How do you run a sale process with no M&A experience?

Jason Kirby (00:02.252) Hey everyone, welcome back to Fundraising Demystified. Today we have Conor Tompkins with us. Welcome to the show, Conor. Connor Tomkies (00:10.69) Hey guys, Jason, thank you for having me. I'm looking forward to this. Jason Kirby (00:13.87) I'm excited to have you on as a fellow post-exited founder. You have a fascinating story. You have your own podcast. You're very influential in the post-exited founder community. And I'm excited for you to share your story with founders, but to kind of lead us into the right topic. I think most notably your background being in support Ninja, being the founder and CEO there. I would love for you to just share the brief story of what support Ninja was and what your bootstrapping journey there was. Connor Tomkies (00:43.096) Yeah, for sure. I had a previous company called embark vet. was a dog genetics company that got co-founded by two brothers of Cornell. And, we were trying to figure out how to manage support and we were having a really hard time as a small company trying to find international talents. and so we partnered up with a couple of co-founders and we launched support Ninja essentially to make it easy for fast growing tech companies to find international folks. And, at the time there wasn't a lot of people doing it. So. We were kind of like a new wave of outsourcing providers helping with international recruiting, training, managing. And, lucky enough, this was something that we could bootstrap. Like if you think about the upfront capital involved in this, this is something that, you bring on new customers, you make the right hires and you can scale it pretty well. Jason Kirby (01:33.962) And so it took it took you launching a company to realize you had to launch a new company. So I guess what was the outcome with a bar fit. Connor Tomkies (01:34.69) Thanks Connor Tomkies (01:41.539) I think that's mostly the case, right? Is you're, working on a company so hard day after day and you're, you have a little bit of like, an eye out the side of your head being like, that's interesting. That's exciting. Or I could do this. And then you kind of feel like the wave kind of like pulling you in that direction. Right. And so embark actually did really well. We were on good morning America. We sold out of most of our, initial order of kits and, The initial founding teams, I don't think is involved right now, but they raised money from soft bank at $750 million valuation. and so they're, they're doing okay. They're doing all right. But, I left after the first year and a half to start support Ninja. So I kind of spun off and started doing my own thing. and it's for a few reasons. I think I'm was super excited about what was happening at embark, but I really wanted something that I could have a bigger part in and actually. own and run. And that's why support and Joe is the right move for me. Jason Kirby (02:40.822) That makes sense. And what was the scaling like? know, it's effectively like a staffing model, but when it comes to managing cash, managing resources, and to stay on the bootstrap path, you know, what were some of the hurdles that you experienced? are some of the lessons learned that you had? Connor Tomkies (03:00.192) It's kind of like walking a tightrope. And what's a little intense about this is that you have, at the time support Ninja had thousands of employees. And if you miss payroll, it's profound. Like it's not like you can cut SAS expenses overnight. Right. And I remember when we first started the company, I was at my wedding and we were close to not making payroll. And so I'm on the phone trying to figure out how to coordinate payments with different clients and how to make this work. and it's stressful, but at the end of the day, You're a lot more efficient with your cash. know, where every dollar is going. You're very particular about your bets. especially from a marketing standpoint, you're testing everything. You're making sure that everything is kind of yielding fruit where if you had a decent amount of cash in the bank, you can kind of get by on some less than solid bets. Jason Kirby (03:51.234) Yeah, so that's basically what I've seen a transition in the last couple of years is people going out and raising big money in 2021, 2020, and not really having the wherewithal where that money's going and where we've seen a massive shift in last two years towards bootstrapping and cash efficiency. When you're going to bring up the example of walking the tightrope, sacrificing probably a good time at your wedding or at least a portion of your good time at your wedding to end as a business. What are some of the other things that you felt that you probably could have benefited from raising money, but you know, bit the bullet and, you know, kind of kept it the same? Connor Tomkies (04:32.334) So candidly, I don't think we grew as fast as we could have because we had some times when we had a really good CAC. We found a good channel. We were getting really good customer acquisition costs, meaning like we're putting in $1 and we were getting two out. And at that point I should have gone out and raised cash. a couple other companies like, task us and some other bigger players in the space. they're at almost a billion dollars in top line revenue and they raised capital. And one of the bigger differences between task us and support Ninja is that they had enough cash in the bank to be able to capitalize whenever they found something that works. They were able to hire more C-level executives and be able to test and find who's the right person to write seat where we really could only test one or two things, whether that's a high level hire or a new marketing channel, we had to be very careful or very particular. and so I think we probably could have grown larger. if we had raised cash at the right point in time, We still grew a fantastic company and we, grew very large, but, I think we didn't quite hit that venture scale. Jason Kirby (05:40.47) Do you have any regrets with that outcome or satisfied? Connor Tomkies (05:47.214) I think it was the right thing for us to do at the time. And there's reasons why, we ended up selling when we did. And there's reasons why, we didn't end up raising capital. And ultimately I didn't want to go chasing, different venture capitalists at the time. I want to be focusing on growing the business, raising money is a big, a lot full-time job. It's a lot of work. And, so I don't regret not raising capital because I don't know what the opportunity cost was. So was it, what Operations have fallen to the wayside. Would our employee retention go down because I'm allocating the resources to go raise this capital? It's hard to go backwards and say that I would do things differently, but it definitely would have helped at some point with scaling our marketing efforts and our operations. Jason Kirby (06:36.416) And can you for the audience, can you speak to the scale of how big support Ninja got, whatever numbers you feel comfortable sharing? Connor Tomkies (06:43.426) Yeah, for sure. So we were, middle, eight figures. So we were bringing in a decent amount of top line revenue. and now it's reaching towards nine figures. by all extent and purposes, that's pretty good, fast growing company. and we did well, we had a good wave as far as we were for many companies. The first people that they would think of whenever they were outsourcing for the first time. And so we were in a good position for that. that time period. Jason Kirby (07:16.044) So timing was very important, but speaking of timing, like what ultimately led to you deciding to sell the company? Connor Tomkies (07:25.358) So raising capital is important to keeping a company going. I think one thing that a lot of people don't think about is the relationship that they have with their team and their co-founders. And in this case, we had, there's three partners and one of the partners was looking to exit. And so part of the exit was, getting this partner, his exit, and then bringing on a private equity firm to help us grow and scale and take over that piece of equity. And so that's one of the reasons why we decided to sell when we did. And it worked out really well for support Ninja. was the right thing for us to do at the time. Jason Kirby (08:04.77) came to managing that process, were people coming to you? Were you telling the world that you're running a process? Did you hire a banker? What was your strategy? When that co-founder was like, I want out, what was the process from there to go about selling the company? Connor Tomkies (08:24.078) Well, this is interesting. mean, most founders, we don't get any education on how to sell a business, right? Like here, you're kind of at a loss here. You're talking to some people and sometimes you might get an offer in your inbox and you're like, meet them for coffee. You're flattered that someone's interested in your business because I didn't know what to do. I ran it like a marketing funnel. So I built a confidential information memorandum and there's templates that you can have online. Most of time, this is what the banker or broker does for you. Me and my co-founder, we sat down and we actually built it ourselves. So we were at the airport. we answered all the 50 different questions. We put it together in a document and a PDF. We pulled together a list of bankers and brokers that sold somewhere companies or, worked with companies our size. And I essentially BCC them. And I said, here's my company. Here's what we're doing attached as a confidential information memorandum. If this is interesting to you, let's talk and. A lot of them jumped on it because for, their perspective, they're like, they did a lot of the legwork. They know what they're about. They're answering a lot of my questions ahead of time. And for us, we were able to see who actually did the legwork of reading the confidential information memorandum. That's a mouthful. And, and really knew their stuff kind of going into the conversation. So we were able to find the right banker and broker. We were able to get an idea of how much we would sell for if we were to go to market, how they would present us. And then we ran a competitive process from there. Jason Kirby (09:49.57) So I'm going to pause this right now. I just realized I'm on the wrong mic. So I'm going to switch mics real quick, and then I'm going to bring this back. Like everything you said is fine. Everything is recorded. be fine. The first part will just kind of suck on the audio. I didn't realize I wasn't recording on the good mic. So let me just pause. Connor Tomkies (10:02.7) I should have said something. was sounding a little echoey and I was like, maybe this is your computer. Mike. I'm so sorry, Jason. I just, it's sometimes hard because Riverside records natively on your end, but they give you, they give your guests something else. Right. So you don't, I was like, maybe it's natively recording better than what I'm hearing right now, but. Jason Kirby (10:06.484) You should say something! Jason Kirby (10:20.436) Let me switch real quick. PART 2: Connor Tomkies (00:00.078) We can if you want to let me know Jason Kirby (00:02.099) Nah, it's fine. They do a pretty good job of chopping it back up and bringing it back to life. I've made that mistake more times. Connor Tomkies (00:09.07) yeah, Jason, good to hear you. Good to have you with us. Jason Kirby (00:11.788) So basically what you told me is you ran your own banking process and good as to you, that is one of the most important things to do is run a process because you're right. Most people just get an offer or they're flattered. They entertain it and they don't really know the true value of their company. So being that you set up a funnel, you have people signing NDAs, they see your SIM or your confidential information random. I guess how long did it take from the point of setting that up and how did you learn about all that? Well, too many questions, but from the point you set it up to the point you close the deal. Connor Tomkies (00:53.55) Too many questions. I think that if you run a tight process, nine months, so like I'm going to sell my company. You go through the process of vetting your banker and your broker. You pull the list of potential people that are interested. You have an intro call. You have a secondary call. You get into LOIs, you get into closing and due diligence. Nine months is roughly the timeframe. And then I think from Doing the intro calls with the bankers and brokers, I was able to learn quite a bit because they were giving me material. They were giving me feedback on the questions I was asking. I was understanding what questions they were asking of me. And I understood that their perspective was to get the highest amount of return for this company and their time that they're putting into it. So I'm like, understanding how they view me and my, and my company is really the key piece here. And I think what helped is I was treating it like a marketing funnel. And this is true for fundraising versus taking your company to a market is everything's a fundraising, like a marketing funnel essentially is you have your outreach, you have your pipeline, you have your flow and you're just ushering people through this flow, except you're vetting them in this case. Jason Kirby (01:57.246) And so you did interview quite a few bankers and you decided to kind of run this on your own. You got the education you needed and ultimately took. Connor Tomkies (02:05.995) So I did actually end up picking a banker or broker. So we did end up finding someone that worked for us. I interviewed 35 people and we ended up growing with a firm called growth point accelerators. So we actually had someone helping us out, but it was quite a process to find that person. Jason Kirby (02:23.756) Yeah, 35. That's a lot. Usually it's like two to four, two to five, but I guess I just had a curiosity. What was your decision criteria? What took 35 interviews to get to one person? Connor Tomkies (02:27.532) Yeah. Connor Tomkies (02:38.232) Well, at the end of the process, we had three people. So we had one firm that was specialized in outsourcing and international companies and bringing them to market. That was their thing. That was their jam. So I understood that they knew how to process, the information that we were giving them, present us in the best light, and they may be already know buyers in the space. the second one was a pretty large firm. that is probably one of the biggest firms that does this. And then the third firm was, a small kind of boutique firm. And we ended up going with a small boutique firm because I liked how they were presenting us and they were asking the right questions. The biggest firm said that they could get us like an outrageous, kind of like a, a really big number for the sale price. And I actually felt it was not reasonable and they weren't asking the right questions. So I actually went with the firm that promised less in a way. Jason Kirby (03:30.412) I see that happen with lot of bankers. kind of put a carrot out saying, we'll get you the best number. But you're right. It's so unrealistic as far as what they're actually able to do. And it's so much out of their control. Like you can run a great process, but at end of the day, the market dictates the price. And I see that often with bankers just promising the Big carrot, they get you under contract and then it's like, well, hey, you we tried, you know, we put our best foot out there, but no expectations are missed the line. Everyone hates each other. So, you know, small boutique firms sound like they did it. Connor Tomkies (04:02.136) Yeah. Connor Tomkies (04:06.184) At the end of the day, you're actually working a lot with the associate or the partner that's assigned to your deal. So you really have to like that person. That's a person that's quarterback. Everyone else is secondary. and sometimes that's not always a person that the person that you're talking to is not always the person running your process. Jason Kirby (04:26.224) Exactly. you might be sold by the sizzle of one partner or someone else, but actually who's running point and being sure to know who that person is. But so out of curiosity, being that you had a banker in the sale, but you still kind of ran your own process, ran and structured your own funnel, were they more or less just bringing introductions to it you guys were managing the process or was it a cohesive effort? What was that relationship like? Connor Tomkies (04:53.292) It was cohesive. So we had a potential list of buyers that we were talking to. if you are a CEO and you are running your company today, you should be talking to partners, bigger players in the space. if you're not already do it tomorrow, take them out to lunch, get to know them. And so we already had a list of buyers that we had pretty good relationships with. What we told the banker is that we expect to get X number and for our business, anything that you do above this will give you a higher percentage. on that deal and anyone you bring to us that we haven't already talked to will give you a kicker on those leads on those people. And they actually brought a great list of buyers and we ended up with going with one of the people that they brought to us. Jason Kirby (05:38.59) No, it's awesome. it sounds like you ran an efficient process. Sounds like those boxes were checked. Was there anything, any curve balls that you think would be important for founders to be aware of what to look around, what corners should they be looking around in the &A process? Connor Tomkies (05:40.098) Yeah. Connor Tomkies (05:57.784) There's a lot of little, sticking points, right? Like, making sure that you're aligned with your partners on what you're looking for before going in, because any type of internal turmoil, you just kind of have to keep contained, right? Making sure that everyone's walking in lockstep and the offers are going out at the same time. You're collecting, LLYs at the same time. You're deciding on the bids at the same time. really helps make sure that you get your price up. One of the kind of like, Sticking points I see with a lot of founders is that you have your legal counsel for your company and they have theirs and they're going to go back and forth. And the legal fees on this can be tremendous. Like after due diligence, after all the different layers, you're spending a pretty significant, in some cases, millions of dollars on legal fees. And one of the ways that we were more efficient about this is they usually go back and forth on indemnity and making sure that the liabilities are in place. But there's a certain number of business issues that actually matter. So to stop the legal fees from ramping up and getting out of control, let's tell the business issues on a spreadsheet, put your position in column A, ask the buyer to put their position in column B and then discuss that on the phone call. And that will cut a lot of time and cost on the legal side. Jason Kirby (07:17.132) My advice to all founders in just about any circumstances, never allow lawyers to talk to lawyers. That's the most expensive way for your dollars to go through the roof, especially, you know, sometimes sell side, you are paying for both sides. you know, so it's like that bill is, you're not paying $500 an hour. You're paying a thousand dollars an hour. you know, for, yeah. So it's, you know, for, for one call, you could cost like five grand for an hour call. Cause you got too many partners. Connor Tomkies (07:22.508) Hahaha Connor Tomkies (07:31.811) Mm-hmm. Connor Tomkies (07:39.842) Yeah, it's terrible. Jason Kirby (07:47.596) So yeah, I'm glad you brought that up. that's something that, lawyers are they're, they're de-risking the outcome for you. They, they serve a purpose and they need to be there, but there are lots of unnecessary negotiation points that are very quickly decided between, you know, the two decision makers on either side. So, you know, good, good point to bring up because yeah, don't want to, it sucks when you're like, why are we selling for X? And you're like, before anyone gets any payout, know, lawyers get paid, beggar gets paid. Connor Tomkies (08:13.072) Ha Jason Kirby (08:14.934) know, debt or whatever, you know, closing costs get paid. And you're like, that's a, that's a smaller number. Connor Tomkies (08:20.898) Yeah, you're just saying it whittled away piece by piece. Yeah, you should definitely know your water waterfall, your closing expenses, you know, like what are some of the things that are going to get into your number at the end? Jason Kirby (08:33.022) Yeah. Yeah. And that's something that, know, we're selling for whatever X amount. It's $50 million. But you know, what's the actual waterfall to win? Then what's your split from there? you know, maybe after closing and all the other fees and press stack or whatever it's there, if you raise money, like, you're left splitting 20. It's like, that's not what you went out to sell for. So, a good banker, a good lawyer should be able to educate you and give you rough estimates of where you fall in. so. You sell the company, you it a couple of years ago. What have you been doing now and kind of what has guided you to the work that you do today? Connor Tomkies (09:12.278) After selling the company, we sold to a private equity firm, which I like because in some ways, you know, exactly where they stand, what they're driving for. They have a three to five year horizon to sell the company again. but I liked the idea of creating a different type of structure for a hold co that helps essentially this hold holding company buys companies and then those founders become post exit founders and then they co-invest alongside me. so I made a company called operator equity, which is essentially a hold co. where we start buying other companies, teaming up with other entrepreneurs, then we buy companies together essentially. And this little ecosystem is almost like self-supporting, right? So you buy a marketing company, they help with marketing for the rest of the portfolio. make a hiring company that helps with hiring for the rest of portfolio, right? So you're creating this little mini ecosystem. And so I've been working on that for the past year and a half. we also did something called the entrepreneur cooperative, which is focusing on helping founder scale and then exit their business. and so we've been doing a lot of educational seminars and, the podcast, the made a podcast that you mentioned in the beginning is focused around interviewing post exit founders, hearing their stories, trying to figure out where are those little tidbits that you can pull out that will save you a lot of heartache down the road. Jason Kirby (10:29.896) And so going back to the entrepreneur collective, think that's the kind of PoltCo, correct? Connor Tomkies (10:36.598) Entrepreneur Cooperative is the kind of like the community with the business education piece and then Operator Equity is the hold to go. Jason Kirby (10:43.456) I'm sorry, operator equity, So operator equity, what type of transactions have you been doing now that you're basically flipping the script? You were selling your company and now you're like, okay, now I've seen it from that perspective. Now you're buying the companies. What do you look for? What lessons learned have prepared you for being on the other side of the transaction? Connor Tomkies (11:05.526) I think every hold co has its own thesis. And what I've seen, what I'm seeing as a trend across hold co's is, pushing an easier process. So more transparency, quicker to LOI more fam founder friendly terms. For some hold co's they have a longer holding period and I'm in that camp as far as like, don't want an immediate exit. So if you want to work for founder work with founders for a longer period of time in the form of like decades instead of a few years. then this can be a more favorable structure. And all hold co's have a thesis that's like underlying that hold co. And for me, I run on entrepreneur operating system, EOS, and I buy other companies that run on EOS. And so I know that all the companies run the same way that they meet the same way on a weekly basis and that they plan their quarterly planning on this in the same way. And so that's the underlying thesis of essentially operator equity is They are all operating on the same base layer, the same operating system. Jason Kirby (12:07.796) Okay, so this is is fascinating. I've been familiar with EOS and that model for, I don't know, it's been around for a while, like 10 plus years or so. How did you come across that being your strategy? Were you running Support Ninja under that system? Maybe give the audience a little bit of context of what EOS is and kind of what it provides. Connor Tomkies (12:16.269) Mm-hmm. Connor Tomkies (12:29.848) The entrepreneur operating system is a book, called traction by Gina Wickman, but it's also a, an organization that helps with quarterly planning and structuring your leadership team, tracking what matters as a whole, kind of like a system for how you can run your business. And I thought this was, exciting because whenever I was first listening to the book while driving in the car, I was like, this is actually practical, tangible advice that I can implement inside my business tomorrow. And a lot of time, whenever you're creating a business, you're doing things that feel right, you know, and you're kind of going based off instinct and logic and you're building this kind of like, you're building your own operating system. So it's kind of nice to know that something already exists and has already been tested that you can implement into your current business. And so we implemented it into a support Ninja and we had, support Ninja is really large. has multiple thousand employees. And so we had, an EOS implementer. And different countries at helping different levels of management, essentially build, their quarterly plan, each quarter. And that really helped us be aligned and help everyone understand what is the company, what are our core values, our mission plan, our 10 year target or three year roadmap. And, that's very hard to convey. If you have a larger organization, it's much easier to hand someone a book saying like, this is how we operate. Then teach them something from scratch. Jason Kirby (14:05.42) Yeah, I find that fascinating because it's just, I've seen so many of these frameworks over the years and they all kind of add a flavor or a piece of knowledge if you kind of piecemeal, but I see ones that kind of really dive into one framework over another and really kind of stand by it similar to what you do with EOS. so effectively you found this, now I guess a deal flow tool or community of like, all right, does it check this box? And do you require any and all prospective deals to already be on EOS and you only look at those deals or do you look at, know, maybe they implemented after connecting or, you know, what, what's kind of your thought there. Connor Tomkies (14:45.922) Yeah. So most of them already ran on the EOS and then the ones that didn't implemented it after. and that's a good process because you're sitting down with the founder and you're going through, call it a vision traction organizer, which is essentially a two page business plan. And you're helping build that for them together. and it really makes sure that you, as the, partner in the whole to co and the entrepreneur, the CEO are on the same page. Jason Kirby (15:10.508) And ultimately, what companies are you trying to buy? What boxes do they check? Is it sector? I know you're trying to create the ecosystem, but what's your prioritization and what are you looking for? Connor Tomkies (15:22.594) The vast majority of them are recurring revenue SaaS companies that have a pretty big base. Revenue is very diversified. Top line revenue is usually south of $10 million and they have a decent profitability to help support the acquisition in the first place. Jason Kirby (15:41.312) Gotcha. So sub 10 million. So that could be a million, five million, anywhere in that range as long as it checks those other boxes. Connor Tomkies (15:50.168) Yeah, for sure. And we do find that like one to 2 million is usually a little too small. They don't have enough profitability or to sustain them. If something bad was to happen, usually they don't have as much depth in the leadership team. So it's something to look at. If you are thinking about launching a hold co is what does that deal box look like for you? What are the parameters that you're investing based off of? And then kind of going yes or no, do they check that box or not? And if you have a thesis, stick to it. Don't, don't break your, your deal box, essentially. Jason Kirby (16:24.712) Yeah, once you come up with it, I run across a lot of Holocaust as we do deals and seeing some that are wishy washy on the box can be a clear indicator that, you know, it's probably not worth the effort to engage them for the deal just because, you know, it's like, it's a flavor of the week. And even if they do move forward, what's the stability of that opportunity moving forward if they aren't really clear on their, their buy box. Connor Tomkies (16:50.786) Yeah, it's easy to be tempted or just be like, it's so exciting. It's $800,000 in profitability, less than your, your deal box of 1 million in profitability. It's very easy to like crossover. Jason Kirby (17:02.228) Yeah, justified. And from your experience being on the other side now and kind of having these more founder friendly terms, as you mentioned, what are some of the mistakes that you've seen, maybe some of the companies that you've been by, what mistakes have they been making that you're recognizing as an opportunity? Connor Tomkies (17:23.63) There's a lot of distraction. It's very easy to look at the shiny object and chase after it, whether it's a new service or product line, but most of your revenue is coming in from this one single service or product. So having that focus and carrying it through is, pretty important. Marketing is pretty key right now. the marketing landscape is changing so rapidly that, a lot of times if they only have a single channel of revenue coming in from say Google ads and something changes like AI and they Google gives them the first quarter of the page and your AI spend shoots up and your yield goes down. So having more diversity in your marketing channels, being able to capture more leads as they go into your site. I usually see like whenever you buy a company, you look at their revenue concentration in terms of clients, but you should also look at almost like their acquisition channels in terms of concentration and do they have other. plans and systems in place to be able to generate new business. Jason Kirby (18:24.732) And when you're buying these companies, you looking, have any of these been venture backed companies that are no longer venture backable? Like have you only been looking at bootstrap? Like what's kind of the history or like kind of the capital history of some of these companies that you're looking at? Connor Tomkies (18:40.768) All of them except for one, I think as bootstrapped and it really helps from like more of a profitability standpoint. There are some companies like tiny and a few others that are looking at kind of like venture distrust companies where they raise a lot of capital and they're not able to continue the fundraise and they need to restructure. That's not something I've messed around with much. have worked with a lot of founders where like a partner wants to step back and there's a spot open on their cap table or they're not. actively working in the business each day. And so I work with a lot of those companies as far as like, I'll come in and be a more active partner for you and help you scale in different ways. and help that partner, essentially get their, their earn out or, or their chips off the table. Jason Kirby (19:28.14) So it sounds like you some flexibility in terms of what position you take. It's not a hundred percent buyout in some cases. It's you're flexible. Is it majority often or minority? Connor Tomkies (19:38.126) It to be a meaningful stake. So normally it's between 40 to 80%. Right. And I still want the founder to be very heavily involved in the business that at the end of the day, you're working with these CEOs and you're really betting on them. Like, I'm not the CEO of these companies and they're running point. So it's more like, how can I give them the resources to, hit that next stage of growth? Jason Kirby (20:01.098) Yeah, it's, it's, it's fun hearing this just because I deal with so many companies that come to me and they're like, I want to raise money. I want venture capital. And they're more on like a path for something like you where it's like, well, what about this other option of take some chips off the table? You know, be property capitalized, bring in some governance and you know, still has some upside down the road. and it's just so funny how so many founders have been drinking the venture Kool-Aid for, for so long that they don't realize like, wait, I get a multimillion dollar paycheck. today? It's like, and I still get that side. Connor Tomkies (20:34.631) Yeah, it can be really nice. Distributions are a great way to be paid to like that's a earning money from your customers and being able to build a sustainable life around your business is something that is underrated. We didn't talk about this, but my, had a company in college called delegate it. And I was focused so much on raising capital and doing pitches for a bunch of different contests. Jason Kirby (20:48.3) Who would thought? Connor Tomkies (21:02.04) I was pitching three or four times a week that the company wasn't nearly as successful as the other ones. And it was because I was so focused on the venture route that I felt like to be successful, I had to raise. Multi-millions from these investors for, for my idea. And it ended up being a distraction. So if you are a younger entrepreneur, there's a lot of different ways to get where you want to go. and hopefully this will kind of help highlight some of those paths. Jason Kirby (21:31.744) You know, you just gave me PTSD. I did the exact same thing. first company went to every single pitch event, paid to pitch, you know, pitched every accelerator, every angel group and traveled and spent so much money just going up and down the coast and West coast and just wasted so much time. Or it's like, if we spent all that time just talking to customers, we would have realized, this is probably only a $10 million a year business. Connor Tomkies (21:40.076) Yeah. Jason Kirby (22:00.428) but probably like two million a year profit is like, that probably would have been a good business. But we try to be like, we're to be a billion, know, billion dollar company. It's like hindsight is like, that was never a billion dollar possibility ever. we've had to own like 40 % of the market to even be close to it. and it's just so funny to think about, like, I see so many founders. just had a call the other day with a founder, just fresh out of college, like once a raised venture on a very saturated market with no venture scale potential and just trying to give that feedback as early as possible. Just talk to customers. If you're going to talk to investors versus talking to customers, talk to customers. If you haven't hit any kind of velocity or breakout. Connor Tomkies (22:48.638) the postdocs and founders, I know they have like a hundred conversation with customers and they identify the pain points and they're like, if I was to make this, how much would he pay for this? And then they come back to them a month later being like, made that thing that you were looking for. Do you have a striped link or a credit card information I can receive? like it's a better way to start a business. And some of the most established well-known founders I know, function this way is they. Jason Kirby (23:06.333) Hahaha Connor Tomkies (23:17.814) essentially have their customer base before they launch. Jason Kirby (23:22.156) Yeah, it's have those relationships, have those conversations and know what you're building towards and who you're building towards. And granted, there are some businesses, I'm working with a couple right now, like you have to raise millions of dollars just to even have a shot. Like there are some more technological advanced companies where you have to have a million dollar GPU cloud just to test your theory. But the outcome is a moonshot. It really is. If it works, it works and it takes off and you grab market share. So VCs... love betting on what looks like a terrible idea to a normal business operator, someone that is profitable and making money. But for a venture investor, like, this could return the portfolio. So I'd bet on this than what looks to be a healthy, sustainable business. Connor Tomkies (23:58.68) Mm-hmm. Connor Tomkies (24:09.814) Yeah, for sure. They might see him be like, this is too sustainable. This is too. What was it from like Silicon Valley? They're like, always be pre revenue. It's like Jason Kirby (24:13.804) you Jason Kirby (24:21.612) Yeah, it's like, was like, yeah, because like that was always the thing at least, at least a couple of years ago, I got that all the time where it's like, before you make a dollar, raise as much money as you can. Because once you make a dollar in revenue, then you're judged on how you'll perform. There's so many other variables that go into the decision making process. And we just raised 3 million for a client that built like an MVP, but kept it free. and started getting big corporations using it from a free perspective to start testing it and raised the money at a higher valuation than if they would have maybe charged minuscule amounts of money for it upfront. And that's the better path because they really do need probably $10, $30 million over the next two years to achieve what they're trying to achieve. But most companies don't need that much. You can start off with... credit card loan, personal loan, friends and family gets something off the ground, moonlight. So I always find that as like an important checkpoint for a lot of founders just to kind of double check themselves before they spend all their time like you did chasing investor money and going to presentations, angel pitches. Most founders I see that are struggling. If you're not winning every competition, you're probably not venture-packable. Connor Tomkies (25:43.182) And your pitch can be great. I felt like I had a really good pitch, it doesn't always matter, right? And yeah, I think if you're just getting started as an entrepreneur, think bootstrapping is a good way to, or a good thing to consider, depending on the idea. If you're fundraising, feel like most of time it goes towards development and tech or marketing to help you scale and hit where you need to hit. Yeah. Jason Kirby (26:08.62) Yeah, just challenging yourself. Like put yourself in the shoes as a first time founder or least starting something new. Just what does the world look like if you bootstrap? And what does the world look like if you raise money? And sure, raising money sounds easier, but in reality it's not. You know, you could spend months with no success. If you're not able to raise money very quickly, rethink your strategy. If you can't get the money and you don't get enough people excited within a few months, then it's Probably not going to raising money, finding out the best avenue and talk to more customers. Connor Tomkies (26:44.816) I think you're right for sure. Yeah, the best investors are your customers guys. They're actually getting your product. They're getting feedback. You're getting profitability. Jason Kirby (26:54.826) It's a bit of a fallacy, I will say, that, though, because I saw a lot of venture-backed startups that were building solutions for the venture community and investor community that have no venture scale, at least in my eyes. Venture is the tiniest asset. In terms of asset allocation and private alternatives, it's the smallest percentage. Connor Tomkies (27:04.392) yeah. Connor Tomkies (27:16.046) Right, Jason Kirby (27:17.728) And there's so many like SPV providers, ad fund admin providers, all this kind of stuff. And I'm like, how are you going to be a billion dollar company in this market that already has so many players? But VCs throw tons of money at it. Connor Tomkies (27:22.252) Yeah. Connor Tomkies (27:29.942) I saw a company the other day and essentially they were pulling data from like crunch base and a bunch of different data sources. And then they were working with startups to structure their data in a way that this AI could interpret and essentially do the work of like a junior partner at the VC firm of like structuring information. I've seen like a few of these in the past, like four weeks. of people that are essentially restructuring this information to make it digestible for VCs. But then one of them took that information and then said, like, the information's kind of the same for private equity, just a different perspective. Right. And so they took it and then they went to private equity and said, I have this thing and that's a bigger market, right. For way bigger, but they took that use case, scaled it to then private equity. And then you get into a position where if you're inside with a different private equity, Jason Kirby (28:13.824) way bigger. Connor Tomkies (28:24.568) firms, right? That maybe you can help them from the LP standpoint, maybe you can help them with like going through the due diligence process, which costs them a million plus just to kind of go through and vet these companies. So there's a little bit of hope sometimes. Jason Kirby (28:39.02) Sometimes, and it's one of those things where it's just like there are, when you think about the sure, there's a lot of volume of money that gets moved in these markets, which I think is interesting, but as far as like being able to capture a percentage of that is incredibly difficult with the technology that at the end of the day, it's a people business. It's people business that get deals done. You can have all the tech to give signal, but at the end of the day, you're gonna be shaking hands with someone. Connor Tomkies (28:46.67) Yeah. Connor Tomkies (28:56.536) Yeah, for sure. Jason Kirby (29:05.301) That's the reality that I had as I entered into the space with some tech was like, keep it a people business. Connor Tomkies (29:12.152) So Jason, what do you see raising capital the most or what do you see being successful at the moment in terms of fundraising? Jason Kirby (29:20.256) I'm seeing it go back to moonshots. I'm seeing less and less of the traditional SaaS businesses get funded through traditional venture. SaaS just hasn't performed to the expectations of multiples or way. They're back to reality. I think reality is set in. So PE can do these deals. You can buy these companies at reasonable multiples. These lofty 10, 20X multiples just don't really exist anymore. Connor Tomkies (29:22.913) Okay. Connor Tomkies (29:37.997) Yeah. Jason Kirby (29:51.392) And so venture is prioritizing like next frontier, you know, and trying to allocate capital towards... There's still some legacy funds, not legacy funds, but funds that have theses, both based on SMB, know, B2B, SaaS, and all that kind of stuff. And funding will still happen, but where a lot of the capital is going is they're betting on big moon shots. And so if you don't have that narrative, yeah. Connor Tomkies (30:16.302) I'm seeing a lot more hardware, like software combined with hardware. mean, like the biggest fundraise this year was figure AI, right? Or at least one of them. And then like looking at changing how we do transportation layers and stuff like that inside our cities have been raising a decent amount of cash. Jason Kirby (30:35.264) Yeah. Industrial, defense tech, robotics, AI, things that at least are now are common sense as these are big bets. Like it's here. Like it's not 15 years ago. Like the technology, the ability is here today. And that's where a lot of the money's going in. And I will probably have the highest yield of return. Now, which ones will win? But with these mega funds like A16Z, think General Catalyst and a couple other big... Connor Tomkies (30:38.285) Yeah. Jason Kirby (31:04.342) funds have raised these huge early stage funds and they're just going to pile it into as much money as they can into the one winner in those markets, which I think is going be pretty interesting. it's how quickly can you demonstrate as a startup founder that you're on the path to the moon? I guess we have the moon to Mars now. It seems to be the narrative. It's like how quickly are you on that path and what can you demonstrate or at least is the idea. believable to be a part of those markets and be a part of those big potential before you make revenue and you have a higher probability of raising money than a SaaS business doing a million dollars a year. Connor Tomkies (31:46.892) I almost feel like there's a limit to how fast the businesses can incorporate the capital. So like if you're raising a hundred million dollars, the, your HR team's not going to double overnight to be able to place the hires that you need to your onboarding processes are not big, like fast and big enough to be able to process those people coming onto your team. Like you only have so much bandwidth in your head as a CEO to be able to do that through your growth plan. So. I'm a little curious with some of these companies that are raising so much capital, their efficiency of deploying it. Like how quick can they take that check and actually turn it into a tangible product? Jason Kirby (32:29.962) I think you brought up a good point earlier when you're kind of looking at, you know, if you could have raised money back when you found something that was working. And I think those are the companies that are in that position where they found something that works and they have a model that can consume as much cash as possible. Venture loves that shit. As like as insane as it sounds to you and I that prefer operational efficiency. Connor Tomkies (32:49.806) Can't it, please? Yeah. Jason Kirby (32:55.98) VCs love that. You can consume a lot of cash, put it to work, show top line growth, and then you're going to need more cash. Therefore, I will get a markup within an X amount of time, and I get to go back to my LPs and say, my TVPI or my MOIC is going to be this much higher in the next round. That's venture math. That's what they need to see. If you don't fit the bill, traditional venture funds won't be interested. Connor Tomkies (33:26.242) Yeah, if you have a three X caq on your customers and you're making money that way, then like, please let me know. I like, let anyone know that we're all excited to invest in that. Jason Kirby (33:38.86) Well, that's ideal, but I would say some cases it's not all going to market. It's like still in development. just can you consume cash towards a very large outcome? So that's, you know, figure AI and what Tesla was for years and like, you know, these big massive companies, open AI that consumed absurd amounts of cash before they actually materialized anything. But it was a promise of it working with really smart people in a, could be a very large market. Connor Tomkies (34:09.656) Yeah, I agree. Jason Kirby (34:09.98) So that's the stuff that VCs love. Jason Kirby (34:21.076) did I lose you there? Sorry. But, know, Connor, before we part ways here, what would be the best way for someone to get in touch with you or learn more about the different initiatives you have with entrepreneur equity or sorry, operator equity and entrepreneur collective? Connor Tomkies (34:21.218) did we hit all of your questions? Yeah, I think we're our second. There was like a weird pause. Connor Tomkies (34:42.956) Yeah, so it's entrepreneurcooperative.com and then operatorequity.com and then you guys can find me on X2 at Connor Tompkins. So I'm around guys and if you guys have any questions, me a shout. Jason Kirby (34:55.436) Should they try to sell their company to you? Should they try to raise money for me? Coming for help? Connor Tomkies (34:59.466) If you're selling a company operator equity, if you're trying to figure out how to scale your company and you want some business owner education and meet up with people inside your area, we have cohorts in Dallas, Austin, New York, and Las Vegas and check out entrepreneurcooperative.com. That's the right place for that. Jason Kirby (35:17.164) Awesome. Connor, I really enjoyed this conversation. Really appreciate you being on the show and look forward to get this out to our Connor Tomkies (35:24.846) That sounds good, Jason. Have a good one, guys. Bye.