Transcript
WEBVTT 1 00:00:06.240 --> 00:00:10.070 With the partners in the principles around the table and and our venture partners. 2 00:00:10.509 --> 00:00:13.789 If we don't feel like we can help them, if we don't have people 3 00:00:13.789 --> 00:00:19.230 within our network to help them generate sales, we typically pass. And that's 4 00:00:19.789 --> 00:00:23.820 not a negative on the opportunity or the company itself, but we really want 5 00:00:23.820 --> 00:00:29.660 to add value. Welcome to the revenue series on BB growth. I'm your 6 00:00:29.699 --> 00:00:34.859 host, John Grispin, founder and sales coach at early revenue. Let's get 7 00:00:34.859 --> 00:00:41.250 started. So today I'm here with Brian Matthews, cofounder and general partner at 8 00:00:41.409 --> 00:00:46.409 cultivation capital. Welcome, Brian, but Hello John. Thanks for having me 9 00:00:46.570 --> 00:00:51.640 on. I'm excited to tell our story. Absolutely certainly appreciate your time. 10 00:00:51.840 --> 00:00:57.600 So just a kind of level set. Our podcast guests are typically revenue leaders 11 00:00:57.840 --> 00:01:03.240 and venture firms like yourself. We want to provide early stage tech founders and 12 00:01:03.520 --> 00:01:08.310 their sales leaders insights and best practices in really two areas that are top of 13 00:01:08.390 --> 00:01:15.230 mine for everyone, the how tos of going early stage sales and fundraising, 14 00:01:15.590 --> 00:01:19.659 which is why you're here so well. Really, today we'll break this chat 15 00:01:19.780 --> 00:01:23.579 in half. First we'll talk about cultivation and your growth kind of pre covid 16 00:01:25.180 --> 00:01:30.980 and then we'll get into some post covid quarantine related questions. So first of 17 00:01:30.980 --> 00:01:34.810 all, I'm so glad you hear Brian. Want you tell us a little 18 00:01:34.810 --> 00:01:38.489 bit about your background? Sure. Yeah, so start out as a mechanical 19 00:01:38.569 --> 00:01:46.209 engineer working for McDonald Douglas in the S. Left McDonald Douglas in the early 20 00:01:46.730 --> 00:01:53.519 s and with my wife started a fantasy sports company pre Internet, and that 21 00:01:53.760 --> 00:01:57.120 went very well. We came one of the largest fantasy sports companies in the 22 00:01:57.239 --> 00:02:02.349 country. Also started an Internet Company and is sp here in the Midwest. 23 00:02:02.430 --> 00:02:08.150 Raised over fifty million dollars and started a software consulting firm and a back office 24 00:02:08.189 --> 00:02:15.860 software company. Sold all four of those companies in the two thousands bar to 25 00:02:15.979 --> 00:02:20.539 publicly traded companies, and so quite proud of that. To that for exits 26 00:02:20.580 --> 00:02:25.819 the publicly traded companies during the time did a lot of the angel investing in 27 00:02:27.099 --> 00:02:32.289 probably over a fifteen year period invested in forty two angel companies as well. 28 00:02:34.009 --> 00:02:38.490 Of course there were some failures along the way. Probably Co founded another six 29 00:02:38.569 --> 00:02:45.719 or seven companies at didn't exit, but you learn a lot even in your 30 00:02:45.759 --> 00:02:52.039 failures, and so did that until about two thousand and ten and then started 31 00:02:52.080 --> 00:02:57.360 getting involved in the accelerator scene that was starting up here in St it's the 32 00:02:57.439 --> 00:03:00.949 company called capital innovators, and then, multimately in two thousand and twelve, 33 00:03:00.110 --> 00:03:06.349 decided with a couple of CO founders to launch cultivation capital, which is an 34 00:03:06.430 --> 00:03:10.550 early stage venture fund. Well's so it's a perfect segue. You you've spent 35 00:03:10.629 --> 00:03:15.780 a lot of time as not only an operator, you spend some time doing 36 00:03:15.780 --> 00:03:19.819 anma. You've been an investor at multiple levels. Tell us about the mission 37 00:03:19.819 --> 00:03:23.500 and purpose while you formed cultivation and what it's purposes yeah, well, it's 38 00:03:23.580 --> 00:03:30.370 kind of a wealthhold story now, but I think early on we recognize how 39 00:03:30.449 --> 00:03:36.210 difficult it is to get capital in the undercapitalized markets, are underserved markets between 40 00:03:36.250 --> 00:03:39.930 the coasts, and so I know I struggled to raise capital during the years, 41 00:03:40.169 --> 00:03:46.159 and so the thought was that there were good investment opportunities and we could 42 00:03:46.199 --> 00:03:51.199 get in earlier than the more establish venture funds, and so that was the 43 00:03:51.319 --> 00:03:57.310 premise. We started with a software technology fund, but we also then launched 44 00:03:57.430 --> 00:04:01.509 a life science fund as well as an Hag tech fun so you've got an 45 00:04:01.590 --> 00:04:08.229 array of different funds going on each of these funds. So you started in 46 00:04:08.349 --> 00:04:11.699 two thousand and twelve these funds that emerging of all the over time. You're 47 00:04:11.780 --> 00:04:17.019 on multiple series of the funds. What's the typical funds size for the funds? 48 00:04:17.060 --> 00:04:21.139 Yeah, so, you know, we want to say under a hundred 49 00:04:21.180 --> 00:04:26.329 million dollars. The first fun was was about twenty million dollars. Tech Fund 50 00:04:26.410 --> 00:04:30.930 three, or third iteration of the Software Tech Fund, is now seventy five 51 00:04:30.009 --> 00:04:34.329 million dollars. But we want to keep them under a hundred million dollars because 52 00:04:34.529 --> 00:04:41.720 we're really investing in pre a late seed are an a ram, which is 53 00:04:41.800 --> 00:04:45.680 usually at a lower multiple than what you'd see on the coast. So before 54 00:04:45.680 --> 00:04:48.439 we get into the investment sizes, tell us a little bit about the lps 55 00:04:48.560 --> 00:04:54.750 that are part of the different funds. Yeah, so on most of the 56 00:04:55.069 --> 00:05:00.069 LP's are family office high net worth individuals. We do have some institutional investors, 57 00:05:00.670 --> 00:05:05.829 but in your early funds it's very difficult to get institutional investors. They 58 00:05:05.910 --> 00:05:11.060 they don't really like to invest in a first fund or maybe, in some 59 00:05:11.220 --> 00:05:15.420 cases a second fun but as we've matured now and we're on fund three and 60 00:05:15.860 --> 00:05:20.300 getting ready to start raising for fun for we are getting interests from institutions, 61 00:05:20.810 --> 00:05:25.449 but for the most part kind net worth individuals, mostly in the same louist 62 00:05:25.490 --> 00:05:30.689 region. And what's on a typical investment size that you're looking at? Yeah, 63 00:05:30.769 --> 00:05:34.170 so that is grown with the size of the fund. But but today 64 00:05:34.449 --> 00:05:41.360 we're typically writing a two million to three million dollar check with companies that had 65 00:05:41.439 --> 00:05:46.040 between a half a million and two million dollars of rr. Our software tech 66 00:05:46.120 --> 00:05:51.230 funds are predominantly focused on Bob Sass. Our first fun had a little bit 67 00:05:51.269 --> 00:05:56.550 more BTC in it but we decided it, starting in our second fund, 68 00:05:56.629 --> 00:06:00.350 to go with Bob only. On the Life Science Fund and the Egg Tech 69 00:06:00.470 --> 00:06:04.819 Fund, there you have a little different investment thesus and they do invest in 70 00:06:04.899 --> 00:06:09.620 pre revenue. I can't speak too much to those. I'm going to keep 71 00:06:09.660 --> 00:06:13.220 most of my conversation around the software attack. I do want to mention we 72 00:06:13.300 --> 00:06:15.699 do have one other fun the sphere of St Louis Fun which is an SBI. 73 00:06:15.899 --> 00:06:21.410 See it's in investment criteria is a little earlier than to fund three. 74 00:06:21.810 --> 00:06:27.689 kind of filled the void that tech fun one had and it is got a 75 00:06:27.889 --> 00:06:32.720 larger investment thes to sit will do be to see it will do agriculture as 76 00:06:32.800 --> 00:06:39.439 well as software technology and it's a two hundred and fiftyzero dollar first check. 77 00:06:40.279 --> 00:06:45.079 We like a rr in the hundred to two hundred thousand dollar range to make 78 00:06:45.199 --> 00:06:48.350 those investments. That's you. So you've you've written this. You're walking into 79 00:06:48.389 --> 00:06:53.870 some of my questions here. So any particular metrics other than revenue that you're 80 00:06:53.910 --> 00:06:59.589 looking at or any particular criteria? I know you you've I've heard you talk 81 00:06:59.589 --> 00:07:01.980 before where you got a product, got a revenue, got of traction. 82 00:07:02.019 --> 00:07:06.939 Any particular metrics that you look at as you analyze these potential investments? Yeah, 83 00:07:06.939 --> 00:07:12.620 Oh, yeah, definitely. So we like to see growth rates of 84 00:07:12.660 --> 00:07:15.850 at least a hundred percent year over year. The smaller the fun the higher 85 00:07:15.889 --> 00:07:18.649 the growth rate we want to see. But when you when you start getting 86 00:07:18.649 --> 00:07:23.170 to a million, five, two million dollars of rr, least a hundred 87 00:07:23.250 --> 00:07:28.810 percent a year over year growth is is kind of a minimum criteria that we 88 00:07:28.970 --> 00:07:33.519 want. We do look at customer acquisition cost and LTV and, you know, 89 00:07:33.680 --> 00:07:39.079 looking for all of the traditional SASS ratios as part of the the due 90 00:07:39.120 --> 00:07:45.430 diligence process. But first cut, when you company first interviews, it's totally 91 00:07:45.589 --> 00:07:49.470 our our growth rate got. And so for founders out there, what are 92 00:07:49.509 --> 00:07:54.550 the characteristics that you're looking for? I'm sure one of the things that you're 93 00:07:54.550 --> 00:07:59.060 investing in, obviously, are the founders and the team. So what are 94 00:07:59.060 --> 00:08:03.180 the characteristics you seek in the founders that you'll invest in? Boy, that's 95 00:08:03.220 --> 00:08:09.980 a that's a million dollar question for sure. Obviously, once we're comfortable with 96 00:08:09.220 --> 00:08:13.209 all of the financial data, in the metrics in the market, it really 97 00:08:13.370 --> 00:08:18.769 boils down to do we like the founder and do we think the founder has 98 00:08:18.850 --> 00:08:22.569 what it takes? Obviously experience helps a lot. You know if they've done 99 00:08:22.569 --> 00:08:30.240 it before, it's a much simpler decision. We look for what the background 100 00:08:30.439 --> 00:08:35.639 is. You know where they are software developer, where they salesperson. And 101 00:08:35.120 --> 00:08:39.559 one of the things we've noticed, which is different than probably the cost, 102 00:08:39.679 --> 00:08:48.190 most of our founders have been good Biz Dad, good sales people, partly 103 00:08:48.350 --> 00:08:50.389 since it's so hard to raise capital in the Midwest. You you got to 104 00:08:50.429 --> 00:08:54.590 be able to get the revenue quick and you got to be able to sell 105 00:08:54.710 --> 00:09:00.580 and raise money. So the tendencies tend to be more sales driven, our 106 00:09:00.700 --> 00:09:05.299 business development driven for our founders, although we really look for Co founders. 107 00:09:05.460 --> 00:09:09.659 We would prefer to see two to three founders as part of the mix a 108 00:09:09.210 --> 00:09:15.769 business development person and technology person and an operations person, and the CEO can 109 00:09:15.809 --> 00:09:20.289 be any of those three. It's really tough to scale one of these businesses 110 00:09:20.409 --> 00:09:26.399 with a single founder, and so that we view someone as a negative, 111 00:09:26.519 --> 00:09:31.600 and so cofounders is very important to us. What percentage would you say on 112 00:09:31.720 --> 00:09:35.679 the on the Tech Fund side of things, are they at a stage where 113 00:09:35.720 --> 00:09:39.230 it's founder led sales or do they have a sales team? They took three. 114 00:09:39.269 --> 00:09:43.110 They usually have a sales team, in the spirit of St Louis Fund. 115 00:09:43.230 --> 00:09:46.350 There it's usually the founder that is is leading the sales. So at 116 00:09:46.470 --> 00:09:50.909 what stage are they typically when they've brought on sales talent are they? Are 117 00:09:50.909 --> 00:09:54.299 there any particular metrics or have you noticed any trends that way? No, 118 00:09:56.179 --> 00:09:58.059 they still haven't got it figured out. Obviously, one to two million you 119 00:09:58.179 --> 00:10:03.059 haven't got product markets that most of them think they know, and you know 120 00:10:03.220 --> 00:10:07.059 this capital is going to go to build out that team, to spend more 121 00:10:07.100 --> 00:10:13.889 money on marketing, obviously continue to enhance the product. In most cases they 122 00:10:13.929 --> 00:10:18.730 are then starting to look for a senior VP of sales or business development. 123 00:10:18.610 --> 00:10:24.799 With this round of capital we are typically the first institutional round and you know 124 00:10:24.960 --> 00:10:28.039 what, it's usually a three to five million dollar route. So the companies 125 00:10:28.039 --> 00:10:31.679 at a point where we think, and they think, that they're going to 126 00:10:31.759 --> 00:10:33.679 be able to scale and they're really going to start building up that sales team. 127 00:10:35.320 --> 00:10:41.789 Very good. So how are you traditionally sourced deals for your pipeline? 128 00:10:41.789 --> 00:10:46.909 Yeah, so we're a little unique. We've got a pretty big team. 129 00:10:46.429 --> 00:10:52.980 We've got six partners and Tech Fun three and we've got three analysts, are 130 00:10:54.179 --> 00:10:58.700 principles, as we call them, one in St Louis, one in Chicago 131 00:10:58.860 --> 00:11:03.570 and one in La and all of us are networking and building relationships with other 132 00:11:03.649 --> 00:11:11.809 venture funds, other accelerators and honestly, deal flow just pours in. cultivations 133 00:11:11.850 --> 00:11:18.490 been recognized as one of the most active investors and so we're found pretty easily. 134 00:11:18.720 --> 00:11:22.720 And so there's lots of deal flow pouring in pre coovid and and even 135 00:11:24.440 --> 00:11:28.000 post covid. As far as the amount of deals, we haven't seen much 136 00:11:28.039 --> 00:11:35.909 of a slow down from the startups looking for capital. Gotcha and and given 137 00:11:35.990 --> 00:11:41.230 the approach that you take, everyone has their different approach. Is there anything 138 00:11:41.429 --> 00:11:45.549 that you're doing in particular when you're after you make the investment? How you 139 00:11:45.669 --> 00:11:50.419 helping to contribute to a startup sales growth? Yeah, so that's important in 140 00:11:50.500 --> 00:11:54.179 the selection criteria as well with the partners in the principles around the table and 141 00:11:54.379 --> 00:11:58.179 and our venture partners. If we don't feel like we can help them, 142 00:11:58.220 --> 00:12:03.649 if we don't have people within our network to help them generate sales, we 143 00:12:03.929 --> 00:12:09.490 typically pass. And that's not a negative on the opportunity or the company itself, 144 00:12:09.610 --> 00:12:11.250 but we really want to add value. We're going to ask for a 145 00:12:11.330 --> 00:12:16.679 board seat, we're going to be making introduction, so someone, one of 146 00:12:16.720 --> 00:12:22.559 the partners on the team has to feel very comfortable and being able to help 147 00:12:22.720 --> 00:12:28.679 generate leads and and use our network to connect them to other opportunities. I 148 00:12:28.759 --> 00:12:33.549 think that's a smart approach. And how are you approaching the whole notion of 149 00:12:33.470 --> 00:12:39.629 making sure that a founder gets proper guidance and coaching to make them a better 150 00:12:39.669 --> 00:12:46.460 leader? Yeah, so it's the board members responsibility, whoever takes the board 151 00:12:46.539 --> 00:12:50.539 seat for cultivation capital, to really start working with that founder and in many 152 00:12:50.659 --> 00:12:56.899 cases I start out doing a phone call every single week and really getting to 153 00:12:56.059 --> 00:13:01.769 know the founder deeper and what the challenges are and and we do that so 154 00:13:01.889 --> 00:13:05.889 that we can then talk about that at the partner meaning every week. But 155 00:13:07.049 --> 00:13:13.399 these companies are still relatively young and there's a lot of challenges. There's a 156 00:13:13.200 --> 00:13:18.240 lot of management decisions to be made. Our getting decisions we made, and 157 00:13:18.519 --> 00:13:24.440 so I would say for the first couple years like to spend weekly time and 158 00:13:24.519 --> 00:13:28.509 as the company matures those phone calls become less and less. Not all of 159 00:13:28.590 --> 00:13:31.269 the partners do it that way, but most, most of us to talk 160 00:13:31.389 --> 00:13:35.950 on a weekly basis to our to our powers. That sounds like it's that's 161 00:13:35.990 --> 00:13:39.509 great support, especially in the early days. I know that's critical to form 162 00:13:39.590 --> 00:13:46.620 of solid working relationship with team. Let's talk about cycle duration. So once 163 00:13:46.259 --> 00:13:50.539 you you have an initial conversation and there's interest and you end up investing, 164 00:13:50.620 --> 00:13:56.210 what's a typical cycle duration from initial conversation to term sheets? Typical? I 165 00:13:56.330 --> 00:14:00.090 know there's all. That's all of the matter, I'm sure. Yeah, 166 00:14:00.250 --> 00:14:05.330 so I would say all of us are kind of nurturing opportunities. So we 167 00:14:07.169 --> 00:14:11.039 most of the time we find the company, it's free investment pieces. So 168 00:14:11.679 --> 00:14:16.679 we like to spend time on a monthly basis with these opportunities that we like 169 00:14:18.440 --> 00:14:22.399 and and so for that might take as much as six to nine months before 170 00:14:22.399 --> 00:14:26.750 they get into our investment zone, and so there's someone on the team that's 171 00:14:26.830 --> 00:14:31.830 working with them. I like to ask for a monthly sales update or investor 172 00:14:31.870 --> 00:14:37.070 update. I think it's good for all pounders to be sending that out every 173 00:14:37.110 --> 00:14:41.779 single month to their investors and get in that habit of sharing this data, 174 00:14:41.860 --> 00:14:46.620 and so I ask to receive that. So outside of that period, once 175 00:14:46.779 --> 00:14:52.379 they get into the zone and get into the number that we're comfortable with, 176 00:14:52.049 --> 00:14:58.850 its probably another thirty days of due diligence. They're going to present to the 177 00:14:58.009 --> 00:15:03.570 team, they are probably going to present to our investment committee and then, 178 00:15:03.649 --> 00:15:09.159 once we issue a term sheet and said, another six to eight weeks to 179 00:15:09.279 --> 00:15:15.799 get financing. So we're probably with these companies as long as a year and 180 00:15:16.000 --> 00:15:20.559 and maybe as short as ninety days. Just kind of depends with the state, 181 00:15:20.720 --> 00:15:24.830 the stage they're at and if they are meeting the criteria that you're seeking, 182 00:15:24.870 --> 00:15:28.110 kind of based on the metrics that we we talked about earlier. Yeah, 183 00:15:28.190 --> 00:15:33.110 and in some cases they're actively raising three to five million and they're in 184 00:15:33.230 --> 00:15:39.379 the zone and and things move a lot faster than when they're kind of police. 185 00:15:39.740 --> 00:15:43.379 But they haven't really figured out product markets fit in that, and so 186 00:15:43.500 --> 00:15:46.659 that one's just going to take a little longer while they figure that out before 187 00:15:46.700 --> 00:15:50.889 we're ready to start talking about investing. And that's a that's a key point 188 00:15:52.009 --> 00:15:54.409 to keep. Takeaway here is to make sure that you're communicating early, even 189 00:15:54.450 --> 00:15:58.610 if you're not the right fit. Keep that line of Communication Open. That 190 00:15:58.730 --> 00:16:03.440 way it builds similiarity. That's exactly where I you know, I think that's 191 00:16:03.440 --> 00:16:07.759 one of the biggest mistakes of an investor in and I think it one of 192 00:16:07.039 --> 00:16:12.720 my bigger takeaways when I was running a company is not continuing the communic cave 193 00:16:12.879 --> 00:16:17.840 with my potential investors out there. You know, if I got to know 194 00:16:18.080 --> 00:16:21.830 or and not yet, I kind of just went away. And the other 195 00:16:21.909 --> 00:16:26.509 thing is a lot of investors don't exactly say what their criteria is, and 196 00:16:26.830 --> 00:16:32.070 so it's best to just keep telling the story because once you find product market 197 00:16:32.190 --> 00:16:36.019 fit and that revenue starts accelerating, it's going to go pretty quick, and 198 00:16:36.460 --> 00:16:40.379 so we don't know how you're doing in the less you tell us on a 199 00:16:40.419 --> 00:16:45.539 regular basis. It's also good to share forecasts with us on a monthly basis 200 00:16:45.580 --> 00:16:51.049 so that when we get this investment. Are This revenue data? We can 201 00:16:51.169 --> 00:16:55.490 see how well you're hitting your targets, because the one of the things we 202 00:16:55.730 --> 00:17:00.009 really like to see is that you're hitting the forecast that could put out there. 203 00:17:00.129 --> 00:17:03.920 Are Exceeding all be so lucky. That's those are all great sales techniques. 204 00:17:03.960 --> 00:17:07.640 Stay in contact with your customer, keep them updated, be transparent and 205 00:17:08.400 --> 00:17:14.880 meter exceed your numbers. But those are just all good selling techniques for founders. 206 00:17:15.559 --> 00:17:19.829 That is the right it's no different than selling a product right and founders 207 00:17:19.910 --> 00:17:26.589 and sales mode all the time. So you've had some success over time. 208 00:17:26.910 --> 00:17:33.420 Maybe you could share with us some successful investments or acquisition or potential individual companies 209 00:17:33.539 --> 00:17:37.059 that have grown or the the fund itself, the funds themselves. Yeah, 210 00:17:37.180 --> 00:17:44.099 so some of our main companies that are near arandeered our heart. Our gain 211 00:17:44.259 --> 00:17:48.410 site, who was one of those actually our first investment back in two thousand 212 00:17:48.450 --> 00:17:52.210 and twelve, has done very well, raised over a hundred million dollars. 213 00:17:52.250 --> 00:17:59.720 Nick metis a phenomenal CEO. We have label in stit which is done very 214 00:17:59.759 --> 00:18:04.039 well, which was founded in St Louis and has offices also in Chicago. 215 00:18:04.519 --> 00:18:08.720 There at tech on, one company that's doing very well in the e commerce, 216 00:18:10.200 --> 00:18:14.430 the food ingredients space. Another company that we really liked, a tech 217 00:18:14.509 --> 00:18:19.269 fun to was deal cloud. Deal cloud sold a year or two ago, 218 00:18:19.710 --> 00:18:25.630 probably about two years ago now, and had a very nice return. You 219 00:18:25.829 --> 00:18:29.980 light isn't to we love moonlight. It's one that I sit on the board 220 00:18:30.099 --> 00:18:33.019 of. It's what unique in that it does have a developer founder, Zach 221 00:18:33.099 --> 00:18:40.619 Linkler, and started here in St Louis now has offices also out in Los 222 00:18:40.700 --> 00:18:44.690 Angeles. So they've been good. Some new ones in tech. onunt three 223 00:18:44.970 --> 00:18:48.930 we've got reconstruct that's been getting a lot of press. It came out technology, 224 00:18:48.970 --> 00:18:55.650 came out of university Illinoisiana Banda. It is a construction technology company that's 225 00:18:55.650 --> 00:19:00.559 integrated with autodesk and Oracle. It's getting a lot of a lot of good 226 00:19:00.680 --> 00:19:04.119 traction. So those are some of the ones that, you know, we've 227 00:19:04.160 --> 00:19:10.950 really enjoyed working with. What's a great lesson and I know that there are 228 00:19:11.069 --> 00:19:18.910 plenty of recent news noonlight inking a deal with with wise. I know that's 229 00:19:18.910 --> 00:19:22.029 big deal for them. I saw the news just recently. You were going 230 00:19:22.069 --> 00:19:25.660 to mention something else. Well, I was going to pivot a little too 231 00:19:26.539 --> 00:19:30.819 to the spirit of say Louis funders. A couple of ones in there that 232 00:19:30.940 --> 00:19:37.420 we like. somer salt has been amazing, Laurie and Rushima to Women Co 233 00:19:37.619 --> 00:19:42.769 founders, director consumer. It's one to Keech fun three putting invest in because 234 00:19:42.809 --> 00:19:48.289 of its directed consumer, but the spirit is in it. It's actually one 235 00:19:48.329 --> 00:19:51.970 of our larger investments in the spirit of Saint Louis Fun. They're doing amazing 236 00:19:52.569 --> 00:19:57.559 work and honestly, we were very worried with covid situation how they would do 237 00:19:57.759 --> 00:20:00.359 and and their numbers have dropped. But they're going to come out of this 238 00:20:00.640 --> 00:20:07.670 very strong and you know, good managers take advantage of these kind of situations 239 00:20:07.829 --> 00:20:15.029 and hopefully do better than their competition, because everyone in their segment is probably 240 00:20:15.069 --> 00:20:19.150 struggling, and so the good managers find a way to to adapt and come 241 00:20:19.230 --> 00:20:22.180 out of the other end of these prices stronger than they went in. So 242 00:20:22.339 --> 00:20:26.420 that's one. Another one that has had those challenges is clever. Clever real 243 00:20:26.460 --> 00:20:33.700 estate, another great founding team today in the real estate business. took a 244 00:20:33.740 --> 00:20:38.490 hit in March but to have quickly readjusted and change some of their strategies and 245 00:20:40.569 --> 00:20:42.970 they're going to come out of this just fine as well. So it's really 246 00:20:44.089 --> 00:20:48.130 important to be nimble on your feet and be able to jest when he's come 247 00:20:48.130 --> 00:20:52.440 up. These crisis seem to come up quicker than than I thought they would. 248 00:20:52.599 --> 00:20:56.640 That this isn't that the truth? I don't think anybody was expecting this, 249 00:20:56.960 --> 00:21:02.759 for sure. And your topic is is we're not going to shift and 250 00:21:02.880 --> 00:21:07.349 talk about covid given the situation and given the climate. How has this impacted 251 00:21:07.470 --> 00:21:14.390 your investment strategy? But it has. Tech on three has made the decision. 252 00:21:14.470 --> 00:21:17.589 Made the decision in March to keep looking at deals, but we were 253 00:21:17.670 --> 00:21:23.740 going to take a pause and come back and look at those opportunities to get 254 00:21:23.740 --> 00:21:26.220 in July. So we stayed in contact with the ones that we like, 255 00:21:26.539 --> 00:21:33.450 but we made a conscious decision to the weight ninety days and and see how 256 00:21:33.650 --> 00:21:37.450 this plays out, and I think it was a wise move. It was 257 00:21:37.490 --> 00:21:42.009 a difficult move, for it was difficult conversations with a number of companies that 258 00:21:42.210 --> 00:21:48.319 we were deep in discussions with. We continue to invest in existing portfolio companies. 259 00:21:48.400 --> 00:21:53.319 Of course, is as most of the DC'sap but yeah, no new 260 00:21:53.559 --> 00:21:57.960 investments in the in the too, too, but I expect that, I'm 261 00:21:59.000 --> 00:22:03.069 pretty sure we will start doing new investments to getting q three spirit ofcing most 262 00:22:03.230 --> 00:22:07.109 on, on the other hand, has continued to make new investments. So 263 00:22:07.269 --> 00:22:14.750 it's also a based on the there's through company stage and whether they've received an 264 00:22:14.750 --> 00:22:18.059 investment from you. It sounds like you're there with follow on capital. You've 265 00:22:18.500 --> 00:22:22.940 you've throttled or you're pacing you your new deal flow, but with existing customer, 266 00:22:23.059 --> 00:22:27.500 with the existing investments port photo companies, you're still there behind them. 267 00:22:27.819 --> 00:22:32.569 Yeah, that's that's right, and we were looking. Most of the companies 268 00:22:32.650 --> 00:22:37.410 were in pretty good shape as far as not needing to do around. A 269 00:22:37.450 --> 00:22:41.849 couple of them were right in the middle of a round and we did go 270 00:22:41.049 --> 00:22:47.000 through with those and finalize those rounds. But the Spirit Fund is written a 271 00:22:47.079 --> 00:22:52.759 couple of additional investments to new companies here in Q two. One of the 272 00:22:52.839 --> 00:22:59.430 things that we have read and in our investigations of the past two crisis in 273 00:22:59.589 --> 00:23:03.470 two thousand and one and two thousand and nine ten, was that seed investments 274 00:23:03.549 --> 00:23:11.190 in early state investment multiples did not compress as much as as later stage investment. 275 00:23:11.390 --> 00:23:18.380 So we're not expecting too much risk in the spirit fun because we got 276 00:23:18.420 --> 00:23:22.420 good multiples, Midwest multiples, if you will, and and we don't think 277 00:23:22.460 --> 00:23:26.210 there's going to be much compression in the next round or two of those investments. 278 00:23:26.809 --> 00:23:30.970 Okay, well, that makes the let's great news to hear. Based 279 00:23:32.049 --> 00:23:34.890 on the data you've been able to kind of extract, let's talk about the 280 00:23:36.930 --> 00:23:41.480 one side is investments, with the other side is gendering revenues. Now things 281 00:23:41.519 --> 00:23:45.680 have changed significantly and everybody is now moving to remote selling and, as you 282 00:23:45.799 --> 00:23:51.799 mentioned earlier, the idea here is to get back on pace so that you 283 00:23:52.000 --> 00:23:56.309 beat your competition to the punch. So, based on the PORTROLO companies particular 284 00:23:56.349 --> 00:24:04.069 in Tech Fund how are these BB sales teams managing without the traditional facetoface interactions 285 00:24:04.109 --> 00:24:10.099 that they're used to? Yeah, and again it depends on the phase and 286 00:24:10.259 --> 00:24:15.859 the size of your Sass revenue model. Right, if you're selling a lower 287 00:24:17.099 --> 00:24:22.259 cross SASS product, you were mostly in house sales anyway. It's the large 288 00:24:22.299 --> 00:24:29.609 enterprise sales companies that are impacted the most. Probably the biggest thing is that 289 00:24:29.930 --> 00:24:33.970 the lack of conferences and being able to attend conferences where they generated so many 290 00:24:34.009 --> 00:24:41.960 of their leads, and so you know that switch from conference attendance to virtual 291 00:24:42.240 --> 00:24:47.480 conference. In trying to generate leads is probably the been the most disruptive thing 292 00:24:48.400 --> 00:24:52.509 for our sales organizations that I can think of. Some have not missed to 293 00:24:52.549 --> 00:24:57.910 be and the leads have continued to flow pretty well. But I'm the big 294 00:24:57.950 --> 00:25:03.069 enterprise sales. For the most part, I would say the closed rates or 295 00:25:03.150 --> 00:25:08.940 lathing, and you know, we've seen a slow down in the growth rates 296 00:25:10.779 --> 00:25:15.819 on the large enterprise sales, on the smaller sales, depending on what industry 297 00:25:15.859 --> 00:25:22.569 you're in. In some cases it's just been finding in some cases some benefit 298 00:25:22.609 --> 00:25:27.369 from these. If you if you are selling products that help you sell from 299 00:25:27.410 --> 00:25:32.490 home, you know the sec rates to been really good for that. So 300 00:25:33.049 --> 00:25:40.400 having a diverse portfolio, we've seen growth rates increase and obviously some decrease. 301 00:25:41.000 --> 00:25:45.359 Really depends on the industry that you're in how significant the impact is. Some 302 00:25:45.519 --> 00:25:49.789 can be significantly impacted in a positive way, others could be the opposite. 303 00:25:49.910 --> 00:25:53.230 And so new sales are more difficult and you just got a Batton down the 304 00:25:53.269 --> 00:25:59.670 hatches and have a plan for renewals and expansions and sometimes even a shift going 305 00:25:59.950 --> 00:26:04.819 from focusing on resources from new Biz de of to renewals and to expansions to 306 00:26:04.980 --> 00:26:08.700 maintain those customers so that there's no plauses that go on. Yeah, I 307 00:26:08.740 --> 00:26:14.940 think that's right. I think our advice was to focus on customer success immediately 308 00:26:15.339 --> 00:26:19.250 and and just touch every single customer. And you know, in some cases 309 00:26:19.490 --> 00:26:26.009 they were struggling and they needed relief and, you know, doing some renegotiations 310 00:26:26.289 --> 00:26:32.849 of contracts to provide leaf but extend terms, that sort of thing is something 311 00:26:33.000 --> 00:26:36.680 that I would say most of our portfolio companies focused on over the last quarder 312 00:26:37.000 --> 00:26:41.079 and and and conversely, you know, we're trying to control their costs and 313 00:26:41.160 --> 00:26:45.839 negotiating some of their contracts to get relief, and so I think the whole 314 00:26:47.000 --> 00:26:53.430 industry of software tech kind of went through that process and so it's been a 315 00:26:53.509 --> 00:26:59.390 challenge. But you know, I think for the most part, if you're 316 00:26:59.430 --> 00:27:06.740 in software attack, you were not impacted as much as most retailers or restaurant 317 00:27:06.819 --> 00:27:11.339 ours were. So we kind of came out of this batter than most of 318 00:27:11.579 --> 00:27:15.049 the other industries. You know, that's that's true. And I think that 319 00:27:15.130 --> 00:27:21.490 enterprise sellers are probably the most significantly impacted just because of the pauses that will 320 00:27:21.490 --> 00:27:26.089 be kind of required in some cases. But you're going to get better as 321 00:27:26.130 --> 00:27:27.930 a result of it, you're going to learn how to sell remote and you're 322 00:27:27.930 --> 00:27:33.559 going to have to figure out ways to get creative to shorten that sale cycle. 323 00:27:33.880 --> 00:27:37.000 Enterprise seal cycles are long and if you could figure out a way to 324 00:27:37.079 --> 00:27:41.519 continue to sell without facetoface, you've got a leg up on your competitors. 325 00:27:41.559 --> 00:27:47.589 Yeah, we have a company called Sharp and out of Indianapolis that sells cloud 326 00:27:47.710 --> 00:27:52.309 based call center systems and you know, they haven't missed a beat. Right. 327 00:27:52.430 --> 00:27:56.430 There was lots of companies that were sitting with on preme equipment and all 328 00:27:56.470 --> 00:28:02.019 of a sudden needed to go remotely. Right. So that that's one that 329 00:28:02.140 --> 00:28:06.740 had enterprised sales five hundred seats and up, and yet has done quite well 330 00:28:07.220 --> 00:28:11.380 due to the circumstances or the change that all of these companies have had to 331 00:28:11.460 --> 00:28:15.490 go through. Another one is ball to, which is in our spirit, 332 00:28:15.049 --> 00:28:22.809 but ball to assists call center salespeople. They and they haven't missed much of 333 00:28:22.890 --> 00:28:26.920 a beach as well, just because so many people having to work from home, 334 00:28:27.279 --> 00:28:32.599 any kind of assistants or tools that you can use it perform better in 335 00:28:32.759 --> 00:28:37.319 that new environment is, as actually seen, seen more success fully. Great 336 00:28:37.440 --> 00:28:42.549 so with his last couple of questions. Any advice that you would provide to 337 00:28:42.630 --> 00:28:48.670 a founder or early stage sales leader that's in a early stage text startup land 338 00:28:48.750 --> 00:28:55.269 mines to avoid or that would limit growth or threatened survival in general, or 339 00:28:55.349 --> 00:29:00.619 as it relates to covid nineteen? Well, I would say in general sales 340 00:29:00.619 --> 00:29:06.539 are very important. A lot of founders becomes so product focused and and want 341 00:29:06.660 --> 00:29:11.049 to fine tune the product and and aren't ready to take it out. And 342 00:29:12.329 --> 00:29:15.650 you got to get the product in the customers hands as quickly as possible. 343 00:29:17.089 --> 00:29:21.089 To make sure you're on the right path. You need to figure out product 344 00:29:21.170 --> 00:29:25.039 market fit. WHO's your buyer? What are they looking for? Who are 345 00:29:25.119 --> 00:29:30.160 your competitors? Those are the typical things that the very early stage companies need 346 00:29:30.200 --> 00:29:33.160 to focus on. You know, we are not investing in pre revenue company, 347 00:29:33.359 --> 00:29:37.319 so you know you need to get the revenue as quick as possible. 348 00:29:37.869 --> 00:29:47.589 The best sort of capital is revenue and and getting there makes founder's life easier 349 00:29:48.109 --> 00:29:49.869 and it is going to make it easier for them to raise money from us. 350 00:29:51.509 --> 00:29:53.900 As far as COVID is concerned, you're going to have to be patient. 351 00:29:55.180 --> 00:29:57.740 You need to get to the other side. You know it's you need 352 00:29:57.740 --> 00:30:03.019 to try to show growth and revenue. That could be hard for a lot 353 00:30:03.019 --> 00:30:07.170 of these early stage companies, but I would continue the fundraising process. These 354 00:30:07.210 --> 00:30:12.890 are long fundraising cycles anyway. And and so once you've got revenue, you 355 00:30:12.930 --> 00:30:18.250 should be reaching out to companies such as cultivation capital and start to have the 356 00:30:18.369 --> 00:30:23.400 conversations to let us tell you when we think you would be ready for an 357 00:30:23.440 --> 00:30:29.640 investment with us. Don't don't be shy. I was always pretty shy about 358 00:30:29.640 --> 00:30:33.519 when to reach out. I wanted to be perfect, and that that's okay. 359 00:30:33.200 --> 00:30:37.990 You know, we were fine with seeing your early and providing a little 360 00:30:38.029 --> 00:30:42.990 guidance and answering the questions you have. So a founder should ask questions of 361 00:30:44.029 --> 00:30:48.910 their vcs. Again, don't be shy. View it as a sales process 362 00:30:48.029 --> 00:30:52.099 and get to know your customer and what they're looking for. So you know, 363 00:30:52.299 --> 00:30:56.940 those are the things. I don't think covid is changed that part of 364 00:30:56.019 --> 00:31:02.579 the process very much. So those companies that are that are struggling to find 365 00:31:02.700 --> 00:31:07.369 product market fit may have to consider going through a form of a pivot or 366 00:31:07.369 --> 00:31:14.289 a shift. Are there any portfolio companies that that have seen great success after 367 00:31:14.450 --> 00:31:18.799 going through a minor or significant pivot? Oh yeah, sure, Locker Dome 368 00:31:19.079 --> 00:31:26.000 as has expanded into attack from where they originally started. So Locker Dome was 369 00:31:26.119 --> 00:31:32.869 good. Great Management Team was able to make that change while the airplane was 370 00:31:32.950 --> 00:31:37.829 still flying. I think that's very important to not completely disrupt the pivot and 371 00:31:37.190 --> 00:31:45.069 kind of do a gentle roll into this new product concept. Usually the tech 372 00:31:45.190 --> 00:31:51.500 funds are post pivot, but the spirit fun certainly ends up seeing companies with 373 00:31:51.660 --> 00:31:56.019 pivot because they have a truly completely nailed product market fit. Don't be shy 374 00:31:56.539 --> 00:32:00.339 and doing that pivot early on, even once your revenue you know, like 375 00:32:00.450 --> 00:32:05.930 your customers tell you where you need to go. They know what they're looking 376 00:32:06.009 --> 00:32:08.970 for. You can be wrong and you need to massage what you're offering to 377 00:32:09.089 --> 00:32:14.329 get it to a point that achieves that product market fit. pivoting is quite 378 00:32:14.609 --> 00:32:19.960 normal and these are early stages. You're not a hundred percent correcting your pieces. 379 00:32:20.720 --> 00:32:24.799 Spoken from someone who has been a long time multiple founder and operator. 380 00:32:24.920 --> 00:32:29.799 So a that's great stuff. So last question for is kind of a personal 381 00:32:29.880 --> 00:32:35.109 one. What's your favoits favorite business resource, either blog or content that you 382 00:32:35.309 --> 00:32:39.509 enjoy that others might find interesting? Well, I'm on crunch base every single 383 00:32:39.589 --> 00:32:45.619 day. The data within crunch baits to this amazing. I think it's very 384 00:32:45.660 --> 00:32:50.500 important for all companies to keep that uptodate. Crunch base is getting more and 385 00:32:50.579 --> 00:32:52.779 more automated, but you know, that's where we're going to see a lot 386 00:32:52.819 --> 00:32:58.460 of what's going on. You know, I read tech crunch. I read 387 00:32:58.500 --> 00:33:05.690 a number of other news letters, but Wall Street Journal is something I read, 388 00:33:05.849 --> 00:33:09.569 but crunch base is the thing that I probably live in more often and 389 00:33:09.849 --> 00:33:14.640 anything other than may be linked in. It's kind of the Bible these days. 390 00:33:15.279 --> 00:33:20.480 So if a company is a fit for either the spirit fund or for 391 00:33:20.720 --> 00:33:23.119 Your Tech Fund, or really for any of the other component funds, what 392 00:33:23.240 --> 00:33:29.950 should they do? Well, there's contact information and cultivation CAPITALCOM, but if 393 00:33:29.990 --> 00:33:34.190 someone in the software text base whats to reach out to me directly at B 394 00:33:34.470 --> 00:33:40.779 Matthews at cultivation capitalcom, B Maatph e ws at cultivation Capitalcom, and I'll 395 00:33:40.900 --> 00:33:47.259 certainly reply to anyone that reaches out to me either directly by email or through 396 00:33:47.380 --> 00:33:53.579 linked in. Let's fantastic, Brian, always good to see you and thanks 397 00:33:53.619 --> 00:33:58.730 for giving us of you into your world. We really appreciate it. But 398 00:33:58.890 --> 00:34:01.049 thank you, John. I really enjoy it. So that'll do it. 399 00:34:01.130 --> 00:34:07.049 Thanks for listening to this episode of the Revenue Series on BB growth. I'm 400 00:34:07.089 --> 00:34:12.440 your host, John Grispin, founder and sales coach at early revenue. Please 401 00:34:12.480 --> 00:34:15.840 connect with me on Linkedin. I am happy to answer questions or provide recommendations. 402 00:34:16.159 --> 00:34:22.199 You can also email me on John at early REVENUECOM. If you like 403 00:34:22.400 --> 00:34:28.230 this episode or I have a question, join the discussion on Instagram at B 404 00:34:28.510 --> 00:34:31.230 to be growth. Thank you for tuning in and for subscribing to be tob 405 00:34:31.389 --> 00:34:37.780 growth until next time. I am out. Are you in early stage tech 406 00:34:37.820 --> 00:34:42.500 founder that's frustrated by limited sales? Do you like the time to dedicate to 407 00:34:42.539 --> 00:34:47.260 a traditional sales training program John Crispin's earlier revenue sales program helps early stage founders 408 00:34:47.300 --> 00:34:52.619 accelerate sales in large accounts. He's built a playbook that transfers what he's learned 409 00:34:52.659 --> 00:34:55.289 as a founder and sales leader into a condensed, easy to implement program. 410 00:34:55.690 --> 00:35:00.849 If you're ready to increase your startup sales capacity, is it early Revenuecom to 411 00:35:00.889 --> 00:35:05.889 get started today? Is Your buyer a bebb marketer? If so, you 412 00:35:05.929 --> 00:35:09.239 should think about sponsoring this podcast. BB growth gets downloaded over a hundred and 413 00:35:09.320 --> 00:35:14.519 thirty thousand times each month, and our listeners are marketing decision makers. If 414 00:35:14.599 --> 00:35:17.719 it sounds interesting, Sin Logan and email logan at sweet fish Mediacom
