Stop Wasting Your Life. Know When It's Time to Sell Your Company.

Good morning. Just a quick show of hands in here. How many people in here have founded at least one company or currently founders? Okay, great, awesome. I love talking to founders. So I founded 5 companies or so within the last 15 years. Latest is kind of this fund that I'll tell you about. But as entrepreneurs, we basically— we got all kinds of issues here. Well, so this thing doesn't work, maybe? Oh, there we go. So as entrepreneurs, we always go through this, right? No matter what company you're starting, literally you could be inventing cold fusion, And there's always people out there that are like, the idea is dumb, it's never going to work, you're dumb. It's always this barrage of negativity that gets thrown at your concept and your idea. And as founders, we are perpetually optimistic, right? Because we not only have to hear this from your husband or your wife, your grandma, your investors, your potential customers. We constantly have to overcome that and even pitch it to our employees and what have you. And I think that it creates this sense of optimism that you start believing after a while. And it's really important for us as founders to keep that optimism in place. This is gonna be a bit of an issue here. Am I like supposed to point this at something? Great. But, and as entrepreneurs, of course, we all are basically the guy sitting here on the couch, right, where we do everything under the sun. This is one of those that it doesn't matter if you're a startup founder and you have 1 person and 2 people working for you, or you've got a company of 100 or 1,000, you're still kind of doing this same model here. And we go through these crazy highs and lows. Where, you know, again, you're super excited at the beginning of when you thought of your idea, and you kind of get it up and going, and you get your first initial investments out there, and the roller coaster's going up. You then realize, oh, wow, it's actually really hard to do what I'm trying to do. There's a reason why someone hasn't done this yet. And then you kind of go through that. You get your first customer, and then you're like, oh, wow, now I actually need to go get funding and all this other good jazz. And you literally go through these crazy ups and downs, and literally sometimes this could be within a matter of minutes. So in this model, this actually shouldn't be said, this shouldn't just say a first day at the startup. This is basically any day at a startup where you have no parachute. You might have left your corporate job, hanging out and what have you with all the safety, and you're like, I'm gonna go take this risk. And I think that there's a certain level of confidence and this risk-taking that I love about founders, and I always love talking to founders as a result. And when you look at the amount actually invested in startups over the last 5 years, it's literally more than doubled on a global basis. It was about $65 billion or so in 2013, and this last year it was anywhere between $145 and $160 billion. So literally, other than perhaps the craziness of the dot-com era, there's been no better time to go and actually be a founder. The numbers you're putting up there, are you cutting this off at like Series B or something? Because SoftBank putting $1 billion into somebody who has a great company— Sure, yeah, I know exactly. Well, there's obviously the large spectrum of investments, right, where you have some— and that's also another good point, where being an entrepreneur, there's opportunities now to actually get billions of dollars, which is something that simply wouldn't happen in the past. All that to say, it's been an unbelievable ride to be able to be this, be a founder, and literally I can think of no better time throughout history to be a founder. Now, the other side of the equation though that most people don't talk about, and the formatting's a little bit off here, but the actual number of exits is actually down pretty substantially over the last 4 years. So you're getting more and more, money infused into startups, and you're having more startups being funded and started around the world. Yet what ends up happening is that if there's not some kind of exit plan, then you're stuck with your company for longer. And this is what's actually occurring here, and this is again— the format is a bit off here, but between buyouts, IPOs, and what have you, basically you're now averaging, you know, 7 or 8 years even to have some type of exit, and even that, from a statistic percentage, is down substantially. So you're in a scenario where you have all this money coming into the industry, but companies are actually staying private much, much longer, and as an entrepreneur, you're in a situation where you're saying, "Hey, what are my options?" So— One of these— I'm gonna get this here. So as a result, for the companies that are growing revenues at what Jason and Aaron Ross talk about from a triple, triple, double in revenue perspective, that's fine, right? Continue to grow, continue to be private, continue to do what you're doing, and it's actually a great model. But that's a minority of the companies, of course. The other 70%, we're in a situation where you're literally, killing your career. Because the fact that it's lasting longer to have some type of exit enables it so that you actually have less shots on goal. And you have less opportunities to actually go and create your next unicorn. So if you think about your typical entrepreneurial lifespan, it's roughly about 15 years or so. I mean, at some point you're sick of eating ramen noodles. Your husband or your wife is like, "All right, we need to start paying for her college education." We don't have an infinite amount of time to do startups. And if you're in a scenario where you're taking 7 or 8 years for the first startup and another 7 or 8 years for the second startup, you really only have 2 shots on goal. And no matter what game you're playing, if you only take 2 shots, the probability of you actually succeeding in either one of those 2 shots is low. I mean, it doesn't matter if you're actually playing a game or if you're writing a term paper, but certainly my first draft, and I think back towards the first company I started and all the learnings that I took into my second company, like you learn substantially time and time again, but again, if you're in a scenario where again, all this money is coming in but there's no actual exit model, then you end up in this scenario where again, people have less shots on goal. Now, VCs of course have known this for years, And they have a portfolio-based approach, which is super intelligent, where no matter how much VCs say, oh, we love your company and what have you, there's no world that they're betting their entire fund on your company. So they hedge their bets because they know that even in the perfect conditions, not all companies are going to succeed. And even in the perfect conditions, that you need to have multiple bets on the plate because sometimes you have no idea which of them end up becoming your unicorn to make your fund, and which of them, of course, end up kind of going away. Now, as a founder, however, you've got one dot, right? It's rare that a founder starts 5 companies at the same time. Elon maybe is a rare exception, but it's rare, and you have basically this one bet that you're looking to make, and it's not a portfolio-based approach. And as a result of that, you know, you are betting everything on this one versus the portfolio. We fundamentally believe that, again, getting back to that 15-year time horizon, is that if we can enable and encourage entrepreneurs to actually take more shots on goals within that 15-year time period, it's better for everyone. So if you're in a scenario where every 3 years that you're making a— decision on whether or not this is going to be your unicorn or not, and then having a way to be able to actually monetize and exit that is actually better. Because certainly as you get to startup 4 or 5, you've learned a lot versus startup 1 and 2. And as a result, your chances and your odds to be able to actually take more shots on goal enables you to statistically have a better chance of actually then making that unicorn. And if you look actually at unicorns, Cowboy Ventures actually did a really interesting, oh, so Cowboy Ventures actually did a really interesting analysis of unicorns. And the 3 pieces that actually caught my attention were one that 90% of these teams had actually worked together in the past. Right? These were experienced team members that had worked together in one way, form, fashion. And it could have been they worked together in college. It could have been they've done companies together, whatever it may be. But nonetheless, literally 90% of them were actually teams that worked together. The second stat that actually kind of piqued my interest is that they're not all, you know, 20-something-year-old kids that are making these unicorns, right? The average age of the founders is 34. Now, to some of us, 34 is still really young, but nonetheless, it's not your 20-year-old Zuckerberg startup that's actually the norm. It's actually much older than that. And then the other element of it is that 90% of these companies actually never pivoted, right? Where, you know, pivot is always one of these interesting terms that we've developed over time where it used to be that pivot meant, oh shit, my idea didn't work and I need to go do something else and change the company that way. But now it's like, oh, we just went through another pivot and what have you. But most of these companies actually, they do nail it on the first time. There's obviously tweaks along the way and what have you, but nonetheless, it is that first time. So if you're in a scenario where you've been doing your company for 7 or 8 years, And if you're— again, if you're growing and tripling— double and tripling revenues, that's great. If you're not, and you're growing companies, and your company's doing fine, growing at 20% or 30% or whatever else it may be, the question is, do you believe that revenue will actually increase over time? Which is unlikely. Revenue as a percentage actually— a growth percentage actually declines over time. Or is it actually time to make analysis and say, hey, you know what? That was my first shot on goal. I'm going to then go to my second shot on goal. I'm going to go to my third shot on goal and continue to actually be able to monetize what you've been able to build. So we've been buying companies now for the better part of 20 years. And we've bought about 60 companies or so. And these quotes are some that I hear time and time again from the CEOs. The first one is a company that we bought that we actually did approach them and we're like, "Hey, listen, we'd love to buy your company." And they're like, "No, no, no, we're gonna go through another pivot. We've got some money in the bank still from the VCs and we're gonna go make that happen." And unfortunately, and I love this last quote, which was that they knew in their heart that the horse wasn't gonna grow a horn, But they wasted that 18 months, which is incredibly valuable. Time is by far the most valuable asset that we all have, but unfortunately we don't treat it in the same way as we treat our bank accounts. And the second quote is the same deal, right? Where this company we actually bought, we went to them, we said, "Hey, listen, we love your company." They actually ended up going bankrupt after another pivot, and then we ended up buying them out of bankruptcy. But we went and Talk to that founder, and again, it was like another 2.5 years that they spent on this. And literally, that entire 2.5 years is wasted time in their life where they could have been going out and doing something different and using those key learnings. So the reason we started this fund was really to be entrepreneur-centric. Well, we're not bankers. We're not operators. We're not bankers. We're operators in that— And we realized that if you can enable a model where founders themselves can actually have this means of being able to really understand where they're at from a company perspective, and you really know in that 3-year time period whether or not this particular startup's going to go to the moon or whether or not it's a fine company and it's time to actually sell it. So we created this model literally for entrepreneurs to be able to say, hey, listen, let's give you guys an out. And let's make it so that we as an entrepreneur community can then say, listen, you know what? I'm going to treat these as shots on goal versus I'm going to say that this is my one bet that I have throughout my career. Because that's just simply not the case. I mean, you guys are all creative people. And you know that you have tons of other ideas that you'd love to go build on. But there hasn't really been an avenue to be able to go and enable entrepreneurs to go and free up that intellectual capital. So that's why we raised this fund. It's about a billion-dollar fund or so. We buy SaaS companies, and we buy SaaS companies anywhere from $2 million a year in ARR all the way up to $400 million or so in ARR. And again, it's intended to be able to take more shots on goal. So unlike other firms where you, you know, obviously if your company is purchased They want you to stick around. They're like, hey, listen, I bought this company because I believe in not only your idea, but I believe in you, and I want to make sure that you stick around. Which again defeats the purpose. A lot of times you want to go do another startup and go take those ideas, and yet you're sitting around waiting for some type of option clause to get done. And what we do is the exact opposite. What we do is basically say, hey, listen, OK, great, in 4 weeks we'll— We'll do the diligence, but then in the next 100 days, we're gonna transition out you and your team, take whoever you want, and you guys can go start another company. And we'll actually even give you $500,000 in a no equity seed round, right? Where literally this is more or less a gift per se, where it's like, listen, here's another $500,000, 'cause a lot of times, no matter what happened with the companies, you know, you still need some kind of funding to be able to go and get the new one up and going. Uh, so that's what we do there. And then there's also a million-dollar option, uh, but that has to then have some equity. But nonetheless, the whole intent of this again is to be able to sit around and be able to enable founders that, that again have a great company but then really have reached the, the limits of what that company is really going to do. And then, and then I believe again fundamentally that similar to the the unicorn slide, that there's so much potential when you learn from the previous learnings that you can go and again create even more value out in industry. So this is our last acquisition. It's a company called Business Apps. And they basically make it so that it's for small businesses. It's easy for small businesses to have iOS and Android apps. So they have basically a templated app model. It doesn't take a lot of technical knowledge, kind of drag and drop, submit to the store, and you're good to go. But this is another classic case where this company is doing great, you know, and then it was growing. I want to say that it was growing at 30% per year, but Andrew had been doing it for 8 years, and he knew that even though, you know, the growth rate had been good over that that 8-year time period, that there's no world where business apps was gonna become a unicorn. There's no world where this was suddenly gonna become Uber. So he's like, "Great, you know what? I wanna go start this additional company in the blockchain space. So let me actually enable a model where I can actually take this company and put it into good hands so that the company actually continues so that I can actually go do something else." And that's exactly what we're doing. We're literally in the middle of this transition period. And him and his staff are training up our folks so that we can run the business ideally, again, for the next 10 to 20 years. We buy these companies not to lever them up with debt and shine them up to sell them. We actually buy these to operate them and run them over the next decade. So this is exactly what we're doing. So with Andrew and his team right now, we've got a product. For say that we call Fuse, and we're going through all the knowledge transfers, right, the red zone deal transfers, we're doing peer support, we're doing peer programming so that we can kind of learn the business, be able to again enable Andrew to go take his key staff to go and go start his next company. And it's a bit of a unique model, but the whole reason again we do that is to enable people like Andrew who I think is a a great entrepreneur, to be able to go and take his team and go start something new. One of these days I'm going to get this. OK. So we, again, we fundamentally believe that if you can enable an easier way for founders to be able to take their concepts and you'll be able to go monetize it, but not really wait for the IPO and all that other good jazz, then you can, again, unlock tons of this social and economic value. Where we do believe that it takes a ton of experience to go build successful companies, and sometimes you nail it out of the chute, but more times than not, you know, the first one was great, second one was even better. So we created this to be able to again, create that transactional model where we're gonna run these companies for, again, the next decade or so, but we wanna encourage entrepreneurship, and we wanna encourage people to really look at their companies, and though I'm, again, a big fan of founders, and I'm a big fan of being perpetual optimists and what have you, really looking at the trend line over the last 3 years and really saying, okay, what is the exit velocity needed for me to be able to go and monetize this? And then being honest about where that is and then saying again, right, if there is a means to be able to monetize it, let me go do that and then let's go and go start the next one. So that's it from me.