WRFH/Radio Free Hillsdale 101.7 FM - Wall Street Weekly: Interview with Tony Shipley

Episode Date: November 18, 2024

Join George Accola as he interviews Tony Shipley to talk about all things angel investing.

Welcome to Wall Street Weekly, a show where your host, George and Patrick, cut through the financial jargon to keep you educated and informed about the markets that affect our lives. Enjoy the show. This is the highly informing overperforming radio show on Radio Free Hillsdale 101.7 FM. My name is George Akela and joining us today by phone. We have a very special guest. I'm joined by the founder of NTECH IRD International, winner of the Ernst & Young Entrepreneur of the Year Award and chair of Queen. City Angels. And I know for our audience, that's probably going to sound like more than one person, but it's just a man of many talents. Mr. Tony Shipley, Mr. Shipley, welcome to the show.

George, delighted to be with you today. Now, next few minutes, we're going to be talking a lot about angel investing. And I think for our audience who might not know what that looks like, if there was a way that you could give an introduction or kind of explain that on a simplified level for those people. Sure. When businesses start up, they typically are funded by the founder and friends and family. And as they continue to grow that business and they need additional capital to fuel that growth, they will look to outside investors. And those outside investors that write those initial checks are generally called angel investors. On average, how much funding are angel investors giving to anyone individual and company? Yeah, that like George, like most things in life,

The answer is it depends. It depends on the type of company that it is, whether it's a lifestyle business or a strategic business. It depends on the industry that they're in. It depends on the stage of development of that company. Depends on the goals and objectives that they're trying to achieve and how much money is required to allow them to achieve those goals and objectives. But generally speaking, angel investing,

if it's a lifestyle kind of business, which is not the kind of business, typically that we invest in as an angel group, but there are some lifestyle angel investors. They're typically in smaller check sizes, maybe in the tens of thousands of dollar range. But if angel groups like ours who invest in strategic oriented businesses, it's not unusual for those initial investments to start at a few hundred thousand dollars and go into a seven-figure number. Okay.

The way I've been told to think about it is like Shark Tank, what you guys are doing, Is that a fair comparison or not quite? No, I think that's a very unusual case. It's not how we would view Angel investing. We're typically trying to attract companies or work with companies that have some type of strategic value. We go through a very disciplined process to understand what those companies are about, what kind of real-world business problem they're attempting to solve, the team of people that they're bringing to the table to help them start the business,

what kind of funding is required, what their sales and marketing plans are. So it's a very detailed due diligence process that we go to to select the companies that we will eventually write a check for. We'll be talking a little bit more about those companies, hopefully later. But I want to start off with your experience as an entrepreneur, because looking on the Internet, it seems like you've started quite a few different companies. I just kind of want to learn. Is that something that you always wanted to do when you were younger or after graduating from

the University of Tennessee and working a little bit. It was kind of spontaneous. How did you get into the entrepreneurial space? As a kid, I grew up on a farm, so I was always doing side hustles to earn additional money. But after I graduated from college, I took a job in a big co. I was part of an organization that had 40,000 people working in it. And I fairly quickly realized that that was not the type of organization that I wanted to be a part of. And through a contact I had with that company, fellow that had joined and had left and joined a small startup. He called me a little bit later and said they had another opening and would I like to come in interview. And so I ended up moving from a 40,000 person company to a 30 person company. And that's really where I excelled. And that's what

I really fell in love with was that environment. And so I worked there for three or four years and did an MBA in the evening to gain some business knowledge. And in the process of doing all of that, there were a couple of guys that wanted to leave that organization. And they needed someone with business skills and sales or marketing skills as they were, they were technologists. And so they invited me to be a part of that journey. And that was the first startup that we did. So when you left the big firm with 40,000 employees, did you ever get any feedback from people that that was a dumb decision you were making or that you were throwing away a solid position? Not really.

And I just felt that everybody had to be comfortable in the environment that they were in. And I've always felt that whatever career path people take, you need to be passionate about what it is that you were doing. And I felt a lot more passion around the smaller company environment than being a part of that larger organization. And I felt that candidly, there were more opportunities for me. What exactly were the companies that you were running doing? Because I was able to find they might have operated a little, the technology space, and how did the 70s, 80s, and 90s, the growth of that industry help you along? The company that I ended up joining where I was a part of those 30 people,

they were specialist in mechanical engineering technology. And really, it's technology based around vibration, not to get too technical. And we applied that initially in that first company that I told you about just to set up mechanical engineering services to help keep people understand what some of the vibration and noise problems were in products that they were, that they were designing and building. I left that organization with another guy and founded the software company where we took the technology that we had developed embedded that into software and we discovered that large corporations that we were working with wanted to use that software in their own in-house engineering activities. And so we set up a mechanical engineering software

company, which like a lot of these companies that we invest in today, you start out with some core technology. You think that you have a marketplace that's fairly large. You get into it and realize that it's somewhat limited. So you're looking for a way that you can pivot into another industry segment using that core technology. And that's what happened in our case. We discovered that we could apply this technology to solving maintenance issues for plants where they have large rotating equipment. And historically, they ran that equipment to failure. That was one way that was forced them, of course, to maintain it.

As they got smarter, they started doing calendar-based maintenance. As they got yet smarter again, they said, what if we applied some of this technology to look at the operating conditions of the machine and then use that as a basis to decide what problems they had and when they would actually have to do maintenance on that machine. So we applied this technology to all sorts of industries, Pulton Paper, power generation, automotive, petrochemical, any place where they had large, expensive pieces of machinery that they were using to produce their end product.

That led us from a small company where we started with two people, but eventually we grew that to 400 people, and we found that there was a marketplace on a worldwide basis. So we actually, at the end, had customers in about 100 different countries around the globe using our technology. It's interesting because I think like the entrepreneurial stories that a lot of people think about are the visibly life-changing product. Think of the iPhone or the Mac.

But would you say that most of the things that you're trying to fund for angel investing were products and designs that you maybe wouldn't see on the day-to-day basis? Yes. There's a lot of Me Too stuff that we see. Going back to our case, no one had done what we had done at that point with many computers and handheld vibration analogies that we use. And so we were the first in the world to bring that kind of a system to the marketplace. And so it was really a game changer in terms of how big companies looked at maintaining the machinery that they have in their plant.

And it ended up saving these companies millions of dollars on an annual basis. So it was just disruptive technology that had a very positive impact on anyone that ran these large machines. If we fast forward here to our angel investing times, when we look at these companies, we get a lot of business plans that are submitted to us, ideas that we may have seen five or ten or X number of years ago. But we also see a fair number of business plans that come in where people are bringing disruptive technologies to the table that are going to have a positive impact either on businesses or to people in general. So we're always interested in those kinds of technologies that could be game changers in their industries. Yeah, and I wanted to talk a little more about that as we continue on with,

my interview of Tony Shipley on Radio Free Hillsdale 101.7 FM. Looking at your organization, Queen City Angels, I'm trying to get an understanding of exactly what you guys are, because you're funding these angel investment products, but it also seemed that you had a passion to bring funding to Cincinnati or that area at large. Can you just go a little deeper into what made you want to start this company or firm or organization or whatever it is?

Yeah, well, we typically think of it as a club of high net worth individuals that are willing to invest the part of their net assets. And, of course, we're looking for returns. That's the evergreening feature of investing. We need to get returns to allow us to continue to do this. The other reason we do it is it's a way for people to get back to the communities and to help grow the entrepreneurial ecosystem in our respective communities where we have angel groups. And that's one of the key motivators that bring people to our asset class. But getting back, George, to the question that you ask, I think back to the time that we started, there were probably only 40 or 50 angel groups in the entire country at that point.

And they were none in the Midwest where we're based here in Cincinnati. There really wasn't an angel group within hundreds of miles of our community. But we saw an opportunity to bring capital to the table to help these. young companies. And as I said a moment ago, wrap our experience and skills around that capital so that we could help these companies sort through the gauntlet of issues that they undoubtedly will face in setting up any new business. And if they were open to coaching and mentoring that we could bring to the table to help them, we felt that we could give them a running start on getting the business up and running or up and going. But we could also bring the skills and experience that

would help them scale that business in a more meaningful and efficient way. And we've seen this idea expand on a national basis now. As you mentioned a moment ago, I'm a part and have been a part of the Angel Capital Association for years. We now have 160 to 170 angel groups around the country, and embedded in those groups are 15,000 accredited investors that generally speaking are investing in technology-oriented business. So it's become a very important part of what we do to help entrepreneurial ecosystems. And the reason that's important is it comes back to two major issues.

One is if you look at new job creation in our country over any 25-year period, we discover that most of those new jobs were created by companies that are zero to five years old. So it's really become the job creation engine in our country. And then if you look at the second part of that, The second part of that is if you look at major corporations today, a lot of them are still doing some in-house innovation, but a lot of them are buying the companies that we start up and run, and that becomes the innovation engine of the country. So that combination of a job creation engine and an innovation engine, we think are very

important from the U.S. economy standpoint. I think that is something that's overlooked that even if these companies aren't going from an apple story or a Facebook story, they're getting bought up. and providing technologies to big corporations to keep those lean and innovative. Of the startups that you've worked with, what's the most fascinating company or notable one that you've had the opportunity to work with? Well, there's a number, but I'll pick one that's in the life science arena. We started talking to some sciences at Children's Hospital here in Cincinnati,

and we discovered that they had found a way to match a person's genetic makeup up with the selection of psychiatric drugs, that psychiatric folks would recommend to patients. What they found was that if the kid came into the hospital and had some psychiatric issue, they would prescribe a drug to handle those issues for the kid. But in many cases, I found that the drug didn't work. So they would have to dose the kid down,

select the second drug, and try to dose them up to see if that drug would solve the problems for the child. And what they discovered was they could take the genital, makeup of a child and then look at the molecule makeup of the drugs that they were prescribing. And they discovered that there was a direct link between how a person's genetic makeup manifest and how that impacted the drugs that they could choose for these issues. So they came up with a system that could create, depending on the person's genetic makeup, they could have a box of green drugs.

These are drugs that would work and not impact the child adversely. They could have a box of amber. They might work or might not work. And then another box of drugs that they labeled as red, the red box, which indicated that these would cause problems within the kids. We provided the first funding to take this out and go through the FDA testing that was required to bring this kind of a product to the marketplace. And over a multi-year period, there were millions of dollars, actually tens of millions of dollars

that were invested in this company. Not only us, but lots of money. of other investors who came to the table. And that ended up being a commercial product today called GeneSight that has been used with millions of clients to pick the right drugs to apply not only to kids, but to anyone that has these type of issues. Is some of your funding going to be life or death for these companies

where if you fund them, they'll be able to continue on or if not, some of these will go back on the shelf? I would say that in any of these, what we call strategic oriented businesses, most of them are going to need outside funding. And it's never a one and done round where you invest one time and we get them to the promised land. It's going to be a series of investments that are made in that company. And if we fail to properly fund the company, the odds of that company going under are dramatically increased. The goal for these companies is to pick three or four or five,

whatever the appropriate number of objectives that they're trying to achieve with that funding, keep the company's management team focused on achieving those goals and objectives, because we know that if they can't get to an exit, they're going to need more money. When you decide to invest in a company, you say you're only investing in a small handful, how do you know when a founder is going to be successful? Yeah, there's a whole list of things that we look at as we try to assess the founder and the management team that they're bringing to the table, just to kind of get a few of these. We look at the journey that the boundaries taken.

They properly prepared themselves to handle this kind of a role in a startup organization. And that starts with the basic education that they've gotten, and then any skills and experience that they've gotten in the work environment. So a lot of things go into that journey that they've taken that would prepare them to take on the task of lodging and growing a new business. Also, we look at things like, are they naturally curious? Are they curious about people and things and how they work and what motivates people? Another key attribute for us is, are they coachable?

So when we look at a lot of these founders, I think a lot of these people feel like they need to be the smartest person in the room. And I know as a startup founder in the early days that I was starting companies, I felt like I needed to know the answer to all the questions. And nobody who's working for you expects you to know all the answers. In fact, they don't want you to know all the answers. But what they do want people to do is to be aware of what the big strategic issues are that you're trying to achieve, ask the important questions, and then develop a team of people that can come and get the answers to those questions and help move that business forward. Another attribute is, do they know how to sell?

And that starts with selling themselves. And we always tell people that you're the CEO of you. And so you've got to be able to go out to the marketplace and sell who you are, whether it's to an investor team like us or potential employees that you're trying to hire customers, maybe a banking relationship that you're trying to set up. But all these people are assessing the people that they're doing business with and how well you as a founder are handling yourself and how well you can sell yourself. Then, of course, there's a couple of other things. You've got to be really dedicated to making this happen. These are activities or companies that require a lot of effort. And I feel like basically you're on 24-7 when you're in this type of startup environment.

And then the final thing we look at, can they attract and build a team of people that can help take this thing forward? It can't be about one person. It's really got to be about a team of people that can scale a business and make that business successful. Are there any emerging industries that you're looking at right now that you're seeing a lot of people pitch you ideas on that within the next 10 years is going to be more ubiquitous that the general public's going to know about much, much more? Well, we wish we knew the answer to that question. So that would lead us to picking those industries and betting on them. But having said that, though, when I think back about even the business that we set up going back to the 70s and 80s, sometimes a business can be too early.

and we have invested in technologies where the company that we invested in didn't make it, but the core technology that they came to the marketplace with later on became a very successful technology in the marketplace. So they can be a little bit early. But, I mean, there's lots of areas where people can make a mark today with a new company. Healthcare is one of those spaces that we are involved in and do a lot of investing in that space. There's a lot of opportunities in advanced materials and advanced manufacturing. All these products that are bringing to the marketplace today, if you think about electric vehicles, for example, battery technologies, that's going to continue to evolve.

But there's just lots of ways in those four things that we invest in. It's information technology, life science, advanced materials, and advanced manufacturing. And there's just lots of ways that we can continue to improve those going forward. For someone like me who probably is never going to start their own company, but wants to be a very good employee at a firm they work at, what do you look for? What do you appreciate if you're building a firm and you're hiring 30 employees to start off with? Well, a lot of it gets back to the things that I talked about as a founder. We want to see a lot of those same traits embedded in the people that we're looking for. to come back to the bigger picture of what you talked about, whether you're going to work for a bigger company, a mid-sized company, or start your own business, whatever,

we think a lot of the skills that people can pick up in entrepreneurship classes at the university, for example, they can expand the person's vision for how they can be successful in an organization. And we think all organizations, whether it's internal entrepreneurship within a large company or entrepreneurship where you're actually setting up a brand-new company, a lot of those skills and experience that you, that you develop and accumulate over your career can be applied in almost any of those environments. As I said a moment ago, we want people to be naturally curious about people and things and to be open-minded. And that's one of the messages

that I try to give the entrepreneurs is always be open-minded to new ideas and ways that you can embed that in the things that you're doing to help you be more successful. I know, I've really appreciated having you on today. I know our audience is going to get immense value out of this. Joining us by phone today was Mr. Tony Shipley, chair of Queen City Angels. Mr. Tony Shipley, thank you so much for coming on the show. George, thank you. It's a pleasure being with you, and good luck on your end. And we want to thank you, our audience, for taking the time to listen to us today. Thank you for listening to Wall Street Weekly on Radio Free Hillsdale 101.7 FM. Thank you.