When you build a startup company, you’re always in a recession. It’s hard figuring out what to do and how to do it. Elliot Begoun’s guest today is Wade Brooks, the CEO at LivBar. Wade talks with Elliot about how ideas mean nothing unless you know how to express and execute them. Only then will you be able to convince investors to put their money on you. Join in the conversation to learn practical advice on how to deal with investors, especially angel investors. The key is to build personal relationships with them. It takes trust for people to invest in you. Tune in and learn how to build your startup company! 

—

Listen to the podcast here

Building A Startup Company? Here’s What You Need To Know With Wade Brooks

Before I start, as I do in every episode, a founder shout-out. The one that I’ve done but wanted to call out again is Kelly Perkins of the Spinster Sisters. Here’s why. Kelly finished her first equity crowdfunding campaign. That is never easy. That’s a lot of work and a lot of learning. She’s also been listening to the winds of change and has been very nimble in adjusting the product portfolio. I won’t tip our hat and give away her secret, but she’s about to launch a new line of products that are revolutionary, innovative and are meeting the consumers where they are now. If you haven’t checked out Kelly and Spinster Sisters, do so. Their products are fantastic. I’m not only a fan of Kelly’s but a fan of the products themselves and a user. I feel like she is wonderfully emblematic of what a Tardigrade brand is. That’s my shout-out.

Let’s kick things off. I want to introduce our guest. Wade has a unique background. I’ll let him detail it. It gives us the opportunity to talk about all things entrepreneurialism from different angles as an entrepreneur, as an entrepreneur in CPG, as a funder, as a professor and teacher of entrepreneurialism. There’s a 360-degree view here that few possess. I’m excited to pick at his brain a bit. Wade, thank you for joining. Please take a moment to give folks a bit of your background. We’ll dive in right after that.

Thanks for having me. As background, I started my first company when I was between my junior and senior years in college. It was the first Apple computer bar that I got to resell in the United States. I’ve been in tech most of my early career running companies. I was in the dot-com during the dot-com boom. Eventually, I did some finance stuff. I then became a professor of Corporate Finance for a little bit. I was then a professor of Entrepreneurship for eight years, so ten years as a professor. I started a venture investing fund, the first Angel fund in the United States at the grad school level. We did lots of deals and have great returns there. We looked at thousands of different pitch decks to make our investments. That was interesting teaching the students how to do all of those things.

I then went and taught for a little while in New Zealand, early-stage investing. When I came back, I had a number of folks who I’ve worked with who wanted me to go start another company. I came on a company who I was a strategic advisor for which is LivBar, the company that I run. We did a couple of rounds of financing, and we’re growing the company. We’re the fastest-growing organic/natural brand, according to SPIN. We had a big growth coming out of COVID. Although we have this whole Delta thing that has put stuff back in this weird place.

Wade has seen a lot of the different things in the industry. Let’s talk about this weird moment of time we find ourselves in. I was saying to folks that if I had to sum up in one word what I’m seeing in the market with all that’s going on, it would be trepidation. It would be this concern and acknowledgment of there being many unknowns and uncontrollables, which is interesting because there always have been unknowns and uncontrollables. We’re just seeing them manifest fully. What are you seeing in the market? How are you feeling as an entrepreneur or as a CEO about the market we stand in? How are you approaching growth?

I get asked a similar question, or used to quite often, about what happens in a recession for startups? How does that affect you? My answer is startups are always in a recession. That’s just the way that it is. You’re trying to figure out what to do, how to do it, and you’re always short on resources and capital. It doesn’t affect us as much as it would affect somebody. The bar business is down a roll because people aren’t traveling to and from work, 50%.

You have big companies that already have these huge revenue streams that are then having to cut back because, all of a sudden, they’re losing half of this revenue to pay all of their people. In the startup world, it’s difficult but it’s not as extreme. You’re still always trying to be scrappy. You’re still being scrappy and the market changed a little bit. Sometimes, it makes a big difference for fundraising, but fundraising seems to be crazy. A lot of VC deals are going on.

At our level, we’re not talking about VC stuff. It’s mostly Angel investment stuff. As far as the overall COVID market and people being the disposition, at some point in time, you’d have to jump back in and start doing stuff from a marketing and advertising perspective. We stopped doing all of that during COVID because Trump and COVID sucked up all the air in the room on the marketing platforms, on Twitter and Instagram, and all of that stuff.

What we did was we waited for months, thinking that things were going to shift, which they started to. We then hired. We increased our marketing department seven-fold. We hired a whole bunch of people to do demos. We’re doing store demos, which we couldn’t do before. Sampling was killed. We have turned that back on with great success, but then you have the Delta thing. It’s a little bit of fits and starts problem. I’ve seen it with my people too. Everybody has this weird level of increased depression. You have to try to keep people motivated even though the market is hard.

It is fits and starts. You’re spot on about everyone can’t continue to idle. People have to continue to push forward and move forward. Let’s talk about funding for a little bit. You’re also absolutely right in your observation that there’s a lot going on. There’s been a lot of funding activity, but most of that activity is upmarket. Larger funds are putting significant checks against brands with a fairly established track record. What we’re witnessing though is that it’s not easier. It’s harder for those earlier brands and younger brands that are trying to find Angels and trying to get that pre-seed to seed stage. As a professor and a former leader of an Angel group, what coaching, suggestions, ideas, or hacks can you offer for the audience?

At least in the early stages, it’s whatever resources you have that you can bring to bear. You then have your Angel investors. The difference between an Angel investor and a venture investor or VC investor is Angel investors are investing their own money. Venture investors are investing other people’s money in a fund. They’re a little bit like a mutual fund manager from that degree.

What you want to do at least at early stage from what I’ve found because if you’re pre-revenue and pre-profit, you’re talking to people who like your brand and engaged with you and the idea of what you’re trying to accomplish. They like the taste of your product. They think it’s the greatest thing in existence. Those are the people you’re trying to bring into the fold. There are some restrictions there as to who can put money in. Those have changed a little bit with some of the new laws but in general, you’re looking for accredited investors.

You’ve then got to make a good pitch. They have to feel comfortable with you. They’re going to give you a significant amount of money. You have to be someone who they feel confident is going to shepherd that money well. You’ve mentioned a principle that I call affordable loss, which is making small bets with big potential returns, and being crafty and frugal with your money. That’s something that is going to be important because the longer you can make the money last, the more shots at the bullseye you’re going to get, and one of those might be perfect. You just have to keep staying in the game.

From a milestone perspective, it’s important that you keep your investors apprised of what’s going on but also, that they see the progress of the company over time. You’re probably going to have to go back to them for more money as you’re growing, especially in this market space because we lost the whole year. We were poised to close 2,000 doors at Expo West that got canceled, and then everything went away. We had to grind it out to get those back. We ended up with all the doors still but it’s a lot longer than we thought. You have to make that money last so that you can get there.

One of the things that I would also add is that you have to remember every brand has its own set of Angels. An Angel has to like you and the brand. You’re selling a dream in the early stages and you don’t have a lot of proof points. You’re going to have to find people who are alongside you with that dream who get it and who see it. That’s more subjective than some of the other things that relate to winning investment.

One other point that I’ll add to that is one of the challenges that I hear all the time, I call it the capital conundrum, is that early-stage brands go to Angels or Angel groups and they will say, “Wonderful. I love the idea. Come back when you have a little traction.” You go back and you get in the car and you sit down and you think, “Son of a bitch, how am I supposed to get traction if I don’t have money? That’s what I need their money for. I need the money to get the traction.”

Change the narrative here, folks. Don’t let traction be defined for you, define it. If you only have enough money to affect, change or do what you want to do in 1 or 5 stores, then pick that 1 store or 5 stores and do it. Use that as your traction proof points, “Here’s what I was able to do in these five stores. If I had your money, I can do it in 500. I can do it in 5,000.”

That’s something that we call early yeses. The number one early yes is revenue. People are buying your product. You have evidence and you can’t dispute that. It’s a real thing. There are lots of other early yeses that you can use. You can say somebody who’s famous in the industry has come to work for you, or you just developed two new products, or you’re getting a lease at a huge discount, or other industry folks have wanted you to come in and speak on panels and do stuff. All of those things are good traction. It’s whatever is going to get those people excited about what you’re doing. You need to make sure that you focus on the things that are pushing the business forward and are exciting. You then have to convey those in a way to Angel investors so that they understand them and understand why they’re important.

I’m taking a little bit of host prerogative here because there are a couple of questions I want to ask you. The first question is this. Now that you’re back into entrepreneurialism or back as the entrepreneur leading a business, what would you wish you had been taught by you as a professor that you now know that you didn’t teach your students then?

This is interesting for me because I was an entrepreneur running companies most of my life. I then went back and got an MBA. I did executive education and finance stuff at Harvard. I was a professor for ten years and then started. I was a professor long enough to forget how hard entrepreneurship is. That’s one of those things where you think you’re working hard, and then you get in entrepreneurship, “I remember how hard this is.” You’re just working all the time.

The nice thing about an MBA and doing so much analysis on so many companies is more of the internal structural things of growth. From an entrepreneurial side, most of those things are the same, which are the fundraising, the early-stage stuff, the building a good team, and creating good culture, but then scaling is something that having some management training is useful for. Understanding the different business models, people’s different motivations based on the business models, this business is difficult because of the structure.

That idea of making something, cooking something, and selling something is pretty easy. You can make it and sell it on the street corner. It’s not a problem. Once you start looking into the channel structure, you have the brokers, the distributors, the retailers, and all these people in the rent chain, and then you have all the discounting. That stuff is complicated. It takes a lot of time to figure out, especially if you’ve messed up your margins because there are many people who are pulling on that.

As with the record industry, you don’t have control over the money. When you sell a pallet of stuff to the distributor for $100,000, they don’t give you $100,000. They pull all kinds of stuff out of it, and then you get a check for $50,000 and you’re like, “I don’t know what happened,” so you have to go through and find all of those things. The business school structure helps you do lots of those things. You can get the right people to do those things.

I have to bust on this because half the audience probably don’t even know what the record industry is anymore. Let me jump to one of the questions that were asked here. Putting on your former professor’s hat. What do you feel most entrepreneurs are missing in their education? What lesson would you want to impart on most of the entrepreneurs now that maybe they don’t necessarily have the awareness to?

The biggest thing I’ve seen is the difference between them believing that the idea is great and that’s what they need, and the implementation and execution of the idea. You get a lot of people in entrepreneurship who are like, “I’m not going to tell you the idea because it’s this super amazing thing. If I told you, then it’ll just be gone and somebody else will steal it.” That’s just not the case. Ideas are not all that valuable because they’re easily stolen for starters.

As an entrepreneur, you have to understand and be able to express how you’re going to execute. What are the steps that you’re going to execute? What are the milestones? Walk somebody through that path, “We’re going to hire this person to do this. We’re going to get into this store. We’re going to take these stores and go to this store.”

One of the things that we’ve done, and we had this all set up and it was great, and then COVID hit. We got into the Pacific Northwest region of Whole Foods. We said, “What we’re going do is we’re going to demo there like crazy. Make that our ideal anchor store, and then use that to leverage into other stores.” We’re willing to spend a bunch of money to get that velocity up and build that relationship.

When COVID hit, it was gone because you couldn’t do sampling anymore. Sampling and demos are the easiest way to increase velocity, but you have to have the plan and be able to articulate that. Also, on this front is the affordable loss principle, which is you have to be frugal with your money. You can do those things, but you have to do them in a way that it’s a small expense with a big potential return. Assume that it’s not going to work, and try something else and something else.

We both agree. We have similar principles, just different use of terms. For us, you have a growth hypothesis, go out and test it with a growth hack mindset and fail fast. Make these small iterative mistakes and learn and do it; Look for relatively quick risk, high return opportunities. I couldn’t agree more. A similar question but slightly different from another one of your vantage points. You spent most of your prior entrepreneurial career in tech and now find yourself in CPG. What has transferred that worked and what have you learned that is different?

CPG is so different. It’s a much harder sell with lower margins. When you have that, it creates a weird dynamic with the people you’re working with because it’s all about volume and velocity. Tech would be like working for a place like Nordstrom or American Express where it’s a lot customer-service oriented. Working in CPG is a little bit more like working at Walmart or Costco, where it’s mostly price-driven and has lots of velocity.

The thing that I wasn’t used to, and we had a hard time because I hired two of my former MBA students as my top managers who had been in Fortune 500 companies and came back to work for me, is that when you call people in CPG, they don’t call you back. You literally have to call them 100 times, 1,000 times to get through to them. You might send them 50 or 100 emails. If you did that to me in tech, I would never talk to you again. You would be instantly on my ignore list. If you want to talk to brokers, distributors or retailers, that’s the kind of tenacity that you have to have. That was the biggest difference.

That and not being in control of the money. When you sell stuff in tech, you just get paid for it. Here, they’re pulling out TPRs or the Temporary Price Reductions, manufacturer rebates, slotting fees, free fills, and all of that stuff. You might sell $100,000 of the product, but you might only get $50,000 back, and then you have to figure out where it is. Often, there’s another $25,000 you can probably get out of there that just vanished somewhere that you have people auditing to make sure that you get it back.

It’s spot on. What’s interesting that I’ve not heard before is that the difference in engagement, reciprocity or response is so radical. That tenacity you described is something that I pound on the desk or jump on the soapbox often. We talk ourselves out of being tenacious sometimes because we’re worried about being viewed as a pest or over the top. The reality is tenacity wins in this business. You have to be tenacious. You have to be willing to make that follow-up phone call and send that next short, less than 50-word email, keeping yourself top of mind and being relentless.

It’s getting to the point where you’re letting that category manager, investor or whoever know that you’re not going to go away. They’re going to have to deal with you. They can’t play the ghost game and you’ll eventually just give up. You’re going to be that one person that will not. You need to be that. Another one of my host prerogative questions that I would like to know is now you’re back in your Angel investing, your University Angel Group and you’re looking at LivBar, why do you invest in Liv?

There are a number of principles that we would look at. We do use different terminology, affordable loss, early yeses, milestones, and entrepreneurial expertise. You would set it up in that way. You’d say, “Why you? Why would we win? What’s my background and my team’s background? What do we have going right now as the fast-growing organic company that’s good,” or if you have whatever other wins you have. We closed two big retailers, Hy-Vee and Natural Grocers, so you would lead with those things. If you had smaller deals that you did, then you lead with that. It can be as small as, “We went to a farmers market for the first time. We sold everything out. It was instantly gone. We had great margins.” You then say, “We need money to scale this. Now, we’re going to go from one farmer’s market to all of them in the region,” which is hard to do because they all work differently.

In our case, we started in a coffee shop. That was the first place we were selling. We then sold at the local grocery stores. We didn’t have the money to get to the next phase so that’s when I came in. I came at the end of 2018 and then said, “This is a great product. It’s amazing but we need money to grow this to get into the stores and cover all these slotting fees, free fills, and all the rest of that stuff.” That was part of the pitch to everybody, which is, “To grow this, if you believe in the product, you believe it’s a better product, it’s fundamentally better from an organic and nutrition standpoint. It tastes better. It has a compostable wrapper. All of those things. If you believe in that premise and you believe other people just like you do, let’s get it out of the world. That’s going to cost some money. Let’s raise that money and then start spending it and build the brand.”

Why did you jump back into being an entrepreneur? What called you back to it?

I speak nationally on Angel stuff because I did Angel research. I published the largest study on Angel investor returns so I’m dealing with lots of entrepreneurs and Angel investors. I was speaking at a pub talk to a bunch of other people who were trying to figure out how to start companies or start their own companies. This company came up to me and started saying, “We need somebody to do this.” I thought, “That’s interesting. I’ve got a lot of stuff going on. I’m leaving for New Zealand in a month. I’m going to teach over there.”

I helped them hire a CEO, and then I went traveling and teaching at the Victoria University of Wellington. When I came back, the CEO was having a hard time raising money. I knew lots of people who wanted to back something that I was doing. I made that not so easy transition to say, “Let’s see if we can get some funding for it. Let me go talk to some people.” They’re then like, “We want you to run it.” “Okay, let’s go do this again.”

We share New Zealand in common too. I’ve done work with NZTE and spent quite a bit of time there. I’ve done some talks and attended a few of their Angel association and things. I miss being over there. In fact, we were supposed to be there but it looks unlikely. A question here that is a great one. By the way, I love this mindset. I would encourage anyone to contemplate this as well. “This industry has given me a lot, and I’d like to be an Angel investor. I’d like to give back by investing in other entrepreneurs but I don’t know how to start. How do I start becoming an angel investor?”

There are a couple of different books you can read that are useful. There’s a book called Angel Investing by a guy I know. The easiest way to get into it is for starters, you have to have a lot of money and understand it, which is all Angel investments, the probability is you’re going to lose your money. We can talk about portfolio distributions and stuff but in general, you have to have money that you can potentially lose.

Every deal has to have the potential to be a 10X or greater because you’re going to have to cover the losses of your other deals. There are a bunch of Angel groups across the United States. You go to Angel Capital Association and it’ll list a number of groups. In Portland, we have 10 to 20 Angel groups. Usually, there will be one main one that does a lot of education. They’ll walk you through the steps of all of those things. What you want to do when you’re looking at a deal, you can’t pick winners. It’s just not possible, but what you can do is you can pick things that are above the bar and get rid of things that are below the bar. For the ones that are above the bar, you have a probability that’s much greater that one of those is going to win.

The research says that in a diversified portfolio of at least 40 companies, the returns for that will be between 18% and 24% year over year returns, but it comes in in a funky way. Let’s say you had a portfolio that half of them would go to zero in the first three years. Everything you see at the beginning is just lost. It takes a while for companies to get big enough that it’s going to be acquired and you’re going to get your money back.

In years 4 and 5, you have some 1X to 5X returns. In year six, you have your 10X and 30X returns to cover and make all the money. It’s lumpy as far as the returns go, but you do want a portfolio if you can do it because that reduces your risk. That’s why mutual funds were developed. Any one stock is risky, but a group of stocks reduces the risk and increases the likelihood you’ll get an overall return.

A couple of things I’ll add to it. First of all, you have to make sure that you meet the accredited investor threshold. If you don’t, then now with equity crowdfunding, there are ways you can participate at a smaller level and still be a part of the ride of some of the brands, but you have to meet the accredited investor threshold. You can google it. It’s pretty straightforward. It has to do with your last two years’ earnings and your net wealth, not including your home. You’d want to do that.

I couldn’t agree more that joining an Angel group is probably the best step. When I first started Angel investing, that’s how I did it. I enjoy personally investing in a vertical that I understand. One of the things in addition to all the things you called out is I want to make sure that any of the investments as an Angel, I feel like I can play a role in de-risking the investment. That’s the difference in not putting that money in a mutual fund, at least in my perspective. If I put it in a mutual fund or in a straight stock in the public market, there’s no control and no value that I can add. If I put it in something here in the CPG space, there are things that I can do to maybe change the trajectory of that investment and derisk it.

There is some statistical correlation. There’s not a ton of research on this, but one of the few things that do increase your likelihood of returns is your experience in the industry that you’re investing in and your involvement in it. It’s exactly what you’re saying, that does have a small positive correlation to positive returns for you.

Small is right. You have to be able to stomach the losses because those are going to come no matter how brilliant or as proficient as you think you are in being able to assess the winners from the non-winners. You’re going to be wrong more times than you’re right. There are many variables that go into a brand actually getting to a monetizable exit that are non-controllables. Another question here coming in is around Angels and engaging Angels. In terms of structure, maybe a little bit too specific. The question is, do most Angels invest in convertible notes and safes or in straight equity rounds?

It depends upon the group. You definitely want to find a group that is in your industry because most groups only invest in a couple of things. Most groups invest in tech. There are some groups that do medical and some groups that do CPG. If you take a CPG deal to a tech group, they won’t do it. They won’t understand it. They’re not interested.

I’ve done all of those things. If you want to call a safe a convertible note, you can do that. They work in the same way. I haven’t done one of those specifically, but I’ve done a number of convertibles and a number of price rounds. It was based on the group. Some groups absolutely won’t do convertible notes. Some groups like convertible notes where they’ve developed their own convertible note.

There’s Alliance of Angels up in Seattle. Dan Rosen had put something together that is a convertible note document. You can go there and download it and look at it. It’s a template that they’ve used a number of times. You’ll find that people who have done this for a long time have very long documents because, every time they got screwed, they change something in the document and add a whole bunch of stuff. There are also some good templates now that have been tried and true that are out there that people can use.

There is an issue here that people don’t understand though. If you’re doing a price round, you’re saying that you’re going to sell your company at the end. You are saying that with both. If you put $1 million into a company and it’s paying you 10% interest and you’re getting $100,000 a year, that’s great. If they don’t sell the company, you never get your $1 million back. It has to be sold. As soon as you start taking money, you’re going to be selling your company.

If you do debt financing, then you don’t have to sell your company. You can pay the money back. They get the interest and a whole bunch of other kickers and stuff. With a convertible note, you have to be careful because what you’re saying is you’re going to either pay it back in debt because you can’t do another round. When you do another round, that’s going to determine part of the pricing of what the people had invested in originally. They also get kickers and bonuses on that because of the risk they’re taking by investing before this new investor invests.

If you come in and someone says, “The company’s worth $10 million.” That’s what they’re investing in. The convertible note has terms in it that will say they’re converting at that rate with some kind of a discount, and maybe some kind of a ceiling too. With their accumulated interest, it’s a little more complicated deal.

A price round is just a price round. We just determine the price. That’s another interesting thing. You’re not going to base the value of your company when you do a price round on any financial data that you have. Your projections don’t mean anything. You have to have them and show them to me so I know that you know what they are and how they work. What you’re doing is you’re saying, “I need to get from point A to point B. I need to fund that. Point B is either we’re profitable or we’re going to do another round.”

In general, that’s going to be between 10% and 35% of the value of the company. That’s how you price it. There are a bunch of other ways to do it but that’s primarily what I’ve seen. Let’s say you’re making a product that is a prototype like a car, it’s going to cost $5 million to build a prototype. You need at least $5 million before you can get to the prototype stage, where then you could do another round because people can see that it works and you’re selling some percentage of your company to get there. You usually do 2 to 3 rounds before you get to the place that you’re going to be profitable and you don’t need any more money potentially.

That’s an interesting perspective on valuation because that is the most talked-about thing whether it’s not, whether it’s safe, whether it’s price round or valuation. There are a lot of us in this space who give the impression that it’s a science or that we know. It’s negotiable. It’s a swag at the end of the day. The valuation you’re going to get is what the investors at the end of the day are willing to take as the blend between upside and risk. That’s it.

Whether you’re using an EBITDA multiple, which is rare in the CPG space, or revenue multiple to come up with a starting point. At the end of the day, it’s going to be driven by what the market will bear for you and to whatever degree you can show risk reduction and have a clear path to monetization. The other important point that you made amongst many is that it’s important to understand that when you start bringing on capital, whether it’s from Angels or venture, for all intents and purposes, you are signing up to sell your company when you’re bringing on equity.

That’s the path that they’re going to get their money back and that’s their expectation in terms of why they’re doing it and what their returns are. If those aren’t yours, you need to find other funding mechanisms like venture debt or SBA. The last thing I’ll mention is to understand the difference between marginal dilution and the impact. Sometimes you let good deals go with the right investors because your ego and the dilution percentage get in your way.

You want to make sure that you raise enough money, that it gets you to a place that you either don’t need money or you can raise more money. If you raise less than that. What happens is you put yourself in a horrible situation where you haven’t finished. As an example, your prototype’s not done yet. You’re 80% of the way there and you’re out of money. That’s a bad place to try to negotiate. You only have so much control over how much you can raise, but it’s important to look at that and have a realistic understanding of what things are going to cost in general.

How do I find Angel groups or Angels? What resources exist?

Most of the Angel investors are not known. Angel Capital Association will have a list of them. When you go talk to any Angels locally, they’ll have a whole bunch of other people. The Business Journal will have a list of who’s investing in what. You can look at other companies that got invested in and see who invested in them. The lion’s share are the rich uncles, the people who are the CEOs, the people who had companies they’ve sold before, and the people who have family money.

This is also why the research was so hard to do because you have to go talk to them about their private investments and the returns on their private investments and not disclose any of that information. They had to be comfortable with that. You are looking for a rich uncle or friends of friends who’s been very successful for two reasons. One is they have to have the money. You have to start there. Secondarily, you want them to have some connection.

Almost all Angel investors invest locally. There are very few that invest nationally or outside of their region. A great place to find some of these folks is talking to lawyers and accountants. They know who has money, who’s doing deals, and they can make a warm introduction as opposed to a generic introduction.

I get 10 or 20 deals a day on LinkedIn where someone is giving me their pitch deck. I don’t know any of these people. I don’t even do that stuff anymore because I’m head down doing this. That’s just fooling yourself thinking you’re doing some work. That’s not how that works. It’s like finding a job to a degree. You want someone to make an introduction to a job that’s open in a company that you want to go work for. You need to do that footwork as opposed to just spamming your resume out into the world.

One of the challenges in this industry that I want to see change is greater access to all. There’s a distinct disadvantage to the entrepreneur who starts his or her business without a network of rich uncles or access to people in their direct network that have money. That becomes a limiting factor. It’s one of the things that people like the JEDI Collaborative and others are working to change, thankfully. If you don’t have that direct access, do exactly what Wade says. I love your perspective on this, Wade.

One of the things that I sometimes struggle with is that entrepreneurs can be and are usually incredibly creative and innovative, but there are certain aspects of how they run or approach their business that they don’t seem to drag along that innovation and creativity with it. They’re super innovative and creative around product development and marketing or go to market or the way they’re communicating, but the way they look for investors is very rote and pretty pedestrian. They don’t take that same kind of energy and innovation approach to do it.

You have to take that approach when you’re trying to find your Angels. Angels aren’t going to find you. If you go to the same Angels that everybody else is going to, your odds of getting funded are tiny. I see hundreds of decks. I know other friends of mine who are much bigger and much more active Angels see thousands of decks and maybe make 1 to 4 investments a year. That’s pretty lousy odds. It’s being creative and innovative, reaching out to attorneys, CPAs and wealth advisors, showing up at philanthropic events. Doing all the things that you normally might feel uncomfortable doing. Trying to be innovative so that you can get connected with the people who can put the money you need into the business and affect change. I’d love any other ideas or thoughts or things that you’ve seen in your experience work well or any other tips that you can offer.

Part of what you have to understand is these people are doing Angel investing because they like it. They like the energy. It’s a hard thing to do. They like being the people who have invested in this special company that they can talk about with their golf buddies or whatever. There is a social aspect to this. It’s very useful. Going to cocktail parties where people have wealth. Going and playing golf with some of these people and getting introduced to their buddies. Those personal relationships are what make this happen at that level.

You want to make sure that you’re caring for those people so that they bring their friends in too. You definitely don’t want to hire the Rolling Stones when you don’t have any money to come in and do a big thing. People have done this. You do want to have some events where you can have them bring their friends in. Have a little bit of a cocktail party that doesn’t cost as much money or other kinds of outings and events that are going to get you introduced to people so they can learn more about you so they feel comfortable enough with you and your ideas that they would invest in you. It’s hard work. Raising money is always hard and selling is always hard. People will say sometimes it’s not. For me, and I’ve done it my whole life, every single time, it’s hard.

You have to go to the well before you need the water. You need to be cultivating your next investors while you’re working on your current. You can’t do this to your earlier comment about fits and starts as it relates to the marketplace right now. You can’t raise money and fits and start. Once you start raising money, welcome to the hamster wheel. You’re on it and you need to continue to work that, build relationships, network and do it.

One of the important things is to find ways to give back. If you want to build a relationship with an Angel or an Angel community and so forth. Even if it’s someone that you’ve chatted with who isn’t a good fit for your brand, you don’t meet their criteria but others do. It’s making that connection, offering to do something for them, sending them products, giving them updates. Nurture these relationships because they can be highly influential. Make this part of your innovation platform. How you reach out, how you communicate, what you do, show up differently, be disruptive. Here’s another cool question around Angels in general. Angels seem to be the interesting topic of the day. It’s not surprising. As a founder, what should I know about Angels in terms of how they think, look and aspire to invest in entrepreneurs?

There was a great book that I can’t remember the name of. It’s about how to know more than your investment banker and venture capitalist about doing Angel deals. There’s some nitty-gritty stuff that you should know about how the funding and structure work. You have to understand how dilution works and not get too freaked that you’re going to give up some part of the company. What you do is you end up with a bunch of money in the bank, and so the company’s worth more money.

You have a smaller chunk of something that’s worth more so that should be equivalent. I would say that Angel investors invest for all kinds of crazy reasons. Here’s the downfall of an Angel group, especially at the very early stages. They have a structure that they go through. If you don’t meet the structure, you’re on the outs. A lot of early-stage companies are started not because of any of those tenets, not because of revenue and early yeses, affordable loss principles, and all those things.

You have to get to understand and know who the investor is individually as an Angel, and then they have to trust you. There is this leap of faith that they make, at least at the very early stages, to get them involved, and then you leverage that. You say, “We’ve already got our first $500,000. We already have our first $1 million.” Also, even before the Angels come in, you have to leverage your network to bring something to it before you go talk to them.

If you can’t raise $50,000 on your own, the likelihood that you’re going to raise $1 million from Angels is almost nothing. They want to see that you can do it, that you understand how it works, and that you can get somebody else involved that might be a very large risk for them portfolio-wise and wealth-wise relative to what the Angel is going to invest.

The $50,000 for somebody who doesn’t have much money versus $1 million from a guy who has $1 billion, that’s a totally different set of math. They’re going to look at that and say, “You are really committed to this and I see that you understand how the funding works.” A lot of them, I’m sure in your case too, just want to help. They are interested and want to be helpful. They want to use their money. They’ve been successful and they want to use their money to help somebody else succeed.

I find this with most of the CEOs too. CEOs are getting a bad rap often. In some big companies, it’s warranted but mostly, CEOs care about their people. They care about their employees. They care about the business being successful and their investors being happy. They’re not trying to screw the employees out of wages. That’s not common.

In huge companies, there’s this disconnect but in general, we went out of our way to be paying people healthcare, and healthcare is crazy-expensive. To me, it was important that the deductibles were low enough, that the people could actually use the healthcare insurance. We could get them healthcare but the deductible is $10,000, then that’s not healthcare. They can’t cover the $10,000, at least at the production level. I went a little bit off-topic there but Angels care.

To be truthful, and there are some Angels who are good old-fashioned dirty capitalists. I don’t begrudge them at all. It is exciting, fun and rewarding. At the end of the day, it’s about giving back and trying to see success being paid forward. That’s the mindset most Angels truly do have. As an entrepreneur, you need to create two clear pathways for Angels in my opinion. Wade, please call bullshit on either of these. One is you have to create the pathway for them to make money. You need to embrace in your own mind that your investors have the right to make money. The earlier they invest in you, the bigger that right is. The more upside they should have. If you’re not thinking that way, then it’s going to be very difficult for you to win investment from an Angel.

The second pathway you have is to give them a way they can help and participate. Some might want to be very active in that participation, some of them might just want to be able to make a phone call or connection for you. Having that conversation around how they can help and what they can do makes them more interested in you because they feel more valued. Trust me, as much as you need that money, you need those champions behind you to succeed in this business. You’re not going to do it on your own and you’re not going to do without people who have the connections and influence to make things open up to you.

I agree with both of those things for sure. I raised a bunch of money at the University because we raised all the money for the Angel fund too. One of the things the University has a hard time with and that you guys should understand is wealthy people invest in what they’re working on. You want to be on the committees that they’re on about the things that they’re interested in and be engaged.

At the University level, I created a board for the Angel fund where we can pull people in so they can become interested in what we’re working on and have influence, and then you’re going to get a donation later. It’s much more likely that that’s going to happen. If you push them out and you say, “Thanks for the money. We’re going to run the program the way we want to run it.” The likelihood that you’re going to get continued engagement with them is very low. It’s the same thing. You need to engage with them.

On the other side, they’re here to make money. You have to understand the structure, how it works, and how they would make money, and you have to be able to explain it to them. You do end up with this crazy scenario where you have different investors at different levels that are going to make different amounts of money. If you’re in early and you take all the risks, you should make more money than the people who are in later. That’s how the structure is set up and risk is relative to return.

I do see this sometimes where people raise money and they’re like, “It’s free money. I raised $1 million and I have $1 million to spend.” That’s not what happened. You borrowed $1 million and you owe it back to people. If you’re going to be doing this, you have to be comfortable with living with stress because every day is stressful. You have lots of people who are your friends and family and other close people whose money you’re managing as you build the business. You might lose all of their money.

There are things you can’t control like COVID. When stuff like that happens you have to understand that that’s a lot of stress. You need to take money from people who if they lose it, it’s not going to be their life savings and you’re going to be in this horrible situation for the rest of your life with those folks. Keep it in mind when you’re doing it.

That’s so important. I’ve seen this investor relationship, especially with friends and family destroy Thanksgiving, holidays and family dynamics forever. It is one of the reasons why they have the accredited investor threshold because in theory, if you meet the threshold of an accredited investor, you’re in a better financial position to withstand losses.

The other thing I would tell you advice-wise to those reading, if you are gaining investment from friends, family or people close in, make sure you let them know that you believe in this fully. You’re going to do everything you possibly can to make them money in this, but there is a chance because this industry is challenging that they will lose all of it. They need to be okay with it.

Even articulating that to them will help absolve you of some of that stress and guilt. I’ve seen this with lots of founders and Wade, your point is so important. You’re going to go to bed every night with the weight of the investors on your shoulders because you’ve invited them in. They’re betting on you and that’s daunting. Know that and be ready for that. You have two constant companions along the ride with you. One is fear and the other is doubt. You’ll have those two plus you add your investors on top of that, and the stress can be overwhelming.

The easiest way that I would do that is when I talk to people who are going to invest, I say, “This is a lottery ticket, you need to understand that. The likelihood is that you won’t win but if you win, it’s going to be a ton of money.” They understand what a lottery ticket is. They’re willing to buy a lottery ticket, they get it, and you haven’t misrepresented it in any way.

I like that analogy very much. Let me let you bring it home. First of all, please plug LivBar. Let folks know where they can get it, and any parting words of wisdom, and where people can get a hold of you.

We’re in LivBar, a superfood energy bar. It’s all organic in a compostable home wrapper. It’s crunchy and chewy. It doesn’t taste like any of the bars because we bake it and we do make it ourselves. Ninety-nine percent of the bars are not made, which is why they all taste the same. We have a solar-powered facility and we’ve always been this way. We were founded by nutritionists and it’s always been organic and the market has moved to us. We’re not chasing the market. We sell in all 50 states, in Hong Kong, our biggest retailer is Sprouts. That’s in 364 doors in 24 states. Whole Foods in the Pacific Northwest region, Fresh Thyme. If you go onto our site which is LivBar.com, there is a locator there. You can type in your ZIP code and address and it will show you exactly where to go.

As far as wisdom, I know it might sound scary and disparaging some of the things that we talked about if you’re going to go start a company and stressful. On the other side and one of the reasons why I’m a huge advocate for entrepreneurship is it’s freedom. You have freedom. You can work as hard as you want. You can spend the time in the places that you want to. You do have to be motivated to work quite a bit, but you get lots of advantages in the tax code. You have lots of control. Instead of coming in one day and having your industry be in a horrible downturn and getting fired and not be able to get back into the workforce because that industry is down, you can have horrible clients and you can just fire them.

You’ve got lots and lots of clients. Firing one client isn’t a problem. I do see that as a big mistake people in entrepreneurship do. They spent a lot of time on these bad clients trying to make it work. Sometimes you just got to be like, “This isn’t good for you. This isn’t good for us. I’m moving on. I got lots of other clients.” Also, you don’t have to do venture-backed deals. Lifestyle businesses are great. You can make lots and lots of money running a restaurant. Restaurants are not investable because they lose sales, but you can borrow money. You can build it. You can make tons of money.

I’ve had lots of those people in my classes. I’ve interviewed maybe 500 entrepreneurs and a lot of them are making a bunch of money doing what they love doing. Understanding what they are working on and not necessarily connected with a whole bunch of other stuff. They know how to make a widget, how to make it well, who to sell it to, and they just do that. One more parting piece of wisdom, for your elevator pitch, determine what you sell to who, to do what. That’s basically your quick pitch. You have to know those things. You have to know, what is it that I’m selling? Who am I selling it to? Who the audience is and what do they get for it or why am I doing that? It’s super easy.

What a great episode. I’m giving my own show a plug but what we covered is important and valuable. Hopefully, you’ll share it with others. Wade, thanks so much for joining. Check out LivBar online and order some. You can order right from their website. We’ll catch everyone the next time on the show. Take care.

Important Links

• Spinster Sisters

• Wade Brooks

• LivBar

• Angel Investing

• Angel Capital Association

• Alliance of Angels

• The Business Journal

• JEDI Collaborative

Love the show? Subscribe, rate, review, and share! tigbrands.com/tig-talks/