dollars in the bank like is is that success I mean I think for a lot of a lot of people that actually is so being aware of like there are other options than shutdown there are other options than Aqua hire there are other options than IPO right and just because everybody drinks the Kool-Aid of like raise raise raise like acquire acquire acquire IPO IPO IPO like there are so many other great transactions that can happen that like don't get the headlines and don't get the press and so we don't hear about them we don't talk about them but in fact are actually much more much more common um so figure out what what you want um I would imagine too just just to be kind of blunt about it like your age plays a bit of a factor um I don't know if I could do the IR me Journey again with like like young kids and with like a sort of higher standard of living that contributes to burn right like I think you you need to ask yourself the hard questions of like what do I want to be doing with my time and what is the opportunity cost of sticking around right I'll be honest I reset button did not work out but I would I would be sitting here had I not done that thinking man like oh what what if somebody ever did this right like what what what would what would happen so I think a lot of it is just looking at your situation figuring out what other what other irons you could you could throw in the fire and then honestly some good self-reflection of like am I the best person to be doing the next phase of this company's life we see a lot of Founders um that are brilliant technical people brilliant um sort of product folks and that can be a really effective way to launch and a really effective way to get your product out there but if you're not like building a sales machine that's often what is needed like 80 90% of the time most products cannot scale to millions of dollars in Revenue you purely on product L growth you you need to like actually build up a sales engine underneath this and maybe that right operator that right CEO is not you and maybe there is is a world where uh you know you can go and find somebody that can do that and by the way maybe there's a world like like sort of there was for me with Derek coming on board where getting the right person in place actually can contribute to better economics for you so maybe there's some cash now some more upside later there's a lot of different uh there's a lot more paths open I think than than folks realize well I think that's amazing partying advice for our audience today and for those of you that might be in that situation or maybe want to to talk to to Rob about your situation by all means reach out to him we'll put his contact information and you where to find him and uh on the LinkedIn and actually where can people find you Rob what would be the best way for for people to linkedin's linkedin's probably best um I'm just Rob Rob ateer ventures.com I will point out Jason we're not we're not like there's no reason to be pushy with with like we're not pushy at all um I just love these conversations I I do some teaching here and there and so I kind of count this as as part of my teaching at that uh that the schools um and so all this to say if you're in this position and you think you probably don't want to sell reach out anyway love to have a conversation on like you know what are your financing options I can talk about Venture debt which was another another thing we tapped into um love to just jam on what your options are and if if we're not one of them that's totally cool still love to chat and talk about you know where where things can Happ perfect very well said appreciate you you sharing that with everyone we'll be sure to include the contact information uh in the description below and Rob this is an amazing conversation hope Founders have taken a lot from it and hopefully you'll get some people reaching out once this goes live awesome thanks Jason appreciate the time and was uh fun to share the story appreciate it thank you thanks for listening to the show today we hope you learned something valuable and if you did be sure to let us know in the comments or by hitting that like button and if you're a Founder looking to raise Capital then join us at thunder. 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