What is an Exit Strategy and How to Plan One for Your Startup | Startup Mentor Gary Jinks

I would say investor options on your side aren't that important, because we're going to tell you the option we want, and you're going to either accept it or not. So even though you came with an idea of what you think you want, it's like buying a car. I think I want that car for $10K, but it's a $42,000 car, so that's probably not going to happen. So it's nice to have an idea, because at least there's a starting point for an investor to say, hmm, yeah, that's not bad. But at the end of the day, when the term sheet rolls up, we're going to tell you what we want to do and what we think this deal is going to look like. And you're gonna say okay or not okay, or then we're gonna negotiate down the details. It's like valuation. No matter what number you give out for the valuation of your company, you're wrong. It just, it's just the nature of the beast. So we're gonna all sit around the table, we're gonna figure out what we think it's worth, and once we agree on it, then, then we'll go ahead. Yeah. The exit options? You're talking about like IPO or, or Oh, okay. Well, what I try to say is you should pick one that you're going after. And since, from a strategy perspective, since more than 90% of acquisitions are funded, then I would probably start with an acquisition. You can always change your mind. But if you're wishy-washy, the way that— because if you're going to do an acquisition, or maybe it's not, maybe it's simply just a licensing deal. I'm just going to do a license. I'm going to boom. I'm going to go out and sell it for $10 million and move on. You're not going to build a large corporate structure. You're not going to hire a ton of people. You're just going to do what you got to do to get the license up, prove the technology is good, and then license it and sell it out. So your strategies are different. If you're going to go IPO from scratch, then you need to think about building a corporate structure around that. So go one way, and then you can always change your mind. But if you're wishy-washy all the way, then your strategies are going to be all over the map. Yeah? What were some companies that you worked with, and also why do you do angel investments?

Hmm.

What are some companies I've worked with? Okay. So I have worked with lots of companies. So I do workshops. I probably work with— so far this year, I've probably worked with 75 startups, sat down with them. I've had probably close to 1,000 people go through my workshops. So, I mean, I've— I work in medical devices. You name it, I've worked on it. I just launched an agriculture incubator in January with Roger Royce. It's Royce AgTech Incubator. We ran 10 companies through there, funded 2. I'm all over the map. My background is systems engineering, project management, business development, and operations. So I know how to get companies moving. What I do when I work with them is I rely on you to be the subject matter expert of your topic. Now, in many cases, I've worked in so many areas that I also know that area as well. But every once in a while, somebody will come up with something that's just way outside of my space. But the fundamentals to get a company off the ground successfully and out the door don't really change from vertical to vertical to vertical. There will be some technical things that might be slightly different for verticals, but they don't change. Why did I become an angel investor? Well, I've always been kind of— if you tell me I can't do something, then I'm going to go do it. And so I was tired of driving to Palo Alto all the time. I live in Morgan Hill. Which almost killed me getting up here this morning. Anyway, so I started driving to Morgan Hill, so I drive to Palo Alto, so I started an angel group in Morgan Hill. It's actually pretty simple. A lot of times there's no real complex thing, but I've worked in this environment forever, so it was a natural thing to do with my GLJ Group consulting company. So it was just a natural fit. What do I like about it? Working with startups is perfect for my short attention span. I move on from project to project. I've done that all the time, like they said earlier. So I used to work in the defense industry, so I've designed over 25 combat vehicles. I've developed a lot of what's the modern stealth technology on airplanes today, and I helped develop a lot of what's the modern night vision capability that the US military has. And as a systems engineer, I moved from project to project to project about every 3 years. And so I realized that that environment works really well for me. And when I worked in production for a few years, I realized that that was That was boring me to tears. Every day it looked the same, the part number just changed. Every paper looked the same. So I like creating, I like innovation, I like pushing things down the road, I like taking an idea that somebody says, oh, this will never work. And really? Well, then let's go make it work and prove them all wrong. So that's why I did it.

So you mentioned earlier that you invest in ideas rather than people.

We invest in opportunities.

Opportunities, okay.

We use the people to check off whether or not you're going to get there.

All right. Well, I was trying to understand that because I've heard that more, more, More along the lines of that people just invest in the person rather than the idea.

There's that. So the reality is, and the reason I say that is because we'll talk a little bit about when we talk about teams, but the people are important because the people are what make it happen. A good team can push a poor product a lot farther than a great product can be pulled down the road by a poor team. So the people are critical. But at the end of the day, I'm investing in an opportunity. I want to make a lot of money. And if the opportunity can make a lot of money and your team can do the plan you have, and I think your product can do that, then those 3 things aren't really what I'm investing in. Those are the checkmarks that say you qualify to get invested. So if you have a great opportunity but you miss any one of the 3, you have a poor plan, then I'm going to send you back to do your homework and come back later. If you don't have the right team, I'm going to say go find a better team. If you don't have the right product, then I may just say—

Good luck.

This product will never get somewhere, you're going to do it. It's a fundamental way of thinking. We're not here to develop good teams. I'm not investing to build a great team. I'm investing to make a lot of money off the opportunity, but the team has to be there. Does that make sense?

Yeah. Thanks for clarifying.

Yeah. It's a subtle thing of thinking about things a little different. I had a person— I launched a company a couple of years ago which is actually on a 7-country rollout in Africa right now. She does a hydroponics greenhouse, and she developed that because she was the team lead that had to figure out how to grow lettuce on the space station. So she's the one that figured out how to grow produce on the space station. And through that, she learned a lot about how to work with plants. And she told me something I thought was real interesting. Everybody here has gone to school and they all tell you that plants grow towards the light, right?

Yeah.

That's actually wrong. They grow away from the dark. Now, it's subtle. It's fundamentally similar, but it's subtle enough differences. And she used that understanding to design her greenhouses, which she was able to patent the idea. But it's those little subtle things like we don't invest in teams, we invest in opportunities, we use the team to check. Sometimes it's a little shifting like that that can just radically change the way you approach a problem. So I thought that was interesting. I had it wrong all these years.

Yeah.

Okay, so now let's talk about some little general guidelines of going out and looking for some money and making things happen. So the first thing is, onto your topic, you sell your product to customers, you sell your business case to investors. We're never going to use your product. So don't give me a spreadsheet that shows me how you have 32 features and all your competitors only have 18 features and your line says has Xs all across it and yeses all across it and they have no Xs and they say no. We don't buy that. I'm not looking to buy a 4K TV. I'm not going to line you up side by side and see if your product's better than the other person's product. Because a good product— the innovation highway is scattered with a lot of skeletons of great products that died.

Died. Okay.

So what I want to know is your business case. You're selling me on a business case. Okay. We talked about this earlier. Opportunity-based. Make sure that your business case is capturing an opportunity. Again, investors are in it to make money. Most of them are not in it to change the world and make the world a better place to live in. If they can do that and make money, that's, that's a bonus. But rarely do they get in it just to make the world a better place. Okay, and the other thing is simplicity and clarity. You should be able to tell me your problems, the problem you're solving in one sentence. You should be able to tell me how you solve that problem in one sentence. And what generally happens is if I have a question and I ask you that question, what usually happens is most entrepreneurs feel that the more words they can spit out. The more clarity they're adding to that question. The reality is you generally, the more you talk, the more confused you make us. So keep it simple and direct. And a perfect example is when I go talk to a lot of entrepreneurs who are doing some software app, I'm gonna tell them, what are you? Oh, we're the LinkedIn connected with Facebook with a touch of Twitter and we're gonna go viral. And I'm like, I have no clue what you're doing. If I go into a bicycle shop and say, hey, what do you do? I make bicycles. I understood that. I know what you do. Keep it simple. Don't, don't use a bunch of buzzwords. You know, I'm working with a startup right now. I'm gonna give you an example of simple. I'm working with a startup right now that have 8 patents and 52 sub-elements of those patents. Their product is a screw. Can you imagine 8 patents on a screw? Now they call them fasteners, but 8 patents on it. And these guys are— it's actually a pretty amazing product. Their profit margin is 1,200% is their margin. So keep it simple. And it's amazing. They sell screws. They had 4 pages in their 12-page pitch deck telling you about the technical advantages of their screw. I really didn't need 4 pages to tell me about your screw and why it's better. So keep it simple because by the time they were done with the 4 pages, I had no clue why they were better on anything other than, you know, I lost complete focus on that. Simplicity and clarity. 1, know your audience and listener. So everybody's out there trying to figure out how to build the perfect pitch deck. Ah, the great pitch deck that's going to get me funded. Okay. Now, when I talk to pitch decks, we're going to talk a little bit about that. The pitch deck you should build is what I call your baseline pitch deck. That's the pitch deck that you could email to somebody. They could read through it and understand and grasp what it is you're doing and what your business model is.

Okay.

Now, that pitch deck doesn't work everywhere. Understand where are you going to go pitch. Are you going to go into a formal environment like South Valley Angels, Band of Angels, you know, pick a group? Is it going to be public? Are you going to go to F50 and stand up and have a panel of 10 investors in front of you and 400 people in the room and you're going to do your best Steve Jobs impersonation? Is it going to be one-on-one over lunch? A lot of one-on-ones, there is no pitch deck. You just sit down and talk and they ask you questions and at the end of the day, they like you or they don't. And sometimes you might meet a group of folks and these kind of things. So the pitch deck that I usually have people build, which we're going to talk about here in a few minutes, is the baseline that I could give to anybody and they should be able to read it and understand my business plan, what we're going to do, how we're going to make money, who we're going to do it with, what my plan is. I look at that and say, hey, I understand it. Great pitch deck. Now, when you go to talk in front of a group like an F50 or probably some of the things you guys do here, we have these big events. That pitch deck is going to kill you. So what you're going to do now is you're going to put a pitch deck up that's got a whole lot of pictures and very graphically oriented, has some snap and some pop. And now you're going to do your best Steve Jobs and you're going to give me the story. Because at the end of that pitch, at the end of that, I'm going to step off stage. They're going to make notes. I'm going to get a score, whatever the case may be. But I'm not leaving that pitch deck behind. Now, if you tried to use that pitch deck and go into and talk to an investor, and say, hey, can I get a copy of your deck? Sure, you leave the deck. Now, 3 days later, Friday morning, I'm going to sit down and go through the 15 pitch decks I got that week. And I get to yours, and I've got all these pictures. I now don't remember what you told me. The pitch deck is useless to me. So I toss it away, and you don't get a callback. So understand who you're talking to. Plus, the things you're going to put on a pitch deck in a formal or closed environment with investors is different than what you can do in the public. You know, you can't talk about how much you're asking for anymore and those kind of things in public environments, which you used to be able to do. So there's a lot of things that change between what you're doing. So understand where you're going, who you're talking to, just like looking for a job. You don't make one resume and give it to everybody. You make one resume, then you get the job, and then you go and take all the buzzwords in that job description and plug them into your resume so that you pass the scan when you go in and all these kind of things. The same thing in pitch decks. You should never go in and pitch to any investor or any partner or whatever you're doing without understanding who they are, what they are, how they work, what they do. You've got to do your homework on your side so you can go in and tweak your pitch deck to be more successful. For example, anybody in here doing medical devices? OK, medical devices. The very first thing you do in medical devices is almost your first slide almost always has to be your team. Almost no other place is that appropriate because most companies, most startups don't have a good enough team to put up front and highlight it to say, hey, we've got the most amazing team in the world. They've got an OK team. But in the medical world, if you haven't told them that your team has a bunch of letters behind their name, then they're not going to take— so you got to right up front say, hey, my team's full of nothing but MDs and PhDs and yada yada. They go, oh cool, we'll listen to you now. Because if you don't have that, then you can't possibly know what you're talking about. So that's one area where the team up front is really important. So understand who you're going with and what you're going to do. What's the most important thing that you've learned from your team?