Elevation Pitch Demo Day Keynote: Jon Nordmark of Iterate.AI

The way I've laid this out, everyone's going to learn a lot about me, the good, the bad. And so thank you very much. And one thing John didn't say is that I helped start the Founder Institute chapter in Colorado. I did it for John and Adeo. Long, long time ago. Uh, welcome to Diane, who's running it now, and, uh, I'd love to get to be involved more again. Uh, but anyway, here we go. Uh, so we're going to talk about hypergrowth at all costs. Uh, if you have questions, just text them to John or Diane or whoever is taking the text. But hypergrowth at all costs versus patient experimental bootstrapping. I've got 20-some years of experience, and you'll see a fair amount of fundraising experience and and investment experience in smaller companies. My awards, they've been things like, you know, founder and CEO of eBags, which really worked out nicely for myself and other employees. I was Entrepreneur of the Year by Ernst Young for the Rocky Mountain region at one point. I've got a Lifetime Achievement Award from the Colorado Technology Association for just work I've done around the community over the years, kind of like starting, helping Founder Institute get going here. LinkedIn Top Voice, they pick about 185 people a year out of the 3 million people who write articles, and they chose me a couple years ago as one of their top voices. And then finally, I've gotten to be co-founder and CEO of Iterate. All this takes a lot of time though, and I think that's important for every person who's starting a company to understand. eBags took 11 years as I was CEO and then another 6 years after that. I'm 7 years into Iterate right now, and I'll show you how that's working in a second. But along the way, there's a lot, been a lot of heartache. I had $200,000 stolen from me in a startup I invested in. We ended up putting that guy in prison for 10 years. We, I tried to save a company and became its CEO for a couple of years. It didn't work. It was a Techstars company that was really, really interesting, but it didn't seem to have the market fit. In the end. I've been fired 3 times from eBags, laid off 25% of people there, had to remove 3 co-founders from each company I've started. I've been in forensic accounting issues and a number of lawsuits. So anyway, I've got a lot of scars over the years, even though I love what I do. To give you a little history of what I've done, I spent 10 years at Samsonite, spent 10 years as a CEO of eBags. We raised $30 million from venture capital firms and 200 angel investors. Spent about 5 years investing, consulting, volunteering as I was chairman of eBags, and then I started Iterate.ai, co-founded that. We've raised $3 million to get that up and running. After, as part of leaving eBags, I got in this $380,000 battle. That was the cost to me for a legal fight I had with the board and with with, well, with the board. It all worked out. I ended up leaving the company as chairman in the end when it got acquired, but during that time, like I said earlier, I got fired 3 times. One of the ways we got it sold was one of the venture firms left, and that actually opened the door to us getting the company into an exit. Then finally, I had spent 7 years at Iterate. Well, while I was there, we sold Samsunite for $100— or sold eBags for $105 million to Samsunite. I believe Iterate, my current company, could be headed toward a billion-dollar— no, a billion-dollar valuation based on the pipeline we have working right now, and it's a bootstrapped company. So, this is— these are some of the exits I've been involved in over the years. There have been about 16 at least where I was kind of an investor, in a couple cases an advisor. Are early on. And then I've got about 8 that seem to be coming down the pike right now. 4 of them I lost money in completely. 3 of them just broke even. And then I've got 12 and then a couple of funds I've been involved in that have done fairly well. But I, you know, as you can see, I'm not a complete pro. But I've been lucky on a few of these deals. With the EBAG starting this, so this is where a lot of you startup people are playing now. I I spent my whole savings getting this company going, plus put $60,000 on my credit card, took a second mortgage of the same amount of money, cashed out almost all of my 401(k), and then worked for a year without a salary. And during that period, I remember, you know, I'd say I'm the CEO of eBags, but it really felt like I was the CEO of a little Kool-Aid stand. The whole year I spent all by myself trying to get people to help. And then in 1998, in May, I started getting some co-founders. Every one of them were people that I'd worked with before, except for Elliot Cobb sitting in the chair back there, who worked with one of my old partners from Samsonite. This is a meeting, one of them, we had many of these meetings in Peter Cobb's home, that's one of my co-founders. This was what they looked like for a good year before we got an office. And every person, when they started at the company, they had to invest $50,000 and agree to work for no pay until we raised $4 million. And we started looking for money, and we had over 200 rejections before we ever had one commitment. And one of those— during that period of time, though, in the summer of 1998, the ex-CEO of the company I worked for agreed to invest $10 million— a very rich guy— for 40% of the company. We gave him a no-shop agreement, thinking he was a friend. That means that you can't— we couldn't solicit investments from anyone else during the the summer and early fall of 1998. He said he desperately wanted to do the deal, but right when we ran out of cash, he pulled the deal on us and we had $200,000 in bills and no money to pay those bills. And at that point, he offered us the same $10 million but for 90% of the business. And the learning there was never do a no-shop. We ended up okay. Peter started calling every friend he had. He went to Northwestern University, had some good friends from there, and one of them committed to giving us a little check, it piled up to over $5 million coming in from over 200 people. And it was all done in convertible debt. And so, I kind of learned a lesson there. It's not about what you know, a lot of times it's about who you know. And remember, we've had 200 rejections up to this point. I flew out to shop.org, a conference, because We were trying to just meet people who understood retail. And I didn't have the money to go. I was actually, I only had 2 months of money to pay my house payments anymore. And I didn't want to go, but my partner said, if you're the CEO, you have to go. And at that event, I happened to meet a person from Mitsubishi and a young guy, a 25-year-old brand new analyst from Royal Bank of Canada. It was Dean Rasher-Wessels at the time. And after talks with them, Both of them agreed to put in $500,000 in a convertible debt format, but more importantly, they introduced us to people in Silicon Valley, and that's how I met Benchmark Capital, which is a premier firm, as a lot of you probably know, out of Silicon Valley. And they decided to invest $4 million, but as taking that in, we had to give $2 million back to the original angels, which caused some real heartache. And lawsuit threats. But we also had to give a board seat to Benchmark Capital. We ended up raising $8 million in that Series A, we converted all the debt into equity. And then that later led to a Series B round of $22 million with Amarindo and TCV. And they invested in a— at a $147 million valuation during the dot-com frothy period that John talked about earlier. But again, it's not about who you know. RBC, had we not had the introduction from them to the partners at Benchmark Capital, I don't think we'd have gotten that investment. So, you know, people trust people. During the first 7 years of the company, after working for free for a year, I worked for $70,000 for 7 years. That was my approximate salary. The board called it shareholder alignment, and they wanted to keep me, CEO aiming at the exit. I was really, you know, this is how I paid for my family. I lived as a kind of a mid-level employee for many, many years, and it was painful. We ended up— this is the trajectory of growth we had. It was a 34% CAGR, compound annual growth rate, from the year 2000 through the period I left in 2008. 7 years after that, we had a real stall period. I got fired in 2008. But we ended up selling $1.6 billion worth of bags by the time it exited. We started 6PM because the venture firms felt like we could get a more of a better repeat business by getting into shoes and handbags. We also expanded using the profits from the company, we expanded into the East, the EU, in the UK, we had 100 dropship arrangements built. And, but in 2008, we decided to get rid of 6PM because it was a really competitive market and we felt like it defocused the company. During that period though, we were making a pretty decent, like an 8% net income. If you threw out the European expansion that we were investing in, we were making 3.9% even while paying for Europe. So it was a decently profitable retail business. We walked away from a $147 million offer from a really big internet company in 2006 because the venture firms didn't want to take that low, even though a lot of people would have made somewhere around 10 times their investment. It was not good enough for what our investors wanted. Later, we got a $40 million offer, and then a year later again, we were talking about $100 million from a really big West Coast firm. But then I got fired 3 times. I got fired off the board, I got reappointed. It was just kind of a tumultuous point and it got to the point where I, getting me getting fired, it doesn't really faze me anymore. I ended up selling a bunch of my stock during this period, about 2/3 of it. One time at $120 million valuation, another time at $75 million valuation, and then we ultimately got to a $105 million exit in the year 2017. What I learned from this is timing matters and greed also can kill a company. And if you want to read about greed, read about dig.com. I mean, it's a great, it was a great concept, but they walked away from a really good outcome and then ended up having to sell the domain and everything else for about $500,000, losing, you know, $40, $50 million in that process. Iter8 started in 2013, and through a serendipitous series of events, I met this guy named Brian in this picture here in Kiev, because I was helping a firm, a lot like Founder Institute, called Happy Farm, an accelerator in Eastern Europe. And Brian and I both sat on its board, and it was there that we decided the world is flat, there are smart people living everywhere, and we want to help people everywhere get their business off the ground by getting them into— if they work with enterprises, getting them into enterprises who had trouble really understanding the startup environment. So the idea happened in about 2013. We were able to get a consulting deal with Capgemini, which was worth about $1 million. No one else would pay us anything. We couldn't even get a $25,000 retainer from anyone. And you can see that through the year 2013, we really had a rough time. We were trying to use consulting to support our business. And, you know, we got revenues up to about $1 million through retainers in 2017. But it was then that Brian, who worked at Apple in secret products there, he was part of the very first iPhone team. He and another guy that worked at our company named John Selvidari saw an opportunity to build a low-code drag-and-drop development middleware platform, and today it's turned into our core asset, and software became a big piece of our business. And Brian's just a rock star technologist, unlike really anyone I've ever met, and you'll see what's kind of happened after that. But John here, he's got a PhD in AI, big data, and IoT. It's something he called swarm computing. He also helped develop this platform, which you can see in this picture here, as he's explaining it in the conference. But it was really through this patient finding— patient— we were patiently trying to find our footing in these early years, and we just go with the flow. And by go with the flow, I mean we listened to a lot of people and tried to determine where the problems were, you know, and we found a market fit. You can see here we've grown up very nicely. We had 286% growth over the next 3 years. Go leading into 2020. Software is the blue piece of the, the bar charts here, and you can see that it's becoming a major piece of our business. We're going to have really strong margins on that. Even through COVID, we had good growth, but again, it was just by being patient and working with our customers to determine our strategy instead of trying to get— determine the strategy up front that really paid off for us. The fundraising was a lot easier to iterate than, than before because really I'm anti— I'm I was very anti-fundraising at the time. I didn't want to raise money. The only reason we did raise money is because a couple of people needed to make an income. And so we raised money from people, you know, friends and family, basically, real simple fundraising. We raised $900,000 initially in 2013 to help us pay for those periods we didn't have much income. We did another $600,000 in February 2015. And then one of our customers, Ulta Beauty, actually to do a really big deal with us, they wouldn't do it unless we accepted $1.5 million as an equity investment from them. Looking back, I'm glad we've done it. They didn't take any board seats, they don't have any special voting rights, which is something I'm very, very careful with, and they've been a great partner ever since. One thing in both of these scenarios that I've learned is you have to live longer than the learning curve. That's an important thing to remember. And all the guys in these pictures, guys and gals, they're all part of my team today. And they've all been just phenomenal. In our tech team out in Silicon Valley, we've got about 30 people, and we've never had one person leave the company yet voluntarily. So it's a great culture we've been able to build. And, you know, all of us do know this, but You will move in the direction of the people you associate with. It's important to associate with people that are better than yourself, and I feel like I have done that at Iterate today, and I kind of did it at eBags too, and that's why those businesses work. Also, remember that differences provide advantages. You don't want people like you when you're building your team. Find different people. Know that it's a "we" game. You know, it's all about your team. Start-upping is. But at the same time, in my world, I like betting on me, and ideas that I help form more than anything else when it's in the very early stage. I think this is because I know I'll work hard, I know I'll be persistent, I know I'll be honest with me and my partners, and I'll try to find the best coworkers I can. So, as entrepreneurs, we're all betting on me. But at the same time, it is a we game too. So, you got the we game, the me game, and today it's becoming a brain game. Rules are being rewritten. In the old days, wealthy corporates controlled access to capital, and you know what, they needed to because they had to fund the capital-intensive strategic opportunities like inventory, airplanes, buildings. But a lot of that in our world, what Founder Institute's involved in, doesn't need that so often. The barriers to entry in markets have become brains, not capital. When eBags started years ago, just to buy a server, it cost us $50,000 per server. And you had to write every piece of code from scratch. All that has changed. The digital winds are at our back. We've got open-source libraries out there, the cloud, lower-cost sensors, short AI training times, low-cost storage for storing data. Remote work is possible and low-code software development is available today. If you can go without money, I'm all for that, or minimize the money you need. But if you do raise money, you know, just be prepared. You will hear skeptics. I think when eBags was starting, 99 out of 100 people told me it wouldn't work. And you're going to get those 200 nos before you get a yes. Even companies like Airbnb couldn't raise money. And, you know, if you go look on the internet, you'll see some of the letters they got in 2008 when they were trying to raise. And this is one of them. They had all their first attempts failed. And this response is, I really like the progress you guys at Airbnb have made. 'But between issues outstanding and Airbnb and my current time commitments to other projects, specifically existing investments, I'm not going to be able to proceed with an investment. My concerns are, you know, you've got significant ramp-up traction, or we've got significant ramp-up traction. Your technical staffing is an issue, and you've got to— we don't know if we like your syndicate.' Well, you know, 10 years later, Airbnb was worth $24 billion. So just know When you get rejected, it doesn't mean anything. It just means people don't understand what you're doing. Two-thirds of the 60 people that first looked at Amazon when Jeff Bezos was looking for money turned him down in 1995. Back then, $50,000 would have bought you 1% of the business. He just raised $1 million. I mean, phenomenal story and there's a great video out there on that. Just so you know too, the number of seed deals is going up a lot, but it's primarily These seed deals, which are represented in the red, they're mainly— it's funding coming in from angels. So, you know, if you're looking for small amounts of money, a lot of times it's gonna come from people you know. You just gotta build your connections. When the big money flows into companies, that's represented on the blue on this pie chart. Most of it goes to growth stage. They're huge injections of capital into companies that are already pretty much working, or at least they've got market traction. And you can see again, the seed deals are smaller. But again, the seed deals are really special. They're the piece of the business, it's the part of the business that I love the most, which is why I like doing this stuff with the Foundry Institute. Some entrepreneurs resist raising venture capital because they wanna prevent the loss of decision-making and control that you lose when you give up board seats. They wanna keep a lot of exit options, a lot of exit optionality open, and they don't wanna be diluted. So just remember this: funding does not equal success. All that does is give you— it puts a lot of requirements in place, like you're gonna have to pass hurdles once you take funding. Remember that you may not need funding. Sometimes less funding equals more exit optionality. Actually, a lot of times it does. Small exit is— if you haven't taken funding, you know, small exits of $10 million and $30 million can be very rewarding for founders. Who haven't raised capital or who've raised a very small amount. These are two companies that I helped Ulta Beauty acquire. One of them on the left, QM Scientific, had two people and the exit was really, really good for both those guys. They're brothers of all things, both postdoc PhDs in AI. And then Glam Street was an augmented reality company. If you go do the virtual try-ons at Ulta Beauty, those are coming from a startup that was built in Uruguay. By a female founder and a team of about 15 people working out of Uruguay. Both of them small exits, but really rewarding for the founders and a couple of investors who were in both those companies, angel investors. These are some examples of bootstrap companies. This is one, Basecamp, that operates as an LLC and doesn't even have a full-time accountant on board, or at least it didn't a couple of years ago. YouTube was started that way. We were self-funded and right before we got acquired, YouTube says, I was reaching my credit card limit every month. Funny, then I found out I could go get 2 to 3 times past the limit if I paid it multiple times a month. Sequoia came in, the company started in February 2005. About 9 months later, Sequoia Capital came in with $3.5 million. And then they had to come in again in April '26 to 2006 to get it going again, but they sold the company for $1.6 billion. But those early days were all done on credit cards. Qualtrics was sold for— was bootstrapped for 10 years before it took on any money, and it became a multi-billion-dollar company out there, you know, a little bit later. Atlassian, which is Jira, you know, all these little, you know, a lot of the tools that they've built was started by two college buddies who also bootstrapped for 8 years before taking in $60 million from Accel Partners. And certainly, there is a real benefit to bringing money in time, but my main thing is when you're finding your footing, be careful about raising money. You know, it's better when you know where you're going and you've got really real traction in place. Even Amazon, Bezos says, you know, put the customer first, invent, and be patient. Those are the 3 pieces of advice he has, and I love this. He says, if everything you do needs to work in a 3-year time horizon, then you're competing against a lot of people. But if you're willing to invest on a 7-year time horizon, you're not competing, you're now competing against a fraction of people, because very few companies, and I'll say very few entrepreneurs too, are willing to work that amount of time. Just by lengthening the time horizon, you can engage in endeavors that you would otherwise never pursue. My current company, Iterate, is that. And if you just look at how long it takes for Amazon even to get traction on a lot of things, they take 7 years. This is Amazon Prime. Look, it didn't really hit its inflection point until about January or just in mid-2012. That was 7 years after it started. So if you take funding, the clock starts ticking. Remember that if you get the big venture capital like I took from Benchmark, it's a grand slam business, it's not a home run business, it's about the grand slam. So if you take the funding, keep your eyes open. The VCs need grand slams, so they write the legal documents to protect themselves from the singles, doubles, and the walking dead. The walking dead are companies that can't get an exit and are basically wasting the investor's time and money. So, you know, get prepared if you take money to go big. What's interesting though is when the VC invests, they actually lose money more often than when you just go with no venture. And this shows that 60% of the time almost, the VCs go away with not even making 1x their money back, and a lot of times they lose everything. And then you can see that If you're trying to get up to a 5x return, it's better to not have a VC. And then when you get out to the 30x return, it actually evens out. Both VCs and non-VC-funded companies kind of work out the same. If you take funding too, just know that even as a founding CEO, you'll get diluted significantly, probably. Back in, you know, it's 15 years old, but you can see that the CEOs a lot of times own 5, 6, 7, 8% of the company after they've taken funding a few times. And then also know that you're likely to get fired. Sequoia Capital says that they, that 45% of their founding CEOs are fired within 18 months. OpenView says that they transition out about 55% of the companies within 2 years. I mean, not companies, the founding CEOs. So, you know, it's risky when you bring in outsiders. So, these are my little pieces of wisdom to wrap this up. I would bootstrap as long as possible when you're starting something brand new so you can control the terms and get on solid footing before you bring in third parties that you have financial obligations to. If you ask what amount of money should we raise, it just depends on your business. You know, if you have to buy inventory buildings, That's gonna cost more, obviously, but if you're writing software, hopefully that brains over money is what applies. Remember that too much money makes you stupid, and what I mean by that is when you get too much money, you make decisions based on the money you have versus inventing your way out of problems. And we saw this many, many times at eBags. It also creates really high expectations when you raise too much money. And if you're— as you're building your business, try to maintain 9 months of runway. I think Iterate runs on less than that occasionally, but we like 9 months at a time because it gives you time to adjust if something goes wrong. Maybe try funding your startup with a day job. Be a consultant. I did that with Iterate. Omniture did that. Bodybuilding.com did that. There are many examples of that. And remember this too, if it were easy, everyone would do it. But for me, there's nothing more professionally rewarding when it works. The build against all odds is really fun. It's like a professional sport, and it's a, it's a missionary pursuit. So that's it for now. I— this— some of these things you could look at later if you want. Here's some books that I like.