Startup Grind BCS | May 2019 | Meetup with Michael Girdley - Geekdom

Alrighty, so if you could give some of your background.

Okay.

Oh, sorry, my name is Adam Valenta. I'm a senior at Texas A&M right now, graduating soon. This is, uh, I'm so sorry.

That's okay, Michael Girdley is my name. It's totally fine. No, no, it's part of a good story. I'm like a total pinch hitter. We did no prep. This is gonna be great. We're gonna have fun. We're gonna have fun. Alright, cool.

I think she's shutting those doors. Oh, perfect. If you could give some of your background on who you are, how you got into entrepreneurship.

Okay. Cool. So I tell people now I'm really in the third phase of my career. The first phase was working for other people. So I graduated from college with a computer science degree, had always been into computers. And then I went and worked for other people first as an engineer, and then I realized I liked people a lot more than computers. And so I weaseled my way into marketing and started to work in the marketing department in software companies in San Francisco. And then around 2003, 2004, 2003, my dad at the time, who was getting ready to turn 60, decided he wanted to retire. And I'm from San Antonio originally. I'm one of the— turned out to be one of the people who tried to escape San Antonio. And some of us never come back, but some of us do come back. I was one of the ones that's come back. So, and to be fair, at the time I left San Antonio in 2003, it was not the thriving metropolis you guys saw last week, full of promise, hope, and decent food. When I came back, literally my mom said, "Oh, it's great here now. We just got the best restaurant." I was like, "Oh, what is it, Mom? Tell me all about it." "P.F. Chang's. We got P.F. Chang's." And I'm like, "P.F. Chang's? Ahh." So anyway, it's a different world now with the Pearl and all the culinary stuff. It's pretty awesome. But my dad called me up. I was in San Francisco. I was bored, believe it or not. I was bored in San Francisco. Of working for fast-moving technology companies, my dad said, I wanna retire out of the family business, I want you to come back and run it. So that's the second phase of my career when I went from working for other people to becoming and learning how to be a CEO. And the business I got into, that's our family business which we still own, is a fireworks company. So I guarantee I'm the only person you've ever had up here on this stuff that's owned and been a CEO of a fireworks company. But that was super cool. Can we keep going or you wanna shut up? Okay. I like that. So that was super cool because like the big gap that I think a ton of people have when they get into technology entrepreneurship in particular is like they've never run a real business. Like they don't know like, oh man, like making payroll is hard. Like, oh no, like what is it like to actually do like real marketing like in a newspaper, right? Or like sign a lease with somebody. Like that's all the stuff I had to go from doing technology to doing the least technologically sophisticated business in the world, which is like putting shacks on the side of the road and putting explosives in them and selling them to people who are oftentimes intoxicated, right? Like, that's the business, right? And literally, we would buy products from the Chinese and we would sell them to Mexico. Like, my dad was like, "Look, you wanna learn negotiating? I'm gonna teach you how it works. You're gonna have to buy from some Chinese people and you're gonna have to sell to people in Mexico." That'll be great, right? So you learn a lot of negotiating when that all happens. So I ran that company for 8, 9 years as CEO. The last 5 of it, I was really burnt out on it and that was a real self-educational period for me which is I learned that I wanna live in a creative space. I'm a great person to have one-time insights. I'm a great person to come in and solve really hard problems. I'm a terrible person to make sure the trains run on time. The first train shows up great, the second train might show up, the third one, good luck. It's not gonna show up. That's not me. I'm not good at that. And so, at that point I said, "Look, what I need to do is I need to figure out how to get back into this creative space where I can be building things or I can be creating things or I can have insights that actually matter, not worrying about like, 'Hey, we're gonna make payroll again this week.'" Fantastic. Like boring. Totally boring. So, that's where I made the transition to go back into tech and where Geetham was like super transformative to me. I told the story about when I met Nick, who was supposed to be your real speaker, and you get me, the fake speaker. But that was where, like, I went in San Antonio before Geekdom, like, there was no way I could have found my tribe of, like, entrepreneurial tech people. Like, they were just spread out through the city. I didn't know where to find them. Whereas you go to Austin or San Francisco or portions of New York, like, that's everybody. In San Antonio, it's 3.1 million people, but only a small percentage of us are that kind of, mindset. So I found that tribe there and it's turned into starting, well, basically 4 different companies that I'm involved in. So you have serial entrepreneurs, I'm a parallel entrepreneur. That's what I was thinking about on my way down. I was like, how do I describe myself? I'm a parallel entrepreneur. Right? And that's where, like, I think what I've figured out how to do is start multiple things and figure out how to get myself to where I can help them but not be essential to the day-to-day of those. So in 2013, we started a coding boot camp called CodeUp. Pretty highly regarded these days. Mostly highly regarded because we managed to stay in business while everybody else has gone out of business. Started a venture capital fund which I still work on. Started a new company last year that's a software company which is right around the corner from where you guys were. So you guys were in the Weston Center to see Mailgun, is that right? You guys went up there? No, I don't— What about Mailgun? Oh, I was like, that's funny. This is audience.

I thought that you were gonna say you would know more.

Oh no, I don't. No, I wish I did. They're doing really well. That company is like one of the fastest growing software companies in the nation and one of the fastest in Texas. Like it's unreal how good they're doing. So it's pretty great. But anyway, like that's what I think I've hopefully figured out how to do is find the right people, hire the right people, manage them in the right way, relate to them the right way, partner with them the right way to where like I can be creative and work on multiple things at a time. So, and so that's where I am today, this third phase of my career where I'm like working on businesses but not in them. Yeah, right.

Yeah, exactly. Awesome. I want to go back to, uh, to the firework, uh, company. Yeah, because nobody ever gets to have an opportunity.

Yeah, let's talk about fireworks.

So what were the things that you took away from the fireworks business and then implemented into this new phase of your life, the difficulties that you might have faced in that industry and transitioned over to tech?

Yeah, well, I mean, I think there's at a meta level for me, like I'm 44 now. And like, we were, I was talking to a another investor this morning, and like, I don't think anybody else had told him like, hey, I'm a broken person, right? That's what I told him. I was like, I'm a broken person. Like, there are things that I'm really good at, and then there are things that I am terrible at. And like, at this stage of running a, you know, being multiple-time CEO of a company, like, I feel like the enlightenment for me is just an understanding like, oh, I'm like, I'm lumpy in terms of what I'm good at, and I should really accentuate those good things. So at a meta level, that's what Fireworks taught me. Like, Oh, like running these operational things and detail-oriented things, like I should really find some people that are good at that as opposed to expecting myself to be good at it. It's kind of like, you ever heard the phrase about asking a cat to bark? You ever do that? Yeah, I had an old boss who was terrible and she'd be like, that's like, she was the worst boss I ever had. But anyway, she said something really funny once. She's like, that guy, it's like asking a cat to bark. And I was like, I was like, "That is the smartest thing you've ever said." So anyway, I think that's it. In terms of micro stuff, I've been personally— one time another friend of mine said, we were mentoring companies together and I felt kind of insecure about it, and he goes, "Girdley?" I was like, "Yeah?" He goes, "You don't know all the stuff you know." And we were like helping somebody, no offense, but your age, right? Like, your brain's not done developing yet. You got a couple more years till your brain even stops developing. Like, there's so much in life that, like, he's like, "You don't know what you know." And there's just so many things that you learn about the nuances of how people act, like how they're gonna rip you off, like, like, like all kinds of stuff that's just like that way. So, yeah. Good. I've made it 10 minutes. I've already insulted you twice. And it's going really well. No, we're good. We're good.

It's alright.

Me better than other people?

Yeah, no problem.

So I want you to talk about your idea of CodeUp.

Yeah.

And where that idea came from. I want you to start with the BS reason and maybe the truthful reason. And then also explain its growth a little bit.

Yeah. So CodeUp is an 18-week accelerated learning program. It's a boot camp style learning. Hey, welcome. Yeah, we're having fun. So basically it's designed to get people jobs as programmers, right? And so you've seen these kind of programs pop up in different places. What I think CodeUp has done that's really smart is early on we realized we're not in the education business. We're in the change people's lives business by getting them coding jobs. OK, so it's a slightly different twist on what most people think Why does a college exist? Well, for you to get a degree so somebody will hire you, right? CodeUp is not in that business. Nobody gives a crap about our certificate. We print it out in Microsoft Word. Who cares? What matters is do we get you jobs? And the CodeUp where it's super unique is everybody that pays for the program goes through it and graduates. If you don't get a job within 6 months, they give you back all your money. How cool would it be if A&M gave you back all your money if you didn't get a job after graduating?

I would love that. Yeah, yeah.

But anyway, but then you'd have to, you have to change everything about the DNA of your company to make that important. And so, probably 2 years ago, a couple staffers who are no longer with us at CodeUp came to me and the other board members and said, "Hey, we wanna get rid of this job guarantee thing." So, how do you think we felt about that? Not okay. Yeah, we said, "Go back in there and do your job." Right? Like, so you're telling me you don't wanna get, you don't wanna deliver on what you're actually promising to people? But anyway, so that's like CodeUp's whole DNA and the reason it exists. So the official answer and kind of the truth is like I was mentoring a lot of companies and investing them in San Antonio and I kept seeing none of them could hire programmers. So we said, "Well, why don't we just copy some other program and create some programmers and get them, make them jobs?" The short answer is, yeah, we saw some other guys making money doing it in Seattle, so we thought, I thought we could do it better. So late one night, I told my wife, I was like, "Hey, you should start this company." And she said, "No, I'm too busy." And so I texted my officemate at the time at Geekdom who is a really great guy and CEO now of CodeUp. And I said, "Hey, we should start this company." He said, "Great, let's do it." "Oh, I have a problem." I said, "What?" And he said, "Well, I just started another company 2 weeks ago." So I was like, "Okay, we'll figure out something to deal with that." So anyway, the 3 of us started the company together. And it worked out? Yeah, it's going great.

Awesome.

It's going great.

So, uh, how many employees does it have now?

They're at 23.

23?

Yeah. Okay. Yeah.

I love it.

It's pretty crazy.

Could you explain some of the, uh, biggest difficulties you experienced in that business?

Uh, sure. Um, well, I mean, the hardest part of any business is getting that initial traction. Like, you have to get somebody to believe in you, like, early on. And so there's this, like, chicken and egg game, like, like, are you for real? Funny story about CodeUp. I have a friend of mine who lived in the neighborhood and he should have been hiring CodeUp grads. Like, he needed them. And we're at a party and he's like had between 3 and 12 beers. And he tells me, he's like, "That thing you were doing, I thought it was a total scam until recently." And I was like, "Really? Tell me more." He's like, "Yeah, until that national competitor moved in and tried to compete with you, I thought it was a scam." So, a national competitor, well-funded by VCs, had come in and he's like, "Okay, well, they— Girdley must not be scamming people if there's a real competitor." So, he went with you? No, he still hasn't hired any. Oh, what? Yeah. It's terrible. Yeah, I mean, so early on, traction is hard and that's one of the things we really focused on when we were starting the company. I remember having a meeting with my chief co-founders who were the initial instructors for the school. And they, you know, I was like, "Hey, we're gonna start this thing. We'll incorporate. We're gonna call it this. We'll go buy the domain name." And that was great. And they were like, "We'll start working on curriculum." And I was like, "No. Do not do any of that. Do not work on any curriculum." And they were like, "Why?" I was like, I said, "I don't know if anybody wants to buy this thing." Like, let's wait until we feel like the first class is gonna fill up and people wanna pay for it before you actually write write anything. So that's what we did over the first 3 months was we put up like one of those little site builder websites. I started going to everything. Got code up t-shirts and started telling everybody about it and seeing if people would put down money for it. And so once we had the class about half full, our goal was to get 15 people, then I said, "OK, you can start working on curriculum." Hilarious story about that, they didn't actually start working on curriculum until about 2 weeks before the first class started. So, you talked about procrastination, that's totally what they did.

Yeah.

That's awesome.

So everyone does it.

Everyone procrastinates. Yes. Some people don't, but everyone in this room does. So yeah. We had regulatory challenges. We still do. Believe it or not, those type of schools are heavily regulated. So, do you guys know about that? Do you want to hear about it? I have no idea.

I do not know.

Career schools and colleges are regulated under the same regulations as beauty colleges and truck driving schools. There's all these bizarre rules. Texas A&M, well let's say not Texas A&M, let's say any college that's accredited nationally by an accrediting body can go and put up a billboard that says, "Come to our school, you'll get a job." They can say that legally. CodeUp cannot even hint that we actually, of any guarantee of getting people a job. That's the rule. So we are much more heavily regulated than the accredited schools. So it's bizarre. That's crazy. Yeah, we drive past every day the Elmo Community Colleges in San Antonio says, "Come to our school, get a community college associate's degree, get a job." We can't say that.

Wow.

So it's bizarre. It's bizarre. It's crazy.

So how do you advertise or guarantee that?

That is still in discussion with the state.

So— What if you were to just do a partnership with a local university or the community college?

Yeah. Yeah. Let's just change the rules. Yeah. I mean, like, when the guy bought Fast Blue Ribbon, SEC said you can't do that. You can't start a website and do that. You frickin' went and made StartAppX, so now everybody's checking out from them. That's a terrible rule. How is it dated? Dated. We're dealing with it. Yeah, but I can imagine if that rule passes, I'm sure we'll see an increase in traction. Yeah. Everybody knows about the— tuition refund guarantee. So it's going to continue that way. So that's what matters.

Did you have a question?

I did.

I don't know. I'm very curious about how you guys developed the curriculum. It looks like you guys did it in a short amount of time. Sure. But were your founders all people that had a lot of experience in coding and software?

Mm-hmm.

Did you guys talk— how did you guys figure out a way to teach people that had no technical background about this? About the entire, you know, like that is for me very, very interesting. I'm trying to learn right now. Yeah.

Yeah, super cool. So, how did we figure out how to teach people with no technical background? So, early on there was some trial and error. We let in some people, probably the program that was, weren't good fits. So, later on we actually started to run a bunch of like tests to figure out who we should let in and who we shouldn't let in. Believe it or not, there's a hugely strong correlation between your ability to do algebra and your ability to be a decent programmer. So now actually everybody that applies to CodeUp has to do a math test or we don't let you in. Yeah, if you don't pass the math test, we don't let you in. Yeah. So, but we also learned a lot of other stuff about, you know, overtime, about how to do grades, how to do evaluations, when to kick out people for not showing up. A lot of that is stuff we didn't really know how to do until the very beginning. There were things that we learned about how to teach and at what pace. And all that's just trial and error where you go out and try it with your customers and see if it works and then do better. So, the first time we went out to do CodeUp, you know, it was— now it's 18 weeks, right? When we first went out to do it, we said, "Well, we'll just do it all in 9 weeks." And so, week 4 rolls around and we have a big meeting because we're like, "We need more time in the oven. The buns need more time in the oven." So me and my business partners got in front of the whole class and said, hey, we're going to give you 2 more weeks for free. And everybody's like, yeah, we knew you were going to do that. Because they started off teaching these people and they were going too quickly. And so they learned that they had to actually slow down. Look, I think the fundamental difference and why everybody here can get on Codecademy and try to make it happen, 99.9% of you are going to fail. And the reason is, is because we are, in my opinion, we are social animals and we need that level of outside input in order to truly learn stuff, right? And so that's the thing that actually makes a huge difference, is you have somebody like me calling your house if you don't show up on day 3, asking you why you haven't done your homework. Because we want you to show up because we don't want to give you back your money. Yeah, kind of a good deal, right? Yeah. So I don't know, did I answer your question?

Yes, yes.

Hard work.

Yeah, nice. Are you good at algebra?

No, I would— I will have— I'll expand on the question later. I'm really bad at math. We'll be good.

You got an A&M, right?

Uh, yes, but I'm really curious if anybody that's bad at math be a good coder. How can that happen? And should that be happening?

I don't think you're bad at math like other people are bad at math.

Maybe not.

Maybe not. Yeah, these are not fancy word problems. This is like, what is— if 3x 27 81, what is 3? Oh.

Because I spoke to Dirk—

That's algebra. But that's not what you're thinking about.

Dirk's last name.

Albinder?

Do you know Dirk? Uh-huh. Right, so he was telling me that he goes to you guys to hire for his startups.

Yeah.

And he was saying it's because it's not so much for him about people that have a ton of years of coding experience.

Right.

It's more that they can talk to people and that they can identify the right problems and create the right program and ask the right questions.

Right.

And so that to me is saying that maybe with time as coding gets more and more intuitive and less super tedious. It's more about that great logic, great creativity, lots of curiosity. Is that a part of your curriculum? Is there a science to the curriculum? Did you read books about teaching coding? Are there books about teaching coding? I'm just curious about all this stuff.

I'm sure there are books about—

We can talk about this later, too.

Is this boring everybody? No, it's not. It's fine. You should come visit CodeUp.

Yeah, I could probably.

Yeah, drive on down. I definitely looked it up.

Just give them your money and you'll be all right.

No, no, go check it out. You don't have to. Students right now are not our problem. We got a lot of them.

So if you could dive in more to the fund and how you go about vetting companies.

Yeah, so I started in 2014 a venture capital fund with a couple other partners. So, we've raised two different funds. The second fund was $20 million, which is pretty good. And we invest in early stage internet tech startups. So, anything that's internet tech related could be just software, SaaS, robotics, like all that kind of stuff is stuff we've gone in. So, and I think this is important for anybody thinking about raising money, you need to think about what the economic model is for the person that's gonna give you money. What's in it for them. So, a lot of times we have people come to us and say like, "I want you to invest in my idea. I think it could be a nice business." We don't invest in nice businesses because we're a venture capital fund. Do you guys know how the economics of venture capital fund work? Yeah? Okay. So, a typical venture capital fund, let's go say you're one of the big names of venture capital like Andreessen Horowitz or Sequoia or one of those guys. They'll take a fund and they'll go raise a couple hundred million dollars. They'll put that money into 25 to 30 companies maybe, sometimes 20 companies. Out of that, there will be a power law distribution. Have you guys heard of that? Do you know what a power law distribution is? Yeah, see, you guys are good at math. I might, yeah. That's what I'm talking about. So power law distribution basically looks like this, right? There's like 2 or 3 things out of the whole thing that matter and then there's everybody else, right? So, if you go look at say Rackspace, you guys know Rackspace, the company you guys went and visited? They're part of an actual really famous fund from a firm called Sequoia and that's one of the oldest kind of big boy venture capital firms out in Menlo Park. True story, I interviewed there, they didn't hire me. Fantastic, right?

Aren't they the biggest fund now in America?

I have no idea, but that sounds like a good fact. So, but there were two deals out of that fund that made money, Rackspace and Google. Guess what? Everything else comprised for the return of that fund. Noise. Like, they might have gotten their money back, they might have not, but it was all noise, right? So that means that you as a fund that has our kind of classic model where if you give us $100, I have to come back and give you $300, hopefully, right, in the next 3 to 5 years or 5 to 7 years. That means I need to go optimize for finding that thing that can be the next Rackspace, the next Dell, the next Uber, not the next nice business.

Yeah.

Right? And so, like, that comes down to the fundamental thing is when people go raise money for their startup or get money for a venture, like, you really have to think about the people investing in you as customers. 'Cause you're selling them something. You have to find out what they're trying to buy. That make sense? Yeah. So, somebody in our situation, like, if you're gonna tell me that you're gonna have a $10 million business in 5 years, I don't care. Total noise. Show me how you're gonna have a billion-dollar business in 5 to 7 years. Like, that's interesting. So anyway, that kind of comes down to the first thing to do if you're trying to raise money is really think about what the other side is gonna get out of it. Because it's not just a give-and-take situation. It's like both sides need to be getting something out of it. Yeah, exactly. So for us, we have that very narrow constraint, right? We're investing at a certain stage. We're investing in businesses of this type. We're investing in any geography in North America. And we have to check that box and say, "What is the likelihood that this team in this space with this approach is gonna get lucky enough that they're gonna be worth $100 million or $200 million in 5 to 7 years?" Nice.

Have y'all had any exits?

Yeah. Yeah, we just had one the other day. So a company of ours that was a direct-to-consumer couch-building business. They were Casper for couches, basically. They sold. It was not a huge exit, but it was something that was— got all of our money back and some, so it's pretty good. A couple companies from our first fund have sold. And then the cool thing is in venture, right, we're still early in those funds. It's still only like year 4. The compounding that gets really interesting is later on. So like some of the companies we've invested in, say, at like a $3 million valuation 2.5, 3 years ago are taking in money at an $80 million valuation now. So on paper, it's really good. Yeah. But cash on cash is fine. But if you think about it, do you want to be— what's interesting about compounding? Is it year 1 through 7 or year 7 through 15? Right now is where the real percolating happens. When you have an $80 million company that grows 50% in valuation, like, that's really exciting. A $2 million company that grows at 50% valuation.

Yeah.

Cool. But only if it keeps happening.

Right.

Right.

Could you go into the thing we discussed earlier? The wheelchair company in Toronto as well as the—

Oh, the—

What exactly was it? The— This little box that makes you—

Oh, the salad? Yes. Salad? Yeah. Yeah. Go ahead.

Yeah.

So, we kind of invest in two different types of businesses. One is just plain old boring software companies. By the way, software is not not boring. If you guys are interested in the economics of software, it's awesome. But we also invest in these things that we kind of consider big ideas and moonshot-oriented type businesses. So, one of them is a company located out of Toronto run by some Indian immigrants that are there that came out of University of Toronto and University of Waterloo. And they are— basically, their mission over time, over the next decade, is to get everybody who's in a wheelchair out of one. And they're doing it by creating exoskeletons. And they're starting with kids in wheelchairs, especially ones with muscular dystrophy, spina bifida, stuff like that. And I don't know, I didn't know this was a problem until I met these guys. But basically, there's a real problem when young kids are in wheelchairs. And you guys know it? Have you guys heard of these problems? It's horrible. I had never heard of this until these guys told me. But basically, if a little kid is in a wheelchair, their bones will keep growing, but their muscles, because they don't get up and walk and move will not stretch. And so they get these really painful things called contractures. Contractures, yeah. So basically the muscle will pull their bone together and cause it to have all these little fractures. And it's hugely painful. They have to go in and have surgeries every couple years. So basically what this device does initially is it gets them up and walking so that their muscles are stretched and they don't have to go through that kind of pain. So that's pretty fun, but it's like, That's one of the cool things about venture is you get to invest in people like that working on stuff like that.

Yeah. What is it like working with those motivated individuals?

I think it's pretty cool. Yeah. I mean, that's another nice thing about venture. You get to pick your friends.

Yeah.

Yeah. Yeah. That's a good thing. So yeah, that's kind of the number one thing. Jerks can get invested in, but they don't get the same help that really nice people do. Yeah, you know, that's like the number one thing. Like, for me, like, as an introvert, like, I've— it's kind of a learned skill to try to be likable. And, you know, there's a lot of people who come in and I'm just like, I have no interest in spending the next 7 years dealing with this person. You know, it's just like, thanks for dropping in, you know, good to see you.

Yeah, yeah, I like it.

Awesome.

Well, we can open it up for Q&A now.

Yeah, what do you guys want to talk about? Yeah, can you talk a little Can you talk a little bit more about Fund 1 and how that whole moving from, moving into the venture world space and how that worked out for you? Because that's the space I'm really interested in, but I'm in that, it's gonna happen, but when's it gonna happen, how are you gonna— Sure. How big was size for those funds? Yeah, so the first fund was $3.5 million. So my partners and I put in about 10% of the capital in the first fund. And about 4% of the capital in the second one. So, we put in $600 grand, $300 grand in the first fund and then $1 million in the second fund of our own capital. So, for me personally, like that made it much easier to go raise money. Everything I've ever raised money for, I've had skin in the game. And that's one of the things I think can give you a leg up if you do eventually go raise anything for a startup or anything like that is I'll often get pitches where it's like, "Well, I'm gonna quit my job once you give me some money." Oh really? Like, you seem to have a high level of conviction in this deal that you want me to give you $100,000 in risk capital for. But I met with an entrepreneur the other day and he's like, "Yeah, I've got 3 more months of runway." I was like, "Yeah?" He's like, "Yeah, 3 more months until they kick me out of my apartment." Like, that's legit. Like, serious skin in the game. So, for me, like, when I raise money, like, that makes it— I don't feel yucky in my tummy anymore when I do it that way because I'm like, "Yeah, I bought into this too." Like, I put my own money in there. And we didn't, for the first 2 funds, charge a management fee either. So, do you guys know how management fees work in funds like that? It's typically a 2 and 20 structure. Do you guys know what I'm talking about that? Do you want me to tell you about it? Yes. Okay. So, typically, if like you guys have mutual funds. Know anybody that has mutual funds? They charge you a load or management fee each year. So, hedge funds and venture capital funds, they all do that. So, typically, the typical fee is 2%. Of assets under management during the active investment period. So, if you go look and Andreessen Horowitz or Sequoia or one of these big guys raises a billion-dollar fund, just do 2% at the bottom. That's what the partners are splitting just to manage the fund. So, a lot of people get very rich in venture not from actually returning the funds or making their investors money. They get it by getting really big fees, right? 2% a year on a billion-dollar fund is $20 million, right? That's pretty— that's a lot of houses in Atherton and Menlo Park, right? What are you saying?

This is very interesting.

Thank you for— yeah, yeah.

So then the— so that's the 2%. We didn't charge a fee because we didn't want to pay ourselves a fee. We didn't— we wanted to go prove we could make this really work, so we didn't charge a fee on either the first or the second second fund. We did it all as, hey, this is— we're gonna go out and prove this can happen. The 20% is called carried interest. So, carried interest basically says like once we give the investors back the money, they keep 80% of the profits, we keep 20% of the profits. Carried interest actually dates back from when they used to send ships out. Do you guys know about this? So, they used to send ships out. Remember like, I'll wait till my ship comes in? So, they would send ships out and it'd be like, go out there and get us some whales, right? And then the whales would come back, the whale carcasses would come back after they hunt them. Hopefully the ship returns, doesn't hit an iceberg or whatever. Captain keeps 20%, the guys funding the ship keep 80%. It's your carried interest. You get a percentage of it, right? And those percentages change based on whether you're hunting big whales or little whales or whatever. But in venture, the same thing happens. You have a carried interest in the assets you have under management. If somebody, a bunch of pension funds or whoever gives you $1 billion and your job is to go turn that into $5 billion or $3 billion depending on your time horizon, your carried interest is, in theory, you get 20% of whatever the gain is on top of that. Okay?

That's a lot of money.

Yeah.

Especially Sequoia.

Yeah, so, you know, those guys have amazing franchises. Like, people clamor to be funded by Sequoia, Andreessen Horowitz Benchmark. Whereas there's those guys and then there's everybody else. Right. Yeah. Interesting. Awesome.

Any other questions?

What do y'all wanna talk about? You guys look at each other like I'm saying crazy shit. Oh, stuff. Did I answer your whole venture question or did I go off on a tangent? Nobody asked a past question. I'll keep going. Oh, so how did we start the venture fund? That was the second part of your question?

Yeah.

So we were 4 guys who had never managed money before. None of us, none of us had had a huge exit. None of us had been in venture capital or worked in it. And basically, so we had no track record whatsoever. So we put our own skin in the game and we gave people a good deal. We didn't charge a management fee. And we said, this is a proof of concept fund. Like, join us in this and let's go see if we can make it work. And so, so far that on paper and in terms of cash returns, so far it's really, really good. And those two funds are performing really well. But it's just like anything else, like starting CodeUp or starting any business that you want. Like, first you go get your first customer and then you strategize to get your second customer and third customer, like one foot in front of the other. But at the core of it, you try to hypothesize, this is what I think will be an attractive thing for my market, and then you go run experiments to see if it'll work or not. And so we probably did, each of those were probably 150, 250 meetings. A lot of meetings.

Friends and family mostly?

You're raising the money from friends and family? That's a lot of high net worth individuals, so personal network for all of us. There are 4 of us. And so, yeah, like if I was raising a fund right now, I would be like, hey, is anybody— do you know anybody? We go full Kevin Bacon.

Degrees of separation.

So, where Geek the Fund is going now is Geek the Fund is getting bigger. So, my partners— I'm not actively gonna be a partner in the third fund. I'm not on the core team. I'm just gonna help those guys 'cause I wanna work on other stuff and be creative. And so, where Geek the Fund is going is they will eventually raise a big fund. And the idea being that RealCo is an accelerator that gives out kind of YC-level checks to smaller, earlier-stage feeder companies that eventually the fund or other people want to invest in. So RealCo is— you know, we tell folks that are invested in GeekThaFund, RealCo, which is the accelerator that we run and that I helped start, and the GeekThaFund together, like, you get almost two funds in one that way. So we've got about 11 companies right now between the ones coming in and the ones currently in the program. Did you guys meet Funnel? Funnel AI when you were there? So Funnel AI, like, great story, like, came to San Antonio from Austin, not that we're trying to poach companies, but came to San Antonio from Austin because they like the energy in San Antonio. If you want to be a big fish in a little pond, San Antonio is great. If you want to be a little fish in a big pond, New York, San Francisco, Austin, perfect. But so they came there, they were at $1,000 a month recurring revenue. Over the course of about 15 months, they've gotten to where they are now, which is $130,000 a month in recurring revenue, so over like $1.3 million. So pretty good. We're happy for those guys. But that's kind of one of the real co-stories that we've had so far. And so anyway, if any of you would like to join the Technology Accelerator in San Antonio, we can take care of you. You don't have to move there. You can live wherever you want.

So you mentioned that you were a parallel entrepreneur.

Sure.

When you first started your, I guess, your second business, were you still taking a paycheck from the first company or had you gotten completely out of that one?

I am unemployed technically. I don't get a W-2 from anything. I do get ownership distributions from things. So I think we're like, I'm in a CEO peer group. so we talked— you're an EO, right? We talked about— so I'm in Vistage, but I'm like the only person in my Vistage group— like, they all are owner-operators of their companies. I'm like the weird one who like, I try not to actually work in any business. I want to work on the business. So that means helping the CEO, having somebody else run it, being there when they need me, solving hard problems, but I don't want to make sure the CRM is updated and the payroll happens.

What unique obstacles did you have to come over personally to make that transition from being the owner-operator to being—

Yeah, yeah, so it's very, very, it's scary, first of all. You have to, secondarily, so that's a level of kind of, for me, personal courage that I feel like I had to develop to be able to let go of things and trust other people. It gets easier to trust other people if you get really good at hiring. I've spent a lot of time learning how not to hire terrible people and also how to identify people who are not good fits and let them move on to their next thing as quickly as possible. The other thing I've developed across different companies is I have a standardized playbook that I make all the companies use. I haven't actually had to force anybody to use the standardized playbook. I just ask them really nicely and they all seem to do it because it's a good idea. But it's everything from like, here's how you hire, here's how you do interviewing, here's how you do quarterly planning, annual planning, quarterly goals, here's how you build your org chart. So, I have like a recipe book that when they start, I'm like, you need to do all of these things. And for me, that gives me a common language that I know they're all using, and I know also that they're not going to be doing really bozo things that should be easy but are easy to screw up. —or is it based off EOS? So yeah, so I went and actually it's— I use EOS, which is— do you guys know what EOS is? Really cool. It's— they're scaling up and then there's like 40 bazillion other copies of it. But it's basically like business operation paint-by-numbers. So it's like they have a strategic plan. Your strategic plan is the front and back of one piece of paper. But filling out that piece of paper correctly is actually really hard and there's a whole bunch of like cadence of things that you do in order to fill that out. And then for hiring, there's TopGrading, which is the best by far. Have you guys— do you guys know what TopGrading is?

Mailgun mentioned it, didn't they?

Yeah. Who do you think they got it from? So true story, one of the Mailgun people, we were interviewing a guy, I was like, "Hey, you should come over and check out how we're interviewing. I'll show you how TopGrading works and do that." So, they sent over a guy and I'm not gonna name his name but between the time I invited this person to come observe our interview and the time that this person showed up, they got in a really bad scooter accident, like on the scooters. So, this person shows up to the interview and the only seat left, the candidate's here, I'm sitting here, my business partner is sitting here, the only chair is right here. So, the person from said company comes in, sits down and literally looks like he just got out of a fight with Mike Tyson. Like he's got a bandage on here and like there's like this bloody gash down his face. And so he looks like he's a big guy, looks like he got in a fight. So it was awesome. It really helped, you know. We didn't hire that person but yeah. So Mailgun, Mailgun uses it. Yeah, it's awesome. So much about how we all classically think about hiring is just totally wrong. It's just backwards. Like the idea that you're gonna, learn anything about a person in 10 30-minute "How are you? What's your cousin? Where'd you go to school?" interviews. Like, it's just total BS. And the cool thing about TopGrading is that it realizes if you want to identify a high performer, there's 2 things that will tell you who's a high performer better than anything else. One is what other people will say about them. High performers have lots of people that will say great things about them. And then also what that person has done in the past. Past performance is the best way to tell if somebody's going to be a really good employee. So anyway, that's just one of the components and I spent a number of years like identifying these are all solved problems. What is the best system to go do this? Like how do I build a repeatable sales model? Alright, here's how you do it. How do you build a sales comp plan? Here's how you do it. So I have those all gathered up that I can then go to the company and say do it this way.

So you know how Y Combinator throws their safe documents and things like that up on GitHub.

Are you guys thinking about doing that for any of these documents? We use those. I mean, they're pretty good. No, I mean like your stuff that you've created, this playbook. Oh, yeah. I was going to put it on my website, and then I haven't done it yet. If you want to email me, I got it on a Google Doc. But yeah, it works out pretty well. So yeah, happy to share it. It's just some stuff I copied from other people. Emulation.

Anything else?

I think Steven would like to make a announcement after you're done.

Oh, okay. So I had a question on how is evaluating a software company different from other companies, or is there anything in particular that you look at? What are you— are you evaluating a software company for purchase or for venture? Either. So, they're really, there's, so those are kind of very nuanced things, right? So, valuation is somebody's opinion on what the thing is worth. So, it's different things are worth different things to different people, right? So, if for purchase, let's cover those first. So, there's really, I would say there's 3 different categories of buyers of software companies now, right? So, at the top end, you have strategics, right? So, strategic would be somebody who can pay $1 billion for a software company that's only doing $50 million a year in revenue. Well, why would they do that? That seems impossible. Well, perhaps the thing is growing like crazy, or it can unlock a ton of value in the rest of their enterprise, right? So you just saw MuleSoft sold to Adobe for like 3 times, 4 times forward-looking revenue, like just an incredible multiple, like crazy. And now it's so strategic, right? Because Adobe thinks it can grow the rest of its business when it has that, right? I think I'm giving you the right names, but basically the idea. So, those guys will value it based on creating a model on the strategic value of what they're gonna unlock, right? So, that's one way they get value. The second group that will go and buy software companies are private equity companies like Vista and stuff like that. Have you guys heard of them? So, that's kind of like a— it's kind of like a VC fund, but it's a private equity fund. They buy whole companies or significant invest money in them, and then they try to flip them to the next person. Okay, so that's kind of the second category. They'll build a financial model based on, okay, if we take this business, here are some assumptions. We're gonna buy it for X. We're gonna put X amount more money in it. We're gonna make these team changes. And then it's gonna turn into this amount of growth and this amount of revenue, which we think will be this valuable to the next buyer. Right? And so that's a lot of times what the PE guys are doing is you have the mid-market PE guys who are playing in the small to midsize. They'll juice up a company and give it steroids. And then they'll sell it to the next bigger guy and he'll do it and sell it to the next bigger guy, right? And the fish keep eating the little fish all the way down. So those guys will value it based on that kind of economic model. Then there is a third category, which is the financial buyers. And those guys are pretty straightforward, right? And so, one of the companies I'm involved in is doing just that, where we go and we look at a company just as a prediction of what the cash flow can be out of that. And we do a discounted cash flow model. Have you guys heard of that? Okay, if you take an economics, like time value of money and stuff like that. So, we'll basically like, we'll plug it into a model and say, okay, we think the growth is going to be 5% year over year. We think the costs are going to be this. We think the cash flow looks like this. Therefore, we want to reach a hurdle rate, IRR, for our own needs and we'll buy it for X, right? And so, that's kind of, that's how that other valuation is. Very familiar to economists. Okay, so that's, that's you're buying a whole business. Now then there's the minority investors who are like venture investors like us. Okay? So, in venture, remember we talked about the power law distribution of results, right? So, like in the ridesharing market, there's Uber, Lyft, and then who's third place? I don't know. Who cares, right? So, like that's the way a lot of markets work. Who's the number one CRM? Salesforce. Who's number two? Who's third? It's a big market, so you can still do OK, but you're not going to be as big as those guys, right? And so Graham talks about this idea a lot. Has he been up here to talk about the ladders, right? The trout, Jack Trout? OK. So same thing. In venture, it's winner take all. And those markets, what you're betting is, is this going to be the company that I bet in that's going to own a really big market someday, right? Am I betting on Airbnb? VBRO or who cares, right? Which one of those is there? So, what venture is, is picking a reasonable valuation at this point with the expectation that you're gonna get into the right train that will eventually be the next Airbnb or Rackspace or Dell, right? That, that's multi-billion dollar exit. So, valuations are important but not as crazy important as in the guys, the full acquirers that I just told you about. Typically, where guys like us or VCs will price stuff is we're seeing deals all the time. We know where the market is. So, we'll know like, oh, based on this, if you're in Austin or you're in College Station, like are you in Houston or San Antonio, based on this type, this type of founder, you're probably trading for $3 million cap. And that's a note or $4 million valuation or whatever. Or you've reached this level of milestone, you're doing a Series A, you're raising this much, will know. And so, that's why most people who are raising money as a startup in that kind of second bucket, your job is just to figure out how much money you need to reach your next set of milestones and then let the market, the investors tell you what valuation they wanna pay. So, yeah.

Do you have some ideas on why that would be? I mean, if you look at like Sequoia or Bessemer Accel or whatever, you know, all of these massive firms benchmarking, they're like, they all raise billion-dollar funds, you know, 8, 16C, and there doesn't seem to be one that's like, you know, 10 times bigger than the next.

Yeah, okay, so great question. So what you're not thinking about is there's a bazillion also-run firms. Very true.

Is it a question that all of those companies together are the top of the pyramid? Yeah. Okay. Alright. Yeah. For sure.

But why is it that one of them hasn't become dominant? I think it is a practicality standpoint. Like, remember, this is a human-touch business. Like, there's just— I mean, if you look at the Bay Area combined with the rest of the world, like, there's just too much for anybody to own all of it and take a hugely market, you know, huge, huge position in it like that. I mean, if you're in San Francisco next time, go down to the— have you been to San Francisco? Oh yeah. Yeah, like go down to that Ferry Building where the market is and like walk around. There's more venture capital in that building than most of Texas. Like I walked around one day, I was like, there's more VC here than all of Texas put together. And that's changed a little bit recently with some of the bigger Series B funds coming in. But still, like, like you, for all those guys, there's For every one of those guys, there's 50 Joe Schmo funds. So do you think that that's bigger now in San Jose Road and Menlo Park? Oh, I think most of the center of gravity's moving to San Francisco for all those guys. They're all open offices up there. The partners don't want to live in Menlo Park. They all want to live in San Francisco. No Atherton homes? I mean, the weather's nice. I would totally live in Atherton if I like— If somebody paid me 10 times the amount of money I make now. Cool. What else you got?

Any book recommendations, podcast recommendations?

What do you want to learn?

Coding. Yeah, I'm trying to learn everything, but that's not a great— How do you decide what to learn?

I like to read things that are— So I probably am reading— Last year I read 50-odd books. My reading is different than other people's reading though. I'm reading to learn, I'm not reading to finish. So, a lot of times I'll just skip through shit, stuff that, I'm sorry, that is boring or I already know it. So, I'm looking for things to change my thinking on things whenever I read a book. So, but yeah, so like that's the coolest thing about being a person of action, of going to do stuff, is you're gonna run into problems. Right? And if you can go optimize your reading and learning for things that are gonna make a big difference for you, like, that's where you're gonna see the most value of that. And that's where you can go ask people who are big readers, like, what book do you recommend? Well, what's your current problem? What are you worried about? And then that will make it very meaningful. You're gonna be super motivated to read that book because that book's solving a real problem for you. For me, like, reading about top grading and learning about hiring and studying all that stuff, do you know why I got motivated about that? I made some bad hires. Yeah, I was like, this sucks. I don't want to do this anymore. Firing people is totally lame, like not interesting. So anyway, that's what I would say. But yeah, what are you stuck on? What do you want to learn? I'll tell you what.

Yeah, right now I'm really into O'Reilly. I use a lot of O'Reilly to build my competencies. But is there any other ones that— For programming?

Yeah, for programming. I don't read a lot of programming books anymore. Yeah, I read business books. I'm a business nerd.

So do you ever use your hiring— like, you're developing hires at CodeUp, right? So do you— you're not just teaching them coding, you're teaching them, you know, to be a good programmer and developer. And so do you use those sort of business book concepts, and how do you put that in with the technical curriculum?

Yeah, no, I dig what you're saying. So I mean, there's a lot of functional things that CodeUp does, like teaches you how to actually build like a resume that doesn't suck, teaches you how to interview, teaches you actually how to build a personal network, teaches you how to build a personal brand. So they do those kind of things. So all those are lessons learned from real life things and then from reading, for sure. And a lot of that is stuff that the staff right now is just like, that's, I think that's like the most beautiful thing about business building and the greatest gift gift you can give somebody is when you can put them into a role that they thrive in and that they're born to do, right? Like what I do now and what my career is, I am born to do this. Like it took me 20 years to be totally self-actualized professionally. Like this is what I want to wake up every day and do. And people say like, is this the career you want to have? Like, or what are you going to, when are you going to retire? It's like, why would I do that? That doesn't sound like any fun. Now when I turned 65 instead of 44, I may have a different mindset on it. But that's the coolest thing about seeing CodeUp currently is it's getting to a size where you can put somebody and say, "Hey, your job is to go get other people jobs." And that person's like, "Yes, I was put on the earth to do this." That's beautiful. And that's the greatest gift you can give somebody as a boss or a business owner. But they're doing it better than I ever could. I couldn't do what they do, which is cool. Yes. Awesome.

That was a great answer. Yeah. Do you—

yeah. Commercial time. Yeah. So I am, like you mentioned earlier, I'm part of an entrepreneurs organization. We do learning events mostly for our membership, but on occasion we open it up to others. Sometimes we charge for it. The next event is going to be a free event on May 6th. We're bringing in James Lawrence, who is the Iron Cowboy. He did 50 Ironmen in 50 days in 50 different states. This guy's message is extraordinary. His endurance, his passion, and his story is like none you've ever heard before. And so if you want to go to it, it's going to be at the Stafford on May 6th, 6:30. He'll go on stage around 7:00, 7:15. All you have to do is go to Eventbrite and search for E.O. Iron Cowboy and And it will pop right up. So I just wanted to let everyone know about it. And you can invite anyone else that's entrepreneurial spirited or business-minded that will bring in a group like this. I'd love to see them there.

And this is named organization?

Launch Programmers Organization. Launch Programmers Organization.

Awesome. Thank you. Thank you. So I think that pretty much wraps up our entire talk.

Yeah, that was great. Great job.

Yeah. Yay. That was no shit.

We did it. We did it!