July 15, 2020

#Revenue 4: Early-Stage Insights on Venture Capital From a Seasoned Investor w/ Brian Matthews

When it comes to Venture Capital, the action between the coasts sometimes gets lost in the shuffle. Brian Matthews, Cofounder and General Partner at Cultivation Capital wasn’t discouraged by that fact, quite the opposite, he was inspired! Setting up shop in St Louis, and establishing himself in the market as the experienced investor he has been since the 80’s, his success story is a step-by-step lesson for any entrepreneur.

What we talked about:

  • Establishing Venture Capital funds-Brian’s method
  • Choosing the investments. What’s Brian’s criteria?
  • Investing in a Covid-19 world
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