How to deal with founder and investor misalignment w/Itay Forer

Welcome to another episode of the Whole Human Podcast. My name is Peter Sorgenfrei, and today I have the pleasure of speaking with Itay Forer, who has very kindly come on here to talk about Investor relationships, knowing when to pivot, the emotional journey of a founder, strategic shifts in market changes like COVID. There's tons of things we can talk about, but first I'd like you to introduce yourself to the listeners of the podcast.

Thank you so much for having me, Peter. I'm a founder. I'm an entrepreneur. I'm a mentor and a coach. In my past, I actually founded multiple companies. I founded a startup from 3 founders to 400+ employees. raise money from investors and grow this business up. Later on in my career, I just started designing more and more products and went into mentoring and coaching. Today I'm coaching and mentoring CEOs and a lot of interesting professionals in their journey into business growth and professional and personal growth.

Excellent. So one of the things we've spoken about before coming on to record this Was throughout your journey, obviously you've raised professional investment from professional investors. And one of the things that you mentioned to me that I think would be super helpful for the listeners is what happens when there is a misalignment between you, your founders together, the co-founding team and your investors. And I think you have an example of that happening to, to you. Can you take us back to that and tell us a little bit about that situation?

Sure. I guess high level, one thing that you always need to remember, and that's what I'm reminding myself a lot of the times, is that when you're finding an investor, it's, it's not just the money. It's a relationship that you build and you need to understand their own strategy. Can each one of an investor, if it's an angel investor or VC, which is venture capitalists, they all have different kind of strategies internally of why would they invest. And it's not necessarily always going to be aligned with you as a founder. So it's remem— you need to remind yourself you're getting into a long-term relationship. And with that in mind, you need to think about, would it be helpful for me in the future too? Or is it just quick money right now? Because money is cheap. You can take a loan from the bank. When you're getting into investors who have equity and even board decision within your company, it's getting a bit tricky. In my case, what happened is we, when we raised our seed round, everything was great. When we raised our Series A, We actually took a few investors, which at that point in time looked amazing for us because they were like in service business, which what was our business too. And they show promising visions as well, but we weren't going too deeply into what, what is their, what is their strategy. And then when we got to a point where we needed to think about the business for the future perspective and change strategy, we hit the wall where We as founders had a, a new way to take our company and shift it and almost like it's not pivot, but take a different direction to think about long-term goal. But it wasn't aligned with that, with those group of investors which had board seats and some of decisions within the board. When you have a C corp or, or companies with board is that some decisions are unanimous. So even though one person at the board doesn't think like that, like you, or want a approve it, you cannot go on with it. A lot of the time it's for more of the critical things, like a shift in certain things within the company or, um, decision to sell the company or things like that. In our experience, um, which was, I would say one of the toughest situations I had running the company was where we finally saw a way to think about very long-term within the company and what can we do with the company. And suddenly, in our case, it was, we were an on-demand laundry and dry cleaning service. And when we saw the future of sustainability and secondhand and those kind of realm, we thought about shifting and take this thing to the next level and not just doing the on-demand laundry and dry cleaning. And the investor blocked us. They basically didn't want us to continue on. And it was a huge hit for us as founders.

There's a couple of very key points there, I think. One is all money is not equal, right? So understanding what the money comes with, the mentality, the shape of the firm. You mentioned venture capitalists. When you look at the stages of funding, obviously you have angel funding, you have pre-seed, you have Series A, B, C, D, however long you want to go. Maybe you even have private equity later on. All those different funding sources. Have different temperaments, have different horizons, have different return profile expectations. So that you need to understand, but you also need to understand, of course, the people that come with it, the board members that you get. So I think that's something that we need to underline. The second thing I thought of as you're recounting this story is the investors dictate the choices you can make because an investor might have a 3-year horizon and the plan that you proposed might have a 7-year or 10-year or even longer return profile. And so for that reason alone, because their mandate is a 3-year horizon, they will say no to something that is quote unquote only in the interest of the company, right? And it seems like that's what you experienced.

Exactly. So 100% agree with you. And I feel like that was my, 'cause that I, my first company of raising money, my, my, that startup experience was the first time for me and A lot of the time was, a lot of the things were new to me. I got a lot of like disclaimers when I was raising the money. You become bullish. Yeah, I can do whatever. And it's, and like you said, money is basically one way you're getting. So you can get, we said, a loan from the bank or get money from someone. But then if that money eventually gonna lead you to fail, so it doesn't matter the money you got. So that's why when you make taking any partner. And by the way, it's equivalent also for a co-founder. If you take someone as a co-founder and you're giving him 30% and that person is leaving the other day, then you have 30%, um, uh, percent equity that is dead equity that nobody can do anything with it and it's not contributing. So it's, but from an investor perspective, you're right because each VC is, and it's funny, it's not even just in the terms of long-term or short-term. It can be also a strategy within the market. Let's say they have a lot of, in our case, they had a lot of companies in the service business. Some that did on-demand for laundry, some for home cleaning, some for whatever. So their strategy is to stay within a certain realm, right? So to talk about like clothing and, and secondhand and renting and things like that, it's not aligned with maybe future acquisitions that they would like to have or future strategies they have internally. So this is why you also need to understand what industry are you are in, what is your aspirations, is that VC would support that kind of aspirations upfront. And, and I'm telling you, I know it sounds hard, but you need to interview a VC in order to understand that.

And that's, and that is particularly difficult if you've gotten 200 investors saying no, and then there's one saying yes. And then at that point you're like, I better take this money because nobody else has loved the idea and you forget that due diligence. So what's like a good piece of advice that we can give people currently raising funds in addition to telling them, make sure you interview your investors, make sure you vet their investment thesis, make sure all you do all these things. Is there a simple thing that we can impart upon the people raising money that they should keep in mind? What would you say to those people?

So the first thing, and it's, it sounds very far-fetched, but trust your intuition. A lot of the time you are too worried about the money, right? You want the money comes in and you're sitting in front of someone and it doesn't sound, it sounds either sketchy or not someone that you want to work with, but the money, like the gling, gling, gling, gling money coming in, it's like blurring you. So trust your intuition because I feel like your heart and your true intuition will give you a lot more guidance than the urge for money at that point in time. Because what's gonna be harder for you is while you sign this thing is to go on about it for a year or 2 and then decided that it's the wrong direction and then you cannot do anything. So you waste another 2, 3 years that you cannot go, go back when you didn't raise the money still. You have multiple options in front of you. Trust your intuition will be the first thing, as you need to understand who are the partners and who you're doing business with. The second thing is, what I would think about is how can that person give me added value rather than just cash? If, for example, in our case, we thought about the added value, but we didn't get too much into it. We said, oh, they're in service business. Great. But what else can they bring us? In, for example, if I'm winning, going to a VC that is truly remarkable by helping founders recruiting when you're growing, right? Which is hard. Recruiting is hard to find great talent. Suddenly I'm saying, wow, I'm not as good in recruiting. I really need to hire soon. Um, that value can be like a very long-term value. I'm just giving one. So find like, what else can they bring to the table other than just money would be the second advice.

Yeah. And I think that's, as you're saying this, I'm also thinking start early, right? So you basically need to start getting to know investors, getting to know the companies that they've invested in, get to observe them a little bit along the way until the point where you need to raise money. Because the worst thing that happens is you really need to raise because you're running out of cash in 6 months or 12 months or 18 months. And that's when you start making decisions that maybe long-term prove not fantastic for your company.

Yes.

All this said, of course, there are many situations where it's worked out, right? Yours was just a case where there was a divergence between what you guys wanted and what this investor wanted. So what happened with the company? What happened with the business after that?

So I guess I got, I guess mentally that decision took the air of my, took the air for me from running, continue running the business. So like fundamentally, I wasn't as excited from that moment because I, I realized, hey, I need to push. Yes, I was a leader and in the company and a founder, but I needed to push something that I don't think that's the right direction. So that. Change in, in, uh, or that incident, like basically told me that I cannot stay for long. Long story short, I just stayed a couple more years and then we decided to merge the company, which an opportunity arise and makes sense. But I guess what I lost is the passion and, and the excitement to go on because at the end of the day, I didn't build this company to be rich and famous. I, I built it to solve a problem. Which I experienced myself and I saw how can I extend this problem and create something remarkable for our customers going forward. And when I felt like it's become just, hey, just a business managing it and running it, for me at that point, having all this ambition, all this vision in me and what I wanted to explore, it was just a flat tire right, right there at that point.

So, so now you, so since then, you, as you said, you've spent time working with other founders and mentoring them. What are some of the trends that you're seeing among these mentees, these founders that you work with? What are some of the main topics that you work on with them?

So I guess because of the pandemic and also the financial crisis specifically in the US and in a lot of other places. I guess a lot of the founders are different than in, in my era. They're more cautious into building something without fully to be dependent on, um, external funding. Now that doesn't mean they're not raising, but I guess part of the trend is where that's the trend I see. I also see less people in like less VCs investing, but from the founder perspective, I feel like that's also what I'm trying to help them is try to think about you growing a company. VC can be one decision, but you can do other ways, other stuff. Like in the early stage when you're like a founder, only a sole founder, or maybe even 2 founders, finding a couple more founders that have different talent than you. Let's say one in marketing and one in, in sales or whatever it is with the right network, with whatever. can really transform growth. And that's what I saw more is like people open up more to partnership, to, uh, engage with other people, although even it's fully remotely and you maybe even haven't met that person. But that, I think the COVID changed the na— the narrative there and opened people to trust. I can tell that my, in my last product that I created maybe 6 months ago, I actually brought on someone that I haven't met in person and I gave him Of course, vesting and cliff, but I gave him equity as a form of things. I think that's part of the things that I see more, but on another hand, yeah.

Yeah, no. So just to add on to that, that we're seeing more and more people bootstrap essentially, right? And we're seeing more and more people trying to find ways to grow their businesses through bringing on people who get equity. So. co-founders or others who are sort of more closely tied to the company as a way of accelerating, as a way of building their businesses. If you only had one choice today and you were to go back and do some of the things that you've done, would you still take investment?

Wow. That's a tough question. In our business of what we did, because we are operational business and not purely software. It was really hard for us to scale more without funding. There's a lot of CapEx and things like that. However, I feel like the decision now that I understand more, which I haven't in the past, is that there's nothing wrong with having a great business that is not a startup. Startup equals growth. So if you're fast growing, you are a startup. You can also do amazing business and make and enjoy it and create a product and have users and enjoy every day. And still you don't necessarily need to hit $20 million in investment to get there. And funny enough is that throughout the journey, you can create a very strong business for yourself as an entrepreneur and founder and support yourself and your family and make amazing money, but no need. To get additional fund or control into the company to be happy and to be successful. And I see a lot of those trends of people understanding that, hey, if I build up a very strong and healthy company and I'm enjoying what I'm doing, I less feel like I'm working and especially not feel like I'm working for investors to make the 10x on me. And rather than I giving myself an option, and that's what I learned. Because also in the last, I would say, 5 years, I've been doing a lot of acquisitions, either for helping other companies that I'm supporting or I'm doing it myself. What I've learned is that sometimes you can create a great business and decide to sell it with no investment for 6 figures, 7 figures. You can make a lot of money out of it by still doing things you like, which could be the same outcome. If you sell even a company for $100 million, but eventually you're only left with, I don't know, 5%, you're making $5 million and it's not exactly $5 million, even less. And you basically get signed up with the devil sometimes. So I changed my perspective to think about there is only one way. And I think startup was the mainstream maybe in the last 6 to 8 years for people like If the mainstream was corporate 20 years ago and 10 years ago, in the last 6 or 8 years, because of the success of all the other startups, it became mainstream. Everybody wanted to do a startup. I guess now it becomes more for entrepreneurship rather than startup. It's changing the word startup to entrepreneurship where you can create a product, be a solopreneur or small, even as a side gig, as a 50% of your time and make a nice amount of revenue and enjoy it. But you're limited to make your own decisions and your own direction within your product or your company.

And I think that's absolutely true. So my corollary to that would be everybody I meet has a startup, but a lot of them also has a job, right? So everybody's working on something. And the second thing is increasingly I'm seeing people trying to build stuff and avoiding taking capital because they know that comes with a bunch of strings attached unless they are like you were in a capital intensive or research based business that has a long path to revenue. So they need to be sustained for longer periods of time, pharma or, or material sciences or that kind of thing. And to me, that's a healthy thing because you, to your point, you get more and more people having, being in control of their own destiny, actually building. In the old days, it was a little bit like, oh, that's a lifestyle business. A little bit derogatory, right? Oh yeah. That's a nice little business. But again, if you can sell a business for a million and you own 98% of it, that's more fun than selling something at $10 million that do you own less than a percent of. So people are getting wise to the fact that they want to have a decent life without all the pressures as they're doing it. And they're getting wise to the fact that there's many roads to living a financially fulfilled life. It doesn't have to be— $100+ million exit of which you owe nothing. It can certainly be something smaller. I want to shift gears a little bit here as we're coming up towards the end of our conversation. What's next for you? You know, what, when you're looking at mentoring and coaching and being a consultant to founders, is that what you're going to do? Or is there another company hidden somewhere inside of you?

First of all, I love to create. Not only, I was also in the last year or so, I did a workshop for founders for product market fit, which That's what I like, the zero to one, the creation part. That's my fun. So about a year and a half ago, I created a company with my partner that was the CTO in my previous company. And we created a company for, we acquire a little like different digital assets. It can be micro SaaS or SaaS or websites. We either flip them and sell them or create our own tools too. So 6 months ago, give or take, I created, I, I had my own problem with become productivity, like to have a productivity tool to be bo— more productive and using AI. 'Cause you know, AI is out there, but how can it be more productive? So I actually created a tool with my partner and I, we brought on an, another partner in the marketing as a, um, aspect and we create a, an, uh, Google, like a Chrome extension. Which I call 2, is the number 2 slash .ai. And I'm enjoying creating. It's like taking 20% of my weekly time, maybe 15, 20%. And in the 6 months, and we are able to grow it to thousands of users and hundreds of paying users every month. But more than anything, I'm doing it because I still love to create. You can still do things that you love. I love mentoring and coaching. I love consulting, and I also like to create. So how do you find that balance? You don't necessarily need to create a startup to create a strong product or solution to someone else. And I feel like I'm, my day-to-day is no longer, I'm become, I've become very spiritual within the last, I would say, 7 years. And what I've learned is that the day-to-day and the present moment is the most important thing. So try to ask yourself a lot of the time, why are you doing certain things? Because if you're asking yourself, I want to make more money. Then it's irrelevant to be an entrepreneur or founder because it's a lot more riskier, right? So you need to go into the corporate world, just make your salary, grow the scale in the company. But if you're choosing to be an entrepreneur or founder or things from that nature, ask yourself what keeps you excited. For me, it's creating and being in, in, in the surrounding of people that are exciting and taking challenges and trying to solve problems. That's what I like. And that's like how I change my mindset. And that's what I'm trying to help a lot of other founders and entrepreneurs to think about business from a different perspective. No more work-life balance because life is one piece. And the moment we separated, we, I think that the work-life balance actually was, in my opinion, was created by corporate. They basically saying, okay, here is wellness, do some wellness. Here is your work. focus on your walk, feel good afterward, and now get back to work. And I think that I changed this narrative and I just live life. And if I, if 70% of my day is, is walk, basically what we call walk, why not doing something that I'm excited to do? And the number one, one question I ask myself and other mentors is, if I got $200 million tomorrow in my bank account, what would I do with my day today? And if I still would do what I, Doing today, then I'm in the right direction.

Yeah. And I think that's actually a very good yardstick and a question everybody should be asking themselves, right? Am I generally excited when I get up in the morning and start on the thing that earns me a living? If the answer is yes, most of the time I am, then fine, keep going. But if the answer is no, actually most of the time I'm not excited about what I'm currently doing, then we have ample opportunity to make changes about it, right? It used to be that people had a hard time changing professions or changing areas of work, but it's getting increasingly easier for certainly white-collar workers and knowledge workers. Of course, if you're a mining specialist in engineering, there's only so many places in the world you can do that. Maybe you're like, for the rest of us, go try to be a creative.

That's the thing is like a shifting is we're living in the present moment. You don't ask yourself what you're good at when you were young. I was an athlete when I was young. It doesn't mean that I'm going to stay athlete for life. But if you are a creative person and a creative person can be very analytical, it doesn't mean explore, try it as a hobby, do things as a hobby and try to open your brain to new experiences and new basically challenges. And that's how you grow. That's how you— I don't see growth as linear. I see growth as an expansion. You're in the center and you have a sphere around you. So you grow everywhere and you're stretching more and more. Your ability to observe many different things within your life and in general, and in order to enhance it, you need to experience more. And my startup experience taught me a lot, right? Without having these 8 years of running this company and going through the ups and downs with the difficulty and the success would only brought me to my next chapter. Within that chapter, I still had a lot of different challenges and opportunities. So only those things, experiences. Is to remember that the only thing that's constant is change. That's the only thing that's constant. And living in the present moment, connect to yourself in a way and ask yourself questions like you, you mentioned, Peter, like every morning, because that's a present moment to ask yourself when you wake up, what's going on with myself and not say, oh wait, in 20 years, I'm going to go in pension and then I would enjoy life, or then I'm going to do things I love. Why not starting today? Even with the small bites.

Exactly. And, and so with that, I think we'll, we'll finish off here. Thanks, Itay, for, for doing this with me. I appreciate it. Certainly we'll put where people can find you online in the show notes for this, and, and we'll mention it on the podcast as well. Thanks again. Thanks for being here.

Thanks for having me.

And to everybody listening, this was another episode of the Whole Human Podcast. I'm your host, Peter Sorgenfrei. If you Have any topics or any people that you would want me to talk to and topics to cover, you can always let us know and we'd be sure to reach out to them and record another episode. Thanks for listening.