Excellerated Grocks #1 - Distinctions on Raising Capital with Domingo Silvas!

CEO of Accelerated hello everyone, my name is Dame DC Cordova and I am the CEO of Accelerated Business Schools, the Money and you'd program. And I'd like to welcome you to our Accelerated Groks series. In case you're wondering about the word groks, it's really, this is an old word from the 70s, a gentleman by the name of Robert Heilan, who wrote a wonderful book called Stranger in a Strange Land, put it on the map. And it really means to have a very in depth understanding of something, to get the essence of something. So in this particular series, we're going to be bringing you several masters through the next year as we prepare for the next Accelerated Business School for Entrepreneurs which will be held in Malaysia on November 15th through the 23rd. And we will be bringing you masterful people that will be teaching you different aspects of business. We're very excited today to have one of our past graduates, Domingo Silvas iii, who just attended the last school that happened in November. And one of the things that occurs in all of our accelerated classrooms is that people are really, they learn from each other, but there are certain distinctions that and business is so vast that sometimes we really have have to get on these wonderful mediums like hangouts and discuss and talk about different subjects. Raising capital is a very interesting subject and of course we couldn't have a better instructor. Not only a graduate of the program, but someone who is a serial entrepreneur. And I want to read a little bit about Domingo because he has an amazing background. He is a serial entrepreneur and is the CEO of Escape Artists International. That's a very interesting platform that you really want to check out. He's Chairman of the board of 11i Networks Inc. And besides being a very successful entrepreneur, he's a humanitarian, a supporter of good causes and he is a world traveler and a family man and a great friend to many. He specializes on capital strategies, startups and is an expansion expert. He provides companies with vision, strategic directions, including capital strategies. And he has raised over US $200 million in over eight years. So as a graduate of BSc and a future instructor of course of the school and of other programs that we put on, he has volunteered to share key distinctions that he has learned in the process of raising capital for his many ventures and supporting many around the world. I also know that there are people that are attending this series that are in non profitable organizations, in humanitarian organizations. And I truly believe that some of the distinctions that Domingo is going to share with you, you really can apply to different areas. So with not making you wait any longer. We'd like to go ahead and bring on Domingo Silvas. Domingo, where are you?

Can you hear me?

Yes, we can.

Perfect. Do you see my screen?

Yes, we can.

Perfect. Well, thank you, D.C. for that, for allowing me to be a part of this and share what I believe has been a life lesson of mine as being a serial entrepreneur. It's really been quite a road for me and you've been an amazing mentor of mine and I'm sure to many others. So one of the things I want to do first is thank you very much for the opportunity to share a little about one of my life lessons as an entrepreneur. So thank you very much.

You're welcome.

D.C. mentioned about putting this presentation together, and one of the things I found very interesting is that I asked for about eight hours, but we don't have eight hours. We have a lot shorter period of time. So I'm going to try to go over what I've learned and a lot of distinctions that I think that are important for any entrepreneur. If this is the first time that you're raising money, if you raised money before, if you raised money 10 years ago, if you raised money 20 years ago, or if you even raised money yesterday, there's some things I'm going to share that might make things a lot easier for you. And hopefully what I ask is that you keep an open mind. What I've learned as being an entrepreneur is that you have to be coachable, teachable, and you have to be willing to learn from masters, even if you're a master yourself. This is how you really elevate your learnings and what you. What you're going to experience throughout your career as an entrepreneur or any kind of organization. So part of. Part of my history I wanted to share is I am a serial entrepreneur. I have started over eight companies, and right now I am CEO of Escape Artist International with a website called escapeartist.com I do a lot of business internationally. I've done business in many countries. I've traveled to over 30 countries. I've lived in several other countries. And I've had a chance to really live the life as a global citizen. And so I look at everything from a global point of view. So for everyone who's watching overseas and everyone who's watching from the US or anywhere you're at, what I'm about to share with you is vital, no matter where you're at. What I find is that these are universal principles that can be applied to almost any business and applied to Any idea or thought that you may have. And so I do want to share that if you got a pen and paper, if you got an iPad or a way for you to take some notes down, this is the great time to do it. This will give you a chance to hopefully pick up those little nuggets, those little distinctions that will make a difference for you. We live in a very exciting world. The I believe the global view of any entrepreneur is a lot easier than it was 10 years ago, even two years ago. There is a lot of global citizenships going along, global expansion on companies. A lot of companies that are starting up are basically starting from very remote and distinct areas. There's a lot of companies that are getting funded from countries that you would have never thought $20 million would go into. So I share this with you because it's the mindset that you must have and understand about raising money and about the vision you have for your business. As cesarean entrepreneur, we know that we're passionate about our passion and what we're trying to build and what we're trying to grow. A lot of that's going to come out when you go out and raise capital. A lot of that is the language you're going to be using to go out and fund the company that you're looking to get funded, the vision that you want to become real and the success that you've always envisioned when you created it. And everybody's success is raised on different levels, but it's very much achievable. I've also a little bit about my background. You know, as I started, you know, I started over eight companies. I've. I've had my first company, you know, as an, as an idea came to me on a napkin and I was able to grow it out to $30 million over three to four year period. And I didn't do that alone. I did that working with a lot of masters. I went out there as a startup and asked people for money and realized they just weren't going to hand it to me. There is certain things that you must have, certain structures or knowledge that you must have. You can be the sweetest guy in the world, you can be the most beautiful woman in the world. And chances are you're going to get turned down when it comes to someone writing a check for $25,000 or even $5,000, definitely for 20 million. So what I'm going to share with you tonight is distinctions that helped hundreds of companies over the last 10 years that I've been sharing on how to raise capital as a capital strategist, raise money from the moment that they started implementing a lot of this in their company. So we're going to go ahead and get started here. I've excited that. I'm excited to share that a big part of my history and what has allowed me to grow is being a part of an organization that I was able to learn from Master. So I'll share with you that I'm first a graduate of Money and you'd I went to Malaysia in 2012 and just an exciting experience, an amazing experience. If you want to go to an organization that has a global point of view, it is a very fascinating place to go. Malaysia, it's just exciting. But money and you brought a really global view. There was over 100 people there from 20 different countries and it was interesting to learn everything about different cultures. I also had a chance to go to Business School, BSc in 2013 as DC mentioned in Malaysia as well. And that was another fascinating experience that I've had to learn from Masters. So I definitely recommend it. So let's go ahead and jump right in here. I broke this down into almost two phases, but you're going to hear different points of views when it comes to it. The first part, which I think is critical and vital for you to understand as an entrepreneur, is the business plan or model that you plan to go with. It's what starts your idea, it's what your passion is. This is very critical and I'm going to share with you some steps that make sure that you fully understand what needs to be in a business plan or in a model. I'm not going to teach you how to write a business plan. Tonight I'm going to share with you some distinctions on why this part is important as you go speak to investors and because investor language is so critical in what you say. They're out there, they're well educated, they know what they're looking for and you got to be prepared to share it with them. So it takes as much energy to wish as it does to plan. I love that quote and I'm going to start off with that. The very first part I'm going to bring up is the idea and the brand. The one thing that just really stood out for you, they said, you know, the world needs this, this is something we can grow with, this is something we want to do. This is something I'm passionate about. If being a life coach or starting a non profit or starting a technology, I want to create an app. Whatever that idea is, is Something definitely that was given to you. It's a special gift. It's something that you definitely can take and really run with. You are special. And for that reason and every idea, it's up to you to really take it upon, take it further. But 3% of a business is the idea and the 97% is execution. So it's almost as. It's easy to come up with an idea, sort of, but it's really executing. That's very important. But also you have to understand that ideas change, they grow and they evolve. So if you think, if your idea was to create a red bike, it may be that the market demands a blue one. So you have to be prepared to grow and evolve. As an entrepreneur, you also want to make sure that when you establish your idea and you establish your brand, that it is distinguished between you and your competitors. I have actually three examples up here. And you know, the moment you see these three, you know what brand they are. You know that these are global brands because they've done a really good job identifying themselves through their brands. They understand how it looks, they let you know how it makes you. They know how it makes you feel and how you're going to execute as a customer. So taking your idea and making it identifiable as a brand to your customer, to your market is critical. So make sure that when you think about your idea and you think about your brand, we live in a world where you can't get a lot of too many dot com names that are three or four letters long. But you have to be very, very distinctive when it comes to your brand. Make sure you think it out and really seek the masters to understand that that's going to be a big part for people to understand what you're representing and what you're. The next part that I think is critical is once you establish the idea and the brand is the market. Now, I share this screen with you because a lot of most entrepreneurs don't think this far. What I've seen a lot of times when we go to an investor and says, hey, I need $20 million and they said, what do you need it for? What kind of market you in? Well, I got a billion dollar market. It's a five billion dollar market. And I can't tell you how many times doors have been shut to potential entrepreneurs with some great ideas because they say it's a big market. You truly need to understand your market from a worldwide perspective in a US market or your local market, wherever that may be. So understanding your tam, your SAM and your SOM is critical to your business. So the TAM is your total addressable market. And this total addressable market is your total available or addressable market. Everyone that you wish to reach with your product, that's your tam. So that's the larger. So here I brought an example on the screen. 400 million across 54 surveyed countries. It's a large, you know, there's 3 million babies, there is 1 million this, there's 10 million of that, whatever. The largest number is a potential C. And you have to justify this, you have to be able to go and say, here's my sources. As you can see in the example, they're sourced by where you got it. You want to be able to say, here it is, this is exactly where I got it from. I did the research. And then we talk about the sam, the service addressable market. We want to be able to. This is the segmented addressable market, the portion that you will target. So this is the portion of the total addressable market you're going to market to. This is who you're targeting. In the example that's on the screen right now, you have 100 million new businesses launch annually. This is an example for entrepreneurs, global entrepreneurs. So 400 million is your TAM. 100 million are launched annually around the world. So that's your SAM. Now, when it comes to your SOM, this is your service obtainable market. This is the market share that you know, that you can reach realistically within the first few years of your business. So we know that 15 million entrepreneurs are technical companies and we sourced it out of LinkedIn. Why is this important? Because investors today know exactly. They're not going to go with. They know exactly what they want. They're not going to go with the idea that I have a three billion dollar idea, well, this is going to make me 20 million dollars. That doesn't work anymore. They want to know that you understand your market, you know the demographics that your market makes up, you know exactly what your product and you've done the research to be able to present this. And it doesn't really take too much work, but it's definitely something that's vital. And in order for you to continue with the capital language, the next part, which I see very few companies actually do. So I talked about the tam, the SAM, and the somme, but believe it or not, this is something that I think is a critical part as well. Creating the Persona of who your customer is. So telling the investor, this is the person who's going to buy from us that tells the investor that, wow, not only do they understand their total addressable market and their service addressable market, but they understand who their customer is. You can do this in many ways by doing surveys, putting out 30 surveys with 10 questions and then taking those questions and then asking a series of questions to 30 more people that you don't know, people who you think will actually target your target market. Now, this will help you in many ways, this will help you determine who your market is and what your product is. But most companies that actually present Personas to investors really blow them away because they don't see this very often. They get a chance to see, wow, this person really understands their customer. And normally you would present about eight Personas. The businessman, the mother at home, the kids in school, whoever it may be, or whatever. Whichever Persona you want to show for your business is very, very critical. So definitely take the time. And this doesn't take much time. You can go to survey monkey, create a survey, and next thing you know, you've got your survey going. And it's very, I'm telling you, it's a awakening moment for you as you realize that your idea very much may need to grow and change because you didn't see what your market really wanted. So this is a big part. It helps you identify their buying power, their income range, and a few other things that are out there now. Another big part that I think about your market, make sure that you research your market as it says on the screen here. Make sure you use social media for social proof and validation, and make sure you identify what you want, what your network wants, and the habits. Now, a big, big part of what I share with people is when you want to create a community. You don't start building the hundred homes, you don't start building the Walmart without building the homes. You have to build a minimal viable product. What I mean by this is create a product based on the surveys that they have given you, that based on the product and idea in the market, the brand and the Personas, create a minimal viable product that you're able to launch and test in the marketplace to make sure that this is exactly what the market wants. So don't go out and spend $100,000 building an amazing product. And I'm sure it's an amazing product. When you come to find out what the market really wanted was something that could have cost you $20,000, money is everything. I'm going to share with you a little bit later on how it can actually cost your company by poorly executing a Capital strategy. But this is a very big part. Minimal viable product. This is something that's kind of nice because with the minimal viable product, using the Personas, putting up a website with a few pages, if it is a web page or even it's a non profit and you're able to show that, hey, we built a house over here in this country, we fed 100 kids over here and this is how it's going to work. That's a minimal viable product. It doesn't actually have to be a product that you hold in your hand. It just has to be a test bed that this does work. Prove to the investors that their money is going into a business model that you've tested and that is very critical to understanding the entire bet. So make sure you validate it, make sure you use social proof to take it in the next place. And like I shared with you earlier, if you get a chance and you want to really understand global markets, go to bse2014.com this is where I was able to really, and I mentioned this earlier when I went to Money and you'd. When I went to BSE over in Malaysia, I was able to really understand more cultures because everyone who attended those courses, they were from 14 to 18 different countries. I was able to do market research right then and there and really learn from the leaders of those countries on exactly what marketplace is out there. And it will actually very, very much open up your eyes and your ability to understand. And you can actually test your MVP there as well with some amazing masters that are there that talk about planning and execution and sales and everything else. But this is a big part. I hope you understand what I'm sharing with you are things that you probably would do anyways in your business. But by putting a package like this together and presenting it to an investor, you're showing them that you're not someone who's new to this, you're someone who's actually educated themselves and put something marketable together and you know what you're doing. It's all about commanding the room. And I'll share a little bit more about that a little bit later. But definitely, definitely take that to heart on everything I share with you here. I'm going to keep going here. Next part of the business model that I think is critical is the team. Now you know, everyone will tell you different things about the team. I will tell you that you as the entrepreneur and the person with the idea may not be the smartest one on the team. You may not be the One that is going to bring this home. The one that's going to make it a 20 million, 50 million, 100 million billion dollar company. It very much may be that you are the idea person and you're going to have to hire that CEO or that CFO, that CDO, and all the Cs that you want to hire. Keep in mind that together as a team, you always want to hire someone smarter than you. And you want to be able to learn from someone. You want to be able to reward them with time. You want to be able to give them options and participate. But the team does more than that for you. The team actually makes you look good. When you present to an investor and you put them and say, who's your team here? And I see that you, your investor saying, I see that you're educated and I know that this is your idea and I see your background validates this, but that doesn't prove to me that you can build a business. Who's your cfo? Oh, I see he has public knowledge how to take a company public. I see he's been a CFO for 20 years. Okay. I feel comfortable about that. Who's your product designer or who's your nonprofit executive director who's been running nonprofits for years? You know, your team is very critical to make you look good. So don't let it go to your head that you're there to help them. They're actually there to help you. They're filling in places that you may not be aware of or have experience on doing. So keep that in mind. But I bring this up because your team is a critical part for investors to come in. Now, you'll hear this a lot. 80% of the time, I didn't invest in the team. I invested in you. I invested in you. I gave you the money because I believe in you. And trust me, this will happen to everyone. This happens, somebody will give you money. But you need to understand that's all great, but you have a responsibility to that investor and your team has a responsibility as well. So make sure you fully understand what you need, who you need on your team, and make sure that you have an advisory team that can advise you. One of the things that they look at is if you don't have the knowledge and no one on your team has the knowledge, who do you have on your advisory team that's going to help you through this? And that's always critical. So if you want to take something public, you know, having two people on your advisory team, that's Taking companies public is critical. Making sure you have that knowledge. So you want to take a step back, take a look at your idea, take a look at the business. And you would really go far from this by executing and having an amazing team with you. And I always believe that together everyone achieves mastery. That's your team. Together you're masters and you really take things to the next level and it really goes pretty far for you. So just to recap on this, the important part, understand your ability. Understand that you may not be the one that runs it, or you may be the one that takes it for the first three years and moves on and takes the chairman of the board position while you bring on somebody who can execute the next phases of your company. Identify that and you want to communicate if that is part of your plan, communicate that to your investor. But make sure that they fully understand who you are. They make sure, fully understand that you're capable of taking it for the next three years and stand strong. Command the room. I always say this, command the room. When you walk in, no matter what you call command the room, you're the master. You're the one sitting in the chair. You're the one calling the shots. And they have to see that, otherwise they will be calling the shots. And that's not a position you want to be in. And that's a position I have been in and I will never do that again, I'll tell you that. So learn from my mistakes. Definitely command the room. Make sure you command the position that you're in and you build the team around you and build the team as you need it. Don't hire someone that you don't need right now. Be very careful on the finances that you will incur because those fixed costs will actually end up hurting you in the long run. So I'll explain a little bit more about the finance portion of this. On the finance, you want to keep an eye on your dollars. You want to keep an eye on your variable costs and your fixed costs. Investors want to know that you understand that you want more variable cost than you want fixed costs. For example, you're not going to go out and buy a farmer servers because you're going to build a website. No, you're going to go and host it on GoDaddy on a two dollar plan and then the next plan and then the next plan will be. The next plan will be for you to get the $5 plan and then the $10 plan. So I think it's very critical that you understand finance. You're going to show them a one to three year financial plan, financial model. Get a CFO to do this for you, fully understand it, make sure you take a look at it and he can break it down with you. But there will be a lot of times that person will not go to the investor presentation with you. You're on your own, you're going to go there. And a lot of these investors want to know what's their roi. And it's critical that you fully understand what you're about to tell them because many times you can promise, you can promise something you can't deliver and you get yourself in trouble. So fully understand that what your variable cost is, keep your fixed costs low, work more with your variable costs and pay as you build. So and that's the same thing with your team and that's what I was talking about before. Don't bring on someone on board that's going to cost you money that you don't have to cover. You are given money in tranches, you're given money part of your capital strategy. I'll get in shortly and before you know it you'll have given more of way of the company than you really needed to. And the idea is to not let you do that. And I'll share with you a story in a minute about that because one of the times I raised money I was able to really provide a valuation and build a solid. I've used this model I'm sharing with you now to start with a $10 million company, raise a million dollars and give away 10%. But you have to build this out. It's not just paper, it's not just idea, it's execution. You have to get a lot of this done. So I'll share with you a little bit more about that. But I want you to fully understand this really this is very, very critical, very, very important for you to fully understand. The strategic growth part of your plan is something that you have to have in order for you to fully understand and be willing to pivot when you need to. So be willing to understand what your business needs. I talked to you about the minimal viable product and making sure that that product and what your surveys and what your markets telling you what you're going to do and validate it. You know, so you're going to need to say wow, that's our market is crying for this. We know there's a market for that. I need to know that I can change my model, I need to validate it, I need to take it to the next level. And your team is going to do that. And you have the financial model that's going to support it. You have the market, you have all the knowledge. If you can see, you have the idea of the brand. Everything I shared with you helps you with a strategic growth. So showing a three year strategic growth to the investors are critical for them to fully understand that you know what you're going to do in the next three months, you know what you can execute over the next first year, and what does the third year actually look like? Strategic growth is a big part because that's where they see their ROI from. And they want to know that you have that fully under control. And they know that sometimes you will have to pivot, sometimes you will have to change your business model. But they want to know that you have the team on board to execute. It's all by execution. I started a business with one idea at the end of the day and never had that idea any longer. It grew to something else. It happens, it really does. But as long as you're providing the ROI to the investors, they're on board with you. If you don't pivot and you go down the road and they know, they see that no one's going to ever buy that blue bike anymore because they want red. But you keep building that blue bike. That's where investors really start stepping in and you really don't want them really on your back. So keep that in mind. Strategic growth, be able to pivot, be willing to validate, know your business model, research it, work with your team and really get in front of those investors and talk this language. Your cycle will either go public with revenues or, well, we'll take a look at filing an S1 and all the other language that you learn about exit strategy or going public. And number three is going to be acquisition. Either we're going to acquire a company to grow or a company is going to come along and acquire us. I can tell you right now 20. What's the number now? I think it's 50 companies a month get acquired in Silicon Valley. So there's a lot of, lot of acquisitions going on in today's world. So do your research. Silicon Valley in San Francisco, California. There are companies that start up a year ago, they come up with an idea, they raise their first round of funds a million dollars, they grow the app, two years later they're bought out by one of the large firms there's. And they get bought out for 20, 25 million dollars. And that's not a bad return. For two years worth of work. And there's different places. So there's New York, there's the different hubs, London. Know exactly where your business is, know where the location is at, know where your exit strategy is going to be located, and make sure you build a strategy around it. Because the investors, this is all part of investor language. They want to know exactly what you're bringing up, what you're talking about, where you're going with it, what's my roi, When's the return? If it takes. You say it's going to happen three years and takes five. As long as you're moving forward and you're growing and you're doing and you're communicating with them, they're going to be okay with that because they know their roi, but they understand the risk. I'll make that very clear. Investors understand the risk. They know that there's no such thing as a done deal, that it's a perfect deal, that, oh, I see this, and it's going to make me millions, trust me. They've invested in 20 other companies. One out of 10, one out of 20 will actually make it big. Five will make it someone, they'll make some return and then they lose the rest of the money on somewhere else. It happens. An educated investor understands the risk and they understand this, but they also play the game and they know. They know that if the CEO, the founder, comes to me and presents it and talks about everything I just shared about the business plan and model, they know that there's less of a chance that it's going to go under and that you fully understand you're going to take care of their money. You fully understand your market, your business, and it's going to be amazing. So understand that. So exit strategy is part, the last part of the business model component. But the business model is actually very critical. And I know I spent some time in explaining this, but it's very important as we move on to number two, the capital strategy, this is where you start seeing where I don't use pictures anymore. This is where it gets pretty serious. These are just words in the next few slides. Capital strategy is so critical. It's so critical. If you think you're going to go out and raise $30,000 and that's all the money you need, be prepared for another raise. Be prepared to go out and raise more money. If you go out and you start a business and you value it at $100,000, as an example, you go out and take an investor at $30,000 for 30% of your company. And this is what a lot of startups do. This is a lot of first time entrepreneurs do. You just gave away 30% your company and now you have 70% left and you said, okay, I'm still in control, something happens, 30,000 wasn't enough, you need another 30,000. Next thing you know, you go out, you raise another 30,000 and now the chunks go a little bit smaller, but the valuation really doesn't go much because you didn't do much with it because of many reasons. Next thing you know, you find yourself, you no longer the master of your domain, you're no longer the one in control. Capital strategy is important for you to fully execute and understand. Understand and execute. What I mean by that is understand that there may be three rounds, there may be five rounds. The valuation of your company is critical in how much you're going to raise and raise it in tranches. You don't have to raise it all at once. If you only need 10,000, if you only need a million dollars, take the million dollars, but make sure you fully understand that your first valuation at $10 million, let's say, let's use a million dollars, let's say your company is valuated at a million dollars and your first tranche of money is 100,000. And you know that you can build a very good portion of minimal viable product, get into revenue, build your team, establish a market, establish a brand. And you know that's going to work. And you know next time you go out, raise money, you're going to raise that 2 million, then raise only 100,000, give away 10% your company, do not go out, say, well, it'd be better if we had 250 and give away 25% your company the first round. Because now you come out, you get to the same place you were before you were 2 million. But now instead of giving away 10% of your company, you give out 25%. You want to be very careful, do it in tranches, fully understand there's going to be more than one round, be conservative, understand your fixed costs, understand your variable cost, and understand that capital strategy is a very big component of it. Understanding your valuation, understanding you can stand behind your valuations is critical. So when it comes to understanding exactly what you need, make sure you fully understand that this is what I need to execute the very first six months. And this is what's going to take. It's going to take the company for 1 million to a 2.2 million valuation. At that point I'll go out raise $220,000 at 2.2, give it away another 10%. And then from that point, I know the company will be worth $5 million. At that point, I'll go raise another hundred thousand dollars. But now I'm giving away a very small percentage of my company. So plan it right, execute it right, build the right team, and you'll be in the right place. Watch your dollars, watch your, watch where you're going to go and watch how you're going to spend it, because that's going to be very, very critical. The next one is investors, friends and family are always great to have. They're going to be the one of the first ones to come and help you. They're the ones that are easier. It's more of I believe in you, hey, let me give you a try. But they also can be the ones that say no to you. So as much as I have to say, friends and family are great, but they could be the ones that actually give you the first five or $10,000 to start the business. Make sure that you understand when it comes to friends and family that you treat them the same as any investor just because they're your mom and dad. This is a great time for you to learn your language, get a new set of respect from them because, wow, I really never saw this part of you. You really truly understand this business. Instead of saying, hey mom, give me $10,000, I think I got an idea here. Present it right. This is a great time to present. And if they're really impressed with it, chances are other people will be too. So use this time to really go out, get your first tranche, a little bit of money, but treat them with respect as an investor. Take their money and fully. It's a great lesson for you to take their money, have them fill out the documents that need to fill out and treat their money as an investor and talk to them as an investor and report to them as you would any other investor as you go out and raise money. And that's, I think, very, very critical. The next one is really dumb money versus smart money, experienced versus amateurish and thought leaders. This is where your next step is going to be. When you go from your friends and family, you're going to go and determine what should I do? Should I get dumb money or smart money? What I mean is dumb money is actually going to someone who really doesn't understand what you're doing. They just have a lot of money and they really don't know what they're giving it to. You for and why they're giving it to you. But hey, here's 100 grand, good luck and I hope I make something out of it. You know, that's just to me, simple money really is simple money. And you'll find some investors out there, they'll do that. Smart money, it's a little bit different. These are people who are knowledgeable in the industry or space that you're in. They know where you go, they know what you're going to do. They know that if you're going to try to get a Walmart and they tried the owner company that tried to get in Walmart three years ago, it's going to be very difficult. Chances are they're going to say, you don't need 100 grand, you need 200 grand, because that's how much it costs me. That's smart money. That's part of the experience versus amateur. So taking an experienced person, someone who understands startups, understands the risk and can be a very important thought leader for you, that's great. These are little distinctions you have to understand. Do you want experience, do you want amateur? Do you want smart money? You want dumb money? It's really completely up to you. But understand, 25,000 is 25,000. But there's a big difference between an experienced investor who's on board with you and an amateur one. There's a difference between having smart money or any other kind of money. It's gonna. Money is money, but time is not. So if you have to spend more time educating your investors because they're not aware of what your market is, you're that $25,000 may cost you 25,000 to manage this, that one person. So really think about who do you want on board with your company? Because they're going to be there, they're going to have every right to know what's going on, watch what you're doing and question what you're doing. If you think you can take money and not communicate, you might as well get that out of your mind. So really think about it. On who do you have on board and who do you want and who you may want to target? You'll be surprised that you may run into a thought leader and say, bring them on board as an advisor into the company. Then that advisor, as they see the company grows, becomes one of your largest investors. They may just whip out the money and say, I like where you're going. I want to be a part of this company. Here's $3 million. I see the risk, I see where you're going, here's the money you need. Let's build this together. And that is always the best scenario, because then you got a chance to know them, and they got a chance to know you. And it reduces the amount of issues that you will have. And I think that's very critical. And I think it's. It happens. It really does. So take a look at the advisory board. Those are very vital. If you can get the right people to come on board, you'll be surprised at how much value they end up bringing to you. Board of directors are also a very critical part. You may control a company, but the board is your boss. The board is the boss of the CEO. So when you. And this goes in for any case, nonprofits or profits, a board actually runs a company. And you have to have that mentality. Don't think you can stand up, say, well, I own a majority share of this company. I want to do what I want to do. No, because those boards and investors are most likely placed. Some of them are placed there by the investors. And if you just cause a big issue. So you want to start out with three to start with, eventually it will be you, the CFO and a neutral person. And then you'll grow it to five as you start bringing investors on board. And that may be a requirement that they may want, depending on which round they come in. So you may find out of five, there'll be two investors, and you have a neutral person that's agreeable between you, the CFO and the investors. And you want to make sure you understand about board governance, what you can do and can't do. The bylaws of the company are very critical. It's the laws of the company on how everything is going to perform and how you're going to manage the company. So you get an attorney, make sure they know the language, make sure you understand the language, and make sure that if you're going to be the chairman of the board, you know exactly what's going on and you understand the rules. Because one of the things that really can hurt you is not understanding how to manage and operate a board. And that, to me, is a very critical part. As you grow in this company, as you grow your company, as you grow your business. So knowing the board governance, understanding the laws of the business, understanding who your board members are, are key. Now, here's the big distinction on this one. Board members most likely are investors. If not, they're the ones that can help you go out and raise more money. So don't Just pick somebody because they're your brother, your sister, your cousin. If you get a chance to go and get Mark Zuckerberg on your board, chances are that he's gonna be able to find somebody to put more money in a company as you decide to grow. These are very, very important people. Part of your life. Make sure you understand that. One is a financial director, one's a growth sales director, whatever you need. These are people that are visible and people who have a name that can help you throughout your growth of your business. And you have to reward them for being on the board. There's option pool in the company, so they get 10,000 options or they get, you know, they get paid $50,000. Whatever it is, most likely you're going to pay the board completely separate from anything else and or reward them for their service and you're going to limit their service for one to two years. You don't want to make sure that there is a limit of service because obviously when someone's not performing, you want to be able to get them out. So keep these in mind. But the board of directors is also another thing that investors look at to see, oh, everybody on the board here has going public knowledge, all right, there's a good chance we're going public here. They all speaks language. Trust me, they won't say much to you. They'll investigate and they'll know. Investors are very much. They understand exactly. Especially the savvy ones understand exactly what they're getting into. The next part, and we're getting. We're getting close to the end here. The next part is the investment vehicle. There's different vehicles that you can use to take investments in. The more common ones are loans where you're able to just say, look, just let me borrow 10, 20, $30,000 and I'll pay you back over 12 months with a 10% interest. And some of those are promissory notes as well. So that is a very common way to just put up debt on your books and not worry about equity so much. And as long as you have it figured out in your financials that you can pay that money back, you're going to be in great shape. So make sure that you just don't ask for what you know, that you're not sure if you can pay that back. Convertible note is a little bit different. This is something that someone's going to give you money and they're expecting it to become equity in the near future. Now, it depends on that part. So it's either going to be a convertible equity or a convertible debt. So one's better for the investor and one is better for you. So a convertible equity, they know they're going to give you $10,000 and it's going to convert into equity at a 5 million dollar valuation. So they know the terms of the notes and they know exactly when it's going to convert, how it's going to convert and what they're going to get out of it. And that's actually in the favor of the investor. A convertible debt or debenture is a little bit more in your favor. It stays on the debt, on the company until you determine the value of the company that it's going to convert. So you may find that the first one is going to be $10,000 converted at $5 million, but the second one may be $10,000 converting at a future date and the valuation may actually be $10 million, may actually be 7 million. So it actually works out in your favor because you give away less equity and a lot more options possibly go behind that. So when it comes to the investment vehicles, truly understand which ones you're going to get into, understand which one's in your favor, which one's not in your favor. And I promise you, investors know which one's in their favor and they're going to push for that. But if you establish a rhythm with other investors and say everyone is in convertible debt and you command the room and stand tall and know your business, investors will come on board knowing that that's the opportunity, the investment vehicle is a very important part for them. But knowing that the investment, what they're getting into and that they're buying you and they're buying the investment in opportunity, it's actually more important because they know that their chances are they're going to get good ROI back on their business. And then obviously there's going to be some series rounds. So series A, series B, series C, and those where you go out raise your larger money. Definitely when you start thinking about raising money, think about your capital strategy, think about your tranches to if it's going to be your convertible note, promissory note, or your series round, you want to be able to put the paperwork together, put it together in a plan, in a capital strategy, get it approved by the board and educate yourself really on this part, because this is where I think it's very critical. I've seen a lot of entrepreneurs lose control of their companies because they didn't understand that they're going to need more money and they built it wrong. And they went out, raised $18 million in 18 different tranches and have investors in 18 different real and they're all with different preferred, non preferred and all this kind of stuff. And it's really, really hard to manage and it becomes really hard work for you and the CFO every year. So save yourself the trouble, really go out, understand your capital strategy, understand the investment vehicles you're going to be using and it will save you time, save you time and money and less headaches as well. Now we were talking a little bit about investment language and I'll share this with you that valuations is what your cfo, your board will evaluate your company at. So if it's going to be a million dollar valuation or 5 million dollar valuation or 100,000 valuation, whatever it is, it's either going to be post money or pre money. So post money is obviously pre money is a pre money valuation prior to anybody putting any money in. So pre money is, it's going to be a five million dollar valuation at five million dollars and it's pre money. You're putting in 500,000. 10%. Post money is the pre money valuation plus the new funding that becomes post money valuation. Obviously post money valuation is better for you, but they will use this a lot, this language, this money language very much in their favor to try to get put money in pre money valuation and not post. So understand this, just understand, educate yourself, go to Google, search this information, type.