Jon: All right. So, guys, this is the Venture Capital podcast. We are going deep. I don't know. We've got a few podcasts.
Peter: Kind of stuttered there. Like you know.
Jon: I am I got four and a half hours of sleep last night, guys. Give me a break. So one of the things that the VCs are approaching me about is doing kind of like a VC Anonymous podcast. So this episode is us testing this out. Personal reason why I think it's extremely important because most of the valuable stories that founders can learn end up under the rug under the equivalent NDA.
Jon: And I think if there are more war stories that were actually talked about, everyone would be better off get contract reviewed. Here's five stories Why.
Peter: Now that you're not the only one who sucks or is in a sucky situation?
Jon: Or also though there is a founder actually goes public. He talked about like going to commit suicide and talking about the stress of being a founder and being kicked out or having the startup crash. And no one talks about that. I think in the news today there were hyper focused on like five or ten founders and we all think we should be like them.
Jon: And if we're not them, it's the end of the world. So if you're not Mark Zuckerberg and you don't have the next startup, by the time you're 34, not a billionaire, you're a failure if you're not. Evan SPIEGEL Snapchat your failure and we don't realize is that the media's grandiose in that all of us are having these struggles and challenges.
Scott: That's true. I can see that all but they.
Jon: Worry about the psyche that people have and everything's much more accessible. So everyone's constantly comparing themselves to the 0.0001%.
Scott: Yeah, I mean, humans do that on everything, but.
Jon: Before 100 years ago, you wouldn't you would know who successful in my village. Yeah, in my town.
Scott: Humans are weird that we do that on in everything. If you're in politics, you're going to feel that way. If you're in.
Jon: Happiness is relative.
Peter: Yeah, just low expectations. They actually.
Scott: Did it. Economics. That's. That's really like people would rather have 100. They'd rather have $10 if everyone else got nine than $100. If everyone got 900. I mean, they've done this enough that like, it's all relative.
Peter: It's all relative.
Scott: So how do you deal with that? Probably mushrooms or something. I have no idea. Okay. Know, you probably have to change your mind and like, learn that you've got abundance right with you at any time.
Jon: All right, Pull some mushrooms out of Chef Boyardee spaghetti sauce.
Scott: And there we go. Lion's Mane or something. Yeah, you introduce the mushrooms.
Jon: All right, so let's talk about stories. So let's talk about we're going to edit. This is a company we're going to mention where they're at, but we'll mention it here. So we all have context. Is that the best way to do it? Sure. What are your thoughts about the weave and rod bean exit, how they weren't not allowed to go to their cup, to their company being being in the IPO.
Scott: Now ringing the bell at the Nasdaq and the company that they need.
Jon: To make this easier let's call that company name Acme.
Scott: Inc careless talking about it. I want to.
Jon: But I want to make sure when I'm beeping this out.
Peter: So like, well-documented.
Scott: Yeah, there's nothing we have to like. That's our.
Jon: Disclose. Okay. Should should VCs be allowed to kick founders out when and why?
Scott: yeah. I mean, like, they can they can do it. They can do whatever is legal, I think. And same with like founders two VC Like, I think there's a lot of like there's nothing that should be not able to do. It's just like, what's human to do? Not like, I don't know if anyone's wrong and I don't even got I've never been into the details.
Scott: I know all the parties involved, mostly as individuals, and I'm friends with all pretty much all the people. And I don't see bad people. They're involved. I just think there's bad behavior.
Jon: From the DC side or both.
Scott: I don't know about. I think mostly from the VC side or whoever had the option to say who can come up to the ding, ding, ding thing. And I have.
Peter: Been the CEO, right? The new guy that they brought in who is just like, Hey, I don't want any confusion around what's going on. I don't know. Yeah, maybe collating who would have that that ability to choose. I don't think it would be the VCs. I don't think any of the.
Peter: Know. We're like, we cannot let them on.
Scott: And then who cares about and like, confusion. Like the confusion happened because they didn't do that.
Peter: yeah, Yeah. I think. I think it was totally silly not to have them. Yeah, just. I don't get it.
Scott: Just dumb. Okay? And so that's, that's my thing. It's just, it's just like, it's like the crumble or thing that's just dumb. And. But you know what? The. The dirty dough made the best with it. Like, they just took it and took this lawsuit from crumble towards them and just they took that, like, fireball and, like, turn it into like a massive volcano and shot back.
Scott: And now it's like these stupid crumble people. I'm going to call them stupid. Whoever got advised and did the legal thing just just, just a mistake because that made it. They could have had like, years of pretty much having, like way above their competition. And now and I now I think dirty does like going to in a few years catch up and it's going to be one and two is going to be like Adidas Nike and we don't know which one will be Nike, which one's Adidas.
Scott: I think it's amazing.
Jon: But happy for both of them if they if that happened. Yeah.
Peter: Or cookies for exactly more cookies.
Scott: I mean I'm not really I don't I don't like I don't think it was done and I don't think they did it to help both of them grow. I think they did it to not be camp, not to to kind of cheat cronyism. And I think that's I think that think the thing came out of a bad, bad behavior once.
Jon: Peter, do you have a suggestion for the next one or should I go next? Go far. You don't have one. Or are you thinking not.
Jon: What are your thoughts about founders that do 5050s that have to break up? How should be people handle that?
Peter: Actually, a better question is how do you think founders should split equity? I don't know.
Scott: I think you should ordain a king or Dane.
Peter: A king? Yeah. And why you give them 51 if doing.
Scott: Something. I think there should be someone. I think there probably is always someone that's.
Peter: And who is as that the person that holds vision or person adds value for men.
Scott: And it's hard to say. And I.
Scott: To its own kind of who would who would who would like jump in to the water after like the precious ring.
Peter: First? I don't know. I don't know who.
Peter: I kind of wonder if it's like it should be the person that has a vision, like not to go back to cardiac as we talk. But I heard this thing from Henry, the CEO, that I thought actually made sense, and he was like, I know it's not fair to my leadership team that I replace them every so often when they've kind of hit their ceiling.
Peter: Yeah, I don't get replaced. But he was like I went and talked to my VCs, and the VCs were like, No, because your job is to hold vision and we can't replace that. We can replace operators all day long. We can't replace the person holding the vision. And like it's also like holding vision, but also the ability to sell that vision to funders, employees, customers.
Peter: Yeah, I don't know.
Scott: Yeah, I, I, I think the vision and the situations where I know that there's kind of a king you want a call a benevolent dictator. Equity holds the most equity. It's the visionary. It's the person that's probably the impetus or the idea. If you can think of any idea, it's probably sprung from an individual. Really hard to say that they were co-created.
Scott: Yeah, a lot of it, a lot of it's an individual that's like, I've got a problem. tell my problem. And then they're going to gather people around it. So I think if that visionary came up with the thing, it's they're the traveling dictator and so 5050 never I don't think you're supposed to do that.
Jon: If a startup comes to you, a convoy is 5050. Do you make them solve the first?
Scott: I don't know the answer to that. I think we would probably we send them to like I got lawyers that kind of do docs probably tell them like, this is not typical. You don't want to do this for these reasons.
Jon: You would not have it cleared up first to try to clear up as part of the deal.
Scott: Yeah. Or you just go 4040 and make sure they've got like equity to do other things, you know, like a pool. Yeah. Like, just make sure that there's something that can break the tie right in the beginning. But as a.
Jon: VC, you don't want to be the tiebreaker. Or do you want to be the tiebreaker?
Scott: I don't know. Actually. I've never really had I never had anything. What's kind of funny is for most things, you don't really ever have to like. I don't. I don't. I've never had to invoke, like, a tie or vote. It's like it just seems like it seems like most companies are in that.
Peter: I feel like if you're tie breaking, you're kind of already losing. Yeah, that's probably true, because like, you really want everybody, like, gone the same direction. Yeah. And if you're already like, you know, dictating to, you know, who's the winner in a dispute, you're not in the same go in the same direction anymore.
Jon: One of the investors I respect locally, not to mention is a name I used to kind of rag on. Ragging is the wrong word, but he would initiate a lot of break ups. And I'm like, this is a hostile activity. But as I'm getting further on and I'd like to hear your opinion, I feel like these are issues that Will would eventually have come to a head.
Jon: And they're just saying, before I get involved or show any positive signal or negative signal, you need to clear this up. And if you can't clear it up, then you don't qualify for the next round of due diligence.
Peter: I think I don't know. I think there's some wisdom in that. Like, here's just looking at a deal and like we were really excited about it. Really strong team, all these sayings and then we're like halfway through diligence and the co-founder and like two of the other senior executives just like, bounced. And then I've watched the company over the last year and like they lost a whole year and like probably at least $5 million trying to rebuild the team.
Peter: And it would have been so much better before they even raised that last round to figure out all those founder problems. Yeah, because I think now the company is going to go under, whereas if they had like solve those problems, rebuilt the team like all that and then raised money, they'd be, they'd be off to the races and they'd be so much better off.
Peter: So yeah, I don't know.
Scott: I think there needs to be. I just called Trent, my partner Mano at Comedy Ventures, since this new episode, I'm going to kind of like make sure I have syntax here. But the, the, the Trent Mono and I had a conversation about really coaching the best. Like if there's anything we can offer as a VC, it should be around marriage counseling.
Scott: It's like making sure that because we've seen so many things go awry with the original co-founders where you lose a year, you know, you've the Met, the cap table gets messy instantly, like instantly, you have no firm product market fit and you kept tables all over the place because of these issues. And so we're we're trying figure out how do we coach and make sure there's like some, some like ongoing workshops to like make sure you're even thinking about these because new founders have no idea.
Scott: This is not something they think about their thing, but they're their product and they don't realize the 100 things that are going to go awry that are that are not even involved with their product, that just come with making a startup happen. And that's where that's where so much time is wasted is like the entity idea, What do I do here?
Scott: How do I do equity, how do I hire? How do I find it? I'm just I don't remember. There's a million things that that might take your mind off. How do I actually figure out this product? And problem is even worth going after because you're distracted by all these, all these just table stakes pieces of shit, things that burn all of your time and they often end up with like, ah, that is like just co-founder relationships that you don't realize that are pretty vital.
Scott: And almost everything kind of comes back to how well you work with that partner.
Peter: Well, and we talked about the slide lunch the other day that like some of the best investments that you guys have done. And and I think you know same here that the like the best teams are the ones that have like done something before. They've kind of figured out all that crap and so they don't waste time on it.
Peter: They're just like humming and cranking.
Scott: I have a new thesis on Brothers. Yeah, Sisters or. Yeah, not husband and wife.
Peter: So that you'll back your back. Siblings.
Scott: Siblings are good.
Peter: Kind of like the Rodman's.
Scott: Think about Robin's winkle VI Parkers. The guys at Tax Bitter Brothers. There's a lot of there's a lot of brothers team there. These guys have quarreled and got their shit figured out like way before they started doing company. So if they're together at a company and they've worked together before, there's like they can speak raptor, you know, to each other.
Scott: They can do things that, that a lot of us can't do. And that's what you know that's what a lot of fun look for in just any co-founder ship like did they do have they been more together like even physically? Did they were they in a battalion together? Did they play in a sports team together? Did they fail at another startup together and are still hanging out and still friendly?
Scott: That's a huge sign to people that have failed before and are still at it.
Jon: Let's go. Let's go. How much deadweight is too much deadweight on a cap table? Let's say there was an early. There are two leave, like two founders, one left. That founder maybe has an option, a 5% an option.
Scott: B doubles in double digits is absolutely too much dead weight. Yeah. And then then you get in that 5 to 10% range. It's like, sheesh, you know, already we're like, that's like a number that a potential investor could have. That's like helping you get your series A and stuck with a person that's who knows what you know is never qualified to be a start up at all and is almost a detractor possible you never know they could be send you legal fees and bills and it's like my gosh, there's like dead weight with like cost extra, extra in tangent or like things that come from that dead weight.
Scott: That's like pulling you down even more than just the percentage of ownership, but like who they might be and how they feel towards the company.
Jon: So under 5%. Peter Yeah.
Peter: No, I agree. I mean, I'm thinking like.
Jon: But you're also investing later on, so, you know, but.
Peter: But it still impacts went through this. Okay so the founder Scott Scott thinks had a bunch of his buddies that helped and start the company and they all owned like a piece of the company And then it grew and it got bigger and he tried to, like, push them out and it became this like huge thing. It got the whole board had to get involved, all the investor like sign off.
Peter: And they, they basically like bought out the I think they called themselves like five or something like that and like it was like this big drama and kind of a headache and cost the money, cost the company a bunch of time and money. And so far so I don't know, like dead weight still kind of matters.
Peter: Even at the girl stages because like, sometimes like the kind of, like, pushed it under the rug, but eventually it comes back to bite still.
Jon: So you see it at your stage, not.
Peter: Super often, but occasionally. I mean, the thing that we see at the grow stage that's a little bit challenging is sometimes you have these cap tables that are like 150 lines long and it's like everyone in their dog is in there, you know? And and I always wonder, too, like when I see that it's kind of a bit of a red flag of like, you know, how good of a fundraiser is this founder?
Peter: You know, there is a certain amount of like, you know, you get your money where you can convince your friends and family, but there's another where it's like every family member and their cousin and their dog have like $2 in the company.
Scott: Do you ever seen a dog? Because we're thinking about putting on eye cap.
Peter: I know, I know. But I've seen a lot of, like, trusts in Memorial, like, you know, stuff like that.
Scott: You need to have a non person on the cap table and possibly an animal this year.
Peter: Egypt three on the cap table. Right.
Peter: They brought all the code.
Jon: So is there too much funding that a startup has raised like let's say a company is doing has raised 10 million and they're doing it in a million or two a year in revenue, But they have a very compelling story that they're.
Jon: Yes, but they have a very compelling story. And a lot of the management team has shaken up, but they're still an original founder from how about 10 million?
Scott: And they have no revenue and they're raising more. I mean, that's a sign.
Peter: There's going to be a lot of more of those come in.
Jon: But would that be a deal breaker.
Scott: Now spend what they're.
Peter: Not necessarily. I think the challenge you run into is that by that point, the founder owns so little of the company, the person that like has to move the puck forward that you really worry. Like how incentivized are they really at the end of the day, like we were in this one deal years ago where that kind of happened, like they raised a bunch of money and then they like tripped a little bit and they didn't really grow the business and they needed a raise more.
Peter: And by this time, the founder owned like 8% of the company, which is, you know, and he should have gone somewhere in the range of at least 10 to 15% at this stage of where the company was right now, minimum right, 10 to 15 probably should have on like 20%.
Scott: Do I know this one?
Peter: I don't know. Is it Utah? It is Utah.
Peter: So anyways, so what they did, though, is they held the board hostage and the guy was paying himself like half a million in salary a year because he was like, I'm going to make up for it, you know.
Peter: And, you know, as a VC, like, it's frustrating because on the one hand, like, I don't know, like you want them to be incentivized. On the other hand, you don't want to be putting money into salaries like at that level because that's money that could have been used for marketing, hiring more devs, you know, whatever it was.
Peter: And so then what they had to do is they had to go back and basically like reset the whole cap table. And so bunch of S's got wiped out, including a bunch here in Utah, and they had like crazy pay to play provisions and all these things to basically get this. The CEO and the team back up to like a reasonable ownership.
Scott: I had to do that in a company that won. Woolley Yeah, it was like it was either surrender some of my ownership or I just don't think it was going to progress for them.
Peter: Do you want a piece of something or a piece of zero?
Jon: Do we need to bleep this or not.
Scott: Believe this was finally that I'm I mean, that's real stuff.
Jon: I think one of the things that's challenging along this line is I've got a friend who's going through a scenario and he's trying to raise capital to clean up the cap table.
Scott: That's a horrible one.
Jon: I feel like they're holding them hostage. Yeah. And they're like, Hey, this is our market value. This is what we've done here. They've left.
Peter: Here's the problem, though. As a VC, like, there are so many fish in the sea. And so when somebody comes and you're looking at it for the first time, right, you're not an insider. So somebody just brings like this, like messy cap table, messy situation. You just kind of like, you know, I don't need this in my life.
Peter: I've got like 50 million other startups that I could buy that.
Peter: That are fresh, clean cap tables.
Peter: Which I kind of wonder if, like, you should just like cut bait and run, especially if your insiders aren't willing, especially.
Scott: Right right now. I mean, yeah, a time where it's just like if they're going to bring me leftovers and it's like I can't find any meat left on it. And I visit fresh deals that are just.
Jon: There's just how much does a messy cap table is, is that an actual signal of a bad founder or founder who's not ready?
Peter: I don't know. It's definitely.
Peter: Everyone has bombs. A lot of.
Scott: People's first one, if someone makes it on their first one, it's like they weren't thinking cap table when they had my first company. Luckily, I didn't even know you had a cap table. I owned it. Right? And so, like that was just by accident that I happened to get an offer and be able to sell it and not have to ask an investor as on bootstrapped.
Scott: You know, there's there's just the I just don't think you can tell enough by a cap table on the founders or the or not.
Jon: So for you it's not a negative For Peter, it is a negative. Well, just.
Peter: I think I think it's it's.
Scott: Facebook even, you know, from the movies.
Peter: It's one data point, right. So yeah, if you have a clean cap table, that's great. Does that mean I'm going to do the deal? No, not necessarily. If you have a super messy cap table like is that bad? Yeah, that's bad. But is it going to be a deal killer? Well, maybe. Maybe not. Probably not.
Jon: What's the messiest cap table that you've seen since? I think we're on the cap table wagon.
Peter: Okay, so you guys complete this name out. So this. Do you guys know the company? Actually, they've rebranded. It used to be.
Peter: Goodness. That thing had a messy cap table.
Scott: Really? It's an older.
Peter: Company. It's a it's a really old company. Anyways, so this company had raised like, okay, so they had built they had bootstrapped this thing to like 10 million revenue. It's like good number, right? Especially for Utah at the time because this was a number of years ago, the get it up to $10 million they bring in as we see to lead it and and our our fund participated and then the company just immediately went sideways like could not grow revenue anymore and have been growing like over 100% every year and then raise the money from the VCs goes flat and then they like they were like, we're going to kick start growth by buying this
Peter: other company. So they bring this other company and try to merge it. That didn't go well. And then but with it they brought in like these like quote unquote top tier of venture funds, kind of like tier one, tier two venture funds to participate. And so now you had this like super messy, like merger in a company that wasn't growing but was like generating enough revenue that nobody wanted to shut it down.
Peter: Right? And so, yeah, it was just nasty, nasty.
Scott: You know, I think there are I think the NFT stuff rebounded that company quite a bit. wow. Yeah.
Peter: But how are they doing right now exactly. So that that was that was a gnarly. And then like they found so the founder I don't know if you know this the founder of that company, the original founder was the guy that did I really And they got sued by this idea.
Scott: Hearing about that.
Peter: But yeah, yeah. The thing is, is like you had multiple investors at different prices. You had like tons of individuals that funded this company. You had like crazy pay to play provisions and conversions and, and we still use it sometimes for training and like, hey, if you can build out this cap table and correctly get to the amount that we need to invest to maintain our ownership, you will understand cap tables through and through.
Jon: Interesting. What are some of the common things you guys are seeing are problems or stories? Things? The NDAs are covered up in the deep dark side of the venture capital world.
Scott: Just lost a lot of us, like lawsuits are an interesting one where you find out sometimes too late that there's past litigation. That's like there's a really easy way to talk about that. Maybe it should just be in the delay room like any pending litigation should be like talked about, but that the.
Peter: Data rooms have that they do. And if they don't disclose that, they're actually like, liable. I know. But the problem is, is if once you put money into the company and then you find out what are you going to do, sue them? And then like you lose in that money, like I have had.
Scott: That happen I think twice already. One of my first deals on the X that I've had really in my Angel portfolio was something called Donut Media in a way. And they they before I sent money, they did have to clear up a legal situation that kind of put her on the deal at first. But I just love the founder and what they were doing.
Scott: And he you know, he was speaking in Frank with me and it was like that was part of the deal. Probably why it was affordable to in some ways is it had, you know, a salvage license type of thing. And so it's like or a salvage title. I'm like, let's do this because I know what you guys are about to do and ended up being a great company.
Peter: And you make him clean that up, though, before you've wired the money. I think.
Scott: We did. I think I had to make sure it was like, I don't do a ton of diligence as an angel. I'm not that I'm not getting in the deal room. I'm basically meet the founder. Do I like him or not? And do I do I just go with the gut? Yeah, it's worked for me. I just don't have the skills to look at a massive lines of spreadsheets and get anything out of it.
Scott: It's like, I don't care if I if I trust the person telling me that I should invest at this stage. And that's and that is early stage investing for sure. That's like for sure. I think it's better to be proficient at the gut than to try to make anything of numbers that don't make any sense anyway. They usually don't have numbers.
Peter: Yeah, they're not unknown numbers off. Okay. Yeah. Yeah. I mean, it's basically like, do you like the market? Is this founder like a killer? Yeah. They're going to get it done. Yeah.
Peter: I dig. My problem is that, like, by the time we invest, there's, like, real traction, there's real numbers, and all of a sudden, like, valuation actually starts to matter a lot. And so you got to feel like, you know, you're getting in at a price given the rest that you're going to get like a risk adjusted return. And sometimes like we'll look at companies where like valuations super high and we're like, yeah, you're doing 50 million revenue.
Peter: But at that valuation, I'm basically taking seed stage risk. And then I got to evaluate, do I want to take that kind of risk on this type of company, you know, because like all of a sudden, if, if they're valued at like, you know, the heyday of 2021 was like 100 X, there you are. Right. All of a sudden that's a $5 billion company.
Peter: You know, it's like if I want to get a risk adjusted return like ten X, this has to be a $50 billion company. How many of those right are there? Not many. Right. So it kind of creates this like seed stage risk profile.
Scott: And I've seen people invest in like in terms where they would have to get to get a ten X would have to get to 50 billion. I'm like, I don't think they even are doing the math. You know, like, I think there's some people that don't even understand that kind of thing. Like they're just getting in.
Scott: Excited. I've just seen that happen and I know I can save probably phone once or twice to just just like anything to support you, even.
Scott: Even if it's a two or three x, I just want I want to see this come to life. I want to be behind that thing and I'm okay with that three X and that actually still am. I mean, there's some things that's like still 33x in a few years is better than a lot of, saving mechanisms out there.
Scott: It's like donut media was not a massive multiple return, but it was it beat any of my real estate stuff that I did during that time. Yeah, it was, it was a right good proper venture return. Yeah. Wasn't out of the park but just like beats beats other things I could have invested in during that time. So I'll take that risk sometimes.
Scott: 50 billion. Sounds amazing. Do you have any that are.
Peter: I'll tell you that my anti portfolio and that I, I talked.
Scott: I think we're doing that too.
Peter: We almost did space X at a $10 billion valuation.
Scott: Is that a good idea.
Peter: Well they're now trading at over 100 billion so that would have been a ten X Yeah. Going from you could do and you.
Scott: Could liquefied your, you could have got.
Peter: Out. yeah. We get a sold on secondaries. But you know at the time like rockets were literally built blowing up on the launch pad so like it was, they hadn't they haven't successfully recovered a rocket yet. You know how they you know bring it back down. Yeah. Hand on that you know. And it was just like I remember we had a student that was just like literally pounding the table, like.
Peter: This is Elon frickin Musk. He will not lose.
Scott: In some ways. He hasn't yet.
Scott: Like in the long run, he doesn't have to shut anything down. And I even think that he was behind open A.I. and then parted with Sam Altman. I mean, he has been behind most of the things that that have been hit, some significant noise. And now Twitter. And, you know, you get to see probably what the boring company and what does his neuralink have.
Scott: Like really, They haven't really had their moment yet. Yeah. And he hasn't killed them though, so it doesn't kill them.
Peter: He's not like as involved with them either, though.
Scott: I don't think so. You know what he was doing that I think never happened. Was that to make a super fast channel or like sucking thing.
Scott: Hyperloop, whatever that I.
Peter: Think is still kind of is out there. I mean, that's what the whole boring company was supposed to be doing. That's my thought is they're building the tunnels, right?
Scott: Yeah, but are they making the Hyperloop like I thought the whole way to the Hyperloop was like this Suction, suction travel where you just or some type of, like, technology that just when.
Jon: They talked about doing the Hyperloop between Pune in Mumbai, India, and I was looking forward to that and like would be awesome.
Peter: That would be cool.
Jon: Make get motion sick. It would be.
Scott: Awesome. Yeah that's like lightspeed.
Peter: Have you read his biography? I i his biography has.
Scott: Been I listened to it, but I don't think I've I can't remember now when they come out I.
Scott: I think I did I think I did and I.
Peter: Say like at least like six or seven.
Scott: Yeah yeah. I did it on Audible. All right.
Peter: It was basically my take away from it was like, Just don't bet against Elon, all right?
Jon: And I'm going to bring it back to you.
Jon: Come on by. Anti portfolio, anti portfolios.
Peter: What's your anti portfolio would you miss. And that's what we missed.
Scott: I was really good friends with them. It was start with Ben. No,
Jon: Darrell with Darrell. I introduced Darrell. I decided to not do the deal myself. Introduced Darrell. Darrell to get ran with it.
Scott: Yeah. I didn't know I knew Darrell only trying to do like, some little, like, photobooth pop up thing and, I never saw that coming. That was a it's like the second he I, I stopped work with them on this like photobooth thing for my time closures. He did lucid then it's like, boom boom. I'd have a chance the that probably probably like a peer like, that was, that was rounding up around that I could have been in.
Peter: And what do you feel like you missed on Piara I just.
Scott: I just, I really like, I want more consumer tech in my that, that's out there with customers. I mean, I don't know yet if there are they have they reached true escape velocity. I don't know not going to put them in like just like but I don't think they're going anywhere. outlet I didn't do and I probably could have worked my way into that one.
Scott: I don't know what that was that it looked like but I like, I like I would have liked have like a really cool consumer device like that or you know, like a customer connected tech thing. Yeah. That they are, as I like Nate Quigley and what he was doing at Chapbooks, I don't, I never actually I'm not a user of the product or yeah, I never felt compelled to but I know that there are users out there and I would have enjoyed, you know, having that my portfolio, even if it was a have been like I probably don't in media when if I, I don't know if I've ever done secondaries or anything, I
Scott: don't know if they'll ever exit. So maybe I would've been stuck on it forever. But yeah homie probably there are times I felt like I missed that. I was in my entire portfolio, but I don't know now. You know, it's one of those things. So I don't have a massive anti portfolio. I would have there's some that I could have said no to that I didn't say no to, but I was on the fence and I'm like, glad I did not glad I got into that when I did and not say no.
Scott: So I have those ones that were close calls that I that I'm very.
Peter: Do you have the opposite close calls every like, I'm glad that one didn't work out.
Scott: Yeah. Yeah for sure or glad it didn't work out or or that one glad I didn't invest because that went south. South you're saying.
Peter: Yeah. Yeah. Where you were like right. Ready to do it. Yeah. And some ten.
Scott: Yeah. Yeah. That definitely I can't like bring them up in my mind right now. But yeah, I definitely had those where I almost did it. And then the, probably the reason I didn't feel it was the reason that, you know, something is usually it's usually just a founder. Yeah. It's always just like a vibe. Yeah. To be honest, if it doesn't work, it's a vibe I feel and say something's not right.
Scott: Yeah. And then it usually ends up being not right. Just like, right at that stage. Like, yep.
Peter: We met this company at CBS and like, our students were super pumped about it. It wasn't like the self driving side, the space and, and like for a while we were kind of kicking ourselves or not doing it because they then went on to raise like round after round at bigger and bigger valuations. And just recently the companies getting sued by the DOJ.
Peter: Like corporate espionage stuff. So they're going to like totally fold now. So yeah, now, now my partner and I kind of like.
Scott: You. Yeah, there's, there's a few in our portfolio that could still possibly go, you know, like we did an investment. This is public, something negative really solid. But we did a into a protocol called No, it was nomad. That was like a web3 protocol. I wasn't involved with, with the diligence on that one, but, you know, trust my team to go find some good stuff.
Scott: And it was a crazy valuation, so we didn't have a lot of it and we didn't put a lot in either. But a few months after the investment they had, their bridge was hacked, you know, socially and just drained of its all of its customers liquidity. And it was like on chain. So it was kind of like it was No.
Scott: One for, yeah, I don't see it happening. You know, no one's no one's fault really. It was just someone forgot to zero or something in the line of code that allowed it to just drain the liquidity out of this thing. And, and it's just like those are ones where it's like.
Peter: That's the hard thing with crypto is you make one mistake.
Scott: Yeah, it's a mistake. You know, it's not, it's not like it wasn't like someone left a vulnerability. There wasn't.
Peter: Just sort of oversight. Yeah. Yeah. Creators, the company.
Scott: Yeah, they're still around, but it's just kind of that's a hard to rebuild, you know?
Jon: Yeah, yeah, yeah. When as a founder, when do you encourage a founder to walk versus fight when they have co-founder issues. man.
Peter: How much of the company that they own.
Scott: I'm in the middle of this right now.
Scott: And it just depends on it's like, it's like with any legal battle it's like what are your what's your life what do you want your life right now? Like, what energy do you want? Sometimes when you fight, it'll never be the same If even if you get what you want, it could ruin the company or ruin your life.
Scott: So it's like, just really. Just like that. Those are moments we have to figure out what in what do I want my life to be like right now? Like what? What do I like? Is this is this idea important enough to me that I can deal with some super mental brain damage like, can I take the punches and get some TCA?
Scott: You know, because you might lose some bouts. And it can forever like it can be a it can be rough. Few years if you're going through something, you know, like outside of business in your life at that time, if you're going through a divorce or, you know, kids or, you know, other teenage years or you have a you know, my wife's co-founder right now, and it's been really hard in some ways.
Scott: And she's got a dad. Father just went through dementia this last year and kids are boarding school and she's married to me, which is basically lots of brain damage on the daily. So like there's just things you got to say my ready to can I can do has the the you know mental fortitude to do a fight right now which is I so I you know what's that martial law where you kind of just let them blows pass and kind of you know not not really.
Peter: Engage but like you though. Yeah.
Scott: So I don't I it's the I think that's all individual to the person, you know, in the time I can't I can't say there's a overarching rule there.
Peter: I don't know about on the co-founder side like where you have a dispute with your co-founder. But several years ago I sat down with one of our, the entrepreneurs that we backed and I was like, Yeah, let's go to lunch because things weren't going well in the company. And I was like, You should really consider hanging up the Spurs on this one and just starting over.
Peter: And he was like, He's like, Yeah, but we, we just moved into this pivot and then it was, we talked about it and like a lot of that stuff, like, what do you want your life to be, you know, and where do you want to put your energy? And I think he kind of took it and ran with it in the opposite direction of what I was thinking.
Peter: I was like, You should quit and like, start over. And he was like, Screw you, I'm going to build this thing into something big. And to his credit, like, did it, they found this pivot and it's a fantastic business. It's it's one of those that I don't it's definitely underappreciated in Utah but it's metrics.
Scott: And talk about it.
Peter: Outperform so many others. Yeah so now growing really fast, really good data summary retention, you know, every sales metric you want. You know.
Jon: ABC reached out to me about that one and I passed like John, if you get involved, they could use your help. And I'm like, No, thank you.
Peter: probably at the time it was the smart move.
Jon: I think there were they were struggling with their pivot. Yeah. And I felt like they just been around for a long time. He talks about he likes to see startups get traction and there's usually something where the startup breaks. Yeah. And then it has this like kind of like Valley of Death, but it's as if they can start coming in and their trajectory starts changing.
Jon: He says, I don't care if I hate the business, that's my signal to double down.
Peter: You know who's one of the bigger shareholders?
Peter: So now Discovery, they totally did that. Like they put some money in early on dipped and then they plowed ton more in as they came out of that old school of it.
Scott: PE money man that be nice.
Jon: Yeah that's what you do with Andre and a bunch of others. Yeah. It's worked out really well for them.
Scott: How do we get that money? Do we get to start playing big dollars? Peter, I.
Jon: Don't know if you already have the big dollars.
Jon: Next, next question. Next question. Maybe the last question for this round. You know, you're always on top of it.
Scott: No, you have no idea if give me enough time. I mean, I remember.
Jon: I remember. I remember when let's say you have let's just mention names are going to filter this out. Yeah. She had another startup, which in my mind is very different from the startup.
Scott: Corporate and corporate massage.
Jon: Yeah. When should you walk away? And when should you continue or copy or do, like, a mere the cap table?
Peter: Because she, like, did she mirror the top table? I thought she just kept it going. Yeah, she pivoted the business I'm an investor in.
Jon: Yeah, she pivoted. But when I've heard the story, it's like, this is a brand new business.
Peter: Yeah, but, I mean, it's just a pivot, right?
Jon: How do you look at it? Too hard. Pivot?
Scott: It was a pivot. No, it was technically a pivot.
Jon: A hard pivot, though. So you would call it a hard pivot. I would say this is a new business.
Peter: I mean, to me, a new business is you shut down the old one, right? Or you do.
Jon: The question you have, you.
Peter: Actively reset cap table because there's I don't think she did either of those because.
Jon: COVID destroyed the other business.
Scott: It was a message people touching people during.
Jon: So that was tech enabled during COVID.
Peter: Mean, it was tech enabled to beyond us. I mean, it wasn't like that. And it.
Scott: Wasn't. It wasn't.
Peter: I thought it was a great business, though.
Scott: Yeah, I invest because I'm like, the numbers are good and mom loves her energy and to be in a very small a chat. But like, yeah. And I was impressed with her pivots and, and I would say it's a pivot, not a new bit, not a new business. It's a scrappy way to, to, to pivot. But as part of hard as a pivot you could do.
Scott: And that was because of the environment that.
Jon: But that's not going to debut, I don't know. But the question is, is when do you reset the cap table? What you're saying is when revenue goes to zero or you shut.
Jon: Because to me, I think she should have shut it down and started over.
Peter: But she had a bunch of cash on the balance sheet. Yeah, she still had runway.
Jon: So I don't I don't know.
Peter: And she was arguing because I met with her when she made the pivot because we thought about it. But the reason we actually it doesn't matter, right? We didn't. I mean, her argument was like, hey, we are still servicing a similar client and solving a similar pain point. We're just doing it in a slightly different way. Yeah, right.
Peter: Instead of like it being like a physical interaction, it's more of a digital interaction.
Scott: Yeah. I mean, I think that's.
Peter: For me, like it's like you have a hard pivot when there's not a whole lot of appetite to keep funding. The current thing.
Jon: Yeah. All right. We'll wrap it up. Good. A venture capital firm if you want subscribe. We were talking about war stories and lessons, what we can take away.
