Q&A | Mike Palumbo

Anyone else? In the back.

I guess if you were like starting over again, like say you were in your 20s right now.

Yeah, I wish I was in my 20s.

What strategy, or how would you like decide what to go for, say in like the fintech sector?

Great question.

Would you go for blockchain, or how long-term do you think?

Here's the thing. When I was in my 20s and teens, It was obvious that the financial markets were a huge opportunity. So I geared my education towards finance. I ended up getting an MBA at Northwestern, which at the time was the number one business school in the country. I think it's like 6th now, but bottom line, it was a very good school. I was very fortunate to get in there. And so I got my education in the exact area I wanted to. Then I got out of MBA school and guess what? It was a recession. So what happened was I didn't get a job where I wanted to right away. So I had to bide my time as an analyst for a couple years before I was able to take a job, what I really wanted to do, which was trading. So it shows you even there that timing is so important. My timing was a little off. But because it was a little off, I just waited my time and then got in where I needed to go. So now, to bring it forward to now, what would I do? I tell people there are 2 types of jobs in this country right now. There are jobs that computers tell you what to do and jobs that you tell computers what to do. You guys maybe have heard this, this, this thing because you guys are well advanced, but I talked to a lot of people that have never heard that, and it's very important to be in that latter category. You want to be in jobs that tell computers what to do. So if I had to do my education over right now, and I tell this to my kids, go into STEM. I mean, that's, that's it. I mean, you have to go into technical job, you need to know how to code. You need to know— either know how to code or at least be able to manage people that know how to code. So, and even that means that you have to have a proficiency in coding. So yeah, I would completely change what I was doing because I was trained in skills that were great for that time, and technology changes so fast that— look at this, a generation later, And I would totally change what education I would get. So that would be my answer. Anyone else? Yes.

So what's the best way to keep the shares of your company? As an individual or open a holding company? And there's some states that exist.

OK, well, that's a legal question. My companies are all LLCs.

Okay.

So that has to do with more limiting liability. So where should you keep your shares? Well, eventually what you're gonna wanna do is you're gonna wanna put them in trust. Again, that's a legal question and I'm gonna try to answer it as well as I can, but I'm not a lawyer. So it's not exactly my strong point. But what I do now, now that I'm a little bit older, is that I have my shares in a trust for my children. So it helps you to avoid some taxes. So that's the best way to do it. I don't know if I answered your question completely. If I didn't, ask more because—

Yeah, so what I'm asking is, let's say you have your main company that generates all the revenues and the operational company, right? And then you are the shareholder of this company.

The sole shareholder? Sorry? The sole—

it doesn't matter. It doesn't matter. Okay. 50%, 20%, it doesn't matter. These shares of this company, you keep them in your own name as an individual, or you open a holding company which you are the sole shareholder of that holding company?

It'd be better to have the holding company. Yeah. Because you really want to have— and this is a legal question again— you really want to have as little in your own name as possible, just for liability. situations, and it also is more flexible. So you do— you would want to put it in an LLC, and that's the way to do it. Okay, is a limited liability corporation. Excuse me?

You could—

well, I understand LLCs, okay, and I will just tell you that If you are going to start a company, you'll want to have it be an LLC. And you can research why, and you can talk— and definitely the most important thing is get a good attorney, because you can make so many mistakes by just setting up the company wrong. And you definitely need to have a good attorney that understands corporate law and that type of thing. I have— lucky, I have a very good one. And the thing is, is that you yourself will not be able to make that decision very well on your own. There are certain things in business, in anything, where you need others' expertise. And legally, especially— let's face it, you guys are entrepreneurs. You guys aren't lawyers, right? Does anybody have a law degree here? None, right? OK. So use lawyers. Yes?

How do you think that brands do impact the financial Way less than what they're telling you.

Okay? Let me tell you right now, the mainstream media loves to make that into a massive deal. What's gonna eventually happen— and this is a great question— what is gonna eventually happen is Britain is gonna make a deal with the EU and they're gonna move on. The British pound itself has gotten clobbered because of this, but I think eventually a lot of it will recover. And that things will go on. Britain is not going to stop doing business with the EU. It's their biggest trading partner. What Britain wanted and what they voted— and it was a very close vote, right? But what the overall— what the majority wanted is their own ability to set some of these rules. They felt that the EU had too much control over what was happening in Britain. Right or wrong, that was their opinion. It was only 52 to 48. It was a very close vote. But that's what they decided. But trust me that in the long run, and I've seen other situations where it's doomsday and everything's— no, Britain and Europe has way too much at stake to not have a great relationship, and they will. It's just that obviously the EU is upset because Britain is saying, hey, we want to be on our own. So there is some bad blood there, and that's going to carry carry on for a while as they negotiate these new treaties. But eventually they're going to negotiate treaties that are good for everybody. And that might be a good thing. It might be a good thing in that some of these things that were already arranged, obviously some of the people of Britain thought they were unfair, or else they wouldn't have voted for Brexit. So I think it's going to end up being fine.

But do you think a lot of the city jobs will move away from London?

And they say that a lot too, that, oh, they're going to go to Berlin, or they're going to go to Barcelona. And my feeling is that London and New York are the financial hubs of the world. Nothing's going to change that. That is, I think, mainstream media kind of putting fear into people and, you know, trying to kind of get people to think that Brexit isn't going to be a good thing. I think the book is out on whether Brexit is a good thing, and I think that until it actually starts getting implemented, we won't know. And everything that's being written about it right now, and most of it's negative in the press because the press Especially in Britain, wanted them not to do it. So they're going to write some horror stories, okay? I would just say to you guys, caution you to not be too believing in some of these stories you hear and wait to see what actually happens. Because again, it's in the best interest of both Britain and Europe to work things out. Maybe just work things out on an— in a way that maybe both sides think is more fair. So I don't think it's necessarily as bad a thing as what people say. And jobs, particularly in London, they're not going anywhere. I mean, they are a financial hub and it's not going to change. Just like New York. New York, it is what it is. Yes?

In your opinion, what's the best way to find the value of your company if you're selling shares to investors?

Okay. Well, I say in the book there's a model called the discounted cash flow model. And you can look it up in Google. Explaining it would take me like 10 hours, and I wouldn't do a good job of it. But basically what it does is it takes a look at the cash flows of your business and projects them out into the future, and then uses some kind of a discount rate to discount them back to present value. And that present value is the value of your firm.

So the—

The faster that your cash flows increase or grow, the more valuable your firm is going to be.

What if you are just a startup and you haven't launched yet, so you don't have any cash flow or revenue?

Great question. You have to compare it to similar companies. That's really the only way. I mean, there's no scientific method because you don't have some of the things you need in order to value them using DCF. DCF is a great model for 99% of companies. But for startups that have no real cash flow, you really have to compare them in other ways like number of users. That's a huge thing. Is it getting traction? Is it growing its number of users? That's why when you see companies like Twitter and even Facebook, they talk about user growth.

Yeah.

They're not worried about earnings. They're worried about are they getting traction, are they growing, because eventually those are gonna turn into income. But in the short term, it's way more important to look at metrics like that. Anyone else? Yes. What do you think about the Cubbies this year? Okay, now I'm in the middle of a group of people from San Francisco, not from San Francisco, but here in San Francisco. First of all, you guys were fantastic and were lucky to win. I was on record a few weeks ago saying we are going to win it all this year. Something usually happens to deny us this, so let's hope the curse is broken. But I'm going to keep positive and say this is our year. My dad's from Chicago. Oh, really? So I'm sure he's on the edge of his seat.

He gets it. Yeah.

You know, hopefully it's going to happen. I think that We have a whole lot of people in this country that unless their team is in it are rooting for the Cubs. Just to end this thing, it's been 108 years, guys. 108 years. I had an aunt die about 6 years ago. She was 99 years old and she had never seen the Cubs win the World Series. Listen to this. She was the biggest Cub fan I ever met in my life. And she never saw them win. Imagine that. So, you know, I'm still in my 40s, hoping to see it a little bit younger than when I'm 99, because I don't know that I'm going to get there. So, anyway, it would be pretty cool. The only worry I have about the Cubs winning the World Series is that the world might end. So, hopefully that won't be the case. But anyway, any other questions? All right, I'm going to leave my cards here for you guys. I don't know if I left enough. I left about 35. You guys are more than welcome to email me anytime. Consider me a mentor along with any of the other mentors you guys have. I would love to answer your questions. Contact me anytime. My Twitter handle's on there as well. So grab a card if you want, and if we do run out of cards, ask Asra or some of the people here for my information. I'd love to help you guys, okay?

Thank you.

Good luck to all of you.