The $400M Lesson: The Six Keys of Capital Every Founder Must Know | Genius 10 minutes talk

When you launch a business, how does it really start? You drain your savings. You max out your credit cards. You borrow from your parents or friends. You skip paychecks. You talk people into working nearly for free. Somehow you get it going. Then comes the moment you want to grow, and you go looking for capital. But here's what most people don't know. There's such a thing as the wrong capital. The wrong money can cost founders their company, and it can cost investors their returns. Our next speaker knows better than most. Tom Powell, one of Our Genius Network 100k members, has been on both sides of the capital stack, raising it and investing it. He's distilled these lessons into a framework he calls the six keys of capital, a model that works for both founders and investors. Tom didn't just learn this from books, although he's read thousands, not just from school, although he holds more degrees than most of us would ever want from places like Harvard, Northwestern, and Northeastern. Tom learned it by living it. By building his first company at 12, by raising it and investing over 3.2 billion across 500 ventures. By losing 400 million on a single deal and coming back stronger. His title is the Six Keys of Capital. Please help me welcome Tom Powell.

Thank you, sir.

Awesome.

Appreciate it.

You know, I especially liked his opening remarks where he was talking before he did the intro, right? So have any of you ever felt like, do I really, really belong here? I mean, am I in the right room? I mean, you look around, everybody's great looking. I mean, everybody's really wealthy. They're all making a ton of money. I mean, they just had massive exits, right? I mean, really, am I in the right room?

Maybe you're sitting on that knife's edge. Like, one false move and you're going to fall off in massive failure or the right move and you're going to be totally in unbelievable success.

Well, I've been there. I've been there a number of times in my life. How do we all get there? Well, if you've taken the founder's journey, the way you start a founder's journey is it starts with the idea. And then that idea needs a little bit of action behind it. And in most cases, it needs some money behind it. And that money behind it oftentimes comes from, if it's your first venture, your credit card, or maybe you borrow from your parents or your friends, maybe you have some money in the bank and you draw that down, you don't take a paycheck, as a matter of fact, you're actually able to talk people into work for you for free or close to free. Right. To get this idea off the ground. And then if it gains traction, according to Ben Hardy, what do we want to do? We want to scale. So if we're going to scale, in most cases, even if it's a highly producing business, what do we need to scale? We need capital. And that's what I'm here to talk about, because not all capital is created the same. Now, let's, first of all, let's get a definition for capital. I'm a university professor, so of course, we've got to start with the definitions, right? So the definitions of capital are anything that has to do with money or human capital as well. But capital we're going to talk about today is money. And that money can come from the credit cards, it can come from your home equity lines, as we said, it could come from your friends and family. If you're fortunate and you're growing a business, as we see a lot of businesses here, do they start creating revenue right away, but soon as you start putting that money back into the business, every single time, isn't that an investment?

Well, my background comes from Silicon Valley and working actually as a professional investor. But before that I was a founder. I started my first company when I was 12. Not because I was some, you know, super motivated person. I was cold. I grew up in Lake Tahoe. We didn't have heat, my family wasn't around, my oldest sister was raising me. And I'm living in a breezeway. And at 12, you really can't get a job very easily. So I had to start my first company, talk people into working for me for a little bit of money. And by the time I was at the end of high school, I was making more than the teachers, which was great, except it meant I didn't go to school, which was awfully fun because I do end up having a few degrees. So I've also been on the other side of that, where we've raised 3.2 billion, worked with over 500 founders as a venture capitalist, private equity person, and that's taught me a lot. But you know what taught me most about that was a $400 million loss. One loss, one investment, $400 million of my money. Now that's an interesting talk. So the first thing is there's three truths that I have found in capital. The very first truth is not all capital is the same. And by that, what I mean is it depends upon the covenants. It depends upon where you get it from. And it depends upon where you're going to take it to.

So very quickly, founder that I know starts a company, goes out the traditional manner, raises the money in Silicon Valley.

Is so hungry for that first check. Does anybody remember being really hungry? And you'll take whatever check somebody shows up with? Yeah. Those checks have consequences. That's why we have a story of Rumpelstiltskin.

Right.

They come with, they get you at that point. So he starts this company, has a great idea, it's a big market, he's growing fast, he's taking on more capital, more capital, more capital. And at one point, he recognizes that he doesn't actually own the company. He's only in name.

The people that have given him the capital have basically got truly golden handcuffs on him. And no matter when he exit, where he exits, he's never going to get paid. Now, that's one part of the capital stack, not all capital being the same, because in that private equity side, a lot of times there are venturists, venture capitalists that want to take that money from you and own the business as soon as you take the check, they want to own the company. So on the other side, I've had the opportunity of where we were, the venture behind a company, and everything looked great. The founder was awesome, or we thought the team behind that founder was great. The market timing was unbelievable for us for a huge growth. And what we didn't realize was we had the right horse on the right track in the right weather, but the jockey actually was bad.

And we couldn't get out of that jockey. And that jockey cost me not only $400 million on an investment, they cost me my reputation. Because guess what bad jockeys do. They bring in regulators. And regulators can bring a whole new world to your life, even if you've not been participating in anything. So first, truth is, not all capital is the same. Now, you probably all think I'm talking to just founders. Now, I know a few of you have actually had exits. And so those founders that have had exits, guess what they've become.

New investors. And guess who they invest in? Founders. And what they look for is that founder that has done it like they're doing it. They see themselves in that founder, but they don't have a framework. And so the second part of this truth or truth number two, is if you're going to invest or if you're going to raise capital, you need a framework for doing both. Okay? So again, we work with a lot of founders that become wealthy, that become investors in founders and we were just at the $100k. And last week, it was actually part of the conversation was how long of a break should a founder take after they become wealthy and do their exit before they start investing again? And most everybody said it's got to take at least a year. And we think that is very true. But I think more importantly than the year is, they've got to have a framework. So we've got a very simple framework. Now, again, in the venture capital world, we came up with a model that said if you come up with the idea, that's worth about a third of the value. If you put the work in, that's worth about a third of the value. And if you put the money in, that's about a third of the value. And the great thing about being a founder is in most cases, you're in all three of those circles, so hopefully you make a little more than a third, but at least you kind of get a spectrum of the money's not more valuable than the idea, and the work's not more valuable than either one of those, but they're kind of all equal. So that's a framework. The framework we use for doing investments, though, is the first part is, as a founder, if you cannot explain the problem, you solve.

That quick. That's what genius does, right? It helps people really understand the problem, the pain that they solve. So if you can't understand that, then you have no business being in that place. So it's the problem that you solve. And if you're the investor and you can't articulate the problem that that founder solving, you also should not be investing in that company. And part of that is actually even more so. You should be able to explain it. But in reality, it should be a problem that you have personally experienced.

Personally experienced because it makes it that much more so. The second part of that is it's only fun if it's a big marketplace. Now we hear this thing called TAM or, you know, the total available market, or people come in and say, it's a 3.2 trillion dollar marketplace. No such thing. In reality, it's what's the achievable market for you and your business to be able to get to. But you do want it to be a big market. Because if you're going to be a sole proprietor that only has a small coffee shop, how much capital do you need? Not very much. So first rule is, not all capital is the same. You want to see the stack that goes into it. The second rule is you want A framework. And the third rule is you want a story. And the reason for the story is exactly why many of us are here at Genius, is to learn how to be better storytellers. So who's one of the best storytellers we've seen in the modern times of business? They're known for their releases of products.

Steve Jobs, he talks about 10,000 songs in your pocket solving a problem like that. So when I went back to, you have to have the framework about the bad guy and how big that market is and what are the moats. That's the framework. The other part is the team. And then how's that entrepreneur actually able to control that team and grow that team? And then what are the risks? All of that goes into the storytelling. And the storytelling is so, so powerful. Matter of fact, it's so powerful, we can go back to the Odyssey in Homer, because that's where the story of being an entrepreneur actually came about. And that's where my story came. Now, the last part is, if you're going to be an entrepreneur or you're going to be an investor in an entrepreneurial market, you need an advocate. And that's what we do now, because we've been on both sides of that scenario. So a founder needs an advocate. You need someone that says, you can do this, but you need to look around the corner. And an investor also needs an advocate that says, you can do this, but look around the corner. So I caution all of you, find your advocate, start the stories, and have a great day.

Not perfect.

I took too long to talk about you.

Thank you.

Thank you. So do you want to hear from this from Joel?

Yeah.

What do you guys think of Joel?

He's the best.

Yeah.

Other than he positioned me to go after Hannah. Can you imagine? I mean, she'd be so awesome up here. But you're her coach, right?

Dr. Powell, may I address you? Well, first of all, you get.

I get a can.

Hey, you know that you get a can.

Tom has the same problem that you all have.

He knows too much. And this is what your challenge is. When you're asked to give a presentation, there's six words you're never going to hear. Talk as long as you want. Because if you started right now on a Thursday afternoon, you'd be going the next Thursday. And never repeat anything. How do you get things concise? Well, this was set up in the beginning, and one of the things Tom was concerned about was because it's such a short period of time based on the time he talks, he didn't want to use slides. So he came up with note cards. So this is something that you could be using just key words, not sentences, not things, just story. That's all one word. So that was one thing that you could do that Tom did. Also in the introduction was a hook. Something that should have gotten you thinking. What are you putting in your introduction where the audience is thinking, I can't wait to hear what happens with that. And what was in that introduction? He lost $400 million. How many picked that up when Joe said that? How many were interested to find out? How do you lose $400 million? How do you make it? How do you even lose it then? And that came up at 3 minutes and 14 seconds. He told us about that lesson that he had learned, and then we found out it was the jockey. Are you making your stories impactful and something that's relevant to the audience? And then the other thing that he did that you could do too, is just have a conversation. Public speaking is a private conversation held publicly. That's it. Tom has stayed with me. We've become good friends. I do I know you take one other second. He stayed at my house. My daughter Jill, who's in our business, came over to make sure everything was okay. He said, where did Tom sleep? I said, well, he slept in that room. No, he couldn't have slept in that room. Why couldn't he have slept? Well, there's no sheets and no pillowcases, no towels. So I called him up. He said, where did you sleep? He said, well, I slept in that room. I said, there were no pillows, no pillowcases, no sheets. He said, but that's okay. Now this is a guy that sells in five star hotel. That's what Dr. Powell is like. He's such a down to earth guy. Let's give him one more great hand for that wonderful talk.

Hold on, Tom. No, hold on. I'm going to. What are you trying to back up there?

This is what I get for poking fun at him in the back of the room.

No, no, no. So, no. I wish I could make fun of you right now, but I won't. So how many of you have one of your young people in genius youth? Okay. Are you hearing positive things about it other than it's like changing all their lives? So Tom is going to host the next genius youth meeting. Can you talk about what's going to happen?

Thank you.

It's December 18th through 21st, right?

We're finished up. I think most every one of them will have finished their finals so they're flying out to Lake Tahoe. So I live in Lake Tahoe. We have a. It sounds funny, but we've got a ski mountain. It's a non profit mountain. So what we initially thought of was we'd bring the kids out and teach them wilderness safety and some things. And also how you can do a business that is not AI dependent. It's going to be in this other world. And I'm pretty active with the ski industry. It's turned into. We're going up Tesla, we're going up to Panasonic, we're going to do. Whitney and I were just talking. I'm going to bring a couple of friends that live on some lakefront areas that may have some names that we would know or at least from companies we know that will be some of the venture capitalists that will sit in the room and talk and allow the kids to make pitches or for those kids that want to go into finance and want to sit on the shark side of the table. That is my background in the business. So that's what we're going to be doing there.

I didn't even know some of that. So it's really great to hear. And here's the thing too. We are exposing your young people to individuals and businesses and ideas and creativity, which they're just not going to get anywhere else. And you know, Pardis and Whitney and Barry and who else is in the room that's very involved in genius youth? Dre. Daryl. Yeah. So how many of you are mentors for any of the young people? Okay. Which is awesome. Thank you so. And who had a question? Cameron, go ahead. What's the age group for it? 18 to 24. Right now we have made a couple of exceptions. We have a couple of 16 year olds that are really, frankly mature. I mean, you know, if we make any sort of exceptions to the 18 to 24, we're still in the foundation stages. We're just figuring it out what's going to work best. But so far all the meetings have been absolutely special.

And this started because what happened when you guys were talking about all the meetings, they were all down here and I said, why do we always have to be in a warm place?

Right?

Yeah, yeah, no, exactly.

Come on. Some of you guys like to ski, right? Come up and visit me in Lake Tahoe and come ski.

Yeah. And we're trying to determine this will be the first trip that. I mean, the last two meetings we've taken them to other locations and other places. Where's Travis at Okay. So, Travis, do you mind sharing what I mean? You were awesome. Travis, tell them about Moxie and the trip we did there and what you taught him. And feel free to come up here. Why don't we turn the lights? I don't know why we have the lights off.

Yeah, just come on up.

This is Travis.

Hey, I'm Travis.

Yeah, it was awesome. So we had 60 ish of the genius Youth come down. So we have a pest control company, large operations center, call center just three miles down the road. And so we're able to have them come in. And it was kind of twofold. One let them see behind the scenes of like a working business, which was really cool. And then what we got to do is really get hands on about, okay, maybe I have an idea. What the heck do I do? And so we were able to walk them through a workshop of, okay, how do you pressure test your idea? And then how do you like, actually take the steps to form an ei, get an ein number, form an llc? And so we had them actually walk through the steps of doing something rather than just.

Because a lot of times we have.

All these ideas and that's cool, but like, what do I do with those ideas? And so to see them like the sparked for me, I walked away and I was like, okay, first of all, there's hope in the next generation. I've got, my kids are younger, they're 8 and 10. And so I'm like, okay, 10 more years and then they can start doing this. Who knows what Genius Youth will be then? But it was a really, really cool opportunity to see them engage, to see them get excited and to provide and give some value back. Yeah.

And you know what I thought was interesting at the meeting because I actually went to that one and oftentimes I'm not at the Genius Youth meetings. And so it's when you started talking about the revenues of your company, because they're thinking, oh, we're going to go to a pest control operation, but what is your give of the hierarchy of the company?

Yeah, so it's a joint venture model. We have 34 locations across the country. Nationally, we're about the eighth largest pest control company. We'll do about 300 million in revenue. And so for them to see different ideas of industries that they can go into business, some that are sexy, some that aren't so sexy, to be able to see how you can grow in different ways to get into a business. And so I came into the organization after it had already been established, but has been able to grow with the company. And so there are ways to be an intrapreneur that become an entrepreneur. And so to give them different ideas on how they can grow was really, really fun.

Yeah. And they were asking questions, you know, how do I build a career? How do we do this? And I thought I had talked to several of the kids, like going, wow, this shows me. I mean, they were oblivious to it. They weren't aware of what could be done. And when they first thought, oh, we're going to go to a pest control company, they had no context. And you were fantastic at the weight.

Thanks for letting me be part of it at school.

Thank you. Yeah.

Can I mention one thing on the. So for the kids that are coming out, Whitney and I were just talking about this. They're gonna be able to send us their decks in advance. So if they've put together a deck or they wanna put together a deck, and we'll run it through our modifier and it'll score them on their deck or on the other side if they're looking at investments as well, so that they'll be prepped. So talk to the kids about that because we have one of the youth that's already raised $2 million. Right. Launching a company. Yeah. Right. So I mean, that's a huge power to get them around the right circle and.

Absolutely. And this is important for you as parents and I wish is that at some point when you're old and decrepit, they're going to be taking care of you. So you better make sure that we, you know, help you raise some really awesome and preferably with a lot of money, so. Because at some point they're going to be taking care of your ass and especially if you make dumb financial decisions, if you don't follow the advice Tom is giving you from his 10 minute talk. But yeah, and I mean, what can we do for you?

This is it. I love being in this room.

Thank you.

Just love belonging here.

You're awesome, dude.

Thank you. Thank you, thank you.

For the. Because I wanted to.