Startup Therapy Podcast

Episode #231

Ryan Rutan: Welcome back to the episode of the start up therapy podcast. This is Ryan Tan from start ups dot com. Joined as always by Will Schroeder, my friend, the founder and CEO of start up dot com. Well, we have looked at no less than 100 start up companies at a deep level when we were looking at potential acquisitions through throughout the history of start ups dot com. So we know a little bit about how, how companies get bought and sold having been on both sides of that equation several times. But I think it would be really fun to dispel some myths to for founders around what the process actually looks like. Like how are companies actually bought? How are companies actually sold? Are they actually sold and, and dispel some of the, the mythology and wipe away a little of the fog that exists in this process for founders. You

Wil Schroter: know, it's kind of like fundraising where people get an idea in their head of how they think, like they, they sort of made it up like, like how they think these things go and then the reality is so dramatically different. Like most of the people that we talk to that, think about fundraising. It's like they think it's Shark Tank, right? Like, like you just make this like, super enthusiastic pitch and the investor is like, um yes, I'll invest right now. Like, it's literally didn't work anything like that. There's a couple

Ryan Rutan: of me in the room arguing over which one gets into your deal. Yeah, that's a problem. No one has had ever

Wil Schroter: unbelievable. Right. Yeah. Nothing like that. Nothing like that. And so, uh, same goes with, with selling a company which I think there is like this invented mythology of how it must go because for a simple reason, no one's done it. Like how many people would have been involved in the sale of a company that is such a specific experience. And so you, you start to get these ideas in your head. Well, I guess it must be this or, I guess it must be that. Well, good news. You don't have to guess at all because we'll just tell you exactly how it goes. And I think what, what that'll do as we're all thinking about, like, what would this thing have to become in order for, you know, for somebody to want to buy it or how would that process work? Do people show up and call us, do we call them, like, how does this work? We just explain it because it's way different than most people think. And, and while there are some, you know, variations on the process. This is pretty much how it goes, you know what I mean? Yeah, for

Ryan Rutan: sure. Now, I think that to your point, like this is the kind of thing where you're lucky if you get to go through it once. So how would you have any experience in this? There are people who've gone through it 234 times, for sure. You and I included, but the vast majority of people are gonna have one shot at this, right? And, and so then this is why it's important to understand it coming into it as opposed to waiting until next time, which may not, which may not exist to understand the real mechanics of how this stuff happens. Well, sure.

Wil Schroter: And the other side of it is, you know, we're building things thinking that maybe one day we'll convert them to value. We raised money based on that. If we did that, we brought on team members who that, you know, have a stake in the company and of course our own stake, you know, we're building something, say this could be worth a ton someday, but there's some parts of it that we don't quite think through or we just don't have all the data, right? We went through and as you mentioned at the top of the show, we went through and we talked to 100 different start up companies and I don't mean a survey or we posted it on Twitter. I mean, we literally flew to meet with and go through the books and talk to the CEO S to buy 100 different start ups. Now, I spent years going through this process, you know, I moved to San Francisco to go through this process. I moved to Los Angeles to go through this process. Like we spent a lot of time on this one. So we got an ungodly amount of experience and how founders think about acquisitions being on the buy side of things. Now, we've also been on the south side where we've sold something, but I think it helps to understand both sides to see what the equation is really like. But beyond that, what I also think is that not understanding how the sell process works. And I don't just mean all the mechanics but actually that like what it does and doesn't even entail is a big deal because my fear Ryan is that our fellow founders, they're out there and they have this fantasy of what selling their company looks like and it's not even close to reality. I only know this because we essentially surveyed 100 different founders talking about, hey, how do you think this process works? And so let me just set it up a little bit. So we go out, this is the early days of start ups dot com in Ryan. We decided that, that we wanted to be able to expand our platform do a lot more than we were doing now cover the entire start up journey as we discussed it and we couldn't build all the products ourselves in time. So we went out to buy companies that, that became biz plan that became clarity, that became law track, you know, the different things that we own. And uh and so I went out and I went through my network, my rolodex and I started, you know, reaching out to everybody that I thought was in the start up space and we'd sit down with these folks and we'd say, you know, we're interested in doing a deal and they'd come back with a number which was insane every single time. And I remember thinking to myself at first, I was like, am I missing something like? And then what I realized was, I thought it was fascinating. It's because no one knew how the process worked.

Ryan Rutan: They were just throwing spaghetti at the wall. Right.

Wil Schroter: Right. Now, think about this, right? And think about the most complicated, most valuable transaction of your life that isn't like you getting married or anything else like that with ads absolutely zero data to base

Ryan Rutan: it on no understanding of how it works, right? Or, or the understanding that just by throwing out absolutely ludicrous numbers like that, you might blow the deal up right there at the beginning and otherwise ruin the opportunity to sell your company. That would have been a reasonable price, but we got, we got some wild responses across the board, right? And not, not just around the pricing, right? But sometimes like in going through diligence and asking for provide things that are like the lack of understanding of what needed to be hand over so that somebody could make a decision. And they're like, oh, you need to see that. Yeah, I don't know if we're comfortable with that. Well, it's kind of fundamental to our decision around buying your company. So if you don't want to cool, but that would be the part where we piece out because without that information, there's no way we can make an objective decision about this. I

Wil Schroter: always wonder if the founders thought I was using it as a sales pitch, but I had a very consultative sale, so to speak in, in our by process. And it went something like this. I said, look, there's a pretty good chance that we won't buy your company, not because it's not a great company, but because you'll probably find a better price for it somewhere else. And we're actually totally cool with that because at the end of the day, think about it, we're in the business of helping founders. That's what we're passionate about. So if in this process, I can educate you on how to make this work better for you and it works better for you. I'm also doing my job, right? So like, I don't have some like designed to try to like wrangle your company out of your hands. And so as we go through the process, I would explain to the founder, I would say, hey, here are the things that you can multiply your business on, right? You know, revenue and, and, and net income and things like that. Here are things that you think have a lot of value but not if anybody want to pay for. For example,

Ryan Rutan: the word potential doesn't get a multiple ever. You don't get to multiply potential. Like we have the potential to be a $10 million company. Let's look at a 10 X multiple on the potential of being a $10 million company. We're now $100 million company.

Wil Schroter: I'll give you a great one. Ok. This came with us multiple times and I always respect it, right? I I respect the hustle, right? It just doesn't work. So founders would come to us and they said, hey, you got a million companies in your platform. My start up charges $20 a month, which means my value to you could be as much as $20 million a month. I was like, hm, you missed a part of that equation, right? And again, this is, this is me being kind and in jest with, with the, I'm never a jerk to founders. I was like, dude, that's my value. Not your value. I'm the one with a million customers. That's the

Ryan Rutan: only reason we're talking right. This is, this is why we, we also recognize that value. Thanks for letting us know. Right.

Wil Schroter: Right. Well, but what I'm saying, you don't get to sell me my value, right? I I'm the one with a million customers, not you, but I'm just saying I love the thought process. Right? And again, and I, and I love the hustle. So I'm not, I'm not knocking anybody. What I'm saying is there's not much of a man manual for this stuff, right? And so our understanding of how we should price or how we should approach this is way off. So with that said, let's start from the very beginning. Let's start with how do I know anybody's even gonna call me up and buy my company? Well, you don't, you don't, you don't. And so nobody really thinks this all the way through because it's kind of hard to envision. But the theory goes in our minds that if I build something of value my competitors or like kind of quasi competitors, Google or Microsoft, somebody is gonna come and they're gonna wanna buy me for, you know, untold fortunes. OK? Couple things. Number one, unless they're ready to buy you, there's no deal happening. This isn't like as soon as I choose to sell, everyone comes out out of the woodwork to bid on me, not how this works.

Ryan Rutan: All we need is a good advertising hook and then someone will buy our company right

Wil Schroter: here are a bunch of things that this is not, this is not like selling a house where the moment you go to sell, there's a fixed market and if you just choose the right price, someone will buy it because there's always somebody that's gonna be buying a house. This ain't that, this is a case where there might be three people in the world ever that will buy your company and who's to know when they're ever gonna be ready to do it? And the likelihood that they're all gonna be ready at the same time and they're bidding each other up pretty unlikely. Now, let's shift gears and say, yeah, but what if I market it? What if I take it out to the quote, the market? This is a amorphous thing, ok? You can do that, you can hire an investment bank, right? If your deal is big enough, usually your deal has to be at least 5 million or bigger. There's fewer investment banks that are taken on 5 million revenue companies lower, but that's here and there. Let's say you find one investment bank takes it, they create your prospectus, they send it out. So everybody that will possibly listen to your deal, which usually means tons of private equity companies. And what do you get back? Lots of offers from tons of private equity companies? So now you're thinking amazing that that's great. I love tons of offers except they're from private equity companies. And for those of you that are unfamiliar till you see the offer. Yeah, wait until you see the offer. The way private equity companies work. And this is relevant because they're the only active buyers out there. The way private equity companies work is they're looking for stuff that people will sell. That's well below what it's worth, right? They are the merchant cash advance slash payday advance of buying companies. Now, what's cool about them? Just like merchant cash advance, just like payday advance is that they are always available. They're always willing to do a deal. The downside is and you pay handsomely for it. So yes, you could force your deal into the market and you might find a buyer that's assuming your numbers check out and you actually, you know, have something worth selling. But even then at which point you're forcing the sale, you're typically getting the lowest amount possible. The good deals come when someone calls you, when you're answering the phone, which

Ryan Rutan: by the way, the minute I hear somebody say I'm selling my company, we're for sale. I can't help but append the word fire to the beginning of that. Right. I just hear we're fire selling our company, right? It just tends to be the way it goes because even if that's not the intention to your point, we put it out there and the market that we land in are active pe s who are looking to buy stuff like you said, they're looking for a discount, right? This is now the odd lots of selling businesses and it's, it's not amazing, right? Dude, that it's there, right. It, it does provide some liquidity at times where often it's very, very needed but not a great outcome. Right? So to your point when the call is inbound, significantly different

Wil Schroter: experience, if the person's calling you, you're probably getting a good price. If you're calling them pretty much know you're not getting a good price. Now, again, this is generalized advice. It doesn't apply to every situation possible. But I think this notion that, hey, if we're doing things right, we're going to start getting offers left and right. That's just, that's not the way this works. I think this notion that, hey, when we're ready to sell, we'll just put it on the market and we'll command a great price. It's not really the way this works. Has it worked for somebody? Has somebody gotten an inbound call? Of course, they were building something incredible and they had the notoriety, right? Have people taken things out and have they sold? Yes, of course. That's what investment banks are for, right? But generally speaking, just getting a company out there at the right time with the right buyer is very hard to do, like crazy, hard to do. So let, let's begin with that. Like even before we get into the, the rest of how it's done just the bar to getting to the starting line is not small. So the idea that, hey, we've created value and we'll find buyers is a myth unto itself.

Ryan Rutan: Yeah, I was fortunate enough. Maybe you were in the same boat. There wasn't nearly as much narrative around the start up space at the time, we were building first companies and I didn't know you could sell them. I naively thought you had to build a business that made money and then you got to keep some of the money that it made men that turned out. That was a good idea. Turned out. That's exactly why somebody eventually called me and offered to buy my business, which was a big surprise to me because until that moment, I literally didn't know that that was a possibility. It did not occur to me that somebody might want to buy my business from. I, I think I knew that that could happen in theory, but it never occurred to me that it would be mine, which is funny because now, you know, with 20 something years later, that equation is entirely flipped where I think everybody starting something is thinking when someone buys my business, right? And again, without a whole lot of information about how this actually happens. So let's keep debunking here. I

Wil Schroter: agree. And so it, but when the time comes, we've got this idea of what our company is worth, which brings us to the next myth, which I call the mythical multiples, right? Where we have an idea of how people are going to, to value our company. And nobody's ever quantified that idea. Right? You know, we had an investor that said something like this is my favorite. Oh, the data will be worth so much. No, it won't

Ryan Rutan: always the data only. Only if it's only if it's stored in Blockchain will only if it's

Wil Schroter: stored in Blockchain. Yeah, only if it's stored in a company that makes millions of dollars like this idea that the data will be worth a lot there or, or, or my favorite from back in the day, which was just get as many users in the door as possible. The rest will figure itself out. I

Ryan Rutan: accidentally melted someone over this one. They were like, look, we're just gonna go out, we're gonna gather as many users as we can and well, and I'm like, OK, but are you gonna like monetize and say, oh, we won't have to, we're just gonna do exactly what Snapchat did. And I was like, got a similar profile to users and this and that, you know, I was like, I was like, so you realize that because they've already done that, that there's not any value in doing it again. Those users have already been sold to the one or two buyers that exist out there for that. Nobody else is gonna buy them from you now. And they were like, oh shit. Yeah, because you gotta think about what is the underlying value of the data of the users, right? There has to be something there simply accumulating something isn't enough, right? It has to be able to be marshaled into some kind of value,

Wil Schroter: you know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot start ups dot com. So if any of this sounds familiar, stop guessing about what to do. Let us just give you the answers to the test and be done with it if you take a, a business like ours start ups dot com and we think, ok, you know, what are our users worth? Actually, our users are worth a ton, which is kind of ironic because there's two ways to look at our users founders like yourselves that are listening, you guys can appreciate this one is that we're all broke. We have no money, right? And you go that one way the other is, but we're gonna start spending as a company, right? Which has an exponential amount of spend. So if you look at the amex statements, so to speak of, you know, every even small founder, they've got tons of charges, right? Everything from their stripe fees to like, probably not hubspot yet, but like, you know, their Aws or their Google P PC, like Facebook, whatever. Like there are so many places they're spending money that aren't like their personal money per se at a company level. So you could look at our, our users and say, yeah, for their themselves, they don't have much money, but for the amount they represent for their companies is a ton. So those users are worth a lot. Who are those users worth a lot too. And this is actually where you start doing this math, you know, we were all together last week talking about exactly this. We made a list of every single place that our customers spend money and how much they spend and what that would be worth to someone who could acquire that company, you know, a start up company in order to help generate that spend. We look at that and say, OK, that's where some of our value comes

Ryan Rutan: from. Acquire them as a customer just to just a caveat there, acquire them as a customer, not acquire them. I know we're wanna mince terms here since we're talking about uh what happens when you acquire a company?

Wil Schroter: Correct. Correct. And so, so we look at our company through various lenses and we say, OK, based on this based on our customer value, how much is it worth? But one of the things that, that we're pretty consistent about is what about revenue and net income? Right? Like, because you can't, you can argue everything else. Now, the challenge with that is most of us aren't going to have much in the way of revenue or net income for some time to come if ever. Ok. That's a real challenge. I just want to touch on this for a minute. There are kind of two categories of how you can monetize this business. One is financial, I either have top line revenue or, or net income and that kind of matters. Everybody understands it. And the other is what we just described a second ago, which is I have some asset that would be incredibly useful to an acquire, right? It's probably not data, right? I have something like the value of my users, et cetera, right? That'd be incredibly valued to an a choir and I wanna push on that makes total sense, but you kind of have to play those out. You have to use real numbers. You can't just say I have a million sign ups. So therefore my c my business must be worth $100 million. Like literally, it's based on nothing. You can't just make shit up like there has to be something based on,

Ryan Rutan: you know what I mean? Again, it goes back to I said earlier, you're now making a calculation based on the potential of a thing rather than the reality of a thing. And that's just not what happens that that can happen in your mind. And I think this is we see this happen all the time, right? Founders convince themselves their business is worth this or it could be worth that or to this person it's worth this. Well, you know, who actually decides how much it's worth to them, them, they get to decide right, the buyer gets to decide what it's worth to them. Of course, founders aren't wrong to think in these terms and to think about why that would make them potentially acquirable by that company. But I think kind of the point earlier that you were making where somebody presented our own users back to us and said, so here's the value to you. So pay me that for it. Well, number one, I wouldn't pay the exact value because then that leaves no value for me. Meaning that I just did you the biggest favor ever to happen in a business. So that's not gonna happen. So, yeah, I think we have to be really careful from the founder side about turning what is potential and like exponentially in inflating the values in our own head because it can make us, it can make us actually hesitant to enter into what would otherwise be good negotiations, good deals because they don't match up with this fallacy that we've constructed in, in our own little mind

Wil Schroter: palace. And the reality is there's not a lot of data, right. There's not a lot of data to be able to pull from, to be able to say that like in the real estate world we have the MLS in, in the US, which is, you know, market comps of, of every house and it shows exactly what things have sold for and it shows exactly what, what the market is doing. So you can take a 3000 square foot house in, in one zip code and compare it to a 3000 square foot house and get roughly a market comp that does not work in this business right? There just aren't, there's not enough volume and there's not enough consistent volume at a specific level at a specific asset to get a market comp now. No lack of people have tried, right? Private equity companies when they come to buy, you will probably pull three comps. But start ups are so different like one to the other to the other, even if they had the same revenue, the same net income, two different businesses are two totally different businesses, right? So the two don sync up because of that, even a well researched founder, you know, that's trying to figure all this stuff out doesn't have a lot to go off. Now, I I'll give you some thumbnails and then a couple people in the audience are gonna argue about this say it's it's this or that. Ok.

Ryan Rutan: We can't hear him.

Wil Schroter: Yeah, here's generally what happens when you think about your business from a revenue standpoint, a good revenue multiple for the top line. Now every business is different. Ok? But just general, I'm ball parking here. Ok. A good revenue multiple is typically gonna be 2 to 3 times your top line revenue assuming you have a fair amount of net income to back that up because the two things you're supposed to balance out and would be anywhere between 5 to 10 times your net income again depending on the business. Now, let me sharpen that a bit. Ok. I said 2 to 3, not top one, not 5 to 10. Does that mean there's, there hasn't been a company that sold? Of course, there has, of course there has, right. But the likely scenario, right, I'll give you real examples because this is public information. When we sold our first company Blue Diesel, we're doing 100 and 50 of net revenue, not not net income, net revenue because we had a lot more in billings going through and we sold for 2.3 times that just 20 years ago. That right. Yeah, about $350 million right? And we're doing about 30 million a year in revenue and net income rather, right? So that was about 10 times net income, right? But not a huge premium at two times over you know, top line, that wasn't that much money and we were making a shit ton of money and that's a really profitable company. Right. My point is, and we are happy with those terms. Like those, those are the terms that we sold that obviously, if we're happy people get it in their minds that, oh, I'm doing 4 million of revenue, so I'm probably worth 400 million. It's like, dude, you're not even remotely close, not

Ryan Rutan: unless you're calculating that in Turkish Lira

Wil Schroter: and here's where it gets messed up because you hear about a company that's done it, right? And it reminds me of like, like, like when people go into professional sports, let, let's say you get drafted by the NFL, you're like, but Patrick Mahomes made $500 million. Number one, you're not Patrick Mahomes who only made $500 million right? Like, just because one person did, it doesn't set the bar for everyone else, right? And so I think when you think in terms of what my company is worth based on other things that you've seen in the market generally doesn't pan out or it doesn't pan out, it's not one for one,

Ryan Rutan: it's the same as comparing yourself to any other company based on very little data. In any other scenario. We talked about this 1000 times in the podcast that you're not gonna see the whole picture, right? You're not seeing everything that was behind the scenes there. Yeah, they might look similar size, similar shape but who knows what other differences. Deltas there were behind the scenes. All the things you don't know that formed the value of that transaction, not the obvious and easy stuff that you can see on the outside. Agreed.

Wil Schroter: And then on top of all that, even if you made it that far, you've gotten through negotiations and they've even said here's a amount that we're willing to pay. Awesome. There's an assumption that you're actually going to get paid or get paid the way you think. Here's the way, here's the way we think we're going to get paid. Right? When this beautiful payday

Ryan Rutan: comes Ed mcmahon shows up,

Wil Schroter: right? I was just gonna say, I was, I was gonna say shows up with the publishers clearing how to check and all I can think to myself is who would remember that reference anymore? You and me. Yeah, we're just here to make

Ryan Rutan: ourselves happy. Will, did you forget this is a podcast for us? That's

Wil Schroter: it. I was trying to think back to like, like, like what would be the, the 2015 version of a publisher's clearing house check? And I was trying to think of a youtube influencer or something. Anyway, point is Mr

Ryan Rutan: Beast shows up and opens the street shows. There it is. There we go. Now we got Ivan,

Wil Schroter: but not really. And so the idea is that, you know, on, on payday, there's this big check that shows up and tons of fanfare, yada yada sort of, but not really. Here's what actually happens. Here's what actually happens when you're going through the deal. The buyer is trying to find as many ways as possible to bring the price down. Now bring the price down. We have something we call the headline price, which is kind of what you read about in the papers, the amount that get sold and then there's the actual price, the actual price is what happens when the deal is actually structured, the way a buyer tends to structure a deal. So what does that mean? It means that if I'm gonna pay $100 for something, I'm not gonna pay it all upfront in most cases, right? I will pay maybe half of it upfront because the reason we got to $100 which as the buyer I think is way insane. I can't believe I'm paying that much is because I'm not 100% sure that after I buy this thing that it's not gonna all go to hell. So I'll give you $50 up front and the other $50 I'm gonna put into something called an earn out otherwise known uh separate term for it. A different structure would also be a seller's note, whereas I'm just basically making payments over time right now. Why does that matter? Well, a couple of things, number one, often we're the ones stuck there having to earn that out. Number two during said earn out time, which is us basically being employed as a lackey for the company we just sold to for the next X number of years. During that time, we created a bunch of incentive milestones that we had to hit at a constant operational basis with the company in order to get that other $50 which we will probably not do because here's the trick that gets played the buyer. And if you're a smart buyer at all, by the way, we've never done this but pointing this out as a buyer, we haven't done this. But I understand the tactic is, well, why wouldn't you want to make $200 Ryan but make it on the back end based on performance? Why settle for $100? And you're like, well, no, I mean, I'd kind of like to get paid. Well, who hun you're saying I shouldn't be confident in this purchase that it could make $200 right? It's the oldest car salesman trick in the book. I used to work with a car dealership network and when we did swap lease dot com and he said when a car dealer would come in salesperson to uh get a job and he's like, well, do you want salary or do you want full commission? Right. Like, well, I, I want a salary to, to be sure, like, why would you want a salary, if you're gonna crush it on sales, why won't you take everything, like, like why would you be limiting yourself with a salary? And obviously it puts the salesman in a shit, same thing. Right. It's just, it's the exact same thing.

Ryan Rutan: Super strong arm tactic. And, uh, it works,

Wil Schroter: it works beautifully and so, you know, we're trying to get to that bigger headline number. We want to make $100 200 dollars. So we create some sort of structure, you know, that, that gets that paid over time or we're just forced into it because the buyer is basically saying, hey, if you don't stick around to run this thing, I don't want to just be handed a steaming pile of shit. And I have no idea where it goes. So I need you to commit to this thing and, and every founder does and every founder hates it.

Ryan Rutan: Yeah, the way that structure works, you're essentially earning them the money to pay you back, right? Um Which in most cases, like we look at a lot of these deals and we, we hear the, the, the backside of a lot of these deals and it rarely happens, right? When they put these really high incentive milestones in there, they sound great. Yes. If we hit, it'll be fantastic. It'll be more money than I ever would have seen and it will be more money than you'll ever see. Right. So that's unfortunately, the way that plays out most of the time. But yeah, you gotta, you gotta see through some of these mechanisms and I think it's worth mentioning that there isn't a static, you know, form, right? That's the other thing like when, when, when we sell a house, there's a process and it's very clearly defined and there's, you know, state by state, maybe slight variation, but there's a hud statement, there's some stuff that goes on that's very, very standardized, selling a business Wild West infinitely variable, but it's damn near right. You can include anything goes, anything you want, right? And, and, and we have to deliver seven chameleons on every July to your, your address of your specification, ok? It's shit, right? It can be whatever you want.

Wil Schroter: The other side of it though is let's say you make it through all that, ok? Let's rewind, let's rewind back to the top of this episode. Someone was nice enough to call us but probably not. And, and you know, we had to go shop the deal or whatever. We finally got somebody on the hook that's willing to, to take a look at our deal. We come up with some multiples. Our first multiples are absolutely batshit insane. They come back to us, they sober us up. We finally realize what our assets actually worth. It's always a fraction of what we thought it was worth. We finally get to a deal. They come back to us and say, ah, you know, $100. Yes. But how we're gonna pay that $100. Not so much. Right? So, we have $50 up front the other $50 over a three year period. I'm like, what? You know what? Ok. Well, we got a deal done. But wait, there's more because, and we just did a whole episode on this. We don't actually know that we're gonna see any of that money. Wait, hold on. What are you talking about? How could I not see the money? There's often

Ryan Rutan: a long line of folks, uh, who get to put their hand out first.

Wil Schroter: They are now to be fair. This is for folks that have raised money. If you haven't raised any money, you, you can skip past this section or you can watch or listen through it and laugh and be proud of yourself for not having investigators. But if you do, you almost certainly have terms in your agreement. For those of you who have not raised money, please listen closely. You most certainly have terms in your agreement that are there for a very good reason. This one that if you were to sell, they get their money back first, sometimes a multiple of that money. So let's say Ryan, you invested a million dollars into my company and when we sell for $3 million well, in a very typical term, your preference as we call it, uh in your investment would state that if we sell the first million dollars that comes out, goes to you to repay your investment has nothing to do with how much you you own. In this particular case, then what's left over we split based on how much we each own in the company. Ok. Now you could also have a preference. That's a two X preference. Meaning it's two times your investment comes out first because you negotiated when we did this deal that you want to make sure that, that you could get a return on your investment if there was ever liquidity. Hm. Ok. So we just hold for $3 million the 1st 2 million goes to you and the other million gets split. I get a percentage of, of the last million like yep. Now we raised $3 million. You could do the math, we get nothing. Right. So again, I'm saying that's if you get paid, then it could also be structured in a way where you might as the investor get paid first and then I basically may be making my money out of the, earn out money on the back end which may or may not even come.

Ryan Rutan: Exactly. We, we forgot to talk about that part, right? Sometimes people don't pay all their bills even when they're really big bills for things like buying a business. It does happen with fair frequency.

Wil Schroter: You need to learn that lesson exactly once and the truth is a lot of stuff can happen in these deals. But right, I, I think where it challenges us the most as founders is this isn't really something that we, we, we have a reason to talk about or talk about in detail. But the good news is this information is all out there. There are good advisors out there. If you, if you're not sure, send us an email, email therapy at start ups dot com. If you, if you're even thinking about this process or you are going through this process, let's talk, just founder to found this is just an offer to help you. There's no strings attached just to make sure you don't go go the wrong direction on this because for most of us, we're gonna spend years decades in some cases building the most important thing we've ever built in our life. The last thing we can afford to do as founders is not have the information to understand exactly how to do it. So in addition to all the stuff related to founder groups, you've also got full access to everything on start ups dot com that includes all of our education tracks which will be funding customer acquisition, even how to manage your monthly finances. They're so so much stuff in there. All of our software including biz plan for putting together detailed business plans and financials, launch rock for attracting early customers and of course fundable for attracting investment capital. When you log into the start ups dot com site. You'll find all of these resources available.

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