The $50M Exit Playbook Most Founders Don't Know - Chris Van Dusen

Welcome to the proven podcast where it doesn't matter what you think only what you can prove. On this episode, Chris shares he helps founders navigate venture capital, understand what investors actually want, and turn million dollar ideas into multi-million dollar exits. This one's unforgiving, unrelenting, and it's just trying to help. The show starts now. All right, everybody, welcome back to the show. I'm excited to have Chris with you. Thanks so much for joining. Thank you so much for having me. I'm really excited to be here. Absolutely. There's a bunch of people who don't know who you are. So if you could get a read kind of caught up, that would be amazing. Absolutely. So Chris Van Dues and senior partners like Ocapital were an early stage, growth stage venture firm. Home office is out of Rochester, Michigan. We have offices in Dallas, Louisville, Miami, as well as I'm out here in California. Yeah, we're at Skullcandy. So here at Skullcandy. Thank you guys for doing that. Yeah. So can you tell people a little bit about your history of what you've done that's allowed you to get to this point? Absolutely. So I grew up in the Northeast. It wasn't always from this nice sunshine, laying in place here in California. Growing Connecticut, went to school at the College of Wea, Marion, Virginia. Graduates of Green Economics. Actually, baseball at a fairly high level. Thought that's what I was going to do. But I know the feeling. Yeah, unfortunately, Tommy Johns, as well as the desk, I just couldn't find a strike zone. I'm not sure about our fastball, and I kept hitting the guy over where it was. So graduate of Green Economics started in sales, ended up in finance, moved out to California, near the end of 2009. Problem is there was this little thing called a real estate recession that was happening. I don't want you to talk about it all. A whole much bigger thing. Right? Yeah. And so when I got here, a company that came out for WebK went bankrupt. So I'm now this marooned person and beautiful. It's on a California little cost of living difference between Williams and Virginia. It was a smooth, smooth, smooth, smooth, just a little. And so it was this accidental entrepreneur. It wasn't something I set out to do. Okay. I ended up starting marketing firm. That my wife shortly after. She started a firm. We ended up merging those back in 2018, which is fun. And then probably the reason we did is I had the opportunity to start, would end up being the second largest CBD brand in the world with a few other people. And we sold that in 21. Co-founded Likert Estillery. So that in 21. So a beauty care brand in 19. It was just kind of this crazy five year period of my life. But in 2017, I also met this guy, John Garcia, who founded PsychoCat. And I loved what they were doing. It's totally different than the traditional venture. And so the opportunity to join the beginning of 22 in January is the senior partner. And so I do now absolutely love it. So what you guys do there a lot is you help people exit, you help people in that whole process. There's a lot of stuff you're not going to go over. And this, that's going to kind of leave people on the dust. Sure. So let's get everybody caught up on some terms. When we're going into this, we're talking about exits. And we're talking about ebit time. We're talking about things that's kind of get everyone caught up on some basic ones just so they can understand what we're doing is we go into this. Absolutely. So let's actually just look at it as the life cycle of a company. Right. So let's say me and you had a great idea. Maybe have our own cash. We're going to start there. Hopefully we're going to produce something that we say, okay, that's interesting. Could be the MVP minimum viable product for a tech company, for a SaaS business. Could be a new widget or a new, you know, a parent, whatever it is, right? We're going to use our own capital traditionally. And we're going to try to get something going or we're going to do what we call a friends and family round. Yes, that's where we go out. Professional panhandlers. And we go to our friends and family. But what's funny is it's actually a really important time because these are the people that love you, trust you want to see you succeed. And so I always say if you can't get that, then you should probably question whether or not that was the best idea, right? And so friends and family round, it's also where you start talking about the angel investing, right? And so usually at that point, you now have some seed capital. You're going out and you're trying to do a little bit more. Maybe try and get it on some shelf space where you're finishing R&D or you're making your first order. And then you're going to move into what they call pre-seed or seed rounds. And that's where you're going out traditionally now to more institutional type capital. And what I mean by that is venture firms or family office, right? People outside of your network. And you're now going to bring in capital to grow to that next phase. Then there's what I call alphabet soup. So there's A, B, C, A extension, B extension, A2. Everyone has their own names. But the reason why I say this is this is all the different kind of funding mechanisms that go along till eventually you get to a size where you're profitable. Use the word EBITDA, right? You have EBITDA, which is earnings before interest appreciation taxes and amortization. It really means your profit dollars. And so as you're on your growth trajectory towards that, as you get up to that level, maybe you're a target for a roll-up. And that would be a private equity term, meaning someone is sitting out there going, if I took 10 of these businesses, five of these businesses and put them together and then short up all of the back office or allowed for selling contracts to be against all 10, I'm going to make the business more valuable, right? From an EBITDA perspective, from a private perspective. And as things grow, so do their values on an enterprise level. And so maybe you're a target for that. Maybe you're a target to go public because you're that large. But you just looked at a company that was an idea. Through funding mechanisms, through growth, to get to whether they're sold or they go public, or they just continue to be amazing cashflow generating machines. So there's a lot of things you went over there. There's a lot of different things that we're going to go back on. So there's, what is the difference? If someone says I'm an angel investor versus VC, what is the difference in that dynamic for people? Yeah. So traditionally, it's whether or not you have a firm and you're raising outside capital. So that's the biggest thing. So right now, if you had a company, and I had money in my bank account, and I said, I believe in what you're doing and wrote you a check, that's an angel investment. Now, it also is what stage? Okay. When you look at it from a venture perspective, I'm a, let's call it syndicator or I'm a sponsor. So what ends up happening is I go, hey, I really like this company. We're going to put together a deal fund. Some kind of, we'll call it vehicle that we can go out and go to others, receive their capital. As a money manager, now we're going to invest that money into this company. But we're the ones that hold the keys to being able to make that investment. So one is, I'd call it binary. One is saying, I have my own money, and I'd like to invest a small amount in these kind of emerging companies. And the other might be a venture friend that likes the same type of deals, but is using a vehicle, meaning using a fund or some kind of structure. So I'm going to product, they're going to raise up a bunch of money, and then that might be one investment amongst many others. It's interesting to say, well, one investment amongst many others because a lot of people say, hey, I'm going to come in. I'm going to buy this one company and say, I'm selling my company. My first company I ever sold was an IT company. I'm going to sell this one company. And for me, it was a one-to-one ratio, which means I've listed it was sold. It was gone. It was very rare. It just, it happened. It was great. As I've gotten bigger, and as I've learned this, you will purchase five or six of them because you, I think it's called rolling them up. You roll them up into one, and this way they're worth more. The problem is most people when they're sitting here, like, what is the proven path? What is the way that I go from, hey, I have this fun idea. I want to get funded. I want to do all these things. What are the proven things you can do inside your org? If you walk through and you go in and say, hey, I want to do this. I want to get to the point of either getting someone to invest in me or getting to the point where I can even say, okay, I've got this. I want to sell it. I burnt out, which of course never happens entrepreneurs. You're a complete never-ever at all. Yeah, our weeks are nice vacations. Going into the situation when you go into a company, it's okay. You're struggling. This is where you are. If you want to be more attractive to investors, no matter how they are, there's very specific things you need to do. It's culture, it's systems, whatever it is. When you've walked in, because you've had a lot of exposures to this, what are some of the things that when you walk in, like, okay, these are the core five or six things that you need to do this before we can even talk about getting the next run of funding? Yeah, it's really stage dependent. So if you're an early stage company, right? So let's say that angel investing or receipt or seat. You might be in revenue, you might not be. You might hopefully have your R&D done enough to have that thing that we're looking at going, oh, I see what you're doing. What's hard is now putting a valuation on that, right? So there's a bunch of mechanisms you can do, which I'll save everyone from to be able to say, okay, you don't have a value today, but we believe in what you're doing. So we still want to invest. What gives you started to, why do you sit there and say it doesn't have a value? If someone comes in, it's like, hey, I want to sell this. I want to do this. This is who I am as an organization. You don't have value because a lot of these people, they don't understand, this is a problem with most business owners, they don't understand that their business is not their identity. That's too complete of our conversations. So they'll take it personally. When you go to someone, say, you do not have value. What does that mean to you? Yeah. So let's look at it as two different stages kind of on that on that trajectory we talked about earlier. If you're an early stage company, you have no sales, you have no EBITDA, you have an amazing new product, right? That you put some money into. I can't value you because I'm valuing assumption. I'm not valuing guarantees. Now let's say you have $3 million in sales, but you're not profitable. Okay, you have sales. I'm profitable. So now I'm looking and going, okay, what are your sales contracts? We have this very, very long in-depth due diligence process, but it's still hard to put a true value on you at this point. Now let's go to the farther side and say you're a business doing $50 million in revenue, $5 million in EBITDA, right? Okay, I can put it in our price value against title. Because it's tangible. Because it's tangible. And so when you look at this, this continuum, the earlier you are, the harder it is to pay value. So what will end up happening and I'll explain one vehicle is what's called a capped safe. Okay. What that means is I'm going to invest in you at no valuation, but I'm going to give you $100,000. Usually that safe will have a value in the future. Let's call it $10 million. And then traditionally because I'm doing it now and taking a lot of execution risk, right? You haven't sold anything yet. We don't know if you have product market fit. We don't know if you have anything. Then I'm going to get a 20% discount on that round. Right. So 10, minus 20%, $8 million valuation for my $100,000. Right. And I think most people don't know that there's multiple rounds. When you're doing so, there's always multiple rounds and how you negotiate those rounds are important. Because most people think, hey, I'm going to sell the business. I mean, don't know that I'm just going to sell it. Not understanding that there's probably going to be more rounds coming. And if you're the business owner, there's ways to get residual from this for a very long time. If you've done this effectively, well, what's interesting is just to kind of riff off that is, let's assume we do peg of value on that company that has no sales at no e but a and just a product. Well, you're worth a million dollars and you need $500,000 to do your next thing. So you're going to give me 50% of your company probably not. Right. So instead, you're saying, I still need that a million and you have individuals who invest at that level, meaning at that time frame. I would say, okay, I believe you can get there. So 10 millions of the capital I used before and I want the discount. When you're all the way to the other side, now I can say, okay, in your industry, SaaS, advanced manufacturing, name the industry vertical, you trade, meaning your value is based on three, five, 10 times your EBITDA. So that five, five, yeah. So that five million dollars in EBITDA times called 10, your business is worth 50 million. They're like, wait, but I'm doing 50 million dollars in sales. Okay. You're making five million dollars. And the people don't understand that. There's a big difference between gross and that. There's a huge difference. When you talk about verticals, certain, because everyone goes to the entrepreneur's because they have this great idea. They sat down and said, hey, I've got grandma's cookies and grandma's cookies recipe, which is great, but no one but you and grandma want to eat them. Go do something else that's going to create because no one's your real goal is if your goal is to create freedom, it's a very different conversation that I want to create grandma's cookies. Well, let's be a fun that because this idea of I want to create freedom. And I talk about the entrepreneurial journey. I've had the few exits that I've had, but I've been around entrepreneurs and inside of our company, we have 40 different portfolio companies. So I'm around CEOs, entrepreneurs, people with big dreams all the time. If you start your entrepreneurial journey, thinking I'm going to have work life balance, you are thinking of it wrong. 100% I agree. You are saying you are signing up for a 24, 7, 365 slog and only luckiest are successful. Yes. I think the best example I've heard of this was you're going to watch this much in your life. That's how much energy you can either do it in three years or 30 years. It's not going to change your amount that you have to work there. So you've got this much. You've got to pay that piper. Yes. So it's the conversation if I don't want to have a 9 to 5. Okay. So then you just work with 5 to 5 just all the time. So congratulations. You don't have a 95 anymore. You just have it all the time. Just all the time. Just all the time. What's interesting, we were a man to size this idea of being an entrepreneur. And by the way, I love it. I loved it. I love it. Yes, but I don't think people should be that. Because there's some people who have entrepreneurial traits and they're adorable. And I like them because I watch Shark Tank and I like you're very cute. Please go away. Yes. And then there's the people and the easiest way to do it, people have figured this out. That you do a word association game. So if I say cat and you say dog and I say how she's saying whatever it is. If I say employee and you spit out paycheck, congratulations. You're an employee. Yes. If I say employee or job and you get angry at me, uncontrollably and you want to stab me in the face, you might just be an entrepreneur. Might just be an entrepreneur. Because it's a different narrative and people don't get that. People go in, they keep because our society just like now, it's cool. Look at Marvel. Because when I was in high school, it was not cool to read comic books. Yeah. So much cooler. I was never been cool. And now it's always cool to be an entrepreneur. I became an entrepreneur because it's too. I was. I'm not. I'm horrible. I'm not employable. If you're employable, you might not be an entrepreneur. And I think it's a big differentiation. I think you're spot on. I think also just again to build on it. One of the things I see inside of a lot of early growth stage companies is they've either now gotten their glide path or they're about ready to get it. And they've been working so hard. And traditionally it is founder or co-founders led or those first couple employees who really bought into the vision. And as you scale what sometimes gets lost is the fact that while you are the entrepreneur, you are the 100% arbiter of the vision and the culture. But you're employees, sometimes are employees. Yes. And putting your values down, stream on people who don't share that is sometimes really tough. And so it's really understanding at one point, do you get managers who truly understand how to manage the people who are there for work. Now, great culture means they're going to over index the amount of effort they're going to put in. But an employee is an employee even at startup companies. And sometimes that is lost. And I think it's important as we talk about culture. Yes. To understand you can't push down to your 300, 300th higher. Right. The same look at them in the same way as you did higher. First five. Right. And I think you can you know, you can brute force your first set seven figures maybe beginning of eight. You can brute for this as entrepreneur. You can just put your head down and go through walls. At some point when you get past that $10 million mark, all of a sudden it's like, okay, now I need to start looking at things different. And you look at systems, I mean, look at culture, I need to look at decentralized command. I need to change the way I operate. And for most entrepreneurs, they're burnt out at that point. They're absolutely fried. And that's for my experience. That's when they go hunting for people like you. And they go, okay, give me money. My stuff is great. We're like, that's adorable. What do your numbers look like? And you're like, no, no, no, but but it's great. It's really special. And it's shiny. You're like, shut up. Give me your numbers. So I think as they go through that, there's a couple things where the when you talk about verticals earlier, what are the verticals that you've seen that not only have succeeded the most, but are the easiest to get funding for. Please don't say crypto. I might hit you with a mic. I will not say crypto. No, no, no, no, no, no crypto projects. We actually aren't, aren't investing that. You know, today, right now, anything in AI is really hot. But if you kind of take a step back, really solidly thought out businesses. And there's a great GP at Adventure Mark Capillard. I'm drawn to blank out his name. And I really apologize. So if he hears this, I apologize for not going you out. Truly understanding what you're trying to do. There's an old thing we talked about in marketing, right? You still have a marketing firm, which was everyone wanted to sell speeds and feeds back in marketing. So think the old school computers. Think this RAM, this hard drive, this, whatever it was, but it was we call it speed and feeds, all your product benefits. Right. But Apple comes out and just tells you how you feel when you get to identity. That change is fundamentally very interesting. And there's a piece where I think every founder, every co-founder needs to have a little PT Barnum. Now the good part of it, the showman, not the badmer. But be able to weave a yarn, be able to tell a story and be able to say this is what's in it for you. Because at the end of the day, the speeds and feeds will get you so far. It doesn't mean that they're not important, but it's truly being able to tell that story. I think it's the idea that people don't buy product and services. They never have. They buy stories, identities, and ways out of pain. And you know, you understood this. You're on a marketing company. You and the message have marketing companies, agencies. So as you're going through those and there's verticals, I still think it's the idea that if it works and it's simple and it's needed, I've always seen funding to those who go, happen fast. If it's something that's fluff, it's your grandma's recipe, you might have a bad day. So you go through and really wear that GP badge. Mark told the story is, sell me the wind. Don't sell me the sale. Don't sell me the beam if you're selling me a sellboat. Right? Because even crappy boats catch flight. Yes. The wind's good enough. So what are you doing in a certain market that you either have an unfair knowledge set in or experience? Or like, are you innovating in a current market? Are you building a new one? And then if it's a new one, why is that one going to exist meaningfully? Right? What kind of consumer data have you actually mind to know this is going to work? Do you have commitments already from big companies? Do you understand the incumbents? Because one mistake that entrepreneurs make a lot is they say, I have designed something that works for everyone everywhere anytime, always. And you're going, well, maybe, but probably not. So we talk about it again in the little stories of, I'd rather you and in Troued and Maldives. The other way. Exactly. And really what it is is you can have the greatest and I'll just you CRM software that starts in healthcare and you're killing it and you're like, I'm going to insurance and you're like, yeah, but do you know that well enough and maybe you do? Yeah. But then I'm also going to mortgage and I'm also going over here and you just keep saying I can tackle it. And what you don't know is what are the incumbents? How long are the contracts? Right? Is this a long sales cycle? Who owns it and why? And that kind of education chasm, you can't be an expert at everything all at once. Or maybe you can if we were back in the old school days where you just get a couple hundred million dollars dropped on you pre-revenue. Kidding. Yeah. Kind of not a good idea. Yeah. And then you're throwing FTEs at problems. And as we go back a little bit in one of your questions, the biggest thing I see is a use of funds strategy that makes sense. So when you're saying I want to raise a million dollars, what are you doing with it? If it's a ton of what we call op-ex operating expenses, meaning hiring people, then I'm going, have you thought through your systems well enough? And especially with the, I don't want to say the advent of AI has been around for quite a while, but consumer available AI. Right. Sometimes it's not, I need more bodies. Sometimes it's, I have bad systems. Yes. And if you think about that from just a cash flow management perspective, reworking your system traditionally is a bit less expensive than hiring two new people. Yes. Right. And so a lot of it is what are you doing with the use of funds? Like, is this funding R&D? Is this funding a new market? And you're now presenting why that market is going to be a game changer. So really during that process, I'm evaluating what are you doing with the money if I do give it to you? So how do you, when we talk about systems which are used, my favorite word in business, I wrote something called systems that you for. Yeah. It's a simple way to do it. If you can't fire yourself out of you and we talk about this all the time, going to a room, here's a black marker, walk me through acquisition to fulfillment. Now here's a red marker, circle where you're involved. The minute that marker touches you, a fifth, because you have no to present you haven't got to business. That's just, it is what it is. People hear about systems all the time. You go in and you're professional at evaluating systems, so you can go back to your investors and say, hey, this is good, this is a good fish. This is not a good fish. When you look at that, what are some of the systems that you see that say, okay, yeah, that I want that. What are some of the ones that you see the ROI on? So when we look at, say consumer-based businesses, I'm looking at how you created a flywheel. Walk me through that. Yeah. So what ends up happening in businesses is, when you're acquiring a customer, there's a fixed cost traditionally. And so you acquire them once, they're now in your system. What now? If you've been thought that through, I think that's a big liability. It's a big kind of red flag. I don't care whether or not you're running Facebook ads or you're doing direct mail or whatever your marketing de jures to acquire your customer. The best, most efficient way acquiring new customers is through that existing customer. And so most people look at acquisition. They don't look at retention and kind of organic referral-based acquisition. And so I think understanding that, that's a big red flag for me. But if you have that dialed and you can show me how the flywheel is working and you can show me going back to old growth hacking back in the 2015 to 19 range. Wait, it's not 2015 right now? I'm very confused. I know. Very confused. If you went back there and said, what is that one or two things that people can't live without with your product service, whatever it is. Honing in on those and making that the core UVP or unique value proposition and then figuring out how to get other people to pair it out with that UVP is. If you can do that well, that's a great business. Can you give me a couple of examples or even one or two that one did you see that? Okay, well, these were really good. Yeah. So the, I'll call it the most famous one, right? As people in growth talk about, and this is what my agency did back in the day. That's why I talk about it often. Dropbox. Got the name of Sean Ellis here actually lives in town. What they figured out was people wanted storage and back in the 2010 range, digital storage, what was that? Like, my files go there? Like on the line? Yeah, like where? People don't understand cloud. No. Yeah. And so they just float there, like they're above me right now. Anyway, sorry. I used to have, I used to have a SP. So there was a lot of those like, okay, no, no, don't feed it water. It's not thirsty. What are you doing? Yeah. But once they got a taste of their, I think it was two gigs at the time, right? Or whatever it was. I think they got to five at some point. Yeah, you could get a hundred gigs or sorry, a hundred megabytes by just referring someone. And when it happened is once you had all your photos in there now, you need more, you need more. And you were like, well, I could buy it. Who wants to do that? And I think actually the time you couldn't even buy it. I don't think they had the model yet where you in the beginning they didn't know it was really it was drop-ox. You drop it in it in one way. I don't think they opened up the the the the attention. They didn't have the one yet. And so the only thing to get more stories is to get more people. Right. So I remember just iron off emails because I was like, this is the best thing ever. Whoa stories. Everyone did that. Right. And if you think about all they said was kind of you and I figured the marketing line was like your stuff anywhere. If it wasn't that's pretty good about The idea was that's what it was. And at the end of the day, people were like, yeah, my stuff, anywhere, but I have more stuff than you're allowing me to store in here. I don't know, am I getting more? Oh, yeah, I gotta tell more people. I'll tell more people because I'm gonna get more storage. That flywheel just kept going and they exploded. Because they weren't trying to say, we can have your documents, we can have your, we don't care what you house in there. Right. That's you. This is your stuff. So do you have one that's non-tech related? Because I think there's a lot of people when they look at this and they're trying to build flywheels in their environments. Text relatively easy, again, I'm spoiled by this. I'm a little biased because I have a tech background. For me, tech is one of the easiest things to scale. It's not hard. I don't have to go out and buy warehouses. For most of what I have to, the cost going in, the hard costs are not that bad for me. For not, when you're going in these and you're evaluating them, what are some of the ones that you have seen that are kind of easier to or do or have worked? Do you have another example? Yes. We've got a company now in the CBG space. I've sold a CBG company. It is very tough to acquire customers because traditionally, they're very much a commodity. And what I'm saying that is I don't care if it's toothpaste or a protein drink or for me, it was CBD back in the day. Right. There are ton of competitors. So how are you doing? How do you create the loyalty? Yeah, because they want to try the newest and greatest thing. How would you create that loyalty? So what we did was twofold. One, we made it a movement, not just a product. And so we were at the time less expensive. So we were democratizing the ability to have this amazing product where others were not. That was one. Two, we started to truly understand who our consumer was. And everyone was chasing the younger millennial cool hip demographic. Not that who our demographic wasn't hip and cool, just that millennial demographic was whatever one wanted on the coast. Because that's where the majority of the sales were. What we realized was the actual people who have a use case for this, typically 45 plus. And they may live on the coast, but if you live on the coast, you also have access to a ton of education around, I'll call it full strength, cannabis, right? We were hemp drive CBD. So we've shipped all 50 states to all that. What we ended up finding was our most loyal and best customer who'd subscribe and save and tell people were the middle of America. And who they listened to, or this is an political comment, but Sean Hannity and Rush Limbaugh and those influencers of the day. So as we had them read more, more people would get comfortable with it. That was their influencer. It wasn't the people on Instagram saying you should try this, right? And what we found was that flywheel started because we would invest in that acquisition and they would stay with us longer, the more loyal than the millennials who, if you look at that cohort as an actual consumer, they are not loyal traditionally, unless there's a movement behind it. So we had that, unless there's a movement, so think Tom Shoes, for example, right? Absolutely. But outside of that, it became very much trial. They wanted to try local, they wanted to try regional, they wanted to try the hip new brand, they wanted to try this. And that's a very hard flywheel, it breaks it automatically. And so that was a really good way of understanding, okay, who is our customer, where are they? And how do we get them that, how do we keep them, not only loyal, but enjoying the product? I think it goes back to the idea of, where's a watering hall and what language are they using? Like if I was going to create a dating website for 25 year old women, it would have very specific conversations about spontaneity and adventurous and travel, about going to create one for 35 year old women, it would talk about stability and family and all of that, it's an entirely different thing. So if you don't know your audience's language, you don't know the watering hall that they're going to, in your case it was those two gentlemen, you really have to know that. So when you're going in and you're analyzing these deals, and you're looking at their systems and you're looking at their flywheels, what are the other things that you're looking at? Well, so we took really a marketing lens, right? So now it's a distribution lens, right? Is this something that can be sold online? How is it going to be sold online? Right, I realize that's still back in marketing, but that's really a distribution. It's a sales change. Yeah. Then I'm looking and going, okay, who's selling competitive products today? Right, what are your inroads there? Or do you not have any? Right, because I call it the oldest, biggest secret in a lot of products is traditionally, there are things already baked. The success stories of new up-and-comers are there, 100%, but like in CPG. A lot of times you see this brand comes out of nowhere. It's because they're seeded by one of the larger companies already and traditionally we'll get an unfair share of shelf time and other things because of it. And so how are you going to compete against the incumbents, right? Back when I had my distillery, you'd start doing success, like successful in a market, and then the big guys would be like, oh no. No, thank you. We run a sale on everything and just drown you out. It happens more than you would know. Correct. Right? So like how are you, how are you what I'll call swap proof? That's why, right? It absolutely happens. Any industry have ever been in. That's what comes in. And I don't know if there's a way, and maybe you know of one, I don't know the way to avoid that. When it comes in on that high of a level, it's like when I saw my IT company, we were crushing it. And then we were, we were five to eight million dollars. We were doing okay. We were doing okay. And then someone else came in there, 150 million dollars. Like guess what you want now? I'm going to shit. I'm not going to purport that I have all this data that shows this specifically, but I would contend that a lot of companies that are over successful. If you were to look at their cap table, they have industry players involved to help. Yes. I'll leave it there. Number two, very quickly. Correct. Well done. Yes. Number two, we used to call it in the liquor industry, like you just need to get to AAA. Mm-hmm. Right. You need to climb your way up the My Early Ranks enough where you are getting swatted enough that you're starting to become a nuisance. Right. And as a nuisance is when you get popped. Yes. And that was the strategy that I used to connect it out. I just need to annoy them long enough and they're just going to either, they're either going to destroy me, which is a little hard to do. Or they're just going to buy me out because it's easier. Yeah. And the second company I sold literally was that. They walked in there, you're annoying. I'm like, okay. They're like, we're just going to buy you. I'm like, okay. And that's how the deal completely happened. And I think it's a question I wanted to bring to you. There's a lot of people who are like, okay, I might not be an entrepreneur. But I have this experience. I want to go buy something. I want to go and do it. And please don't tell me to go business by cell. Do you ever recommend that path? And a straight buy? A straight buy? Or if you don't have it experienced as an entrepreneur, or would you just say, hey, I'm going to invest in a fund, I'm going to find someone like, what do you guys do? Yeah. I'm just going to give you guys a bunch of money. And then I'm going to go study shore erosion on a beach because it's going to go in and out versus actually going in and doing it. Because it's a very different skill set being an employee in versus an entrepreneur as you said earlier. Yeah, I think it's a yes hand, right? So what I mean by that is you can take, and I'm not a financial planner, but you can say, oh, I like these deals. I want to, if I'm a creative investor, I want to invest in them. But let's say you're the COO or CEO of an established company, lifestyle business that's going great. And you're like, you know, I work here for five years. I've helped make the owners a ton of money. I know everything that happens in this business, right? And you have an on-compete that expires or you don't have one, right? Hopefully for you, you don't. Or it's not enforceable in your state. And you go, look, there's three of our competitors who alone aren't very good. But if I could roll them up to use that term before, right? I can now compete against this company, right? I'd say that might be unfair baseball because the fact that, you know, you have all this embedded trade secrets, but the idea would be, at that point, you've already shown you can run the company. Now you're just balancing the debt that you took to buy the company and you're running it the same way and rolling it up and building teams and doing everything you did. But you actually are at that level of proven operator. And so I'd say that's a safer way to go if you wanted to go from a career CEO to saying, now I want to be an entrepreneur, you're still a CEO. And now you have a baked business. I think where individuals get in trouble is they go, I may whatever level in the business. And I know more. Right. So I was like, I'm gonna go start. Right. And I think the problem is, you don't know what you don't know. Correct. Right? I look at my own kind of trajectory and career. And if I already go back in time, the couple of the businesses that I started, if I had the knowledge that I have right now, I would have never started. Bank account will look a lot different. Yeah. And so there's this level of like, okay, I'm glad I did. It brings in this amazing experience in what I'll call battle scars to as I'm helping other entrepreneurs today and what I'm evaluating when I'm looking at investing. But it's hard. And I don't think that's fully appreciated as we were talking about earlier. So you say, oh, I can do that better or I have an idea for optimizing it. Well, that's great optimizing. We don't have any customers. It's really easy. Yes. So now you've got to sit with a blank piece of paper and I'm not even saying I'm ready to business plan, say, how am I going to start this? How am I going to build it? What do I need to do? And I think that the best engineers, whether or not it's coding in tech or actually building a physical product, can do those really well. But as a founder, now in short, it's once we do every single thing else from filing your LLCs to doing your taxes to remember, we don't have all the money yet, right? Marker doing the marketing, fulfillment, customer service. And I think there is a conversation I heard we're on. Sushi chefs are great, but don't make your sushi chef be your plumber. Yes, totally different things. Do they want to build a wonderful restaurant? Don't go try and be a plumber. Stay in your lane, inch wide mile deep. And what's interesting is now you go, okay, well, I'm going to need co-founders. Well, how many co-founders you're going to have? Five, six, and every just, literally, no, yeah, we're done. And then what are you going to do? And then does everyone share in the vision? Yes. As I would contend that a lot of companies don't hit their maximum success or just quietly, quite frankly, fail, because of dissent between the co-founders. I also just then lowered on the chain. If you're in a situation where, again, you can't go to anyone in your office and say, what is your vision? If they don't spit out within reason, it's kind of the same thing, you've got problems. Whatever's that. And that's where the culture comes in. And that's where the next thing I was going to talk about where there are companies that come to organizations like yours, and they come in this, okay, I want to do this. I want to sell. I'm done. I'm exhausted. And because you guys actually tease, you're coming, so, okay, great. That's nice. But if you can hold your breath a little bit longer, we can do this, this, and this, and instead of walking away with five million, you're going to walk away with 50. When that happens, because that's a different ballgame than most people are used to. Most people are like, okay, I'm going to systematize this. I'm going to get into a certain level, and then I'm going to exit. And a lot of the ones that you've seen and I'm not enough to see, and we're like, no, you're just at the appetizer. Just hold on. We can help you get to this next one, and then have a massive multiplier. One of the things that you've gone through, as you go through, and someone comes to you in that situation, they're like, hey, you know, I got this from my father, I got it from my grandfather, I got it from my grandmother, I got it from my mother, whatever it is, I built this org, this org. And I think I can get goofy numbers, five million dollars hard, which is adorable. And you guys come and say, that's cute. I'm pretty sure we can get you 50 in two years. When someone comes into that, first off for most people, they don't understand that. When you come into that situation, what are the things that you do, and you look at, and you help them kind of step by step to elevate into them, Brian. Yeah, so there's certainly a few things. One is, and I like saying this just from the get, pigs get fat, how he gets slaughtered. So if you have an operator that in your example is saying, white flag, I need out. Why don't I'm doing first? Yeah. Right, which is, all right, we're going to figure out how you take a little break, and we're going to get some proven operators in there to pressure test whether or not we can get it there over the next two years. So that, because you've already told me you can. Right, right. That's really important. That's not a bad person. No, you've just, you've just, you've got to get to get you there. It's not that, it's the tarant theory. If I go from vine to vine, I have to let go of one of them to keep the momentum. But if I hold onto what, it's over. So there's a lot of time with founders, and I run in that situation, and I was like, I'm out, I'm empty. My sponge is full. I'm out, having the ability to step away and have that go off and do something else is important. So what the next thing we look at is to go, okay, how realistic is it, right? And why I say that is, if we just wanted to sell that $5 million business today, I don't care who you are, that is six plus months. And by the way, that's not showing up anything yet. That's just the process takes that long. It does. And that's where the buyer at the table, right? To do diligence, to do everything. So you're going, okay, I have all the regular investment banking things I have to do. I have to build a virtual data room. I have to get everything optimized in the company if I haven't already. But that optimization could change that $5 million in the EBITDA company. Say, well, all but ready now, we've done it. Now, what does that mean? This is where you hear all of the bad terms for people in venture and private equity, because a couple minutes ago, we talked about throwing FTEs at problems and traditionally most businesses have done that. Yes. Therefore, if I'm looking and saying, we want to maximize the amount of money you get for this business, then we are scrutinizing everything within the business today, which also means human capital. Yes. And if that's the biggest line on your P&L, right? Is the amount of people, my question would always be, is that needed or not? I don't know the answer. Could be. Right. And I would understand the culture, because when I sold mine, I paid more per tech than anyone else in the industry, because I knew my clients would be exceptionally happy and the LTV just scoured it. We never had a client leave. So when someone came in like, I want to buy your org, your salary's too high. I'm like, no, you're done. You get to go away now. It's over. So you go through there and you figure out those things. When you have an owner who is completely fried and they're exhausted, which I love the people that they're not going to get there, you guys are cute. When that person gets there, is there a way to continue to scale and have them involved or do you just kind of say, hey guys, go to Tahiti, I'll talk to you in six months. It is fully dependent on the human. All right. They can be a great asset and knowledge transfer partner. Sometimes they can be an absolute cancer within the organization because they're not in control. And that is human dependent, just to be transparent about it. You'd love to have them there. They have this unbelievable knowledge set from being there from the beginning or being second generation, was there as a kid, they've watched other dead do it. There's certain parts of the culture that the connections they have, all of it. Absolutely. And that is also a thing that a lot of people in private equity don't think about is we buy this thing, but what you didn't realize is every deal inside of that company for the past 70 years was done in a handshake from family to family. And the kid, the new CEO is the second generation oh yeah, same with the client side, right? And the mid-chalers and diapers. And the minute you remove that, you remove all of the, so how do you prevent that? When you're walking in and looking at deals, because I authentically don't know this answer, when you go to deals and you have Billy grew up with Bubba their entire lives and Bubba Senior grew up with Billy Senior and you had all that, how do you vet that out? Ask a lot of questions. God bless your job, you know. Yeah, just not doing that. Well, no, I mean, so like, if you're looking at a standard kind of process, right? Whether or not it's through investment bank and we typically bring in, we do some investment bank, but we'll bring in investment bankers as well, right? Because we're generalists, as I mentioned, right? We invest in all different industries, but that also means we're not sitting there as a specialized investment bank. So if you're selling a consumer product, you're gonna bring in the best investment bankers. By the way, all the connections on the other side, right, to help you sell that business or roll ups or do whatever you're doing. But that's where you're gonna go and say, okay, I'm gonna look at what liabilities there could be inside of the business. And so you're gonna get a list of their top customers. You're a list of all their customers, really, right? And then you look at, is there customer concentration issues? Right. Meaning you have 20 large customers that make up 80%, but really two of them are the majority of that 80%. You go, okay, that's interesting. Because if it's Bubba and the other guy, and they leave, you've just fully destroyed the company. So that's the first one, you know, customer concentration risk, then you're gonna actually call them. Right. And what questions do you ask them? Again, depends on the person. But a lot of it is, you know, how is this, like, what does the relationship look like? How long have you guys been in business? What are your right intentions moving forward? A lot of it's based on, before we ever asked those questions, how are the contracts written, right? Is this a multi-year, is this expiring in six months that I'm probably gonna negate it from value, right? You're looking at a whole bunch of different things. And this is also what your investment bank's gonna do for you as well. Well, I think this is why people, and not to step on everybody's toes, I think they choose investment banks incorrectly. They choose them by geographic location, versus the talent that's in them. Because I authentically don't care if it's the investment bank down the street. I want other people that are in there, they're gonna vet it out, that they're gonna have the experience, and I would prefer, and this is just me, someone who isn't local to me. I wanna have someone who's coming in, and has experience, and are bad at battle harden. This is conversations I had for a long time. There's that you could have a Harvard taught doctor, or you could have a corpsman that served down range. That individual in down range is gonna give me a much better result than the Harvard taught doctor, who just hasn't done it. So just because they were in the club, I want someone with fresh eyes to be able to detach. Yeah, and you know, I think I'm gonna talk, in two ways with investment bankers, right? They're gonna be happy with what I say, or they're gonna, I'm gonna give you a nice phone call. Either way, you get what you pay for. Yes. And I think that entrepreneurs sometimes don't understand how to integrate the correct service providers to your point into what they're doing. Whether that's an M&A attorney, an investment banker, whatever it is, you get what you pay for. So if you're saying, look, this investment bank is only in charge of me, X to sell my company versus Y, but you get the one that's very deep incumbent in the space, knows all the players. You're probably gonna have a better shot there, but they might be twice as expensive. Now, I'd also say if you have, if you stand to make a large gain on this transaction, make the transaction happen over here, don't go cheat, because there's certain things that you can get, kind of run a foul on. Well, I think you guys mentioned what you said earlier. When you're an entrepreneur, you have to do everything. And as entrepreneurs, even as a successful one, I had no idea about how to sell. I had no idea about investment banker. So when I had investment come to me, I was like, huh, I just walked out the room, because I was just overwhelmed, because I didn't know what I didn't know. And so being able to sit down and find someone you trust, where again, I think that trust factor is more important than location factor, and making sure they have their experience. Well, and that's where you go back to someone like us, right? If we're gonna invest earlier, it's called seed through that B round CAB, even the C, let us seed C, oh, come on. In that round, part of my rule on your board is to introduce you to the best investment bankers. Because it's my job, if I'm really to look at it, to understand where deal flows coming from, who else is in the space, why we're choosing you, who could actually buy you downstream? Like what's your exit strategy and when? Therefore, wherever I made, before I made that investment, I've started to contemplate this, where you fit today, where you could go, who would eventually be your acquirer, right? I mean, unless you're going to build something that you're endeavoring to take public, because you can get to that size and scale. But if you're building something that maybe is a couple hundred million dollars in revenue and profitable, probably not taking that public, especially in today's market, but then who's your strategic, right? Is it going to be a roll up? Is there going to be some kind of strategic that just comes in and acquires you as a bolt-on, right? Like where do you end up? And then it's my job to, as we're helping you fundraise, and why I say that helping you is, we make the lead or do the lead, but there's gonna be other investors. So now I'm going, okay, who else is strategic? Who has other investments in the space and other investment bank? So you're starting to weave this web of where you wanna guide them to where they need to go to eventually get bought. Because the end of the day, my job is to return money, right, in the form of a return to our investors, and do the best for our founders. And that is not a seesaw, that is, everyone is aligned. And so I'm starting to make introductions to investment banks and great M&A attorneys, good corporate attorneys, great CPAs, who are entrepreneurial and half great connections today. When you're worth $5 million, and you're gonna sell it at $50 to $100. And so I wanna make sure that they're there guiding you along the way. So with the best. When you guide them, where are the questions you start them out? If they're starting into this and they're like crap, there's a ton I don't know about this, which at this point however long we've been going at this, I'm sure a bunch of them are like, oh crap. Yeah, there's a whole different world here. I'm like, what are some of the questions that right off the bat you asked them? You're like, hey, make sure you have this stuff answered before you call me, which you call me as much as you want. It's adorable, we'll just put yourself on up. What are some of the questions that you wish that they were like, hey, just get this locked in. Get this so it's sitting down and you know it to your core. So again, I'm riffing off someone else, culture, vision, capital raising, the three main focuses of a founder. It doesn't mean that you aren't in there, right? Doing the wrenches and doing the coding. But ultimately this is your company, you need to own that. Which means you should be out telling the world about what you are doing. And in the process you're going to meet a ton. And a ton of people are going to promise you the world and under deliver. I'm there to help you sift through what's possible and what's good and what's bad if I'm on your board. If it becomes more pragmatic about fund raising early stage, actually have put together why you exist, why I should care. What the opportunity is, don't just sit there with a 48 page deck showing me every speed and feed. And I come back to that because I have sat through so many of them. So sorry. It's okay. And so there's this level of like, if you truly understand what your company is doing, that can be a very short deck. You see some of the best decks for the most amount of money I ever raised for, you know, Silicon Valley traditional startups. They're like nine, 10 page pages long. Those are quite the decks. Exactly. You look at those and you go, but that answered everything I needed. And so it should be there. So when someone goes, okay, I get that. I get where I'm going here. I know what I have to do for me, the business owner, because that's my job on this side with me, the business owner. I know what I have to do. What should I be looking for on your side of the table? What are the questions I should be at? Let's say for some reason you guys get eaten by a purple dragon. And you disappear. What are the questions they should be asking firms like yours? So there is money and there is smart money and they are very different. Yes. Let's say I only invested in health tech. If you're coming to me with your apparel company, why am I smart money? I'm just money. Right. And so one of the biggest pieces of advice, I would say, actually just opinion, because advice you have to actually own. This thing I learned in EO years ago. You don't give advice because you have to own that advice. Yes, right? No, thank you. My opinion would be truly understand when you're sitting across the table, like what I invest in. You can find this really available. You can see what boards I'm on. You can see which deals I originated the firm. I like, you know, last one was AI. I've done CPG. I have a prop tech. Right, like there's certain things I like. There are certain things in biotech. I have no idea. I have other partners. And that's their job. That's their job. Understand how to, like, if we get introred, say I know you don't. But I would love for you to see and maybe if it sounds interesting, bring a joy in because now that means you've actually learned enough about my firm and done the homework. Done the homework. If not, then I'm just a piece of meat with a wallet. Right. And that's a little different. It is. And I think knowing the person's character is vitally important. And one of the things we were talking about before we recorded, it's the type of character you have. And what you do and the people you connect with. And I'm going to be selfish here because it's my podcast and I can do it. I run going in and one of the reasons I came out to Skullcandy and did this with you is because some of the stuff you do behind, you know, one of the things that you just mentioned just did this and that. And you get a bunch of CEOs that come together. And you're helping out a very specific group of the population to reintegrate back in. I think that conversation, I'd love to share what that is because that for me tells the type of person you are versus why I got out of playing it this morning at zero.com. To do this was because of that. That was the reason I came here. So I think when you're researching, not only are you researching businesses on your job, on our side where we're business owners, researching the other way as well. So if you could tell a little bit of what I'm trying to be as vague as possible with because I don't want to see any of you with none. Yeah, no worries. So how I met John Garcia back in 2017, I said earlier in the podcast, I'd met him, right? I met him in this group called Alder, ALD, I like the tree. It's all around generational leadership, kind of living your legacy today. Which is a great book by David Brooks, the political commentator. It's called A Road to Character. So the book, I don't know the author. Yeah, the simple question is, which is more important to you, your professional CV or what people say about you when you're dying. And everyone goes, well, what people say about how I die? There we go. Well, what are you doing about that today? And I go, yeah. Yeah. That's literally, I give you 30 conversations, I like that, right? And so what this group does is it puts, there's about 200 of us across the country. And in major markets, LA, Orange County, San Diego, Dallas, right? Miami, D.C., natural. And we get together and we have those conversations. And one part of it is, well, call Brain Candy, listening to amazing humans tell stories. And the other part of it is impact. And one of our initiatives is to work with tier one special forces. And you go, what does that mean? Right? On the military, there's a thing called a skill bridge. And so traditionally for the last four, six months of their time in the military, they will go off and they will work in the civilian sector in a company. And so that's what I call one-to-one, meaning maybe they come here to Skull Candy. And they're an unpaid intern for four to six months, learning what it means to be out. And they've been in for 15 years or in for 20 years. It's a totally different world. And they're trying to figure out if they want to work here in Skull Candy. Sorry, I'm not calling you out, Skull Candy, just saying, wanna figure out, well, is there a job for them? Do they have a skill set, right? It's a skill bridge program. When you look at these Tier 1 individuals, they already have amazing skills. Mm-hmm. Or they wouldn't be doing what they're doing. There's some of the most cerebral and thoughtful and certainly have leadership in team building and soft skills, galore. Everything we'd want to hire. But on a resume, it might say, Tier 1 imports JSOC or Apple B's SEAL Team 6. Yes. How is that running through an HR portal? It's not. And so a lot of them have these amazing skills that we'd all want to hire in our company. But no way to actually access that. And so we built was this really interesting skill bridge that they skill bridge inside of the group called Alder. So now they have access to 200 CEOs. Because it's really interesting. I've had so many conversations with these operators, these individuals, and they say, I'll go do the mission I'm tasked to do. Mm-hmm. And I'm not scared, I'm not worried. I go, I know what I need to do. But you asked me to sit down in front of you, Chris? I'm scared to death. Absolutely. And that is an interesting reframing of, oh wait, they want to get reps. Yes. And reps means just like if they were going to do mission and go to rehearsal. Well, what's up, they've rehearsed. That's how they trained. They've learned it. reps, they get to meet 200 CEOs, ask questions about what we do and start saying, oh that's interesting. So instead of going to one company, and the company doesn't hire them and they're back to square one, there's no obligation to hire out of this skill bridge. You get to meet 200 and learn what's possible. And if we really think about it, I don't know about you, but my entire career doesn't based on something my dad told me when I was a kid, which was your network is your net worth. Yes. It's your leverage. These individuals may have great networks, but probably not in the things that they're going to be doing. Right. Before when you go and you're looking for that banker, when you're looking for the firm that does this, hey, you're great in medical, but you know, diddly poop out plumbing or whatever it is. So now they have 200 new CEOs in their network. They're chances statistically of finding something they want to do as they transition out is much higher. Yes. Also, we've had the opportunity for the 200 of us who don't hang out with these individuals all the time to learn how they could be a valuable asset in our companies. And whether or not it's our 40 portfolio companies, it's like our company itself, or my network outside of the other community, where I can go, you know, Joe, you'd be great meeting. Stan over there, right? And helping make those connections happen. And so we just got back from Montana. We launched the program. Absolute success. Race from great capital. We have four individuals who will kind of come sequentially in line next. And the program is kicking off. We're going to be more excited. We'll celebrate July having our first fellow go through the program. Awesome. So for me, the reason I asked that was very tactical because what you're doing and the way you approach things are tactical. So that example of going through and saying, hey, we're going to go through this. This is why we do it. This is a result we're going to get is everything I've known about you since I've known you is this is how you approach things and how you're from approaches things. And this is how you deliver information. Right? There's a ton of stuff we went over. And there's a ton more that people want to get a hold of because there's a bunch of movies sat down and say, I don't know what that word mean, but that was FTE. What does a bunch of people just lost? And they're just overwhelmed at this point. If someone wants to track you down and they want to find out more information, how do they do that? Easiest way, LinkedIn, Chris M. is in Michael Vanduzen, not the producer of scandal, not the children's illustrator, the other one, that's me. My email, quite simple, see is in Chris Vanduzen at selectocapal.com. And then also Instagram, which I'm fairly active is Chris M. Vanduzen, same as LinkedIn, make it easy. Perfect. And I really appreciate you. Thanks so much. Thank you very much. While many entrepreneurs are still chasing funding with flashy pitch decks or building products nobody asked for, the proven operators demonstrated that understanding your flywheel, knowing your numbers, and building strategic relationships is the true path to exit. Stop throwing bodies at problems and start optimizing systems that drive real abitta and unlock multi-million dollar acquisitions.