How We're Raising Money for SingleBrain (The Clean Story for VCs)

Can I speak freely?

Yeah.

Here's, I don't want to talk about numbers, but here's a problem with that narrative. So going back to your business, you grow organically. You've been releasing new divisions, new products, Single Brain, the list goes on and on in a good way. I don't mean it in a negative way. You've been seeing growth from it. You're profitable on a monthly basis. You used to put some of your balance sheet in crypto. I don't think you have much debt unless it's government debt, like an SBA or anything like that. So it's pretty flexible.

Correct.

Which SBA is some of the best debt you can take.

The best. The best. Yeah.

You know, although I think they limit you to like $5 million or $7 million or something like that for a tech business or, and the rates are, the payment terms are actually very favorable compared to most banks or traditional debt. You just can get much more dollar amount from a bank if it's not SBA. So where are you putting your excess cash flow right now if it's not crypto?

Well, I'm trying to hire more talent.

So you're just reinvesting by just growing the business organically?

Yeah, but like, because it's been all organic, right? I'm just like, now I'm like, well, first the Fable Five was like, well, you need to go recruit these people first, go get these people, right? And then I was thinking about it, I was like, wait, they're all on deck, they're all ready, they're all bought in with the vision. And then the thing is, now that we've done a few of these single brain pilots, they all want more and more. And then when we showed the single grain clients, they're like, We showed one of them that initially I went into the call just to listen to what they were saying 'cause they're like one of the larger clients and it was like 20 minutes of just saying like, yeah, you guys are missing the mark here, da da da, you could be better over here, unhappy, right? And then rightfully so. And then last 10 minutes I'm like, hey, how about we give this to you guys? Showed him that, he's like, showed him Single Brain, he's like, I'm speechless. And then he's like, we need this for everything, right? I'm like, great. So now I'm like, okay, well if the momentum's this way, then I'm like, I need, I should go raise something right now.

For Single Brain and split it out.

Both of them, like single brain falls under single brain anyway.

So then you'll go out and you'll try to raise money.

Exactly, yeah, 'cause there's a big firm in New York that everybody has heard of. They've backed like OpenAI, Anthropic, Shopify, Databricks, and they wanted to meet last year. I said, hold on. This year I'm like, oh, we got something. So I think I'm— 'cause if I own 100% right now and I raise, we raise on like everything combined together, I don't need to dilute myself too much, so. Yeah.

And would you take a lot of money?

What's a lot of money?

Like, or how much do you want to take? A range.

$15 to $25 million.

So $15 to $25 million to just scale faster.

Decent amount. Yeah.

I think it's worth it. I think you should spin off Single Brain into a separate company. I know it can be separate and then raise. I think you will actually raise quicker and you would lose less and you'd be better.

Give the reason. I have a sense for what your reasoning is. I don't want to guess it yet, but you give the reason. You give the reason because I I think I know what you're talking about. Go ahead.

Okay, so half your company, forget the revenue split. If you just look at it, and I'm pretty sure the agency actually does more revenue because it's been around longer. So majority of your revenue is in an old school model that has a terrible valuation. The new company, Single Grain, has a lot of potential. It doesn't have the revenue profile of your older company, but it's much more sexy. You can raise money based off of vision. Without existing economics. If you include your existing company, it muddies the water because some of the business people, some people pay you for the old business, some people pay you for the new business. Investors like deals with no hair that are clean, that are simple. And I actually believe it would be easier for you to raise money just for Single Brain. So second.

Yep.

If I think Eric is a good operator and entrepreneur, but would you agree sometimes things go bad that you can't control? For all entrepreneurs.

Mm-hmm.

Elon Musk had a lot of rocket failures before he had some success, right? We all take risks. I don't care if you're Elon Musk or Mark Zuckerberg or Bill Gates, everyone's had failures. No one has 100% batting average. If you do, you're not really taking enough swings. If you keep 'em separate, you also will have an agency, you can hire someone to grow it and you'll still have a business that is owned by you that grows, that doesn't have a lot of money being raised against it. Because if something goes wrong, for the investors to get back their $25 million, let's use that number.

Mm-hmm.

They would take everything and you would get nothing for 10 years plus worth of work. And I look at it as, and I know you're willing to take that risk, If you had the agency separate, I don't think Single Grain needs $15 to $20. I think you can get $10 million on a round with great terms. Maybe you'll lose 20%. You can even do it on a SAFE. You go push really hard on it and then 6 months to a year later you go and do a bigger round at $30, $40 million on Single Grain and you spend your time focusing on that.

So we should unpack a couple things for the audience here. So I, the first part, there's 2 parts that Neil had here. The first part, is exactly what I thought you would say. It's the story. When you have a story that the investors can get around, when something's hot, they love things that are hot, right?

Yeah.

They're gonna pile into that. Now, the second part, I didn't know your angle on that, and I think it's actually a very smart angle, but here's the thing, the challenge with this. So the firm that, the one that reached out to us a year ago, they're all in on the services as software narrative because, you know, you saw Sequoia talk about it, you saw Andreessen Horowitz talk about it, you saw Y Combinator talk about it, right? So they're all in on agencies doing this. So I would need to gauge him, this guy, to see how he really feels, like together or separate, right? To your point, it's cleaner if it's separate, and I would prefer it to be separate, 'cause then it's like, I still have 100% of this thing over here that's cash flowing.

It's a lot easier. Do you want me to introduce you to VCs?

I'll think more. I want 'em to all bid against each other, so.

Yeah, I can introduce you to some VCs.

But keep in mind, West Coast VCs are a little different than East Coast VCs. So West Coast VCs, they tend to, they're like lemmings, they follow each other. Right. And then the East Coast ones are, they just go or they don't go. So.

I can, I know more, I know investors in all places of the world, but if you want some intros, I can make some intros.

I'll take them. I already have a couple lined up. I'll take even more.

Yeah.

I was going to ask you anyway.

Yeah. Just remind me tomorrow. I'll do some text intros, but just go with the narrative of single brain and just say, hey, I want to spend, this is where I want to spend my time. People will love that narrative. It's an easy, clean pitch. And maybe they don't give you $10 million.

Maybe they give you $7 million or whatever.

But if you just take that chunk of money to get started, you can grow extremely fast because you don't have to be profitable. People love the narrative and just go push hard.

You know what the other thing is? I saw yesterday one of like a kind of a single brain adjacent competitor, $136 million round, right? And then I saw Chamath for his services business, $132 million. I was like, what is going on?

Chamath was able to raise a lot of money. Chamath, I believe, because of his brand and relationships.

Yeah.

And that was, that was not Sequoia, that was a Salesforce-led round. Yep.

Marc Benioff.

And then Marc Benioff—

And then Mark Ventures too.

Yeah, which David Sacks.

Yeah.

But, and Benioff posted something on X with him and Chamath. I forgot where they were in Europe, but it was something.

Oh, they're like partying or something?

No, not partying. It was just more like, hey, with one of the besties or something like that. But, you know, Benioff wrote him a check. For Benioff, that is not a big check.

Yeah. I'm curious. I mean, those of you listening right now, do you like this format more where we're kind of just like shooting the, shooting the poo poo? Or, 'cause I enjoy this 'cause it's a real conversation.

So yeah, but I can definitely, I have some solid introductions for you for people to take time. One of them you met, remember we went to dinner at Avra with one of the buddies that was an LP in their fund?

Yeah, we're, we, yeah.

He's chill. He does deals in Europe. He'll fly to them and all that kind of stuff. He has like some amazing LPs in his fund, but—

Are you an LP?

Uh-huh.

Okay.

But like, I can introduce—

I don't want to make you money.

Why not?

I'm just kidding. I'm just kidding.

I don't know what fund he would invest in. Some of the funds I'm not an LP in, and so I probably wouldn't make money in the deal you're doing, but I'm an LP in some of his older funds.

Yeah, it's okay. You're welcome to invest as well, Neil.

But I think that would be a really good fit. There's a lot of people that can do like $7 to $10 million rounds and just be like, go, 'cause it's a huge idea and I think people love it.

It's not a, I think it's a great, so I think Neil's number 2 is actually a great idea. My only issue is with the ones that reached out, you know, especially that company that this one's well known. Again, if they want services software as a narrative, my sense is most VCs aren't gonna want that. And it's going to be cleaner. But some of these people that are in on that narrative, it's going to be different.

Here's a problem, and can I speak freely?

Yeah.

Here's, I don't want to talk about numbers, but here's a problem with that narrative. They're going to look at, hey, single brand, oh, you're doing this narrative. Cool, you already have enough cash flow. I want to see your growth rate from implementing this.

You're talking about when they're combined, right?

When they're combined, because the problem is they're already combined. I don't think the growth is going to be appealing enough for them to write a $15 to $25 million check because you have too much legacy revenue. And it's not like you can switch it all over the next day Yeah. And make it all this new AI-enabled service type revenue. So I believe if you just created the new co that just did this, you've already been building a good brand. I think it's a much easier sell.

I don't like, by the way, this episode was great. You know why? Because you learn about how, so Neil has this ship right now, right? And he's like, okay, well what do I do with the cash flow? Well, okay, what's going to grow the fastest? Okay, probably maybe SpaceX stock is going to grow faster, right? For me it's like, oh, what's going to grow faster? Well, I have this new thing right now that has the wind behind it, right? And then it's about how do you structure this stuff at the end of the day. So yes.

And Eric and I, although we're similar ages, we're in different stages of life and there's no right or wrong stage. I have kids, they're growing up. I also have been an entrepreneur a lot longer than Eric has.

14 years longer.

So I'm just in a different stage in life. Like Eric created Single Brain. I think it's a cool idea. I don't have it in me to do another one.

Like, You didn't even have it in you to work when you were 25. You're like, I don't want to do the work.

Well, no, when I was 25, I was working a lot of hours and I was still getting—

When I met you, you're like, hey, hey, I don't want to do the work on this one. Can we find someone else to do the work?

That's true. But some of those businesses, like the retirement home community or online websites, like a Place for Mom competitor and stuff, they weren't passion projects of mine. I was always willing to put in the work when I was younger into my own businesses that I was 100% owner in or 50% owners that I truly loved and I was passionate about. But there was a lot of businesses like, hey, let's go create an insurance lead gen business, or—

All right, so I wanted to take a moment to tell you about my podcast co-host Neil's agency called NP Digital, and they work with a whole host of global companies or global organization. Also, Neil has SEO tools such as Ubersuggest and AnswerThePublic. All you have to do is go to npdigital.com to learn more, and we'll see you on the other side.

A Place for Mom competitor for—

I made a poker site.

Or a poker site.

Yeah.

Those businesses, I never had the passion on those subjects, so I never cared to put in lot of time, but I was willing to put in some resources like money specifically. Nowadays, I'm not willing to put in the time into a new business. Like I just don't—

Nor do you need to.

Yeah.

I think the passion's also not there. The passion of compounding your money is more fun.

It's easier for me to just take profit that I'm making and dump it into like SpaceX or the stock market than it is to go work. And you nailed it. It's easier for me to make money off my money At this point in my career and life than it is to go start another company. I look at that as just painful. I look at it as just just deploy the money I make every month and why grind it out? Now, hey, I probably will make less money because of that, but I'm okay with that.

If someone sends this clip to your wife where you said I'm okay dot dot dot, she's gonna hold it to you.

No, but she also knows that I enjoy working. So like when I travel and go to conferences and stuff. It's still— it breathes life in me. I can't sit at home and do nothing. But when you look at it, when I speak at conferences and network and do meals and all that kind of stuff, that's a lot of hours of my week. But to me, that is not working. That's just chilling with people I like and having fun and networking and just shooting the shit.

Well, I'll come back to how we spend our time at conferences because I want to call you out for this one. Well, let's just talk about it first. So, Neil's an Indian person. I also had another Indian friend that spoke at one of my conferences and Neil and him both spoke, okay? And the other guy was like, I saw him watching every single talk. He was like fully engaged for 2 days, right?

Yeah.

And he's like, you know, Eric, I'm just a student of all this and I love it. I can't stand people that come in and just like, they just do a talk and they leave, right? I was just thinking about you immediately because Neil comes in and just leaves. Anyway, that was just—

not leave the conference. I mean, sorry, not leave the city, leave the event.

Yes, leave the event. And then you do other meetings.

I'll do other meetings. Or even then I chilled with other people during lunch. We were talking about deals and stuff like that. Yeah, yeah, yeah. That I enjoy. I do not have fun in listening to sessions.

Yeah.

I'd rather send one of my team members and have them listen to sessions and take notes and then implement whatever they learn.

So speaking of single brain right now, I'll tell you kind of the interesting thing that we're doing with this. Keep in mind, guys, this is managed revenue agents that we build for our clients. When we start with them, it's a pilot, okay? So it's like, okay, you pay us, I don't know, $25 grand or something for a pilot. We do it for 45 days, right? And my CTO and I, we're on the call. Then what happens afterwards is we start to charge like a monthly fee, like $5, $10, $15, $20 grand or whatever. But after that, Neil, because it's so ambiguous, it's like, oh, Neil, you want us to say, oh, your Anthropic bill is $10 million? Okay, what if we cut that by 90%? Will you pay us 5%? Okay, we get a performance on that, right? Or if it becomes, oh, you want more creators right now? How much are you paying for creators right now? $500? per creative? Okay, we'll charge you $50 per creative. Oh, how much are you paying for this? Like, so it becomes more outputs and outcomes based by just saying there's a tier. It's like pilot, then there's a base fee, and then it's like after that we'll negotiate. And I think a lot of outcome-based pricing is coming for stuff like this. It's just, you can't map it out immediately because it's too early. You can't go for the ask immediately. So you go for the pilot first, then the base, and then you go for outcomes.

So I totally agree with that. And I think it's a slow roll. It takes time. People have to be patient for many years before this fully gets implemented.

Yeah, totally. And that's, I think that's a boon for me. I think that's a boon for you as well. And like, I wouldn't be surprised if you buy a bunch of these implementation companies as well.

We're already starting to look for some of them.

Yeah, I'm sure.

The problem right now is everyone just wants crazy multiples. And I'm like—

What are they asking for?

Some are asking for like 25 times profit, 20 times profit. I'm like, no, thank you. And there's a lot of them popping up and they're all like, this is the new future. I'm like, cool. They're like, it's so well, we have so much demand. You look at them every month, you're like, okay, so where's your growth rate? Where's the crazy growth that you're telling me you have so much demand?

What is the crazy growth rates that they're giving you right now?

Some of them are telling me like they can triple every single year and we're seeing more—

Well, they're not.

We're seeing closer to like 30 to 40% growth for most of them.

For a year?

Per year.

That's not triple. Never, never.

I'm like, no one's going to give you 25 times because growth is going to slow down as a ton of competitors enter the market. There's also going to be more demand. But people are going to be willing to pay a lot less for this than they are willing to right now. I think in the future, or let me rephrase, people will spend more money on it, but there will, for the same project and the same hours, I believe in the future, people are going to be wanting to pay less for that because there's going to be more optionality. There's going to be more efficient ways to do it. People have learned a lot from it, but in total, in aggregate, I believe companies are going to spend more in total on it.

You know what I think might be better? Like for, if I'm putting myself in your shoes, right? It's like, how do you hire these super crazy kids right now that are super motivated, right? And they might join as an intern, $20, $25, $30 an hour. Within 3 to 6 months, you know who's a superstar, probably within the first month or 2. And then these people are the ones that are building this out for you because they're so motivated and maybe you give them a piece of the action, right? And because I don't think this stuff is particularly hard. When clients come to us, oh, You know, the token costs are getting out of hand. Okay, yeah, well, that's obvious. You would just buy your own or rent your own infrastructure, put it on GLM 5.2, buy some subscriptions over here. Like, you give them the whole model, but like, the kids already know all this stuff, right? Permission, governance, all these things. You got all these 6 layers over here. So that's probably a better model because one of our mutual friends, all he's doing right now is hiring interns, nonstop interns, and they're running circles around the product team. The product team hates them. Their product leader got fired. I think another one of the product leaders quit or whatever. So it's like, it's—

The same friend that's laying off a lot of people to increase EBITDA and redo their bank loans?

Yes.

Yeah.

Yes.

I like him.

Yeah.

It was a smart model.

Yeah.

But speaking of that, when Eric and I mentioned debt and reinvesting your money, keep in mind one of the quickest ways to go bankrupt is taking on too much debt. You need to be conservative if you're ever going to leverage debt.

Yeah. You know, my friend Charlie Munger said this, he sits in my home. And so, you know, my friend Charlie Munger, rest in peace, he says, you know, the 3 ways that men go broke, Ladies, liquor, and leverage.

Yes.

And it's really the last one that matters. It's leverage. He made up the first 2. The ladies, the liquor piece was just for fun. It's the leverage. So it's not saying don't take on leverage, but there's like too much leverage and there's also bad leverage too with bad terms.

Yeah, it's like I meet up entrepreneurs who are trying to grow their business and they have no debt and they're like, look at us, we did $7 million in profit. I'm like, cool, what's your debt load? Nothing. And I'm like, I'm not saying go stack your company with $20, $30 million on debt, but I'm like, you have all these ways to grow, right? Yes. What are they? Do you think they'll produce results? Yeah. When are you going to do them? Oh, we're going to do them in a year or 2 because I don't want to take all the cash flow. It's going to be too risky. Have you thought about getting an SBA loan and just taking $3, $3.5 million? It's paid back over 10 years. Oh, that's not a bad idea. I'm like, yeah, you can do a lot of that kind of stuff now.

Mm-hmm.

One of my friends, Sean, owns a company and he is taking on leverage to get into retail stores. And he's just expanding fast and doing deals with really big box retailers like a Walmart or a Costco and places like that. I really literally believe his Walmart deal's almost done. And it's great. And it's just like, yes, leveraging these kind of scenarios, low leverage is really worth it. That's less than 1x profit.

Yeah. What Neil's also talking about too is leverage is an amplifier, right? Just like AI is an amplifier of intelligence. So if you have a good business model, leverage will amplify a good business model, but also amplify a bad business model too. So by the way, a good business model can become bad. Remember I had that loan from a few years ago that was a lot? Yeah. Remember that one? Yeah. Thank God that worked out. That was a bad one.

So it also worked out for you.

It worked out. Yeah. That one was, that one was like 8. Yeah. Got that down to very low. We'll just leave it at that. So anyway, all that to say is I think when Neil's saying this, you know, you just look at your, you're talking about the loan-to-value ratio, right? What are you recommending to the audience here?

If you're starting off half a turn, one turn, so half a turn, if you do $10 million in profit, you take $5 million. One turn would be $10 million is you take $10 million on debt and you deploy it wisely. You don't just go and burn it and deploy it all crazy and all fast. And you draw on it. You can usually take it as a line or you can do like an SBA loan. And when you think about it, if you're doing a million in profit and you took on half a million in debt from the SBA, paid over 10 years, that's only $50,000 a year. That's very manageable. Plus interest.

The smart thing too, when you're talking about raising debt or VC, is this is where you actually use the powerful models like Fable or, you know, SOL, and you actually workshop it because it will help you unlock whether it makes sense to raise money or not. Because it's like, oh, if you want to grow faster and the only constraint is this, then yes, absolutely you would raise money. But if you don't have a good system, then yeah, you shouldn't raise money.

Yeah. And me personally, I always operate at less than 1x. I never try to go over 1x. I just, It's, there's nothing wrong with doing 2x, even that a lot of people say it's conservative. I just don't want to be holding in case there's another COVID or anything like that. So I always try to be at less than 1x.

Yep. Yep. So that's what we have to say about debt and doing deals.

And I think we have time for one more.

We do. You can pick one.

Let's go with B2B creators are becoming channel partners.

Where's that? Need a big creator.

Okay, I see that.

That's funny.

Creator programs are evolving from awareness plays into pipeline and partner distribution systems.

You know what's interesting? I want to say B2B here, but one of my friends, so I was playing poker with him. I was at the— I was playing poker during the World Series of Poker last weekend, and his business does about $160 million a year, and he works with Bryan Johnson. So not B2B, but he's B2C. And he has grown a good chunk of his revenue off of just working with these D2C creators and just working with them as channel partners. And so I would just say like, that's one example, but you and I get a lot of outreaches. And so I have my little Mr. Siu outreach thing, which is working really well, by the way. But I can't, you know what I would say? Whenever I want— So anyway, that's it for today. We'll talk to you later. Goodbye.