BoneChat #146 - Raising Capital, Protecting Equity, Dilution & Staying Lean

Well, you know, I've been recruiting for 10 years and I've realized that I would say 75% of people are open to a new opportunity. I mean, it's really hard to find somebody that's not open to something better. Everybody, you should be and you should be always looking for something new.

Yeah.

I wish more people agreed with your sentiment. You had a post that was fantastic about, you know, hire executives with scars, not emotional scars, but just, you know, the startup scars that all of us know, you know, that post was fantastic. And if I were more savvy on, you know, I would reach respond. I just, I, I just, I'm shy. I hide away from all that stuff. But when I read that, I was like, I agree, and I wish more people agreed with you.

Yeah, it's, you wanna, you want people that have been battle-tested, you know, because startups are, they're just really hard.

Yes.

I mean, they all have existential crisis. I mean, I always tell the story of Danek, you know, Danek went out of business really twice. I mean, when the Warsaw manufacturing burned to the ground, every board member wanted to shut it down except for one. And, and then they, they, you know, rose from the ashes, literally. And then in '92, '93, when the class action lawsuit happened with— they, they should have been, they should have been gone. But Ronnie, Ronnie Pickard said, no, we're right. And yeah, Ronnie told— Ronnie called me. I mean, I never talked to Ronnie Pickard, but he called me like 3 months ago because he was doing it. He was doing a search for his women's health company. And I said, how did you do that? You know, when you had a billion-dollar class action lawsuit, how did you do that? He said, well, we went to Chicago. And we, we hired some giant firm. I don't know, Eric may know who it was. I don't even know who it was. But he said, we're in a room with all these attorneys and they start asking questions about, well, what if, what if the, you know, the, they, the plaintiff wants to settle? And Ronnie says, you didn't hear what I said. We're not settling. He said, He said, if you use the word settle, you can just leave the room right now. He goes, you're— I'm not— you're— I'm done with you. It was a pretty clear message.

That's what he did, thankfully.

Yeah, Ronnie was so good, man. There's strong leaders. A lot of these companies need strong leaders like that.

Yeah, couldn't agree more.

The one attorney from, from that firm, and I'm drawing a blank on his name right now, but he, he stayed on and I got to know him pretty well through other litigations that we had. But he, uh, he was good.

Yeah.

Eric, were you at, uh, were you at Danek back in the late '90s?

I, I started at Danek in '99. But I was, I was, I was in spine since what, '93? So I knew what all was going on with that. It was interesting stuff.

I started at Medtronic Navigation, which was owned by Danek in 1999 in the summer and out in Colorado. So I worked with— we were obviously navigating your pedicle screws because we're, you know, Tana Carl's, Tony Milken, we were partners with those guys. I took Tony's job so he can go back to Memphis and work at a the Memphis office because he liked the South better than Colorado.

Tony Melkent?

Yep.

Yep. So I replaced, I replaced Tony and I knew Tony from Smith and Nephew days because he was, he was there, but he and Terry didn't really like Colorado. Maybe it's too dry, too hot for them. But yeah, so I, I did a 6-year run with Metronic Navigation. And, uh, back in when they were still young and small.

Both, both Tony and Tommy were bosses of mine. And I haven't talked with Tony much, but I keep in touch with Tommy, talk to him, you know, every couple of weeks.

Nice. Yeah, I just saw he took an EVP role, ATEC.

Yeah, he was excited. He called me. He was He was happy to be back with people who knew what they were doing.

That's great.

That's how the conversation went. Yeah. And I told him how jealous I was of that.

Yeah. Pat Miles is a force of nature. That guy is, he's got a lot of the right stuff. Even though they don't make a profit, they somehow just grow revenue like crazy every year.

You know, that's one of my favorites. Yeah, I like him.

Never bet against Pat Miles. Yeah, so anyway, today is open topic, so anything, anywhere you guys want to go. You see anything interesting? You have a problem you want to discuss?

I don't have much. I'm headed to NASS, unfortunately, this year. Um, there's— I have one presentation there, but not a whole lot going on other than that that I can tell at the meeting. Most of the surgeons— I was going to get in touch with all the surgeons that I have on my IDE site list, and I haven't found one that's gone yet.

So I'm gonna be bored.

Yeah, surgeons are opting out of the big meetings because they, I mean, it's just too inconvenient. They got, they need to be cutting, you know?

Yeah.

Yeah.

Yeah.

Well, I look, I look at the list of all the presentations and I'm like, you know, I'm, I'm not gonna learn anything here. And I wonder if it's the surgeons who think think the same thing, that, you know, just presentations that are, are there just aren't, aren't worth the trip.

Yeah, well, they did a survey years ago at Academy about why do you go to the Academy, and I forgot the exact answers, but number one was alumni meetings. They want to see their friends. And then number two was it's a vacation for my family. I mean, like 7th on the list was, you know, I want to talk to the vendors and see what's new. And Academy blew it because they moved the meeting to the middle of the week. That's just like stupid.

Well, well, I'm kind of looking forward to the time off there because I'm thinking some prime nap time.

Where is, where is NAS this year? I forgot.

San Antonio.

San Antonio. That's okay. And then Academy's in San Diego. Well, the 2 giant meetings.

That will—

we'll see. We'll see how it goes. Andrea's there. They have this, was it this innovation something? I forgot it's called. But, but, but they have all these different Innovation type, the Orthopedic Innovation Consortium. I think it was something— it's something like that. But Andrew is giving a talk or part of a panel that's talking about, you know, what startups should do with their IP and how to protect it. And what happens when someone actually does infringe your IP. So she'll be there.

That will be— she's, she's really good at that. So that'll, that'll be worth attending.

Yeah.

Yeah.

These companies just sue each other constantly for patent infringement. And, you know, I don't know. I don't think patents are the moat they used to be. Seems like you could have— you could get big claims back in the old days and like you can't put a bullet— you You can't use a balloon to make a space in a bone. And that's worth $5 billion.

Yeah.

You just don't, you just don't have those big claims anymore. They're, they're all tiny little claims, it seems like.

Well, I think that the question that I think that they're going to get to at that talk is, you know, What do you do when someone actually infringes? I mean, how do you, how do you have the money to battle that? And what do you do if you don't? It's called spying venture village.

Oh, interesting.

Yeah. So I'll be curious. But that's one thing I've always wondered. You get these patents, but, you know, How is it that you ever get to use them if you don't have the money to defend it?

Yeah, I was always taught that— here comes Raymond. I was always taught that you, whoever's violating your patent, you need to let them go out and do really well and grow sales. And you need to wait, you need to wait 2 or 3 years before you Yeah, because your litigation is going to be worth more. Yeah. Hey, Raymond, open topic. We're talking about patents and Spine Innovation Summit or whatever it's called.

Village.

Village.

It's a village. It takes a village.

The Spine Venture. Village or Venture Village.

Yeah, that's what we were just talking about. Andrea has a— is part of one of the symposiums that they have at the Spine Venture Village.

Yeah, she and I are— no, Alyssa, did you say Andrea? Yeah, she may be doing a separate symposium or discussion, but Alyssa Huffman and I are doing a different one with Andy Choi.

Oh, wow.

Raising Capital Without Losing Your Company is the title.

Yeah, I saw that one in there.

That's a, that's a great, that's a great topic.

Yeah, I hope to learn something even though I'm on the panel. I've been thinking a lot about it. How would you guys answer that question?

Well, I mean, the number one thing is this, is to go family, friends, and seed money. Don't give away equity and stay super lean. I mean, that's, that's, you gotta start there. Once you start giving away your company and raising lots of money, it's, you lose control fast. I mean, there's been, there's been great companies that raised almost no money, and then there's been a lot of disasters like Conformis or Intrinsic Therapeutics that raised hundreds of millions of dollars and never could make it work.

Mm-hmm.

And the, the shareholders just get smashed down to nothing.

So let's talk about some of the reasons that that goes wrong. I'd love to have that be something we just kind of open share because I've seen maybe half a dozen different sources of why people will take in too much money or what they'll do with it. And I bet there's a longer list than that amongst this group.

Well, yes, that's— is your question how much money should you raise, or is the question How do you avoid giving up too much money or too much percentage of your company through the fundraising process? And to me, they're interwoven, but they're also somewhat independent.

I mean, it depends on the scope and scale of the market you're going into, what sort of foundation of IP that you might have, you know, what kind of reputation the team is bringing to the table. There's many, many factors that come into all of that that give you either certain leverage points or don't give you leverage to where you're stuck. So yeah, there's quite the equation that's built into this. But I mean, let's say that there's 5 of us here. Let's say we were gonna go start a company tomorrow and it was gonna be a pelvis replacement device. How horrifying does that sound? But we were gonna do a pelvis replacement device.

Mm-hmm.

And we've got great experience team. We feel like there's a good predicate. So the $510K pathway is going to be pretty straightforward, and there's, there's kind of a good clear path of we can innovate in a certain space. How much money do you raise? Who do you bring into the team? Like, how do you stagger that? And in those first stages of bringing money, what sort of equity are you offering? Let's say each of us has 20% because we bootstrapped it for $100,000 worth of proof of concept prototypes and incorporation and filing some IP. And now it's time we want to bring in some money. What's the equity we're offering and how much money we're bringing in?

Yeah, um, what I've been thinking about, if I could just bounce these thoughts off y'all, is first, why does it matter? And I think it may be obvious or maybe it's not. A founder CEO that only ends up with 2% or 5%, 2% to 5% of the company is going to end up not caring, in my opinion, and/or his heart's gonna be stomped on after putting, you know, everything into it. And then discovering, oh, I'm just an employee. And so from a shareholder point of view, it doesn't serve the investors, in my view, for a founder CEO to have a very, very small percentage because then no one is gonna, uh, what's the phrase, not skin in the game, but no one's going to have the passion if There's no real— they won't be properly incentivized. So that's one reason. Now, the other extreme is, I don't know what percentage Elon Musk owns of SpaceX, but a pretty good percentage because he has lots of money. And so a different opposite extreme is greed. A founder who only cares about making lots of money and doesn't care about anybody else. And then he pitches— and that's— SpaceX is a bad example, but you, you say, hey, I've got the greatest thing since sliced bread. It's worth $1 billion right out the gate, and I'm raising, uh, $10 million, and you're going to get 0.001% of the, of the company. So that is probably a lie. And number 2, it's a lie based on greed. And so first off, what's in the best interest of everyone, including the founder, is having more than, I don't know, let's say 90% of the company really in the best interest of the founder. You know how you catch a monkey? Have you ever heard the monkey story? It's— I've never done it, but in South America you take these pots that float on the river and you put fruit in the bottom of the pot, and the monkeys love the fruit. But what happens is when they, um—

Won't let it go.

They won't let it go and they get stuck in the pot and you catch a monkey. And so that's an example or an illustration of greed that can get any of us in trouble. We're all, you know, we got our own issues. And so striking the right balance that properly, oh, um, compensates the, uh, the people that put their blood, sweat, and tears into it and motivates those people in the interest of the investors. Now, how do you do it? Well, it's salesmanship, obviously, upfront. And but there's integrity. Part of salesmanship is integrity. So if you start lying just to get people, I mean, that's not gonna last. It's not sustainable. But then it's the other thing is execution, delivering on what you've promised. And so those are just my— thoughts that I'm processing and striking the right balance. Now, I would steer clear of VCs. VCs are only looking out for number one, which is them. I'm being— but somebody said angels, family offices. I think early on that's really the only market. People that may be even just investing for altruistic reasons because they care about helping people.

But yeah, I mean, orthopediatrics existed in that space for a decade because a billionaire just liked telling people that he had a pediatric orthopedic company. So yeah, if you can find those, latch on to them real hard.

Yeah.

I'm beginning to learn where the— what's the selling process? Just like any other selling, you qualify the investor. I've learned what not— what doesn't work.

Okay.

And who not to talk to. And I'm beginning maybe to learn who the message resonates with, but that's a trial and error process. And so, but it's execution too. I mean, you gotta, you gotta work, you gotta deliver, you gotta manage your promises, not overpromise, obviously underpromise, overdeliver. But I mean, it's the same old problem, you know, everybody has. It's work. That's why they call it work.

Yeah. Somebody said this to me years ago, and it stuck with me. Would you rather have half a great bird?

I'm gonna— I'm just gonna say I hate it. I hate that statement. I'm sorry, interrupted. Does everybody know what Tiger was gonna say?

No.

Well, go ahead and repeat it, Tiger, and I'll try to use some patience.

Would you rather have half of a grape or a tenth of a watermelon?

Yep, I have heard you say that.

Yeah, and here's why I hate that statement. I've heard that so many times, and I'm sorry, Tiger, if I'm beating up on you, but no, it's fine.

You're a founder, you have a different viewpoint.

No, I get it. What the gist of it is, it's an attack on greed, basically. And I'm going to just assign it to VCs. VCs or whoever, somebody who's got a lot of money and wants to control you, is going to tell you exactly what Tiger just said. But yes, it's just like you can buy a lottery ticket and make a lot of money. You can also end up with just a 10th of— instead of a watermelon, it's just a 10th of A peach and just a tenth of a raisin.

Because now—

exactly. And then you have no, uh, well, you have skin in the game without compensation. And so that's why I get so passionate. Again, yes, I get the principle. You've got to let go like the monkey in order to save your tail, but you also can't just roll over and let The people with the money say, hey, I'm in charge. So it's negotiating just like anything else. Every day I have people trying to get their hand in my wallet. Every day, I mean, every hour. And you have to constantly judge and discern and not— I mean, that's my life is constantly knowing, making decisions who I can trust, who I can't. I'm sorry, I got a little passionate there, but Tiger, you hit a nerve.

Struck a nerve. I got it.

I love it.

I love it. So then, Raymond, you have to have some form of a detector of good money, bad money, right? So you have to have some kind of a scale like this could be good money. And here's my potential metrics. Someone you know, friends, family. But then if you're going after bigger money, they might not be someone you know. So that's an interesting thought exercise of good versus bad money.

Absolutely. And I was coached years ago about how you are making— being attentive to the type of investor I have. So I have— let me just say, I'm not lucky because I don't believe in luck. I am privileged that The people that have invested in Nova Perch Mine are way better than I deserve because they— I could have a whole lot worse. I have great investors that understand and aren't— now I've had to navigate investment investor management. That's a whole nother topic, is making sure, and it's part of constantly selling. It's like With employees, you constantly need to recruit your own employees and make sure that they're happy and/or not happy necessarily, but challenged, challenged, slash, or have a purpose. And so there's a similar kind of thing. But there was something else I was gonna say about weeding out. I mean, when people hand—

Yeah.

I would take money. I'm not saying I'm a good discerner. But that's the key, is the word discernment. Now I'm going to get spiritual with y'all for just a minute, but our company was founded based on, uh, spiritual principles, and that is we pray. And through that prayer, we believe there are doors that get opened and doors that get closed, and we're okay with that. And so to me, that is how we've become successful. And it's not a it's not like you or that God's a vending machine, and he's going to always do the same thing you whatever you pray. I'm just saying through that and the counsel of many, that's another whole chapter. You can get greater discernment. I have stopped in my tracks on three or four situations where I was gung ho, but I had three or four people say uh uh.

Uh-uh.

And I had to just stuff it and say, I've got to go with what the 3 or 4 other people are telling me do not do, even though I was sure. Now, 90— if it's a crisis, yeah, leader has to, has to— you can't have a democracy in a crisis. But if it's a non-crisis thing, you really do need to listen to the people around you. And, and so that all can feed into Somebody trying to take advantage of you or not. Now, I'm not saying I'm perfect by any means. And but, you know, how do you navigate it? I, you know, a question for y'all really is a question I asked 7 years ago when I went to a fireside chat of CEOs. I said to the other guys, I just started being a CEO and I'm like asking dumb questions. I said, well, what percentage of the company do you own? And it was like 3 or 4 guys and each of them said, well, 3%, 4%, 5%. I'm like, wait a second, I don't understand this. You're the CEO. Well, I've since learned, well, there's a difference between a CEO for hire versus a CEO founder. I need to take this call. But anyway, I'd be curious. Can I— I'm sorry, I got to take this call.

No, go do it. Well, you threw out a lot of ideas. So going back to Kyle's question, I think it— this is where a lot of companies get hung up with fundraising is they go for the— they try to boil the ocean. If they have a TAM that's too big, like all spinal fusions, you know, like we're— that's the size of our market. It's, you know, $20 billion market or something crazy. Then they go out and raise too much money and I've seen successful companies start with a really small niche. It's a tiny little thing. A good example is Osseo. So Osseo, everybody knows Osseo, the non-metal company. Well, they started up, but people don't know the origin story. The guys in Israel invented these bioglass polymer pens. It was just a fricking pen. It was nothing. There was nothing to it. And it went into great toe fusions. And they, they literally implanted 2,000 of those things before they said, do we have a company or not? And after 2,000, they had no adverse events, super high fusion rate. And they said, man, maybe we have a company. And then they made their first compression screw for foot and ankle. So I, I really like the idea of starting really small market.

Yeah. So, but even if you were going to do that, Tiger, in order to get a product along, approved into whatever sort of location it's going to be implanted to build the inventory, to pay some people to help you along the way, probably can't get there for less than, I don't know, maybe if you're super lean and it's a very simple product, maybe you can get there for $750 grand. and you can have first-in-human. Most products are going to be twice that at least. Maybe there's some special things you can do that are instrument-only where there's some disposable value and, you know, consumption related to that where you can get there a little faster, a little cheaper. But I think it's pretty safe to say for the most part, most companies that are going to be forming, they're going to be looking at an initial go from point zero, phase zero concept to having it regulatory cleared somewhere, is you're going to need $1.5 million to $2 million, probably, as a safe place to not cut corners, to not have it drag out for 5 years to actually move. So, let's say that that's just what your structure is. You've got an idea, you've got a market. Maybe it's not— you're not trying to boil the ocean, but it's not also left pinky toenail replacements on indigenous pygmy Africans or something that's so niche that it just doesn't have a market, right? So you've got something to start and you know, you believe it's gonna take you about $2 million to get to clearance. How much do you offer for that? Does that get 10% of your company? And you're saying that your valuation is 10 times that, $20 million before you even really started? That's probably more than you're gonna be able to pull off. Maybe that's why most places will start by trying to get like $500 grand friends and family and have it Not be much in the way of equity. I don't know, like, I'm not— I've never had the fundraise from the start and the equity share from the start structure firsthand knowledge to know what are the— what are the realms of those numbers look like as you start to break it down and think about it.

Yeah, so you don't need all $2 million at the beginning. You can, you can raise less and promise a milestone. And then once you hit the milestone, then, you know, there's tranches. But you're probably right, $1 to $3 million to get on market just about anywhere.

And when do you, yeah, to add another wrinkle to it, when do you start searching out larger competitor partnerships?

Right.

And I think that you've seen a lot of that and it's sticky and icky, right? You're seeing Because then the partner, the partner wants— they want too much ownership of the company, or the milestones are so difficult to hit that you cannot hit them. So that's— yeah, I'm curious if anyone's had any experience with partnership route that has been successful. I have not.

It's, yeah, partnerships are— we had Mike on, what's his last name, the deal guy, and he basically said the partnerships are becoming later and later. You gotta have, you have to have real sales now. In the old days, they would, you know, Zimmer or somebody would invest in your company just to get first look, but that's That's gone.

Yeah.

And even Zimmer, like, they invested in one company and then they kind of shelved them. And so they couldn't reach their milestones to get all their other payouts because they were shelved. And so they were kind of like, now what? So they didn't— they, they might have had one payout milestone, but they didn't have any after that.

Yeah. Most partnerships that work seem to be distribution partnerships. You know, you can sell your thing through, you know, a big sales force. You know, that seems to be the only one that works.

Yeah, it's only Dave Ramsey has a saying that the only ship that doesn't sail is a partnership.

That's a good saying.

Yeah, I'm a big fan. It's Interesting.

I'm trying to find an article that I wrote about an average funding process. I'm, I'm gonna keep looking here. You know, there's no right answer, Kyle. I mean, it's, it's hard. So I was talking to, uh, we'll get him back on Jamie Haggard from Green Sun Medical. We'll get him back on. But he, he's got the scoliosis brace for young girls, and it's for, it's for small corrections, not big corrections. You know, it's not like, it's not growing rods. It's a comfortable, like, cloth-like brace that has actuators that pulls and tugs. And it can stop, stop scoliosis or bring it back a little bit. But anyway, he's, he's super lean. He's just got a few employees and he's got a, I mean, he's got families. He on Instagram and Facebook and stuff, they're posting pictures of their brace. They're saying, don't get a Boston brace, get this. And they're getting like millions of views. I mean, the pull is unbelievable.

Yeah.

And he told me yesterday that one of some super wealthy guy just dropped, he just, he said, here's, I love what you're doing. Here's $1 million. And I, I don't even know what their terms were, but I love those emotional ties. If you're solving somebody's problem, you know, one of the things I try to tell people, if you go on the family and friends or you go on the family office route, Do some research and find out, find billionaires who've had that medical condition in their family, and then reach out to them directly. And it's they're not it's not for return on investment. It's for you know they're just I think I think Raymond said it. It's it's the greater good. You know you know I could I wasn't able to save my grandmother, but Here, I can give this company a million dollars and maybe, you know, they can do something with it. Are you talking to investors yet, Kyle? I know you're just in conceptual stage. Oh, you're on, you're on mute.

Not quite, but I'm starting to plan out what that looks like in a couple different directions. So just not exactly sure where to start just from the raw math of it.

Yeah.

Taking $1 million, that gives you 10%. Does it do more? Is it, you know, I know there's other ways to structure it mechanically, where it's some equity with some convertible, you know, it's a convertible note and there's an interest and all of that. There's no— there appears to be no, no, no actual blueprint, no roadmap for exactly how that should go.

There's no blueprint. I just noticed this company. Let me put it in the chat. So I love what this company is trying to do. It's a— it is a, instead of a robot company for hips and knees, it is a rent-a-robot disposable robot.

It's—

the company's called Koeiba. And they're, they're real early. It's— they're raising their seed round. But if you look, you know, it's— this is kind of the website you need to have, Kyle, I think, is sort of a problem statement. And this is what we're— our solution. And oh, by the way, we're raising money. You probably need a one-pager. I'm gonna learn more about these guys and write about them. And the other, well, the other way to go, which is if you, if you're solving a problem that people understand, is the crowdfunding route. And we've talked about this before. You know, Monogram did it successfully. I mean, they had, I don't know, 50,000 investors or something. The average, what you put in was like $2,000 early. And it was crowdfunding just through a crowdfunding site. And all they saw, the, the, the unsophisticated investors, all they saw was, oh, robots for knee replacement. That sounds like a good idea. And, you know, and he had a newsletter that went out. I mean, I think their technology was junk, but their fundraising worked.

Yeah, that pissed me off a lot, Tiger. We tried the same thing and we're thinking, oh, we'll do much better because we have an actual product that works rather than, you know, some SLAs that we you know, pretend are an actual product. And, uh, I don't know how many investors we got, but we broke even.

Wow.

And so I guess breaking even is, is losing in that, right, right scenario.

Well, Monogram did a great job, and Ben Saxon, you know, did a great job with, um, they had, they had a weekly webinar that it was mainly for the crowdfunding investors. It wasn't for anybody else. And then they had a weekly newsletter and it felt they kind of brought everybody in through the journey. Yeah, they did a really good job with that. Now, I think their product was crap and they fooled Zemmer and Zemmer bought it. But, you know, putting that aside, crowdfunding seemed to have worked.

It was a good idea.

I watched one of their Surgeries, you know they they they did this webinar with with a live surgery and whatnot, and they blew it. Nothing worked. Everything broke. The camera would cut away quite often, and the name of the surgeon, but the surgeon would say, "Man, isn't that great? Did you see how that?" And I was just amazed. And and yeah, there's a bunch of unsophisticated people watching.

Yeah, I think I saw that when they were the surgeon was in New York and the. Surgery was in Texas or something. Yeah, they were— he was making cuts remotely. Yeah, on a cadaver, I think. Yeah.

And then when the camera didn't break away quick enough, you saw the engineer go in there and just take a saw and finish off the cut.

Oh, man.

So I apologize, guys, but if it's a sales-related call, that gets priority. And so I wish I could have heard whatever y'all were talking about because I'm sure it sounds like you continued a good discussion, but I won't repeat. But my question was going to be if you all are willing to share what percentage ownership y'all have. Although, Eric, are you— you're not the founder of Dymicron?

No, I'm an employee.

Okay. Um, and so I'm willing to share my— what I have. I own 59% of Nova Approach. Um, you know, the magic number is 50%, although there are ways around still maintaining control above that or below that. Um, but I'm just curious because like I said, no, no shame or anything like that. Most CEOs are down at 5% or less.

Right.

I don't know if Tiger, you have any data.

Yeah, I think the average, and you brought up a great point, the CEO for hire is usually at 5% and the VPs are usually around 1%. But it can vary wildly. One of the— so, but as a founding CEO, I mean, you started 100% or if you have a partner, you start at 50/50. And that's great. The problem is the dilution. Do you have a non-dilutive clause? So if you get— if you go out and raise, you don't get smashed down, or is it just you go with the flow?

So we have a weighted average non-dilutive, but if I think— if I can remember it right, it's a 1x It's not overly favorable and it's a down round if I recall. But don't quote me on all that. I should know that off the top of my head, but I got a billion things in my head. You know, it's anti-dilution. We have essentially 3 classes of stock, the original common, the what was called angel preferred and now seed preferred. And to date, we've raised just under $12 million. And we're still at the seed preferred and almost ready to run out of seed preferred. In order to do more of a raise, I would have to issue additional, you know, units, which I'm willing to do. But anyway, I don't know if I answered your question. The amount of preferences are minor.

Yeah.

And that's also part of the selling process. You know, why is it people are trying to get in? Now, you don't want, obviously, dumb money, or you don't want to take advantage of people, but you also sometimes quote smart money is really pain in the tail money that Someone's gonna try to take advantage of you. So it's dicey. I mean, it's a really good topic, but, and I don't know if there's any really good answer. That's why I said I'm going to hopefully learn from Andy Choi and Alyssa because I'm sure they have better or good ideas. Yeah.

I don't know.

And they're in the spine space. Yeah, there's no right way to do it. Every deal is different. It depends on who's the most desperate party, you know. So, you know, if that's one of the things, if you get down to a runway of like 3 months and you get desperate, man, you lose all your leverage.

Well, the other strategy is debt. I always have hated debt. I hate interest in my personal life and everything, but that also avoids the dilution.

problem.

And it basically makes all the investors share in the expense. And so, um, that's also at what point do you go down the debt path? And if it's an SBA loan, you have to fit within their little box of what works. And their box isn't real friendly to what it takes in medical devices or certainly spine.

Well, your valuation is probably a little too rich for SBA loans anyway.

Well, it's not so much a valuation, it's more cash flow. They don't care about valuation. What they care about is when are you going to go profitable? Because all they care about is, you know, getting paid. And so they don't care about valuation. What the investors care about valuation, but the bank only cares about are you going to get paid? Are they going to get paid?

Got it.

And I was—

I was a part of a small company that had to go the debt route towards the end, and we were scrambling to try to sell it. And it was 30% was the interest.

Yeah.

And those— and then those people are first in line to, to take once it did sell. So it really helped get over the finish line. Again, I was tangential to it.

Yeah.

I was consulting for them. With some, you know, stock options, but it was not good for anyone but the people providing the care.

It's kind of similar. There's payday loan people and it's literally revenue-based, uh, what they get, what they loan you. And it's, it's just like payday loans, which is horrible. Now the going rate I think is around 12%, probably just went up a little bit. Uh, not for the payday loan. Payday loan is more like 20 or 30%, like you're saying. Uh, SBA is closer to 8 or 9%. Um, and so the best bet is SBA if you're gonna go the debt route, from what I can tell. Again, I'm not the expert. You guys are probably way smarter than me, uh, on this— in this department. I'm just kind of learning as I go.

Yep.

Um, are you close to break even, Raymond?

Is it—

are you looking next year?

Um, our goal is the end of next year. Um, it requires a bunch of different things, so it's— we're pitching the end of next year is how I'd put it.

Got it.

Um, there's upside, there's downside, just like anything else. There's certainly a lower risk than 5 years ago. Because we have a much clearer idea. And so my understanding about the SBA, and we'll find out once we hear, is you've got to demonstrate within 2 years that you're cash flow positive. Now, I don't know whether that's going to be all that it requires because they also might— the other issue you've got to deal with is Backing the loan and is it on your own house? Is it on the inventory you've bought? Is it on your AR? There's all those questions. I don't know. It's definitely a CFO kind of thing and I'm not, I don't have a CFO. So I mean—

You are the CFO.

Right.

And so there's a lot smarter people than me, but It's not rocket science. It's just you got to know the language and you got to know what the rules are. And it's just like everything else. Once you figure that out, it's not all that hard.

Yeah.

Wow, that's interesting. Let me, let me, Kyle, let me throw out something for you. One of, one of my favorite stories that no people have never heard. There's a, there's a guy named Brian Garvey. I think he works He's a, he's one of the top VPs at Restored now.

Yeah, I know Brian Kirby.

Yeah, yeah, great guy, just a really good executor, you know, doesn't blow his own horn. But I, I met him at Globus a million years ago when he was an engineer, and he said, I want to do a startup. And so he went to Flower Orthopedics. And, you know, everybody knows Flower, um, you know, great products but kind of a crappy business back then. And I would, he would call me and say, I'm getting out of here. He goes, I can't stand this place. And I said, what are you gonna do? He goes, I'm gonna start my own medical device company. So he started a, he did research and he said, what product, what product is not being built right now? What's the dog that's not barking? And he came up with carpal tunnel release. Nobody had a carpal tunnel release kit that was disposable. They were all big autoclave systems. So he designed and developed a carpal tunnel release kit and he built it and he got, he did all the design work, suppliers, self-funded it, launched it within 6 months. He was cash flow positive. And he, he did a lot of that while he was an employee at Flower. So that's the example of you take a really small niche, you keep your costs super low, you do all the work yourself. You maybe you have a 1099 here or there, but you just get to cash flow positive as fast as possible. And then once he did that, the hospitals and surgery centers would just reorder. He didn't have to do anything. They would order 10 or 20 kits at a time. And then he started working on product 2 and product 3, and he started working on the ankle, the Kenos ankle that got acquired by, uh, Restore. So anyway, I love that model. There should be more stories like that where you, you, you identify the problem and you solve the problem as efficiently and as fast as possible. And you get to, you get to break-even status 6 months to 12 months. Almost anybody can do that.

Well, I was agreeing with everything you said until the almost anybody can do that.

Spine is a lot harder because you've got inventory.

Well, the reason why a lot of people can't do it, and I'm one of them, I'm not good at this, is you start listening to People who say, well, this is how you have to do it because that's how we did it at Smith& Nephew or at Zimmer or at wherever. And when you fall into that trap, then you end up spending a lot of money. And so one of the phrases that comes to my mind, Tiger, is scrappy.

Or disagreeable.

What do you mean by disagreeable?

Someone that doesn't necessarily like to hear things that are the status quo, right? Someone that is more of a natural skeptic or cynic. Like when someone says, this is the only way that you can do it, certain people hear that and take that as a personal challenge. Not everybody does. It's probably better for the world that most people don't.

Yeah. Yes. What I was saying is that To be efficient, you got to be scrappy.

Sure.

Um, and so street smarts, I think street smarts is another way to say it.

Yes, that too.

What else is a challenge, Tiger, with your comment? Because I agree with you, Raymond. Some people are in situations where they're simply locked out of doing something on their own while also being employed. That's a challenge.

Non-competes. Yeah, non-competes.

And then to, to have the skill set to be able to kind of not just bootstrap something financially, but to bootstrap the output that you need for a wide range of cross-functional things. Most people have stayed in a narrow lane so long that they, you know, they're— now maybe you can supplement that with certain consultants, but most people aren't that maverick to be adaptable to that. That's also why, going back to the very first thing that was said at the beginning of this call, was talking about Hiring in startups, and it's not made for everybody. There was— keeping a close eye on a startup that's working in a very, very crowded space. They just hired somebody that has like sales VP credentials from a big manufacturer to then lead their kind of commercialization and US growth trajectory. And I hope it works out great, and I'm rooting for everybody involved, but I've seen that dumpster fire before. Someone that's had 20 years of infrastructure built around him that now doesn't even understand that. Wait a minute, you guys don't even have expense reports? How am I supposed to get paid back for the money I just had to pay with my own flight? Like, hold on a second, I'm supposed to be able to give these to Deborah. Deborah does all that. Nope, you're, you're Deborah now.

100%.

Yep, I agree. I agree. And I think wearing multiple hats is so important. All of us have had to do that, right?

I mean, I— And you can learn it on the fly to some degree, but— and there's always a little bit of that. But if someone is having to learn 95% of what's necessary to deliver, that's a tough— that's a tough go. Most people get overwhelmed by it and fail.

But there's a lot of smart, ambitious people. And once you've been in the industry into your 40s, You've got a lot of experience. You're never gonna have— nobody's ready to be a CEO or a founder, but you're gonna have a lot of the things you need.

Most people, if they've applied themselves and maybe been in a couple different companies, are gonna have the wherewithal to do it if they have the gumption or the tenacity that Raymond was alluding to. I think that's right. Yeah, or or recklessness or lunacy. Maybe there's other ways to spend that passion.

Let's say passion.

Passion.

There you go.

Guys, thank you so much. I gotta go to get something off in the FedEx, but I appreciate y'all.

You're the shipping department too.

That's right. Grant. Thank you.

Hello.

Good, good luck, Raymond. Anything we do to help.

All right, appreciate it.

Yep.

Wow, that is interesting.

So, Kyle, I appreciate what, what you were saying. I've always operated more like, you know, entrepreneur innovator, but I was, I was within Medtronic, but I was always doing something that was different enough that, that I, I didn't run into all that, you know, bureaucracy and everything like that. But when I would interview to find a new job with a company that wasn't as big and whatnot, they always used Medtronic against me. They said, oh, you worked at Medtronic. There's no way you can work here. Right. And that, you know, that pissed me off because I'm like, look, you know, I'm writing my own 510s, you know. Yeah. But they immediately ripped me off because—

I've had startup CEOs tell me, I don't want to see a resume from Stryker, Zimmer, J&J, Medtronic— don't even show them to me, you know? Yeah, because I've got to retrain them, and they may not even be retrainable.

Yeah. And, and yeah, when I, when I first came to Dymocon, I was amazed they didn't have an expense report form.

Oh man, right on. I love the Ellipse. When we, when we got to Ellipse The CEO would tell you, I hate expense reports. I'll never— if you send me an expense report, you're fired. He goes, I'm giving you a company credit card, use it wisely, and I never want to see anything. And it was like, Ellipse did a lot of things right. And one of them was they didn't spend any time on things that didn't improve the product. Well, you know, 80% of the effort at Ellipse went into improving the product.

Yeah, I agree. So, Ramp Card, I've been using that for probably 4 years now and it's fantastic. It just takes— it's so easy.

What's a Ramp? What is a Ramp Card?

Ramp, it's— they're like an AI-based company. There's commercials out there. It's a— but it's a debit card that you have to pay off every month. You can roll the balance over, but it is fantastic because you could set thresholds. for people. And then it is as easy as emailing a receipt to receipts@ramp.com. And then it's AI. Everything looks— it looks at your receipt and says, yep, it balances. All you have to do is like type a memo, like one line saying this is a hotel for OTA, and you're done. So it has made it so, so easy. It's fantastic. I don't have a downside to it.

I've been using Mercury. which is an only online bank. And so I've got a credit card for the company that only I use, 'cause my guys that I work with wanna use their own card and get reimbursed so they can get points, which is totally fine. And then we've got a checking account and a treasury account that's all synced. So if I have a cash balance I don't need, I can drop it into the treasury account and make some points on it. And it's all like the way of organizing the categories of spend, now it has an AI that will do that for you, but then you can go and audit it and change it. And the reports that you can get on what you spent on where are just, it's the click of a button, it's super easy. So if I need to send off a reimbursement for something or if I need to categorize what we paid surgeons, it is blink of an eye easy. So I haven't heard of Ramp, but I'm gonna look into that too. But it sounds like there's a couple products out there that make kinda running the accounting and finances of a business not such a crazy job now. In one project.

So Mercury?

Mercury.

Yeah.

Okay. Yeah, good to know. No, I think this is, this is an interesting point too, like just other things to do to be efficient. And Kyle and I had a conversation a while back about like EQMS versus QMS. You're starting out, we've all been in the paper-based QMS world, right? It, it is sometimes easy but becomes a big pain in the butt down the road, right? So Even like an eQMS and kind of trying to get out in front of another startup. Do you, when do you do that? When do you pull the trigger? Because it's this, right? The answer is money. What was the question? There's always a cost. Just, it's, and then, and also size of QMS, right? You can, if you can build it on the fly, then that's fantastic.

But yeah.

Yeah, we always did that. We, we said, Don't worry about quality, we'll figure it out later. You know, let's just, let's design and test the product every week as fast as we can.

Yeah. Then play catch up.

Yeah.

There's a distinction I think that's important there, Todd, is that there's a difference between an eQMS and a digital paper QMS. Yeah. And that is what I'm using currently, and I think is the most efficient way to work with it is we're not in some sort of Greenlight Guru, Grand Avenue software package where we gotta pay for it. We're doing— but we're just working with a Google Drive and Microsoft 365 documents until we sign off on it. Then we convert it into a PDF or rev control it, and it's all in one shared spot. And there is— that is— that is a very efficient way to do it. And with the capabilities of Copilot and other AI language model programs, If you want something to whip you up an example risk analysis form, you can have it pretty quickly. So, that's— it's a— you want to be very mindful of it so it isn't a gigantic barrier later on, but you also can keep it as simple as you'd like for a period of time too, I think.

Yeah, exactly. No, I've— something contemplating, and I just survived a quality audit where I was 4 different roles. roles within the quality audit. And so the only role I wasn't is inspector. Um, and so it was, yeah, there's some things that popped up and I'm like, that's good to know for down the road. Very good to know. So you could build around that. But yeah, you're exactly right. And we're, we're based on ShareDrive Digital, not eQMS, and it works.

All right.

This is good.

This has been good. This is, uh, impromptu discussion. It's been great. So Kyle had to drop off and we're, we're at the end of the hour. So thanks, guys.

Yeah, thank you.

Always fascinating.

Yeah, I appreciate it. No, it's good to see everybody again. Sorry I was delayed in a way.

Yeah, welcome back, Todd.

Thank you.