This Week in Startups - E1139: Loop CEO Brian Gannon shares secrets to scaling a hardware startup & launching the Loop 2 + bonus Ask Jason!

Episode Date: November 18, 2020

Check out the Loop 2: https://rb.gy/hb5qbk FOLLOW Brian: https://twitter.com/brgannon FOLLOW Jason: https://linktr.ee/calacanis

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Hey, everybody. Welcome to another episode of this week in startups today on the program. We have a hardware founder, Brian Gannon, is with us from Loop. And we're going to get into that. On this podcast, you know, I like to sometimes, I would say one out of maybe 25 times. I'll have somebody on the program who have actually invested in. Other times I'll have people on the program, like when I had Alex fromcom.com on the program,

and then I'll invest after they're on the program. I'm an angel investor here in the Silicon Valley. We invest in over 100 companies a year with our little scrappy team of 12. And you can be part of our family by just going to launch.com slash apply, and you can apply to our accelerator. That's a 14-week program in which we introduce it to 500 or so investors. work with you on the growth strategies for your startup and essentially try to give you an edge on all the competitors out there in the world so that you have a better chance of succeeding.

But succeeding is hard in this business. We also have Remote Demo Day.com, which we're doing monthly now. We've got five partners, sponsors, helping us with that program. And two or three hundred people are applying every month to get a slot to pitch to 4,000 investors who are in our syndicate, which is the syndicate.com. That's where investors go. But if you're a founder with a company with over $50,000 a month in revenue, approximately, we will consider you for Remote Demoday.com.

Basically, you get on Zoom and pitch your company for three minutes, take some questions, and then we see if you clear a market. And if you do, we wind up investing, on average, $500,000 in your company. You can follow me in the show on Twitter. I'm at Jason, and the show is TWI Startups. And on today's program, as prom, is Brian Gannon, is with us. He's B.R. Gannon on the Twitter, B-R-G-A-N-O-N. If you're wondering about Twitter and you're watching this program, founders, investors, and journalists spend a lot of time on Twitter. It's kind of where

business people chit-chat. It's kind of like the lobby of a conference these days. And Brian, I met because I'm not sure exactly who introduced us, Brian, but you know, it was the Facebook challenge. Ah, correct. Yes, I did a thing called the Open Book Challenge where I tried to find somebody who would take on Facebook. And now, Brian wasn't exactly doing that. But he was doing a very interesting company called Loop, which you can find at LoopFamily.com. Some of you may know it from their Kickstarter and Indigo campaigns. But Brian, why don't you start off by explaining to people what Loop is and why you built it? Great. Yeah. So, you know, first of all, when we talk about Loop, we position it and we tell people it's a private social network for family. So

that's why when I reached out to you originally about the Open Book Challenge, we did it. Because we didn't intend to just make a piece of hardware, to be honest with you. The problem we were trying to solve was keeping families connected. My family, like most families, are kind of spread out across the country, maybe even the world. And when I had my son was born, Alex, it really hit home. And I'm from the East Coast. I'm from Boston originally now. I'm out here in the West Coast. Mom lives in Florida, you know, brothers in different states. And, you know, I was really just so surprised at how hard it was. And to be honest with you, I thought Apple would just solve it.

I was like, oh, great, here we go. Apple photos. And now we're all set. We're going to be done. I frankly, couldn't even figure out Apple photos. I found it actually quite confusing. And then it turns out half my family's on Android. And it was kind of a mess.

And so we had a text chat group going. We had a little bit of, you know, people posting on social media, but not me. I actually didn't want to post pictures of my kids on Facebook. And so it really started just with my own personal problem. And I just started talking with other people. It seemed like they had it, but everyone was just putting up with it to an extent. Like this incredible friction and this incredible hacks that people would put together, to be honest with you. And you might even argue, before I get it, I'll get rid of this what we make.

You might even argue that today's de facto family social network is chat groups, text messaging. Right? So that's kind of it. So, you know, which is pretty good, right? It's not bad, but it's really not a complete product focused on something. So we said about it. We actually started out, you know, making an app and then came upon this idea just through prototyping. I was spending some time at the Stanford D school at the time, and they really

kind of push you to really go nuts. Like, how could you solve this problem if you had no limitations? And that's what we came out with this display, which is, for lack of better word, a digital picture frame. That's how we marketed to customers. It's what it is. And here it is. I'll hold it up so people don't have to do enough.

It's beautifully designed. It looks like something you would want to put on a shelf. The beautiful dial and a speaker. Yeah. In the kitchen. And you get little knobs here that go through all the pictures and get a channel knob to go through the channels, almost like Slack for your family. And this, yeah, goes in the kitchen that we targeted our first loop towards because that's

where we thought people spent time or increasingly spent time. And the way it kind of works is. you open up a loop, it actually download the app. Then it sets it up itself, almost like ring doorbell to an extent, or a lot of connected home products. But the unique thing is you then instantly invite other people to it. So create a channel. We walk you through it.

Invite your wife, husband, sister, brother to a channel. And the quintessential use case would be, hey, I just bought a loop. I sent it to my mom. And now we're going to be pushing pictures. She wakes up in the morning and, you know, these things come out through the day. And now my brother and sister, we all have a sort of. mini private social network for our family. And then it actually hops,

and it's been doing this as well, it hops from family member to family member and even to the in-laws and starts to expand. So there's a, you know, sort of this is an investor program. So I'll use some investor words here, but, you know, social hardware is a word that we've used in the past to describe this dynamic.

But we have hardware and we have a network effect within this business. And how is the business gone? It's incredibly hard to do hardware. We both know that. Tell everybody and the founders, listening, how you've managed to basically keep the company growing in the face of, let's face it, a lot of competition. Hardware tends to be a race to the bottom. If I were to look for digital

picture frames on Amazon, I could find them for $25 or $50. How do you make a premium hardware product and a social network actually work in the marketplace? Yeah, sure. It's one word, software. So I wouldn't advise anybody to get into a business that is a hardware product. You know, as an example, ring doorbell. I know you could say this is an amazing brand, but it didn't start that way. They made a actual, it's a lot of software. You know, I could give somebody $100 million and they couldn't copy their software. You could copy their hardware in 10 minutes, right? But to create that sort of experience and that type of latency in it's incredible. So that's how we looked at it from day one.

I said, wow, this is really a software meets design. And if we do our jobs right, we're going to be using off-the-shelf commodity hardware components and wrapping it together in a beautiful design and applying a lot of software. And to be fair, I would even argue back in the early days, my inspiration was drop cam, you know, and I just thought. The predator sets it to the Nesscam. Correct. Correct. Dropcams were, yeah, really amazing product from day one.

And in fact, they took it to an extreme. Their first product, they didn't even make. They didn't even say, hey, this is commodity and I'll make it really cheap. They just literally bought something off of Amazon, put a sticker on it, loaded up their software. Oh, wow, I didn't know that. Yeah. And it was an access camera that was on the market. Literally, they would buy it on Amazon and then ship it on Amazon with a sticker and they would load up the software.

And, you know, they even told me as well, they said, you know, one of the founders of Mir is an advisor to us. You know, by the way, it didn't happen overnight. It took a while for me to meet these folks. right. But, you know, one, they built a huge brand out of it. You were like, oh, this is a drop cam. This isn't a, you know, webcam, whatever the hell they, you know, the broad majority, which is obviously what we're trying to do as well. But they just started from software from day one. And then the second one is they started from subscription. So, you know, I don't know if this is insider, you know, but they were very, very focused on if this better have a subscription that we can prove early on. Because that's, you know, essentially, my team is all software. Right. And I'm sure his team was same sort of thing.

I'm sure they had a fraction, maybe 10 to 1, 10 to 1, I would argue. So, yeah. And you are announcing something new today, something you're working on? Yeah, well, there's two pieces going on. So we have a new round that we raised. So that's part of this announcement. Thank you very much. We can get into that.

And then also we just launched our new loop. And so this new loop takes in to account all that we've learned from our original loop. We're now referring, by the way, to the first one, the one that you've received in the past as loop original. Most of the world has not heard of us, so we don't need to call it loop two or anything like that right now. So we're just calling it loop of it, you know, in parlance, we'll call it Loop New here. But what we've done is a few things. One is if you use Loop today, we really want to design it around the sort of hosting, of content.

Press a button, post a picture, almost like social media meets text messaging, to be honest with you. There's some like comments in the app and hey, look, we're so smart. We want to pull you into the app, right? But the reality is, you know, we want to make it easy for people to

stay connected. And if you're using Google Photos, if you're using Apple Photos and, you know, even Lightroom, we don't want to have to have you break your workflow, right? So now this new loop is going to more seamlessly integrate with those photos stores, especially Apple photos as well, which nobody's done before.

All right. When we get back from this quick break, I want you to tell me about the new hardware and what that's going to look like and feel like. If you're an e-commerce-based business or you have a direct-to-consumer product, then I know you've got Black Friday and Cyber Monday on your mind. You're thinking about this because these are the critical days. Well, don't sweat it because clave. Clavio is here to help you do great on Black Friday and do even better on Cyber Monday.

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So whether you're a billion dollar business or you're just starting out, Clavio is the e-commerce marketing platform for growth during the holidays and into 2021 and 2022. We know people are buying online and you have to be sophisticated and this is the tool you need. I'm going to spell the name for you. K-L-A-V-I-O dot com slash twist, clavio.com slash twist, and you will get a free trial and you'll see just how effective it is. Okay, let's get back to this amazing episode. Brian Gannon is with us from loopfamily.com where you can buy now the loop 2.0. tell us about the three-year journey of getting the loop one out there, beautifully designed, but it had a camera,

and now you've taken the camera out for privacy purposes. People don't want a camera, correct? Yeah, yeah. There were a lot of things. That was one of the pieces. But, you know, I would broadly even look at it saying we started to look at different market segments, and Millennial Moms was a great segment that we really hadn't gone after with our original loop.

And so we really just studied that and really started talking to more moms and figure out what is it that makes them tick? What do they want to see both physically, aesthetically, and then functionally? And so we tested all these different. It was actually a super fun process because we hadn't done the original thinking in a long time. And so what we found was that they were looking for something that was a little more conservative and even a little bit more simple. So a little bit of contemporary, but broadly speaking, a little bit more conservative. So we came out of this design. And so far, people are loving it.

And for people who are not watching the share right now, we have it pulled up here. So if you're watching on YouTube, you can see it. But it's just a gorgeous frame with a nice, I guess when you get something framed, you'll have like the black edge of the frame. And then you have that white border. I don't know what that's called in framing. But if you were to buy an actual picture frame, you'd have that white like puffer. Yeah.

Yeah. Padding or whatever around it. And then it's a, it looks like it's about an inch. or too deep? How deep is it? Yeah, it's slightly less than an inch. Slightly less than an inch. Yeah. And then it's got a beautiful stand on the back and a plug on the back. So this is not to put on your wall. This is to put on your shelf. Yeah. Well, again, now it's a different place as you, this really can flex to. Number one, our first loop didn't fit well on office desks or, you know, personal desk, whether it be it an office here.

Too big, too fat. Correct. Correct. And even, and didn't look really appropriate for it. The second one is people putting them in their bedroom. and, you know, again, it kind of was out of place for that. It was really centered for the kitchen, almost modeled like a kitchen aid mixer, if you think about it. Yeah. And so this now has much more green space to go into. And then you could also picture it in Mom's House, right?

Oh, no, this isn't going to be a techie looking thing. It's really simple to use. So it's almost like even a reduction of our original. Well, you took the channel switcher and the knobs off the side, which was like a big piece of it. You know, the loop was like a device you picked up and played with. This one looks like it's a touchscreen. Is that right? Yeah, that's right through it. If you want to swipe or touch on the touchscreen. Yeah. And then the price point on this goes down or

it stays the same? Correct. The price point goes down. So this new one, you know, what we're offering on Kickstarter for pre-sale is $99. Great. So unbelievable deal. This is, you know, in terms of overall experience, this is going to be dramatically better than anything you could buy for hundreds of So it's a really incredible deal. And do these have like major computers in them or is it just like a very simple mobile processor? What's the state of the art for these? You're not doing like what do they call those, like those computers on a stick. It's not like a computer on a stick thing because those are expensive.

No, no. We're powered. Yeah, exactly. We have to find this sweet spot and sort of mid range of tablets and smartphones. Got it. So we can kind of dive in right there and say, hey, I want this price point with. this functionality. We still play video, which is multimedia, which has certain requirements. So it can't just be ultra low simple, but we just find that sweet spot for our application.

It doesn't have to be gaming, you know. Yes, you're not doing 60 frame rate. Correct. You know, huge density. Yeah, but it also has to feel, you know, little things, though, which you have to test. It has to be responsive. You touch touchscreen, you move things through. It all feels very dynamic. The videos load fast. So there's certain minimum requirements. And that's, sort of art of figuring this thing out from a hardware perspective. What did you learn between the 1.0 and 2.0 about design and running a hardware startup. If you were to look at your education, this brutal education running a hardware company, and let's face it, there's really only, if you think about consumer hardware companies,

independent ones, Dropbox got, I'm sorry, DropCam got taken out. And really the only two I can think of, you can correct me if I'm wrong because you're in the space. Beats got taken out at about $2 billion. Is Fitbit? I got bought by Google. And GoPro is the only independent consumer hardware company I could think of. Am I right or am I wrong? Yeah, as far as I could tell.

Well, let's think. So we've got, I mean, it's a little bit of a different piece, but you get Peloton, of course. Oh, yeah. That's right. Peloton has made hardware as a service work. Yeah. Right. So now you've got a few public companies in the fitness space, essentially, in larger.

And again, you know, those guys, that's hardware, right? That's like doing legit stuff. They have content on it as well, but, you know, I think that that's really about mechanics and movement and some real incredible power there. So, so yeah. What did you learn back to that question of in running a hardware startup from the 1.0 to the 2.0? Because I think a lot of people who were in your position, I had investments in a smoke detector and a video camera that was like a drop cam competitor. And both those founders just gave up. They couldn't make it work.

So I'm always impressed with people who get past that second or third year and really get to the 2.0, those are the way. other companies I had didn't even get to the 2.0. Yeah. Tell me, how did you get to the 2.0? What did you learn when you look at what you experience between 1.0 and 2.0? You know, the quote I heard from Rob Coneybear is he said that consumer hard. Rob Coneybear for Shasta. Okay.

And he said, consumer hardware is the double black diamond startups. And it doesn't seem like that when you get started. You know, you're on out knees. Totally, right? But it looks easy in a sense. sneaky, take a step back. And you know, you might even get people saying, well, shoot, I, you know, I worried somebody would copy you or something like that.

I'm like, well, which one is it? Is it really hard to do or is it easy? So it turns out it's really hard to do. And the reality is the hardness is in the software. So no one has ever come back and said, oh, shoot, my plastic was really not working, you know, like it's never that. It's always that you've created yet another note of software. so you've got to your normal user.

And if somebody said, I want to go make an app and a private social network to families, no one would say that's really easy. They would say that's probably going to be some work and then add in another node, the device that has to be ever present and on and a whole other software team that needs to work on that thing.

So it actually is way, way, way more software. Things you might have seen in that. It's like, why don't you fix that feature? Why doesn't that work better? There are always software things. There are always features that you'd sort of experience in the app. What's changed, though, in the hardware? ecosystem in the world in terms of building products. I remember in the first wave of startups

I invested in five years ago in the hardware space, they just never even got their 1.0 product out. They could barely get there. And then they all underestimated what it would take to ship and make the first products. And in fact, they sold their products. This is what I always thought was very weird. They gave a discount to the Indiegogo people on what the actual hardware cost. So by the time it came out, if they were successful, people were buying a lot of them and they were losing money on each sale. And then they had underestimated what it actually cost to make it. Yeah, yeah.

And all these companies got flipped upside down. Totally. And, you know, I think there's a lot to unpack there, right? Number one is that yet describes more stuff. Hey, I'm doing a hardware start. Well, look, did you really raise money for working capital? I think all of us go in it with the expectations. We're going to do a pre-order and get the working capital that way.

and when you do the pre-order, you know, and I would even argue these are the things that we even got into our heads. Okay, well, how sensational does this video have to show this amazing product for people to want to buy it early? Right. And I even would argue a lot of us were, you know, things like, what was that flying drone that swam in the water and then took pictures of you? You know, there was these incredible things that were coming out that really didn't never did. That almost set the bar higher. Yeah. So, you know, our big takeaway was we realized that, and we did this, by the way, that if we just subtracted about 75% of our features, we were at about what the market wanted. Right.

It wasn't about more features. It was about, now that also feeds back into, hey, I want to get this to market. If you're trying to get every new feature you add in conflicts with a previous feature or another feature, right? They're just going to start to, it creates another place of a point of failure, let's call it. And then how do you ship? Right. That's very interesting. So to rephrase that, a lot of the early hardware entrepreneurs overpromised and felt like they needed to have every bell and whistle to get somebody to pre-order when in fact, people just wanted something elegant and simple that solved a particular task.

And that complexity then drowns. them in features and drown them in complexity and the software complexity and then they never shipped or if they ship they shipped something that really wasn't great. 100%. So less is more and you're even taking out more features and making it more affordable.

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Buy some monitors. Buy some laptops. Let's get this going. Let's get this party started. Okay. Let's get back to this amazing episode. How do you think about Amazon and putting it on Amazon? We hear a lot of folks complaining now. We had this whole Senate hearings, I think, antitrust. That, you know, Amazon just copies everything and they're going to make an Amazon basics version of the loop in addition to their Amazon cables and Amazon speakers and Amazon, you know, duct tape. Do you think you're going to put it on Amazon? Because Amazon's an incredible channel. If you have a great product, I would think that you would sell a lot there.

How do you think about going from Kickstarter, Indiegogo world, direct to consumer, buying ads and selling it direct on Instagram or Reddit or whatever? And then Amazon. Yeah, no qualms whatsoever. It's an awesome channel. they get a lot of, yeah, Amazon is an amazing channel. And, you know, honestly, I used to be so much more sort of concerned about competition. And this kind of comes back to the basics.

Like what we're trying to do, and this is something we've learned to it, we didn't come out with this sort of insight, is we are trying to solve specific problems, right? And if you look at what these other bigger companies do, you know, I think they kind of get lost is, you know, trying to do these futuristic products that really don't even have a definition. What is it? You know, and it's like at 20 different features and it talks back to you and you go voice control and connected home and light bulbs and all this other stuff. And the reality is, again, what I've learned is as we get more and more specific to trying to solve a single problem, family communication in our case, that you can compete and people want that. And again, with us,

maybe more specifically, you know, we can carry the load of saying, hey, look, we're about privacy. You know, we are going to be protecting your baby. This is about a private family network for your product. But it's really, it's really a non-factor in a lot of ways. That's my learning going forward, to be honest with you. All right. So if you want to get the loop, go to loopfamily.com right now where you can search for it on Kickstarter.

The loop 2.0 is available. It's priced at $149. or it might be somewhere around that or $99 if you buy the $3 a month subscription. So it's pretty cheap. I'm assuming there'll be some kind of package if I buy two, three or four or more. Correct. Some sort of family pack. Fundals are cheaper.

Bundles are cheaper, especially because of shipping, right? Like shipping one or shipping four is about the same price, I bet. Absolutely. And there's a customer acquisition cost beyond that too. So you can wrap it all together. And there's a little bit of margin in here. So you could actually spend a little bit on marketing at this time around. Oh, absolutely.

You didn't have as much margin to play with. 100%. That's a big unlock for you as a family. Yeah. Yeah. Well, again, this is like so many variables going on. You don't really know your final product cost until you're really late in the game. Until you've gone through the cycle a bit and then you have a much more accurate picture of what your cost is.

Or more importantly, you get smarter and you say, no, no, here's my cap. This is it. This is the model. So we need to make tradeoffs within that envelope to really make this work. And you hold your ground. to get more creative. Does Apple have an API? So I have a family group on my photos for one family, you know, in pictures of my kids.

Can I take that same group that I've been building for four years or five years? I just send it there with like a one click thing. Yeah, exactly. That's actually, I'm glad you brought that up. So this is in keeping, same thing with Google Photos, but we're going to now automate all those things. Apple's a little bit trickier. So it takes a little bit more work to get into their, you know, automations. APIs, but we've got a really good integration with Apple. And the point that the whole thesis would

be that you set it up and it automatically sinks. And so you don't have to go. Yeah, that's what I want to do because I do think Apple Photos has gotten a little bit better. And I already have that history there. I've done that work. I would just like to port it. I might start a new group inside the loop app, but I might, you know, have family members who just want to. Right. But I also don't want make you do that. If you've got a workflow and you like it, well, why would I want to change that workflow? like that's harder. Now I'm making it harder for me to sell this product. All right.

We'll continue to success and great job and great job on raising money and being able to fund the company. It's really hard to do hardware. And I'm really excited to be an investor in that you've been able to not give up because that's what I see most common is the hardware founders give up. They just get overwhelmed by the complexity. It seems like you're making it simpler and making it easy for yourself. I think it's wonderful advice for the audience.

Okay. When we get back more. on this weekend startups. All right. Thank you so much, Brian, for coming on the show. And we had a little extra time. So a couple of bonus ask. Jason's here. So a question from Alex and Corman. Hey, Jason. My name's Alex. I'm Corman. And we're the co-founders of InView. First of all, thanks so much for the retweet on the election night. That was kind of cool. But we're building a Mbue originally launched as a marketplace application competitor to class pass that allowed users unlimited usage, but pay use the gyms, you know, in some cases,

two, three times better. We realized we weren't really solving a problem. for them immediately. So now we're building the masterclass for fitness professionals and fitness influencers, allowing them to monetize essentially only fans for them, but without the stigma that comes around it. Anyways, we've been hilariously bad at fundraising and we were wondering, you know, if it's us, if it's the market and what kind of tips you to have for an early stage startup like ourselves for fundraising right now. Thanks so much. All right. So you've been hilariously bad at fundraising. I like the honesty boys. There really is, one piece of advice that I can give you that will make you have the ability to get any meeting.

And it's to have the chart. And what the chart is, is if your business is growing 20 or 30% a month, you will be able to get a meeting with any venture capitalist or angel investor or at least a reply. Now, they may not be in your space or they don't do consumer, you know, or they may not do content or consumer subscriptions. But if you put a chart at the time, top of your email, you say, we've grown 30% on average for the last three months. Watch the open rates go up. If you put that in the subject line, we grew 12, 14, and 27% the last three months. Put it right in the subject line. And watch the open rates. And watch the open rates if you start with something that's too long, didn't read. And just say, we know you had an investment in these

companies. We would love to talk to you about our companies. You also have to know which investors to go after at the right time. If you're doing, you're doing, you know, you're doing, you know, let's say under $10,000 a month, you should be looking at going to an accelerator. If you're doing between $10,000 and $50,000 a month, you can talk to seed investors, angel investors. And then when you're at $1 to $2 million a year, which is $80,000, $150,000 a month, somewhere in that range, that's when VCs tend to engage and do a Series A in 2020. Now, if we were making this video 10 years ago, you could have moved all that backwards.

and VCs were investing somewhere around the million mark, sometimes even 500,000, and seed funds were investing in MVP's. So things have changed, but I want you to keep at it, and I want to see you grow just consistently and charge for your product and everything will be fine. You know my email, Jason at calicanus.com. Send me your growth chart. I'll take a look at and I'll give you some feedback. Also, have customers who love your product who will ride or die for you, who will write you

a great reference or write a great review for you on the app store. And then you can put those in your deck because your customer speaking for you is much better than you speaking about your product. Right. So let me just say that again. Your customers speaking about your product are better than you talking about your product or you're talking about your customers. It's pretty good for you to talk about your customers. In fact, it's good that you know them. But them talking about your product, that's what really matters. When I meet with a company, I was meeting with a company the other day. And while I'm on the call with them, I'm muted, and I'm pulling up their Amazon page, and they had three stars. And I read the reviews. And I was like, wow, this product is

getting dogged. It's getting beat up. And I was trying to figure out why. In this case, it was actually a pretty good reason. It was when they sold it, they weren't managing consumer expectations. People thought they were buying A and they were really getting B. So the people who wanted B were happy and the people who wanted A were giving one star. So it was a bifurcation. But the founder, you know, hadn't solved that problem yet. And I think most investors would have looked at those reviews and they would have not taken the meeting. So you really got to be working those reviews as well.

But great question. How do you know when a product is killer? How about when the market leader start adopting it? That's what I look for as an investor. And when it comes to interactive content marketing, outgrow.com is used by Adobe and Salesforce to engage and educate their audiences while improving their lead conversion rates. Outgrow's wide range of intuitive, non-code-based tools such as calculators, chatbots,

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slash get started. You can use the tool for yourself to get personalized recommendations on what episodes to check out for your next This Weekend Startups. Listen, that's the power of Outgrow. Here's what you do. You go to outgrow.com forward slash twist and you get a 30-day free trial and 250 big ones in your pocket credit. I love when my partners give credits to the listeners. Outgrow.co slash twist for that $250 credit. This is from, oh, Paul, and he's got a question about secondary markets. Hey, Jason, it's Paul Holloman.

It's been a long time since dinner in Chinatown. It seems like 100 years ago. It was just February. So I'm an angel investor. My question is about secondary markets. How often do you take secondary on your investments? When you do take secondary, do you do it at a premium or a discount to the last valuation? And as a percentage of your investments, how often do you take some chips off the table?

That's my question. Thanks. I get this question a lot. And I was in fact having a discussion with a group of friends this past week, some of my besties. I'll leave it at that. And we were talking about when to liquidate certain investments. In terms of at what price to do it, a discount to the last round, a premium to the last round, the good news is you're going to get an offer in most cases.

Somebody's going to want to buy those private company shares, in which case you're going to, you might have a little bit of negotiating room. They might want to pay $12 a share. You could ask for $14 and wind up at $13 or $12.50 or $13.50. So you're probably, there's probably going to be a market already that has established the price. So you don't have to worry about that. What you really have to worry is, at what percentage? do you want to sell? So I'll give you some examples. I was able to take advantage of secondary

income one time. We invested when it was $5 million when it hit $250 million. I thought for the sake of the syndicate, we'll sell 10%, give a quick distribution. Everybody can make a multiple on their capital invested and still have 90% left because you don't want to be the person who sells all of their Uber at $4 billion, which somebody did. And Uber's worth $80 billion at the time. We're talking about this. So that person got millions of dollars, that person got millions of dollars, you know, five years before I did. But they missed the big run-up in Uber from $4 billion to $80 billion. So that would have been a $20x on millions of dollars. In other words, tens of millions of dollars if they had just held on for five years.

So it's really easy to buy shares in a company. You just write the check and they'll cash it real quick. It's when the company's public, it's pretty easy to sell. And when it's secondary, it's pretty easy to sell as well. But the third option to sit on your hands and do nothing, that is the skill of an investor. Knowing when to not sell is so important. And man, that last double or triple can be the yum yum. That could be the yum, yum, that you're waiting for.

So be careful. I look at it also as where are you at life? When I had Weblog Zinc and we got that $30 million offer from AOL and I was negative $10,000 in my bank account, Brian Alvin and I were like, we're selling. We're taking the money. We're securing the bag. We're securing that for our families and our extended families. We grabbed the bag and we ran, we ran as fast as we could with that bag of money.

Now it's like, it's not so motivating for me to make $2 million on an investment. If I think it can go 10x and get to 20 or it can go 100x and get to 200, I'm sticking around. I want to see what happens. So I am less inclined as my net worth has included. to sell. And, you know, the market is overheated right now. I think taking 10, 20, 30% off, you will never feel bad. Selling 50%, 75% or 100%, I think you could feel bad. And some things are out of your control. So I think it's good discipline to think this through. And I think selling maybe 10% twice before an IPO sounds like a good idea to me. That's probably what I'll wind up doing

in most situations. So whether it's Robin Hood, Com, Uber, you know, any of those wealth front, thumbtack, companies we've invested in, data stacks. We are going to look at those and say, desktop metal, maybe we'll sell 10% if we have the chance, 20% before an IPO, but we'll keep the rest. And I really, as a fund manager now, I want to have that moment like I had with Uber where we distributed shares to people. That's a great feeling. I don't want my companies getting bought. I want to give shares. Oh, I was in some funds that had square in it and they shipped me those square shares and I sold to half the square shares, but I held half.

Ooh, ooh, square's going on a run, baby. Ooh. Oh, I look at that square, and I'm like, ooh, I got a million square. And I didn't even know. I didn't even know Square had square cash. Love you, Jack.

Love you, Jack. Keep working hard. All right, let's take one more question. Here we go. Hi, Jason. I'm Lance. I'm the founder of Yapper. So Yapper is a community-moderated social network

where users can vote on whether or not post should or should not stay in the platform. But aside from that, I'm also a college student right now. So my question for you is, are there any advice or tips that you can give me as I move forward being a startup founder and also a student? I just realized there's a lot of things to do here. So how do I manage my time and effort between the two? And also, how do I know it's the right time to, I guess, jump ship and leave one for the other. Thank you very much. And I hope you guys actually check out Yapper. Thank you. Lance, great question. This is a

great and encouraging sign. You are in school and you have a startup. So you have this incredible optionality. And I think if you're going to school and you're not running up debt and you want to finish, that's great. You might be halfway done. You might be two thirds of the way done. There's nothing wrong with enjoying your time there looking at it as an education somewhere between a vacation and a delightful moment in your life to meet friends, have fun. But if the startup is getting traction and you love it and your heart's in it and you think that this is the future of your life, you can also pause school and it'll always be there. It's not going anywhere.

In fact, they kind of need people and it's a middle of a pandemic. So staying in school in the middle of a pandemic, I think a lot of people would question whether it's worth paying that money for Zoom classes, and maybe it actually is a good time. So I think it's one of these situations where if your heart's, you know, really go for a long walk and figure out where your heart is, if your heart's really in the startup

and you feel like it's got a shot at, you know, becoming something big and important in the world, then do it. Why not? Your parents might give you other advice. I think the default advice is to stay in school, but you can't give that default advice anymore because school's always going to be there and school is expensive and school typically does not match

the skills that you need when you graduate to generate income. So it's just a bad bum deal. And a lot of people got hoodwinked and bamboozled taking that deal. I think that's a large part of why millennials kind of lean towards socialism because they're like, this is BS. I spent 150K. I went to graduate school after that and spent another 75K. I'm 200, 250K in debt. And I, uh, that's, uh, these debts don't equal a great job. What happened? You told me, you told me this narrative. And what happened was the price of education went three or four X of what it should be. If your education is costing you five grand a year, 10 grand a year, seems reasonable. You get a 50K job when you graduate, no problem. But if you're spending a 50k a year, you might want to think that through. And you can always make

your startup into a project. So is this a project or is this actually a real start? startup. And what's going to look better on your resume when you get out in the real world? I mean, it's a really interesting thing to think about. For me, if I was hiring you to work at a company and you had three years at college and two years running your own startup, that looks better to me than four years in college and, you know, whatever, an internship. No shame in the game. If you got to pay the bills, I had to do it myself. But, you know, the startup and having skills is what it's all about. Being entrepreneurial is what it's all about. So again, if it's a project and you don't think it's really going anywhere you're unsure. You can keep it as a project.

You don't have to turn it off. But if you feel like this is your Facebook, this is your Uber, this is your Tesla, yeah, I wouldn't worry about it. You can always go back to school. And it's a pandemic. So who cares? Taking a year off is you get that kind of free pass, right? It's not like you're missing much. It's not like you're on campus having like some great party and there's some awesome party tonight that you're missing. Marissa asked me an interesting question. She didn't do it by video, unfortunately. But I'm going to read her question. But I'm going to read her question, what will the SEC's new accreditation laws do for early stage investing from a startup's perspective? How are you adjusting your syndicate to adapt to an influx of newly accredited investors?

Okay. So we just had Hester on the podcast. We had a long discussion about this. And I do think that non-accredited investors will be able to get accredited if they take some sort of test. and I kind of pitched her on Angel University, Angel Dot University, my little three-hour course and a test as maybe one of those paths. And she seemed open to it. And she wanted me to pitch the SEC, which was my secret reason for having her on the podcast. Pod's a good tool, right? It's good to have a pod that a lot of people listen to.

So when that does happen, I don't think it's going to be a flood. I think what it's going to be is it's going to be a doubling because there's still going to be this two, three, four, five, ten-hour amount of work that's going to be necessary. So there'll be some friction. It's not going to be, I don't think, they're going to throw the gates open and say, you know, like Vegas, hey, come on in. And it's like, how do you play blackjack? And they're like, well, you see this? Give me $100. Okay.

Now put it on this spot here and we'll tell you what happens next. It's not going to be like that where you can just sit down and you go right to whatever table you want and lose your money. They're going to put some rails and some friction on the process. That being said, we've in this pandemic, I've been doing Angel University every month. having two, three, four hundred people come each time. So we went from 2,000 members of the syndicate over 5,000. And we've had to deal with this very issue. The way I'm dealing with this issue is education. I want people to make good decisions, lower minimums. So more people can be in a deal, but at a smaller dollar amount. And we've been oversubscribed multiple times. I mean,

it's been happening over and over again. Sometimes we've been oversubscribed three, four X, two X all the time, but three or four X. In other words, a founder wants to give us 500K. We have 1.2 million in demand that many investors. And so we just tell everybody they can have half. And so people who want it to put in 10, put in five, people who ask for 5K, allocations get 25K, or rather. So that's how we've dealt with it. And we've also started asking founders, hey, we'd like to target putting 250K from our fund in and 250K from our syndicate. But would you be okay with maybe having what they call in the IPO business a green shoe, a little extra if we go over, can we have an option to take another 250, which is a little bit of

a cognitive overhead for a founder. They have to decide, do I want to take that or not? They have to make a decision. So we try to get them to make that decision early. Hey, we think we're going to hit 250. We think we're going to hit 500 from the syndicate. But if we hit a little extra, would you be okay with that. And of course, you know, I would say 90% of the time a founder is like totally we're cool with that. Actually, I wouldn't say that. I'd say 60% of the time they say totally we're cool with that. 30% of the time they say, no way we're oversubscribed in 10%.

They're like, I don't know. I can't make a decision. And that really is this challenge with fundraising. It's because the money is not in the bank until the money is in the bank. And we have sometimes syndicated deals. And I thought, this thing's going to just get a massive reaction from the syndicate. And it gets, you know, 80% of the number. And then other times I'm like, yeah, you know, this one I love,

but I'm not sure if people are going to really understand it. It's kind of like a shoot the moon kind of moonshot, crazy technology, and it gets double. So I can't even predict, which does tell you something, right? It makes you understand that this is high risk, high reward investing. If, you know, even I, world's greatest angel investor, over 200 investments, you know, a couple of public companies under my belt now, even I have a hard time predicting how a deal is going to do. So it's a great question. And I think it's going to be great for America.

We got to get out of this pandemic. We've got to get the economy out of the muck. I mean, we're stuck in the muck. And we got to get out of the muck. How do you get out of the muck? You get these rich people to invest in young people with new ideas that will start creating jobs, that will create new products and services that eliminate bad jobs like being a dishwasher while adding great jobs like being an artist like Patreon or Etsy have, right? These have been incredible or even DoorDash or Uber or Lyft, you know, Airbnb, Beho. These people, these companies have created micro-entrepreneurship in the country.

We need to be leaning into micro-entrepreneurship and then entrepreneurship and then just outlandish moonshot entrepreneurship. We need to run the table on entrepreneurship in America because if we don't, communist countries will, I know I sound like a maniac when I talk about this, but literally, you know, you have communist countries creating economic value in the world and sending products services around the world. And so you have dictators who want to compete with free countries. So capitalism is the battlefield now. That's the battlefield. And the battlefield is capitalism. And then the operating system is democracy versus dictatorship. Communism versus a democracy.

Who do you want to win on the economic battlefield, on the entrepreneurial battlefield? We do have soldiers. We do have to get into physical conflicts. But the conflicts of the future are the TikToks in America and the, you know, Yahoo's and and Googles and Uber's being able to operate in China. You get the idea. That's the battlefield that we have to win. That's the war that makes humanity go forward.

We have to beat not only the communists, but we have to be global warming, right? We have to beat pandemics. We have to beat, you know, sustainable food. and clean water. We got a lot of problems we got to solve. A lot of problems. And entrepreneurship is the best solution. So more accredited investors, more deal flow, and getting this money that's in, there's too much money in Amazon, too much money bet on Apple. I would like to see those stocks go down 10% and see that money redeployed into startups. And that means more failures, but hopefully higher returns and, you know, more vibrancy. I'm not saying we should

break those companies up. Please don't misinterpret. But I would like to see more velocity of the money as opposed to the money sticking and being stuck in the muck. We need more ideas. Okay. So I'm dovetailing two questions there. Quit school, start a company, investing companies. Let's move this economy forward. Let's get it out of the 2020 muck. Let's have a big 2021 everybody, especially post-pandemic. Okay. It's been a great episode and we'll see you next time on this week and startups. Bye-bye.