What qualities do CEO’s need to be successful? What’s one thing you wish you had known when you were starting out as an entrepreneur? What red flags do you look for when investing in a company?
We interview 3 CEO’s and Angel Investors who give advice on:
Our guests include:
If you want to raise capital for your business visit us at https://netcapital.com/
What qualities do CEO’s need to be successful? What’s one thing you wish you had known when you were starting out as an entrepreneur? What red flags do you look for when investing in a company?
We interview 3 CEO’s and Angel Investors who give advice on:
Our guests include:
If you want to raise capital for your business visit us at https://netcapital.com/
Kathy Kraysler 0:00
Hi, everyone, it's Kathy from net capital. And on this episode of funding innovation, we're talking with three CEOs and Angel investors to get their advice for founders who are trying to raise money. And to give us some insight into what angel investors look for in a pitch. My first guest is Chris Lustrino, CEO of KingsCrowd, which is a premium analytics and ratings platform for the private capital markets. Chris, thank you so much for joining us today. My first question is, what advice do you have for CEOs who are deciding whether or not to raise funds through online private markets?
Chris Lustrino 0:33
Well, thanks for having me, Kathy, I'm really excited to be here. It's a great question. And it's something that I think a lot of founders need to really consider before making a decision on what avenue they decide to take. So from my own perspective, and experiences, there's two major ways that you can raise capital when you're starting a company, right, that's either through venture capital, or these new online private markets. So there's, there's trade offs in each one. So when you think about the venture capital path, typically what you're talking about is hoping to get, you know, one or two yeses, that could lead to large sums of money, you know, in the early days, that could be 250 to $500,000. And slightly later stage, it can be in the millions of dollars, right? Now, what you give up for that is a large chunk of your company, typically not really decided by you, because typically you're getting a term sheet from the venture firm. So they're kind of telling you what they think your company is worth and how much equity they want in the company. And they're also typically taking a board seat, which means that while you still have control of the company, and you're the CEO, and running the organization, that is another voice that you're going to have to deal with and think about how to manage, right? So you're now beholden to their whole investor base as well. Now, all of that is totally fine. I'm just laying out the scenario, the great thing about it is that you could get a quick effective sum of money into the door, right? So that's what you get with venture capital. Now, if you go over to the online private markets, what are you getting instead? Well, you can still go and pursue that same level of investment in your company, but you can decide the terms, you can decide exactly how much you want to raise for that certain scenario that you're at, you know, whatever stage you're at, you can decide how much money you need to get to the next level. But in exchange for not giving up a board seat, in exchange for owning more of the company, you do give up transparency, so you actually have to put out things like your financials, and you have to file forms that go to the SEC. So you're putting a lot more out there, and you're being a little bit more vulnerable as an organization. So you it comes with those challenges. So basically, when you're considering your avenues, you know, it's do you want more control in exchange for transparency? Or do you want that quick, quicker dollar, some in exchange for giving up control of the organization and not having to give up that transparency? So I think those are kind of the major differences. When thinking about what options you have, personally, I decided to go the online private market route, and fortunately, have raised over $1.2 million from 2100 individual investors over the past two years as an organization.
Kathy Kraysler 3:06
Wow. Congratulations, Chris. Now, that brings me to my next question, what's one thing you wish you had known when you were starting out as an entrepreneur?
Chris Lustrino 3:15
Yeah, so this is something that I actually knew, but I didn't necessarily fully intrinsically understand. And that's the idea that it's going to be 10 times harder and take 10 times longer than you think, to get where you want to be. And while every entrepreneur that you talk to will tell you that you can never actually fully understand it until you're going through the process. And I think that kind of sums up all of the challenges and things that you'll face along the way, as an entrepreneur, that's the biggest thing that you're always going to face is you never have enough capital, you never have enough resources, you're always up against a wall of having to convince someone that your idea matters, that what you're working on is the right thing. It is incredibly, incredibly challenging. And so to live that to go through the experience of, you know, getting tons of notes from investors, getting notes from partners, getting notes from potential customers, all of these things you're always having to deal with as a founder, while also managing expectations and recognizing that you're having success, and that can be a really hard thing to do. So it's not an easy journey. It's not one for those who don't have a strong stomach, and it's going to be really, really hard, but it's also one of the most rewarding things I've ever done in my life.
Kathy Kraysler 4:32
That's an excellent point. And I've seen you in action working so hard, but my next question is What qualities do you think a founder needs in order to be a successful business leader?
Chris Lustrino 4:43
So you know, it's interesting, we kind of look at it two ways at Kings crowd. So from a quantified measure basis, we think it's really important that you find a founder has relevant industry experience, right? So I've actually seen more than a handful founders who have been into things like real estate, or healthcare where they thought they could go and solve a problem they were passionate about. But they genuinely didn't understand the market and had never been in that industry. So coming into building a company with the correct relevant industry experience, I actually think is a really, really important thing. The other that that is sometimes an indicator of success is having relevant founding experience having built companies in that market before, or at least built companies. Because again, once you go through this process once or twice, and know what it's like to found a company, you know that that person understands it, right, they're not just going to run away when the going gets tough, because they've been through it before. And they know how the process goes. And they know that it's going to take a long time and be more painful. But they also know that they'll eventually get there, because they've been there before. And they also know the right people, right? Once you start working with amazing people, you know, with your CTO or your CMO or whoever it is, if you have a great experience working together, being able to bring that collaborative group back together as already worked together is so incredibly powerful and valuable, because you spend a lot of time trying to find those exceptional people that you can work with and be on the same page with. So having relevant founding experience, I think is really, really important. And then the other quantifiable measure we look at is you have any exits in your past, you know, this is an indicator that you've been there, you've done that, and you've been able to succeed before. So those are the quantified measures. But then there's kind of the qualitative factors, right? Those things that make the founder exceptional, and they might not pop off the page when you first meet them. But when you talk to them, you're left going, Oh, my God, this person is amazing. And I think the big thing that that comes down to and I've heard it from probably every founder and CEO that I've talked to an investor that I've talked to is grit, and passion for what they do. And is you know, kind of silly as that sounds, it says people who are willing to wake up every day, I often say that, you know, starting a company is a lot like rowing a boat, right? You get out in the sea, and you're rowing that boat, and there's no one rolling it for you. So as soon as you stop, the waves are going to take you back to shore, and you know, you're gonna be washed ashore. It's really, really hard to start a company and those who make it are the ones who just keep grinding and keep fighting, who keep making things happen, no matter how hard it gets. And you can tell when someone is so immensely passionate is putting their whole being into that company. That's when you get really excited.
Kathy Kraysler 7:20
Wow, Chris, thank you so much for your insights. And thank you so much for your time today.
Chris Lustrino 7:24
Thanks so much, Kathy. It's been a pleasure chatting with you.
Kathy Kraysler 7:28
Today I'm speaking with Kendall Burritt, founder of digital Africa investments. Kendall has devoted her career to providing access to finance and other basic services to populations in need, especially in Africa. She spent the past two years as an angel investor with a focus on FinTech, health tech and data driven businesses. Kendall, thank you so much for joining me today.
Kiendel Burritt 7:53
cabbie, thank you so much. That was a very kind introduction. I really appreciate it.
Kathy Kraysler 7:58
Absolutely. Well, I'm going to start by asking you, what are three things you always look for in a company when deciding whether to invest in that.
Kiendel Burritt 8:08
So the first thing I do is try to ascertain whether or not the company can have massive impact large scale impact. And for me, that means that the company solutions can improve the quality of lives of millions of people. It doesn't matter if it's a b2b business or b2c business, a b2b b2c business. But at the end of the day, I'd like to see that large scale impact.
Kathy Kraysler 8:31
Excellent. Now, what do you look for in a management team?
Kiendel Burritt 8:37
So there are a number of things that I that I tend to look at. First of all, I look to see whether or not they are vision and their is connected to a personal mission of some kind, you know, what motivates them to start this business? Will they have the staying power to persist when things get rough? Because things will definitely get rough? It always takes two to three times longer for things to happen than you think it will. And does that team have the grit and tenacity to really persist through the rough times? Because money is not enough? You know, it's just money that people are looking for teams are looking for, then, you know, they'll quit, and they'll find some other venture. So it's very important that the team is very motivated to achieve the vision that they've set out to achieve.
Kathy Kraysler 9:25
Interesting grit and tenacity are terms that I've heard come up before. Now. Are there red flags that you look for?
Kiendel Burritt 9:33
Well, so one of the issues that I tend to look for in a management team that also is a red flag is gender diversity. So I want to see founding teams that are very diverse. I want to see that there's at least one woman among the founding team and if not, I would really want to see strong female representation on the so called C suite and on the advisory board, because usually, you know, at this point in these early stage companies a lot of times they haven't constituted a proper board. And the data is very clear on this issue. The data basically says there's a strong correlation between gender diversity, and creativity, the pace of innovation, profitability, ROA, ROA, it's a no brainer. So I definitely look for that.
Kathy Kraysler 10:19
I love that now, what advice would you give to startups who are pitching to angel investors?
Kiendel Burritt 10:25
Again, I go back to this point of really being able to articulate your vision for starting the business, because I want to know who you are, as an investor? I want to know, do you have that? That sort of persistence to keep going? I would also say, to really understand your context to be able to articulate what you think the biggest challenges might be coming down the road, so that you can demonstrate that you understand your context very well. And that you have some ideas for how you might manage them. And somewhat related to that. I would say, Never say there's no competition. Because sometimes I've heard that with first mover's there's no competition. But just as an example, in Africa, when you look at, for example, digital payments, your biggest competitors are not other digital payments providers, your biggest competitors is cash. And so you have to really understand your customers, you have to understand what are their existing workarounds to solve the problem, you want to help them solve better, and that you can demonstrate to them that this solution, your solution is better is better for them will make them life easier. So I guess I would always say it goes back to understanding the problem, you know, you are trying to solve and making sure that you can convince me as an investor very clearly that you understand the problem, or else it's just going to be, you know, a supply lead business, which may not have any customers at the end of the day.
Kathy Kraysler 11:58
Incredible, Kendall, thank you so much for your insights today. Thank you for joining me.
Kiendel Burritt 12:02
Thank you, Kathy.
Kathy Kraysler 12:06
Hi, everybody, I'm joined today by Rob topping, the founder of topping capital. Rob, thank you so much for being here.
Rob Topping 12:13
You're welcome. Glad to be here.
Kathy Kraysler 12:15
I would love to have you give just a brief overview of what you do, and then ask you a few questions.
Rob Topping 12:24
Sure, we kind of sit at the epicenter of the ecosystem of alternative investments. So I come from the hedge fund world and know that world but also been active in real estate and spend a lot of my time and early stage venture, both in an advisory capacity and investor capacity.
Kathy Kraysler 12:43
Excellent. And so on that note, given that we're sort of heading into this recessionary period, and yet a lot of people, a lot of startups are still trying to raise funds from angels and people like you, I'm wondering, as an investor, are you tending to invest in fewer startups during this period,
Rob Topping 13:07
I might be investing kind of the same amount of money that I would allocate to the startup bucket, but in fewer names. And so maybe I'm a little more sensitive to runway than normal, you know, I'd say, six to nine months wouldn't make me that nervous. And now today, that might be more like 12 to 15 months. But But I see lots of opportunity in periods like this for startups. Because if you go back and say to 2000 2002, and some of the great companies that came out of that period, you know, market share is never a problem. If you have an elegant an innovative solution to a big problem. You can have a lot of macro headwinds, and it's still not an issue, because there's such amazing opportunity ahead.
Kathy Kraysler 14:00
And are there any industries that you try to avoid at this time during an economic downturn? Or does it change your investment strategy at all?
Rob Topping 14:11
Maybe just kind of tweak it a little bit. You know, I would feel like some of the more economically sensitive areas, I might be a little more cautious. And then there's other areas where I just don't do a lot of investing because it's too far out of my circle of competence. But doesn't doesn't change the strategy really that much.
Kathy Kraysler 14:35
So but you do try to chain YouTube, you do try to stick to your area of expertise. That's a common theme that I've heard. Interesting. Yeah, yeah.
Rob Topping 14:45
And we're, we're opportunistic investors. So you know, area of expertise would be a liberal interpretation. What we're good at is kind of identifying the opportunity that where there's tail ones whether that was, say Distressed Real Estate 10 through 14, or early stage venture the last few years, you know, there's some areas now that have big tailwinds. And it's an interesting Academy and markets that way, because I think, more so now than ever. There are some areas with big tail winds and other areas with big headwinds. So, and then we're going to kind of marry in that opportunity to the right team have that as the expertise.
Kathy Kraysler 15:27
Speaking of teams, what are some of the top questions that you ask founders, when you're evaluating their companies?
Rob Topping 15:36
Let's see, as I think about that, one, one would be just the sense of kind of their background and balance. And I think what I mean by that as, as the background, you know, why would they have edge providing this solution to a problem, that could be tech, not technology, background and innovation, it could be that they work prior at a company where there was a problem not being solved, and the company was focused on all its resources elsewhere, and yet, they saw an opportunity come out of it. And when I say balance, I often you know, it takes kind of a balance of a visionary and builder with somebody that has some operational expertise. So early stage, you never get the full depth of team that you want, because it's the chicken mag of capital and growth in which comes first, but you want to make sure they have at least either advisory or team members that that provide some ballots on operational execution that ballots kind of that vision vision of all and build.
Kathy Kraysler 16:49
So given that are, what advice would you give to startups who are pitching to investors now?
Rob Topping 16:58
One of the one of the, like, first rules is, is some of them a one page summary with a short paragraph or a few sentences on, you know, the compelling need of your solution. And I say that because often I'll see people send, you know, 1525 Page decks, either with no summary or right out of the box. And, and what will happen there is you might end up in a three week conversation or a three week wait to get enough, one, a one pager can filter pretty quickly to oh, this person has an interest in seeing more and, you know, might be a 50% probability of, of actually investing or introducing us to someone. And and so I would say send you a one pager. The other thing about that is, it's a very difficult but excellent exercise to capture the compelling messages from your deck into one, one page. So I would do the deck first, and then I would do do the one pager. And then the other thing I would say is, you know, don't don't lead with the ask for money, because I, I often see it's kind of like an NDA or something, I often see conversations break down immediately on that direction. Whereas if you lead with, you know, really looking for insight and help and potentially some introductions, sometimes it's that second referral that comes from the first conversation that actually leads to the money.
Kathy Kraysler 18:26
It's that old adage, when you want money, ask for advice. And when you want advice, ask for money.
Rob Topping 18:32
There you go. That's perfect.
Kathy Kraysler 18:34
Excellent. Well, this has been so helpful and very insightful. Rob, and I can't thank you enough for joining us. I'm sure everyone has gotten a lot of value out of this. So thank you very much.
Rob Topping 18:43
Well, thanks for having me. I appreciate what you're not capital. Thanks.
Kathy Kraysler 18:49
Thank you so much. That's our show today. Thanks for joining us, and stay tuned for another episode of funding innovation.
Transcribed by https://otter.ai