Kettle & Fire Co-Founder Nick Mares On Scale, Financing, and Equity Negotiation

Foreign.

Welcome back to capitalism dot com. I'm Ryan Daniel Moran, and on today's episode, I'm going to share with you one of the talks from the most recent Capitalism conference. It was a talk and a Q and A with Nick Mares. He's the founder of Kettle and Fire. If you're a health nut, you know that brand, they were the first to market with bone broth. They made bone broth big. Their timing was on point, their product was on point, and they did a great job scaling this business. And he and his brother grew this business when they were teenagers and in their early twenties. Early twenties. What a holes, right? Anyway, Nick and his brother were so young as they were building this really successful brand that they also made a lot of mistakes on the way up. And one of the mistakes that they wish they had known how to navigate was how to fund the growth of something that was moving so fast. And when they were growing the business, they didn't have a lot of the resources that you have now. But also Nick went on to start a company that solved this problem. He started a company called Upside Financing, which provides financing options for e commerce brands so that other founders and owners could avoid some of the roadblocks that that Kettle and Fire went through as they were scaling. And you'll hear him touch on that quite a bit in this talk about the ways that they funded and the ways that they wish that they had funded. Now, the other thing that stands out in this episode is product market fit. So often we see brands come out of nowhere and go into the stratosphere while we are working on the sidelines on something, just trying to hustle and grind our way to the first million. And so much of success is timing. It's when the marketplace is ready for something. It is things outside of our control, like exposure into other markets and what the marketplace demands are, and sometimes luck and funding and people and relationships. It's all of these factors. It's all these factors that really make up product market fit. And Nick talks about one of the reasons why they were successful is because they were early in a trend. They, they did a great job on product and their timing was really strong. Now, you still have to build a great business in order to have this kind of success, but having that product really be perfect and have good timing and ensuring that the market size is big enough and creating great relationships, that is all part of the package. We recently did a class inside of the 1% called the perfect Product Formula. And it's about ensuring that your Product is a fit before you hit the market. Before you do all this work to launch your million dollar business or your eight figure exit, how do you know upfront that you're going to be successful? If you want to take that class, it's free. If you're a member of the 1%. So just hop into the 1%. Or if you're already a member, log into your dashboard and you'll see this class called the Perfect Product Formula. It will really help you ensure that you've got a winner before you launch. All right, enjoy this keynote from the Capitalism Conference from the Kettle and Fire co founder Nick Mares. Every once in a while you meet somebody kind of like AJ where it.

Feels like everything they touch just works out. And Nick started his, the business that.

He is famous for, Kettle and Fire bone broth.

Have you guys ever had Kettle and Fire?

Well, that business was started when he was just 19 years old. And when he was 19 went all in on Kettle and Fire. And he and his brother built this to a nine figure valuation. Today it's known pretty much around the world and the guy is only 25 years old and at 25 is already starting the next venture. And that next venture solves a major problem that many of you are facing, which is the financing of inventory and.

Creating net 30, 60, 90 terms for.

Entrepreneurs who are still scaling something great. And so at 25, he has accomplished more than most entrepreneurs do in their careers and is just starting a venture that will probably end up being even bigger than the first. So today he's gonna be sharing with us about that journey, about those holes in the entrepreneurial experience and what he has created in order to solve that and everything he's Learned Building a 9 for your company in his 20s. Please give it up for Nick Mar.

Appreciate it. Thank you. Hey guys. Nick Mayers, co founder of Kettle and Fire and now currently founder of Upside, which I'll get into much, much later, but figured it probably makes sense to start with my Kettle and Fire story. So seven years ago, I'm a senior in high school. I tear everything in my knee but my ACL and so went through reconstructive surgery. I had to spend three months in bed, nine months on crutches. Went from being really active to basically being and doing nothing. So I started to focus on what I was eating and got into the Paleo diet. And that was a niche community back in like 2013, 2014. And within a small community I came across an even smaller community which were talking about this product called Bone broth. I had no idea what it was, looked into its health benefits, immediately knew I wanted to incorporate it into my own recovery process. And when I couldn't find it in stores, couldn't find it online, my mom wouldn't make it for me. I decided that I was going to start a bone broth company and be my own and first consumer. So graduated high school and I still remember it was my school's proud announcement that 99.9% of students went to college and I was the one individual that didn't go to university and so started a bone broth company. Also I grew up in Schwanksville, Pennsylvania which gives you an idea of like the struggles I was going to have trying to start a bone broth company. Spent a year talking to 600 Co Packers. No one was interested. No surprise because we were asking them to tie up their line time for like four to six times longer than they normally do. And the ones that were interested in potentially working with me said okay, cool, what's your background? I said don't worry, I just graduated high school. Like okay, that is a little bit difficult for us to get past. Like where's the, where's the headquarters? I said, schwanksville, Pennsylvania, there's no way in hell we're going to work with you. And so basically took nine months, 600 no's and I thought I was not going to be able to start this bone broth company. First I didn't even think I was ever going to start a bone broth company. So it was probably self fulfilling. But then out of nowhere I read this guy Mark Cuban's book and in the front it says email me, I love hearing your thoughts. So I said okay, cool, I have nothing to lose. I've been told to fuck off 600 times. I'll shoot him in the email and maybe his assistant will read the email and get back to me. And turns out 15 minutes later I got a response and he literally connected me with the co packer that we still work with today. And so I said that doesn't happen too often. I'm willing to give this another year, another shot and see if I can actually make something of this bone broth company. I already told everyone I was going to start a bone broth company and they thought I was crazy for not going to college and they thought I was even crazier and even more of an idiot for trying to start a bone broth company as my reason for not going to college. So ended up starting kettle and Fire, originally called Bone Broths Company. So never come to me for any branding advice whatsoever because it's like naming a chocolate company chocolate company. And so after we bought our first production run and we sold through, I was like, okay, there's a real business here. We started on E Comm and from there we rebranded to Kettle on Fire. Everyone asked what the story behind Kettle on Fire is. It's an invoice of $40,000 to a branding agency. I didn't come up with it. We simply just coughed up the cash and thankfully we had a really good brand that we can stand behind today. So that started the journey for Kettle on Fire. And I always wanted to start my own company. Never knew what it was going to be, never thought it was going to be bone broth.

And.

And we just kind of found ourselves in this right place, right time where there was enough chatter in the online offline world about bone broth, health benefits, why and how you should incorporate into your recovery process, which is daily consumption habits, that we were able to catch a wave and we're the only ones kind of waiting in the waters. And it allowed for some really tremendous growth. So we were fortunate enough in our first year we had 3 million in revenue, all E comm. Second year we did 9 million in revenue, still all E Com. And then we got an email and it was a small region or a region of Whole Foods Marketplace. And the buyer saw us on Instagram, said, hey, we'd love to give you a shot in our stores, see if this can actually move off of shelves. And we were really, we like to joke, and I still like to joke, I can't afford my own product. We were really expensive in the early days, was like 1199 for a box this size. And the assumption was, if we can make money and get people to buy this as we scale and get it down to call it more price sensitive level, we'll be able to really hit critical mass and grow and scale into potentially something big. So we went on shelf at 999. We sold well enough where we then got another region off cycle and. And May 2017 was like the big tipping and turning point for the company because we got Whole Foods National. Whole Foods national is the first big domino. If you can just get them, everyone else has FOMO and they're willing to take you on. And so we were just really lucky that he reached out to us. We performed well enough and then Whole Foods national was the next thing that we were able to tackle. So that was the tipping point. We always was. Well, I shouldn't say we always. In the beginning days, we bought our barcode from buyabarcode.com and that does not work with Walmart. It's not worked with most big retailers. And that shows you what I thought the ceiling was going to be, which is this is going to make me some beer money to pay my way through university, which is why I'm calling it Bone Broths company and buying a barcode from buyabarcode.com so ended up that we had a rebrand rebarcode. A lot of shit that you don't want to do. So buy GS1 compliant barcodes, please. It'll save you plenty of time. And then we began our retail expansion and push that allowed us to go from 9 to 27 million. And then the following year we went into conventional. We did 38 last year we did 50. And this year we'll probably shake it around 60 and we're on track for 75, 80 next year. It was all not supposed to happen and yet we were really good at putting out fires. I like to joke that we literally did everything wrong and yet somehow it all worked out.

One thing that we couldn't seem to solve was this problem of we almost grew ourselves into bankruptcy twice. Which is the most ridiculous concept in my opinion. It's like CPG is literally the only vertical where you're penalized for identifying product market fit and trying to capitalize on the opportunity. And then you essentially give 30% of your company to an investor and they get to ride the train with you. And we had to do that twice. So we've raised up to $20 million in our rounds all to support and continue to support the growth numbers that we are experiencing. 20 or I should say 10 of that 20 went into inventory. Inventory builds. It's probably most inefficient use of capital you can possibly imagine. It materially hurts that I had to give up that much to just continue to grow. And so one thing that we were always trying to figure out was how can we solve this.

Cash conversion cycle that was horribly inefficient as you get into retail gets stretched to 45, 60, 80 days. And we played around with a bunch of different ideas. And so I figured my talk could be spent on telling you some of those things that we did and then also some of the things that with upside we have seen other brands do and then just quite frankly what we do at upside. So the first thing we did is your co Packer manufacturer is perfectly positioned and Best positioned to solve your working capital issues by getting payment terms with your co packer you can exist, thrive and grow within a negative cash conversion cycle. Co packers and manufacturers, if you have one, you probably hate them. I still hate my co packer. So you really have to kind of figure out a good way to partner and buddy up. And so one of the things if you are based in the US that you can do, and this is basically upside is this is what we do in the background, but I'll tell you so you can do it yourself is most manufacturers, they have AR insurance on your accounts receivable. And there's like three to four big insurance companies in the US that provide this kind of insurance. And so what that means is anytime you work with a co packer, they're taking your name, your business address, they're sending it to their insurance provider and they come back with basically a credit limit and yes or no, we will or won't cover them. The data that they're getting is from D and B which is the worst fucking database in the world. Kettle and Fire is still like three, four years behind in terms of data available. And so co packers are basically making a credit decision which is materially affecting your business and based off of the worst information possible. And so what you should do and what we've done in the past is treat your co packer manufacturer like a financial partner if you will, and you should literally send them data and what you should send them. So if you have it, 24 months of your monthly P and L, your monthly balance sheet, monthly cash flow statement, AP and ar. So these are the reports that have all or has all the data that these insurance companies need to re underwrite you. The company. So we literally, to give you an idea, went from $150,000 limit to 5 million simply because we provided the relevant information and data that our co packer needed to get comfortable that we were going to be insured and covered up to $5 million in the event of a default. So you can literally change like if your co packer is unwilling to give you credit or extended payment terms, see if they have insurance, if they don't, tell them to get insurance and if they say yes, literally ask them what your credit limit is. There are a lot of things that you can do to work with them and their insurance company to boost that up. One of the companies that I know and we work with, not upside, just like Advisor, they got net 120 payment terms from their co packer because they were able to Submit all the information and Data. They've raised $5 million to date. They're doing similar numbers to Casper and hims and he owns like 90, 95% of the company. He has literally been able to fund all of his growth and operations through net 120 payment terms. All that was possible because he knew his co backer had insurance. He knew the data that they needed in order to resubmit to their insurance provider to get this high credit limit. So that is one. If you are here in the stateside and then I know a lot of individuals manufacture overseas. If you manufacture with a Chinese company, there is a government backed insurance provider called Cynosure. Chinese manufacturers will not give you credit over anything that they are not covered for. So it's very similar thing that you want to do with your Chinese manufacturers is basically understand the credit limit, see what that is. And rather than I've seen basically co packers, if there's a 10 million limit and you're like 12 million or 2 million over for a total of 12, they'll cut you off, period. And like you owe us $12 million, we refuse to work with you. So understand your limit. If you're over be like, hey, we will pay the 2 million like day zero pre hitting the ports, but we still want credit, insurance and credit covered for the $10 million. Like this is a negotiation if you understand the data, the facts, like you can actually have a rather informed discussion with the co packers that they really understand and they are comfortable with because they're already paying the insurance company day zero. Like the way it works is you pay January 1st and it carries you through the next year. There's no penalty. They don't pay extra by acquiring new brands. Like they're paying day zero which means they have every incentive to use it to the absolute max. So you're not asking them to stick their neck out, pay an extra premium like they've already paid that day zero. So ask them to use it. So those are the two big ones in terms of manufacturing and ways that we've seen brands work with manufacturers both in state and out of state to support a breakout brand. I know that's the theme of this conference, which is why I'm kind of unpacking what we've done at Kettle and Fire, what we've advised other companies to do and then what we do at upside to support breakout brands without having to raise horribly dilutive equity and use that to funnel and fund inventory. And then another one that we've seen work incredibly well is I don't think I can use the brand's name. But basically they came to the table and they said we really want to partner up with their manufacturer in a massive way. And that looks like we're going to give you performance based warrants in the company that will hit based on of course, these predetermined clauses. And what they're able to do was get 0% inventory finance, they're able to get preferred time on the line. They gave up 20% of the company, which, yes, sounds like a shit ton because it is a shit ton. There's a lot of middle ground to explore between 0 and 20, for the record. But what it allowed him to do within two years, he's now $100 million business he's raising around at a quarter billion dollar valuation and the guy is going to own more of the company at a better and improved valuation because he was able to get these payment terms in with his co packer early on. It's actually something that Kettle and Fire is beginning to explore with our co packer because by basically we want to increase our EBITDA as much as possible. The majority of our tolling fee, or definition of tolling fee, I should say our cost of goods, 40% is captured in our tolling fee. And so if we are able to partner with our co packer, they get some sort of equity in the company. There's going to be a liquidity event in the near future, that's for sure. It's going to work out for them. We're able to capture an additional 40% that we can drive to our EBITDA and put ourselves in a much better position from when we do want to go and exit. So I would argue, or I would say based on experience and what I've recommended to companies, this works for really well. Established brands have been around for many, many years, you know, doing north of 50 and they want to position themselves in a more attractive manner pre liquidity event or it's great for the early brands like the buddy I was talking about where he had past experience. So there was this like he could go to a co packer, point the finger behind him and say, look, I've started two brands prior to this. The odds of me being able to rinse and repeat are pretty high. But I want to do it in a massive way. So why don't we partner up? You give me 0% inventory financing, preferred line time and let's go make this happen. So that allowed him to scale and grow to 100 million in revenue really fucking quickly. And then the last one that I'll quickly touch upon, it's worked well for us and it's worked well for a lot of the other brands that we've advised and worked with is literally give your co packer a forecast showing your expected volumes and revenues and say here is where we're going to experience our cash crunches. If you have a seasonal business, you know when you do promotions, you know when it's just tell them this is where we're going to experience our cash crunches. Manufacturers at the end of the day are a gross volume business. Anything they can do to drive additional volume through their manufacturing doors, they're pretty willing to do. And so if you can show that you just need net 60, 90 payment terms two to three times a year for like 30 to 60 days and that means that they will continue to receive these inventory purchase orders whereas they otherwise might not because you don't have access to the cash, you're unwilling to raise additional equity to fund these, this growth. They will most times do it. And so I've always seen like there's a lot of friction. There's continues to be friction at Kettle and Fire. In our co packer we're trying to pivot away from that mindset and it's more like they're your biggest partner, they can make and break you. So knowing that like partner up with them, get them to love you because they will be willing to literally essentially fund your business and growth by playing the role of a bank and offering you net 30, 60, 90 payment terms. So those are the four things that we've either done at Kettle and Fire. It's worked tremendously well. We've seen other companies do and it's worked tremendously well. And then we've also done it upside to just help brands better improve themselves from a supply chain cash conversion cycle standpoint. So that way they don't have to lean really heavily into equity, which is there's a place for it. But I would argue it's not to fund growth and inventory builds. So that is the Kettle and Fire story. How to support a breakout brand with a supply chain. And then upside is the next venture. And this is literally what we do. We partner with co packers, we turn them into banks for their brands, we capture like early pay discounts within the supply chain system and by doing that we can essentially finance and fund net 30, 60, 91, 20 payment terms for brands like 0 cost, no cost, 30 basis points for every 30 days, etc. And so that is the next venture that I'm working on. Just because I've seen way too many brands give up too much equity, lose control of the business, and instead of being something fun and they like aspirational and something they would love to do again, it's a terrible experience. They wouldn't do it again. And that is miserable. So that is Kettle and Fire and upside in a nutshell.

Poorly timed end.

Give it up one more time for Nick.

So I want to ask a couple things about this because what you're identifying is that when people raise money or when people take on debt, they're really, they're solving for one thing. And it's being able to have enough dry powder to be able to reinvest into the things that create growth. And what you, what, what you have found is unique ways to do that that allow you to keep more of the business and free up more of that cash flow to be able to reinvest. Right. So oftentimes we think that we have to do it the way that other people have done it. But something as simple as being able to negotiate based on knowing what your manufacturer's insurance policies are like, people don't think about that. So what got you to the point probably at Kettle and Fire to where like you had to get creative at being able to manage that?

Yeah, I would say as soon as our business began to shift from E comm to retail. I'm sure you guys will experience if you make that shift, no one pays you on time. And so it's, it can really stretch your cash conversion cycle and you expect to get paid on day 30 and then you get paid on day 94. And there's really not much you can do because these distributors are necessary evil, but they all fucking suck. But you have to work with them. And so that's when we needed this creativity from say a supply chain financing standpoint is when we went from pure e comic. We are already on net 30 payment terms with our co packer. We collect inventory, we sell it online, cash them in our bank that day or the next day, and then versus retail. They don't give you any forecast or visibility into what they will place or when they will place an order and to what size. So you need to build safety stocks. You're already increasing and stretching your cash conversion cycle. Then you sell it to the distributor. Takes seven days to get there. Take it takes three days to process. And as soon as it's processed they're like, okay, cool, now we can start the clock 30 days from now, I'll send you a check. I'll tell you, I sent a check. It's not in the mail. We'll resend it. And this is rinse and repeat until you hit day 80 to day 90. You're like, all right, guys, I can't really do this anymore. Can you pay me? And then they'll wire you the money. So it's a vicious cycle, but that's when we really needed to get creative, is when the majority of our business started to go into retail.

Tell me about the beginning days of Kettle and Fire. I mean, you're 19 when you start this thing, right? Yeah. And your brother is in his early to mid-20s. And you're going to a space that has, like, no data to suggest that this is going to be a trend. Right. You just went hard into the space and got liftoff very quickly. Why do you think that you had that fast lift off at the beginning?

So I think it was a function of right place, right time. I wish I could say that we did some sort of magic formula in the background that really we could point our finger to and say we grew it to this scale. But we just realized that there was chatter in the offline world or in the online world about bone broth. We saw some influencers chatting about it, and we figured that there might be a market for this. We thought the market was going to be tiny, hence why I assumed that it would be a great way for me to. To figure out what it's like to try and start a company.

You thought it was gonna be tiny?

Well, so I still remember telling one of my friends, moms, of all people, I was like, I genuinely think I can get this to $20,000 a month. And she's like, that'd be really cool, Nick. I was like, yeah, it would be cool. And then it just quickly escalated past.

What was that timeframe?

That was when I was still 18. 18, 19.

So you were 18 19. You're like, I'm gonna take this to $20,000 a month.

Oh, yeah, that was 2014. So we launched August 2015. I started working on it in earnest November 20th or October 2014. So there was like a nine month, ten month delay between when I really started working on it and when we were able to do first production run, hit the warehouse and get the first orders out.

There's something really freeing about the way that you're describing that, because, I mean.

This morning we hear from someone who.

Has a $600 million exit. Yesterday, we hear from somebody who has $100 million exit. And part of like the theme that.

Has been coming up is like I.

Need to think bigger. I need to, I need to believe in my full capabilities. And it's kind of refreshing to hear that you were, you, you followed the.

Same kind of strategy of I followed.

Something I was interested in.

I found product market fit but I.

Didn'T have lofty goals.

And that kind of gave you permission to swing, like to go up and take a crack at the bat. And if it didn't work out, you knew that you were just kind of figuring out the process of building a business. So for you it sounds like you had the mindset coming in of being willing to take a few swings. If this one didn't work out, it was the education time for you. You're gonna figure out how to own your own thing.

I mean I don't think any 18 year old kid dreams of being a bone broth entrepreneur. So I was definitely not unique in that. It was just a way to get my hands dirty and try to kind of put the reps in to understand and see what it's like to build a company. Like literally bone broth is you recycle bones, you put it in water with some vegetables and herbs and you cook it for 24 hours and you have bone broth. It can't get any unsexier than that. And so I figured that there must be something cooler and better that I can do later on post. Bone Brosko just ended up being a little bit of a longer timeline and more successful than I thought. So I'm not complaining.

Yeah, that's great.

How did you launch that? Because again like a new idea, it's a brand new category that you were getting into. So what was the launch plan behind that?

Yeah, so what we wanted to do, so we shopify website of course the Most basic website possible. 3 PL that was a Shopify partner back then. So again didn't introduce anything super complex because we wanted it to be as streamlined as possible. Again thinking that it was just going to be something that we could set up and almost forget about. So in the early days we wanted to try and get into bed with a few of the Paleo health wellness influencers who could submit it to their newsletter, drum up some interest and excitement around the first shelf stable grass fed beef bone broth on the market. And so we were able to get like Paleo hacks. I still remember was our first promo and that drove $40,000 in the first promotion. I remember like I was Like Shopify is either broken or they're messing with me because there's no way we're selling this amount. And then two weeks later, we sold out our first production run. So it was just kind of building on top of that momentum.

That was like your influencer before Influencers.

Exactly. Yeah.

And so were they a clickbank product?

Like mostly an email list? Their email list, yeah.

So they were not purely email.

Yeah, they were. They had a product they were selling. Scott was the founder. They did not have like a big. They're not social media people. They were an email list. It's like one of the most overlooked forms of distribution. People with blogs and email lists and followings that are not status driven. And most people are looking for like the person with the following that's posting about themselves. Like, that is. That's not influence, it's fame. Influence is when people have bought from you.

Yeah.

You can send an email to them and they will listen to you.

Yeah.

So we, we thrived off of that in the early days. And so what we did is we just captured the data and the sales that we're able to generate with this one email newsletter and then we just hit up everyone else like, hey, do you want to make some money off your newsletter? We just did it for, I think it was David at the time when we were working with Paleohacks. Yeah, we just did it for David. Made him like $30,000. How would you like to make 30 grand? And it worked pretty well. And that's really how we got the flywheel going. And then I will say the thing that really took us to the next level was in line with influencers. So Thrive Market launched around the same time as us. And I don't know if you guys are familiar with Thrive Market, but it's like a healthy online Costco. And they launched at the same time as us, the founders. We met in Austin at PaleoFX and really liked what we were doing. And so they were one of the first, first big customers and call it accounts that we were able to land. Thrive did something really unique in the early days, which Is they got 27 or 30 of the top health and wellness influencers in the Paleo health and wellness space. And they said, hey, invest in this round. You'll essentially be able to immediately influence your equity stake and value based on how frequently you promote your backlinks, all this stuff. And so that went incredibly well. And Thrive went on within two years to be doing like 10, 12 million in revenue a month. And we raised the seed round from 23 of those 27 same strategics with the same pitch as, like, hey, you can really directly influence your equity stake and value based on how frequently you promote us, like backlinks, and just how willing you are to collaborate with us in the early days. And that's what really allowed us to gain a pretty strong foothold within certain communities and also just begin to build a more broad customer base on top of that and then fuel our retail distribution.

Okay, so for those of you who are looking for the tactic to take home, there's something very beautiful to unpack.

Here, because I know the relation. I think you had one key relationship with John Durant in those early stages.

John.

John was the person who Wild Ventures. Yeah, he recruited a lot of these relationships. Right. But as a result of that relationship, you had two types of people now involved in the business. You had investors and you had people with audiences, and you had those people who are now.

Incentivized to see the brand grow.

Does this sound familiar to anything you've heard me preach to you over the last year and a half or so? This is the owner's model in action.

So you had somebody who was in charge of capital.

Yeah.

And that person, he mostly managed the raise, right?

Yeah, it was a syndicate, so it's Wild Ventures. I don't even know if they're still around. He's.

I saw him last week, actually.

Okay, cool.

They're still around, but he's not doing deals right now. He's.

That's right. He's writing a book.

Yeah.

Okay. So while Ventures, when they're back online, I do recommend.

But sounds like also the capitalism.com fund.

And the capitalism.com fund.

Yes.

So they had one person who was in charge of managing that process. And along with that came those with distribution. And they're now incentivized to share and talk about the brand. Like, this is influencer marketing.

Before it was cool to do influencer marketing.

So I wanted to highlight that because you were one of kind of the early people to be able to catch that trend. Right. But it's still just relationships with distribution.

Do you remember Sam saying, beginning of day one, it's distribution first. It's, where is the product going to be distributed? Where is the message going to be distributed?

So you are this little tiny startup until you found what your distribution play was going to be.

For some people, that's Amazon. For some people, that is Facebook distribution. With this, it was getting that seed.

Launch with those audiences. And I imagine you probably still have relationships with, with those audiences and those influencers today, correct?

Yeah, very much so.

Have they been happy with their return on investment?

Very much, yes.

And would you explain a little bit about that process of it's unique or.

At least you were early in a.

Time of an investor also having control over what their valuation would be because you have an influencer who's investing, they can now control their own valuation by how much they talk about it. So, so what did you see in that process?

I mean, I think for them there's definitely always ego involved and so play to their ego. It's like, wow, you have such an incredible audience. You can literally add millions of dollars to our valuation simply by you opening your mouth and talking and they really eat that message up. So player their ego and let them know that they can drive millions of dollars to any company that they invest in. So it was really that process, like, hey, we're going to be the only bone broth company right now. We are the only bone broth company right now. We're shelf stable so we can be omnichannel approach. Like we can reach your audience wherever and however they shop. Everyone else that came onto the scene a little bit later was frozen, which is a huge pain in the ass to ship the order. It's really expensive, can't recommend it whatsoever. And so we're like, we are just going to be found wherever your audience is and you can literally send them anywhere they'll buy from us. On top of that, we're still giving you literal cash back and money based on the promotions you're doing. And then you still get the second dip and the cherry on top of this is improving our equity valuation.

Yeah, is Mark Cuda in the room? Mark. Hey Mark. So Mark and I just collaborated on this together where there was an influencer who was just a slam dunk for what he wants to do.

And we know that, that that individual.

Can add millions of dollars to the valuation of the company.

And if you compare the equity valuation.

Once he is involved compared to what he would get from a traditional year long sponsorship deal from one of his advertisers, there's just no comparison. The the equity is worth far more now. It's a risk for that audience leader, it's a risk for them, but it has tremendous upside. And the downside is you help promote a product and a brand that you really believed in. And so it's wins all around. And you know that those influencers do not like doing sponsors and shoutouts. It's transactional. With their audience, they don't like it. They want a different model. And that is in my opinion, a much superior model for all parties involved.

Did you have certain people who were involved at the beginning that provided more exposure than others? Was this an 8020 like most things are?

Yeah, I would definitely say so. In the early days it was like Mark Sisson, Chris Kresters of the world.

There are a few that are going to be horribly offended. I forget their names, but they were definitely influential. There was probably of 23, 25, I would say, yeah, like a solid 5 to 8 drove the majority of the traction, the revenue, the exposure, et cetera. But it was still incredible getting like. I think the majority of the customers that we have right now, like a select few or select cohort, are definitely ordering, you know, like every single month they're on subscription. But I think the majority of our revenue is actually driven by these customers who are buying us like four times a year, five times a year. So even just capturing those that exist at the shorter end of the tail is highly, highly valuable to us. So it was luck, skill? I have no idea. It wasn't skill, it was luck.

But you obviously, I mean, you had some things fall your way at the beginning, right? And that can happen. You got the right influencer, you get the right distribution, you have the right product market fit, you have some tailwinds. That can happen at the beginning. It's hard to sustain that long term and have the types of, the type of success that your team has had without getting good at it. Right?

Yeah.

And as a 19, 20, 21 year old, making a shift from this was an idea I thought would make $20,000 a month to being a real company. That's a big pivot. So when it comes time to build team and infrastructure, it's a huge adjustment. How do you navigate that?

So one of my favorite stories of what we didn't do well, and to give you an idea of how chaotic it was, so this was probably in 2016, 12, 18 months after we launched, one of our early board members, investors called my brother and I. He's like, hey, do you guys like making money? I was like, haha, Brad, that's a funny question. Of course we do. It's like, okay, cool. I just had my accounting team look at your financials and tell me why there's $800,000 overdue by 90 days. And I looked at my brother, I was like, hey, are you invoicing our customers? He's like, no, are you invoicing our Customers. And I said, absolutely not. And so we literally, if anything, it actually made us bolder and brasher because, like, all right, we are now owed $800,000 that we didn't know and we didn't expect to hit the bank account. And we're still doing really well. So we immediately pivoted to a financial partner and team to help really make us and turn us into a real business. And the moral of that story is my brother and I didn't know what we were doing. And so we were quick to pivot and hire the right individuals who could take us from 0 to 1 in a sustainable, scalable manner and approach.

Okay, but when you're 22, 23, going out and building an executive team.

Yeah, it's weird.

It's weird. It is weird. Yeah. So tell me about that process.

Well, it's like most of them are the co pactors I was working with. It's like they had grandkids older than me. So I really play into the paternal, maternal approach. They just see me as their pseudo kid and played into that. They really liked the numbers, they really liked the product, and I promised them that I would not get in their way. And that really seemed to appeal to the idea of like, okay, we're not gonna have this problem of trying to fight with a founder. Seems like he's just gonna keep doing his thing and it's not gonna interfere with my thing. And so it was just making these promises that I genuinely meant to kept and I thankfully did keep. And they were just excited to get involved with the brand that was scaling quickly. We were beginning to move into retail. So they knew that they're going to get their hands dirty with managing like natural channel conventional brokers, unfi. I mean, just get the real experience of building and scaling a decently sized company. And so that pitch seemed to resonate. And of course, we were very fair with our equity and comp packages to make sure that the incentives were appropriately aligned. Appropriately early on in the days. And it all really worked out well.

So in the times that we've spent together, my perception of you is that you are remarkably emotionally intelligent for being 25. To be quite honest, I would expect a 25 year old who's had your success to be much more of a douche.

Thank you.

So is that a skill that you have had to learn or is that good upbringing? Where does that come from?

No, it's definitely a skill I had to learn. I mean, to give you an example, it's like you can become or Undo yourself.

When I was interviewing my cfo, so I was traveling the entire summer, and I was in Austin for, like, two nights. And so my friends were like, okay, cool, let's send it. And I said, yeah, I have an interview at 10am there's no way anything's gonna happen that's gonna make Me hungover at 10am I have the youth in me. I'll be able to recover quickly. I woke up to my brother calling me, basically saying, where the fuck are you? And it was 10:05. And so I quickly ubered and I met with my cfo, who's an incredible human and thankfully very forgiving and understanding. And as we left the meeting, my brother's like, you reek of alcohol. I was like, I know. I'm gonna go to bed so you can learn how to essentially grow into these roles. I was a super young just like, everything's going awesome. Everything is awesome. Can't do any wrong. There's plenty you can do wrong. And so it was just, like, surrounding myself with the right individuals. The right executive team has been an incredible learning experience. Completely different from three, four years ago. I think it's fortunately set me up in a better position to do round two in a much more professional manner. So it was definitely a learning process. Plenty of mistakes were made.

Was that an oh, shit moment for you?

No. The sad part is it was not.

Okay, tell me more.

Oh, no. It's just like, I should change at some point. And at some point, I did change.

What was the catalyst for that change?

I would say it was just like, as we begin to scale, you just see how incredibly professional everyone is, and you begin to realize that everyone in the room is an adult and you're the only one. Like, at one point someone said, hey, you're 22. It's totally fine to chalk this up to, like, youth and ignorance. And I think that was the changing point. I was like, no, fuck that. I really want to improve myself and consider. Be considered an adult in the room along with everyone else. And when mistakes are made, I don't want it to be attributed to youth and ignorance. And so I would say that was the turning point. So it's been a good journey.

How did you undo yourself.

So it was okay? It's not hard to tell if you're douche in all honesty. It's like, just look in the mirror and have conversations. So it was just having people hold me accountable, having these, like, honest, vulnerable conversations with execs, and they're like, hey, I realize I'VE not been acting as I would like to act, like here's what I don't want to happen moving forward and call me out my shit. And they would pull me aside like, hey man, that wasn't cool, I'm going to call you out, like here's what I think you did wrong, here's what you can improve. It was just surrounding. It's so cliche, but truly it's surrounding yourself with the the right individuals was an incredible learning experience for me and they held me accountable. So it was just building some sort of accountability system that was tremendously helpful. As I began to scale through Kettle and Fire, began to phase out and then launch Upside.

You are now making that transition from being heavily involved in your first success to going over to upfund.

What was the process of starting something.

Going to round two. By round two you just came off this big success. You obviously knew you were gonna do this differently. It's completely different business. Completely different business. So how did you approach going into something brand new in an industry you had.

No real expertise in, but you knew the problem that the customer was gonna have. So how do you think about that differently than when you were scaling Kettle and Fire?

So Upside is bucketed and tagged as fintech, which is very fortunate for us because you can start any fintech company right now and raise a shit ton of money off of.

Was. It was a different experience just because I feel like a first time founder simply because there's so much I don't know actually I didn't know anything about the space and so it's been quite the learning curve to try, try and climb.

It was really just about asking the right questions. So basically when I went to chat with customers, I essentially ranked them the list of like I would love to chat with this customer first but I realized I didn't have the right solution or the right questions to ask. So I basically reverse ranked ordered the list and I started from the bottom with the people I knew I could fuck up with and then basically ask stupid questions. They would tell me they were stupid or they just wouldn't give great answers and then I would iterate improve and then I would go to number 99 on the list and by the time I got to the individual that I wanted to be the first customer, be the first investor, I had my pitch down pat. I knew what I was talking about. I was actually able to go in with confidence and pitch be like we know this problem exists, we know the solution that we've brought to the table. Is really going to solve it in a unique scalable manner. And here's why you should invest, here's why you should work with us, except et cetera. And so getting the reps in with.

Investors, partners that I knew I could afford to essentially screw up either A, because I knew them personally and they would be more forgiving, or B, in the early days they wouldn't necessarily be the brand or the partner that would move the needle in a material way. And so by the time I got to those types, I was in a much better spot, better position to confidently pitch what we were doing.

Who is the ideal client and client customer for upfund?

So for our brands like our minimum requirements are six months operating history, $100,000 in lifetime revenue and two production runs purchased and sold through.

And that's small.

It's very small.

Yeah.

Well, no, no, if you get to 100k, it's huge. Congrats. It's like a big thing to do. So I will never. That's impressive.

People who are, who are providing financing are looking for a lot more history for sure.

So for us it's all about, it's a volumes game. And we find that we work incredibly well and pair incredibly well with brands that are doing half a million in revenue a year. They're experiencing some great month over month traction. They want to push off a series A or a seed round for another six months just so that they can really lean into top line revenue. And right now in this market like they're valuing top line revenue 3 to 5x. And so if you can get another 4 months and you can drive another 3, $4 million, you've materially increased your valuation. You can raise the same amount, but save yourself on the dilution. Anyone who pushes into retail, anyone who has big seasonality spikes, is a good fit where your cash outlay into inventory can be 2 to 3x times that when it traditionally is during the year. And so we fit really well into any brand that has to drastically increase the amount of capital that they tie up in inventory at any point in time in the business's life cycle.

Are you taking clients right now or are you guys still in? You are okay?

Yeah, we're out of stealth mode as of I think when we talked it.

Wasn'T going to be ready in time for the event.

So this is good. We got lucky with some of the hires in the early days.

Say again.

We got lucky with some really key hires that we were able to make in the early days and then we just Got fortunate with the type of investors that got involved with upside as well.

Yeah, and tell me about that process because, you know your first business, you partner with somebody to kind of help with the raise. This time you're raising it on your own experience and you're coming up with a valuation. What was that process like?

So it started out in February. Basically, I want to raise 2 to 3 million. Investors are saying, okay, cool, you can get like a $7 million valuation, $6 million valuation. Okay, that's not the most interesting, but I guess we'll work with it and we'll see if we can just froth the waters up a little bit and get investors excited. And I don't even necessarily remember the exact time. I have to take a step back and put pencil to paper. But what ended up happening is there's this one massive company. They're a supply chain finance company. They count like a couple hundred co packers as customers, couple thousand brands as customers. When I spoke to the founder, he's like, hey, I see an incredible opportunity to essentially do a JV or partner where we can create like new logy capital partnered with upside or powered by upside and you can access our existing pool of customers. As soon as I got that in an loi, I then took that to the investors. I said, look, their customer base is a 10 billion lending opportunity in and of itself. I didn't know these guys. Like here are the groups that I do know that we can tap into. So this is a 10 billion opportunity. The people I know, the groups I know, call it like 50 billion opportunity. So let's actually go back to the drawing board and increase the valuation. And then, I mean, it's, it's such a signals game. Then we got an investor who left PayPal, he's an executive there, started his own fund. When he decided that he wanted to get involved, then it's like everyone else has an intense case of fomo. So we were able to go from wanting to raise 2 million to end of July. We ended up raising 41 1/2 million, but most of it was in debt and our valuation more than like 20x. So it was a stupid process, but.

I don't get it.

But what you are saying in the subtext this is coming up as a theme for you is that a lot of this is a relationship game.

Very much so.

So.

When did relationships become a priority for you on your journey as an entrepreneur?

So I would say when I knew I was going to phase out of Kettle and Fire, which is probably a year Ago, I officially took a full step back as of July 1st. So I'm just board member, just advisor, no longer employed, nor do any day to day with them. I would say I knew I was gonna take a step back and do something else towards the end of 2020. And so I knew the brand that we had built, the relationships that we had built were incredibly powerful and unique. And I didn't necessarily wanna exit the company without making sure that I could leave. And those weren't Kettle and Fire relationships. They're like Nick Mayer's relationships. So I spent an entire year just literally taking every coffee meeting, asking every partner, like, hang out, dinner, drinks, coffee, etc. And I kind of seeded them with this idea of, I'm probably going to be leaving to do something else. I don't necessarily know what that is. I have a pretty vague, loose idea of what it will be. And Upside has been something that we've kicked the tires on for two years. So I was always mentioning that amongst a list of other things. So when I finally knew I was going to take a complete step back.

I was able to stay on until like, July. But March is when I really pivoted and became full time Upside. I just reached out to the partners and I said, hey, look, here's actually what we're doing. This is what the product is going to be. It'll probably exist in the format and way next, like six months, eight months, I hope. But would love to start putting our heads together to see how we might be able to partner, how you can send deals our way, how we can turn around and send deals your way and just really make this a win win. So I would say it was about a year ago, as soon as I had visibility, that I knew I was going to leave Kettle on Fire. I wanted to make sure I left on good terms, good relationships, because I knew I'd want to dip back into those for round two.

Is Corin Woodmass in the room?

He's right. Where? He's outside. I would. Yeah.

That's funny.

It doesn't matter. So Corin and I compared notes once about how every time we were going through a reset period or every time.

We were thinking about starting something new.

Or we were even like a downtime, because I got like, I'm just not sure what my next move is or what I'm going to do next in my current business. Both of us had the same exact process of we would make a list of 10 people in our network that we wanted to have a better relationship. With make that list, reach out to them, book a time with them and ask about them.

And we both, we both came to the conclusion that you never made it to the end of the list because.

New opportunities would open up or something would spark a new idea.

And so coming back to the relationship building side has always been my default when not knowing what to do. And it sounds like you just took an entire year of going a very similar process and you're like, I know I'm going to be doing something else. Not sure what that is. And that relationship leads to this relationship with these relationships, this and then sets you up for your next opportunity. Is that a fair summary?

Yep, very much so.

Great.

Exactly how it played out.

Well, perfect, Perfect. So I mean to put you on the spot, we've had brief conversations about upside and hopefully have a partnership with capitalism.com and I would really hope to.

Be able to bring what you are.

Doing to the crowd and to the capitalism.com audience and what we're doing in the incubator and the fund. Would you explain a little bit more about how that process works? About like I remember you telling me, like my brain exploded where it was. Somebody needs inventory financing. There's like a button and they hit the button and it connects to their bank.

Yeah, just like there we're gonna get there. As of now, we're still very much in V1, but that is 100% the goal and where we want to tell.

Me about the vision down the road.

So I mean one thing that we always realized is.

If you look at the entire supply chain of manufacturers, the raw materials, the brand, et cetera, co packers are just incredibly positioned to solve the working capital needs of all the brands they partner with. And there's some unique arbitrages that exist within the supply chain that if you know where they are and you have the capital to take advantage of them, you can actually get an unlock incredibly cheap cost of capital for everyone else further up the supply chain. And so what we do first and foremost is we partner with co packers and we look at the raw material partners and basically without fail all of them as just the default like cost. Doing business have these early pay discounts. And so we're essentially it's like early pay. Either you pay on day zero and you can knock 2, 2% off the invoice or you can pay 2% net 10. And so to give you an example, we're working with a brand right now where they're selling to Costco and we're able to capture this 2% discount and because we can make the majority of our margin within this 2%, we're giving them net 30 payment terms, it's net 60 and we're only charging them 60 basis points. And that's because when we add 102 plus 0.6 it's 2.6 and 4 it's 60 day float. It's still incredibly lucrative to us. We will do that deal all day long. And this brand is literally able to finance their entire Costco business at like a cost of capital of like 3.6%.

And so that's wild.

Exactly. And so what we realized is if we just started a business that viewed CO packers as like a unique entry point to access an incredibly captive audience, that is the brands that they work for, they have an incredibly rich pool of data which is the actual manufacturing logs, production history, not only on a company but their particular SKUs. And so you can actually break out the SKU list and rank them like I'll work with you on your top four SKUs but the bottom two we won't touch just because you're moving those every 110 days. Whereas the top four like you're consistently converting into cash every 45, 47 days. And so just by understanding the supply chain, understand what the critical control point is. Like co packer we're unsecured to all brands and the reason we're able to do that so we're complimentary to any existing capital partners is because if you don't pay your co packer they won't make more product for you. And so what we do is we just simply come onto the scene and we're like okay, let's put this in agreement and if we don't get paid and we're defaulted on you, the co packer don't manufacture additional goods like you wouldn't otherwise provide for this brand. And so the default rate in the space is like 75 basis points from brand to co packer because the last person you're gonna stiff is the person and partner who is solely responsible for your future growth and revenue.

That's right.

So just by understanding the entire supply chain we were able to just raise a bunch of money, turn these manufacturers into banks for their brands, unlock really cheap cost of capital for these brands because we know where we can find some of these, like pay early discounts and that's where we make the majority of our margin. If there aren't pay early discounts, we can still work with brands at 125, 150 basis points per every 30 days. So it's not contingent on pay early. But for us, that is the long term, scalable, exciting vision where brands can unlock cheap cost of capital without having to be massive company. Personal guarantees, lockbox reporting, covenants, minimum liquidity thresholds stuff I just, I hate as a founder.

This makes me so excited.

When I was early in my, in my journey, there was, I did Google SEO and affiliate marketing and all this old school stuff. And there was a period in which there was a Google algorithm update and.

Put a bunch of people out of business.

And the, the language is in the space was, oh, it's so much harder now, so much harder now to succeed in that space. And I thought that was interesting because this was like before WordPress and it was before Facebook ads and it was before like squeeze page builders existed and.

All these things started to create new.

Tools and all these new resources started to come about.

And so from my perspective, it was.

Like easier than ever. Like we had way more tools, way more efficiency. Like outsourcing was just becoming a thing. There were all these new tools that were becoming available. There was all this freed up resources for you to be able to build what you wanted. It was people who were like addicted to the old way of doing things that were getting put out of business.

And I see that happen in the brand space now too, where you have.

All this additional competition or Amazon is saturated or Facebook ad costs are going up.

And then meanwhile there's services that now will say like, oh, we can basically make your inventory finance a cinch and.

Plug it into spaces like ours where.

Entrepreneurs have never had those ideas. It's like.

I think if you're starting now, it's easier than if you had.

Started three years ago. If you started three years ago, you have a foothold in one area.

But if you're starting now, you have.

All these new resources that didn't exist before.

It just makes me very, very optimistic.

For what's coming next.

Thank you so much. I'm so excited for your next chapter. Thank you for being here.

Real, real quick.

If somebody wanted to reach out to you about upside, how would they do that?

Upside financing.com or nickupsidefinancing.com okay. Yeah, cool.

All right.

Thank you, sir.

Thank you.

Give it up one more time for Nick.

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