The Magical Couch of Truth Bombs - Episode 8 - Venture Capital

This week on the Magical Couch of Truth Bombs we welcome Campbell, Pitchblak's new partner. πŸ˜€ πŸ‘πŸΌ Raising money from Venture Capital is seen as a milestone in startup world. Is it always the right thing to do? Adrian and Campbell talk about the pros and cons of taking investment from VCs.

Transcript:

- So I'm here with Cam, who's just become a partner in Pitch Black and he's gonna be heading up our Melbourne office that we're about to open down in Melbourne which is exciting so

- Super excited.

- Cam's looking a little bit different today. A bit more male and...

- No where near as attractive.

- No where near as attractive. There was a recent article in TechCrunch about actually warning entrepreneurs around VC money. The crux of it is they're saying that if you take on VC money, they're gonna force you cause they want to create a big asset, they're gonna force you to grow really really quickly as they do and that fast aggressive approach brings on in their mind potentially unnecessary risk where maybe if it was done more organically, it would have been more stable. So lets chat about that, what are your thoughts on it?

- Yeah I think it's really interesting and as soon as I heard that, I thought back to a conversation that I had with a VC. And he basically said that his job was to try and fail companies as fast as he could. And out of that rose the successful ones. I think obviously VCs are fantastic for the startup industry in many ways, but they're not necessarily fantastic for every startup. In my view whenever you try and look for money, not all money is good money. Talk about like smart money.

- Dumb money and thinks they're smart money. The third one here which is the guy at the barbecue that, and it is always a guy, it's never girls. Guy at the barbecue that knows about religion, politics, startups, business, sport, they're just a know it all in everything and like gotta be the fucking investors you could take on ever, so they warn people against that. A lot founders would feel, once they do have a product, and they've got traction, and customers, revenue whatever, a lot of founders would feel like the only way they can go and raise that mill or two mill would be through VCs. And so they would struggle to round up such big chunks of cash from...

- Yeah, I mean it's a really difficult space to play, I mean the types that sort of level of money cause you know sometimes it's lower than maybe what a VC might invest but higher than what your normal high net worth might invest.

- Startups typically raise 100 grand, 150 grand, they get that first chunk of pre-seed money to build a product, hopefully quit their job, and start doing some shit. Get off the ground, try to get some traction and from there it's like where's that next chunk of cash come from? And it's either, it is often a big leap to a VC at that point but then angels can be hard to find as well so it is. I think it's something startups really struggle with is knowing where the next dollar should come from. So the founder of Base Camp which is really cool project management software, obviously a pretty famous startup. He owned a web agency and he spun it off as a product. Obviously we're very big on small businesses spinning off tech products so it's a very cool story but he's got some very black and white views on investments, so he has technically taken investments. Yeah its creditory but he has self-funded it out of his web business. Everyone kept asking how much it was valued so he took like a dollar at a 100 billion valuation from Sequoia I think, Sequoia as a bit of a "fuck you" to the world for continuing to ask what his value is he only took a dollar of investments. So that was just a joke. But he's sort of saying that founders need to to learn how to cash flow fund I think the risk in him being so black and white on that is he had to service his business to spin it off so if he had to service his business sure you can start

- Yeah I think that's just a different type of investment cause he's actually investing in it it's just his web service agency was investing in the business, right?

- Yeah

- Essentially But what I do love about him is he he tells you to think differently so in that black and white he's, basically everything you're saying, out of the norm out of the standard, and I think I love that especially when thinking about investment cause it's not necessarily ever one way to go about it there's ways in which people have gone about it and have been successful it doesn't necessarily mean that you have to be successful and especially in markets like right now it's very crowded, lots of people asking for money there's lots of money about often times you do have to do things differently to stand out from that

- Yes, for anyone watching the ways that you can raise money is from your own networks which people who respect you and the people who they know at the start is definitely the lowest hanging fruit. Angels, angel investors, so like more seasoned investors, again, bit risky to go there right at the start. They can be very sceptical of investing in things pre product, so be careful of that. Same with VCs as well, don't like pre product so they usually expect some traction but if you're going to go the VC route definitely going to have to expect that they're going to ride you massively. Yeah, there's plenty of founders around us that are VC backed or in our world our own ones, and it's definitely definitely then in a machine that's trying to crank it out I've never heard that saying before they're like trying to make them fail that's fucking crazy.

- That is super valuable and obviously it works, right? It works for many people, it's about finding like what works for you finding the right investor for your start up

- Yes

- And for you as a personality as well

- It's really important for people to think about their revenue model as well, when they're thinking about taking investment like if your business model requires a shit load of volume to get to the point where it could even be profitable or even cover the cost of a decent size team then its almost inevitable that you're going to need decent backing to get to that point that's where sometimes its just, there is no option. Obviously you have choices where you get the funds but VCs are going to be an obvious option in a lot of those circumstances. If you've got a physical product you can you can get loans often actually like for production and everything as well. There's a whole bunch of ways that if cash for funding is fine and growing organically but there's definitely has to be enough fat in that revenue like Base Camp had to have enough money to cover a team to build the product and grow it.

- Yeah, and there's a whole bunch of other factors in there as well, how fast you have to get to market what's the competitive landscape? How big a team do you need to be able to achieve that so it's about, what are my goals? What's best for my start up? What funding method and how much funds? And who's funding that to help you achieve that?

- Last would be around risk. A lot of people that come through our programme or businesses that we help like they they ask about how do they protect their idea and the scary thing in software is that there's very little we can do, right like hardware is like that physical product, so likely in a sense that patents can be defended pretty well in physical products. Software idea, we often teach people and we do believe this that, often one of your biggest defence mechanisms is how fast you grow and that comes down to capital so if you have a particular idea, software idea and you launch it and it's going well you have to realise that people will copy it once you're out there and going, and people see you going well, they'll create their own version of it and if you are choosing not to raise capital and they choose to raise 5 mill who's going to win? And unfortunately, it's likely to be the person that raises more cash. Obviously there's a whole thing about you can raise too much money, and I've done that before and yeah I've been their massively you don't want to raise too much you should only raise as much as you need to get to your next milestone but raising nothing is pretty risky it may be the riskiest thing you could do.

- For sure.