How do you pivot a VC-backed brand from growth to a profitable exit?

Episode 108 - Chris Wichert Transcript Jason Kirby (00:00.747) Everyone, welcome back to $100 million exits today we have Chris Wichert with us today the founder of Coyo a luxury sneaker brand that went on to raise $20 million from the likes of the Winkle Boss twins Founders Fund and the founder of Aldo the shoe brand the global shoe brand Chris welcome to the show Chris Wichert (00:23.608) Thank you very much for having me. Jason Kirby (00:25.685) So Chris, you have an amazing story of navigating raising so much capital for some prominent investors, but then also navigating the chaos that came after COVID and the DTC, the direct-to-consumer collapse shortly after in terms of revenue multiples and how the market was dramatically impacted. I want to kind of start with, why did you raise money in the early days? And we're going to kind of guide the audience through what that led to in terms of the opportunity. but also how you navigated the recapping of the business and everything. So let's go ahead and start with, why did you raise money? Chris Wichert (01:02.958) So I met my co-founder in business school in 2013. We got together, we got excited both by the idea of building a brand together and exploring the luxury world. Our goal was to build a modern version of a luxury brand that really takes all the good elements of traditional luxury brands like craftsmanship material, brings it into the digital age and builds a brand that is less exclusive and more attainable. So that was kind of our starting point. And we launched Koyo right after business school. So we moved to New York. We both had business school debt. And for us in order to really get started and survive in New York, we needed some kind of foundation and we needed some kind of money in the business. That led us to explore the path of raising capital. both of us were giving each other like six months. We were like, let's try this for six months. Let's see where this goes. Let's see if we can find some investors to come on board. And if it doesn't go, we go back to Germany, which is where we're from originally. And then of course, the first six months passed, we didn't have financing, but we had a lot of other... Jason Kirby (02:10.635) you Chris Wichert (02:17.198) cool, credible moments that kept us going. For example, we were featured in GQ very early on with like the sneaker of the year. We were featured in Vogue and we had like many of these moments that made us like keep pushing. And ultimately at the end of 12 months, we had our seed round completed. We raised like one and a half million dollars from a bunch of seed funds and a lot of DTC angel investors and DTC office. operators. Jason Kirby (02:49.013) So how did you get those initial investors? Like you had some traction, it sounds like you got the sneaker of the year award, which is pretty amazing, not having much capital. How did you secure those initial investors? Chris Wichert (03:03.118) We were really hustling. We were really like grinding very hard, trying to put ourselves out there and get this opportunity in front of anyone who could be interested. Because of our Wharton background, we had a good network. And then the first few months in New York, we used to meet people, to go to fashion events, to connect to interesting people. And our network has always been super helpful in wanting to introduce us to new people. So we started building on that and we asked for a few meetings with VCs. Our first couple meetings didn't go so great. But we quickly learned like a different mindset between Germany and the US. In Germany, everything is like very, very factual, very, very like... based on like, this is the data, this is the numbers. And in the US, everything is a lot more vision-based. So we needed to learn to present a vision. What's the broader vision here? And for Coyo, that was what we called at the time, we're building the Louis Vuitton for millennials. We wanted to build this new kind of luxury brand. We didn't just wanna build a footwear brand, which is what we would have said in Germany. Jason Kirby (04:13.162) That's good way to position it. And so you navigate this initial capital raise. You've gone on to raise obviously over close to 20 million. When it came to the velocity of the business deciding to continue to raise additional capital, you obviously took care of the initial need, capital need, but you saw this bigger vision, much bigger vision, just a shoe brand. What was the kind of later stage rounds like and how did that influence what you were capable of doing? you know, once the DTC collapse came. Chris Wichert (04:46.83) Yeah, with the first money that we got, kind of got ourselves an office in Soho, started hiring our first two employees. And one learning that we had early on was that it was really hard to sell a $300 pair of shoes while no one knew your name online. So what we needed to do was we wanted to try retail and we used a little bit of budget for that early on. but we would go on weekends in the streets of Soho knocking on doors of retailers asking them if we could come in give them a 50 % commission and literally just display our shoes and see if people would want to buy them and These small experiments gave us some really good data on Wow retail works Whereas at that point in time we might have sold like 10 pairs of shoes a week all the sudden one afternoon We sold like 15 pairs so we saw there was something around retail and next to our store store in Soho, sorry next to our office in Soho, a store opened up. It was a former outdoor voices space. And one of the advisors that we had on board was like, you guys should try to go in there and see if you can make it a pop-up. So we talked to the landlord. The space was way too big, would have never been worked for us, but we got in another brand, cut the space in half, took it on as a three months pop-up. And it eventually turned out to be a store that we still have to this day, our flagship store in Soho. But what this taught us was that retail really worked and it was also a moment for us to build our brand, right? All of sudden we had this banner in Soho that said Koyo, which would help with our online advertising and we would also have a place to bring the community together to show people the shoes, to have them try them on and that really helped us to get started. So, but with retail and the success of retail came also that we needed more money and that we needed to raise additional capital to keep going. So from the get-go, we were pretty much split between retail and online 50-50. And we wanted to build on this. But retail is expensive, so we tried pop-ups in different locations, and we kept raising money. Also, the investors that would come on board, they're not looking for a 1 or 2x return. They want you to Chris Wichert (07:05.15) really push the business, see where you can get it, see if your vision of building the Louis Vuitton for Millennials can come true or if it doesn't. So we kept trying different growth areas and channels. We tried building the team, different channels like retail, eventually also expanded into wholesale. And we're primarily focused on driving revenue and building the awareness of COYO in the US. Jason Kirby (07:34.603) And so what were the metrics that mattered back then for the business when it came to deciding what was working, what wasn't working? Chris Wichert (07:45.142) It was probably only revenue growth and revenue growth and like vanity metrics like features, features in like prominent magazines. Like we were really trying to build the name. We invested in awareness. We wanted like the big fashion houses to hear of us. We wanted the big retailers to hear of us and potentially want to carry us. We tried to go after celebrities. We actually saw a ton of celebrities, including like Seth Rogen. and so many others that wore our shoes not only on the red carpet but also on TV and on their social media. And we were really investing in this to drive the growth of the business. Jason Kirby (08:29.971) And so like LTV to CAC, know, user acquisition, you know, like the typical things that are now expected for any DTC brand to survive today was not even like a thought in your mind. Cause you had access to capital. had, you know, raised a sizable amount of capital compared to most DTC brands. And it was working. And, but then, you know, what happened in 2020 when the COVID happened and the market started shifting. Chris Wichert (08:59.406) Yeah, for us, COVID wasn't great. was our first real inflection point, I would say. At the time, we were 35 % in retail. We had five or six stores in the US. Yeah, from one day to another, all the retail revenue disappeared, but we still had our employees on and we still had to pay rent for these stores. So we needed to figure out a strategy of how to get out of retail. Luckily, a few of the stores that we did were in partnership with another company where they were operating the store. So it was kind of easier for us to get out. It was like the retail as a service model that allowed us a little bit of flexibility. But overall, it was like a big shift in mindset and trajectory. Yeah, we needed to find reasons for why people would still want Corio sneakers. Corio sneakers are dress sneakers that people wear to the office and then to seamlessly transition into their night if they go on a date or if they go to a wedding or if they go to an event. They want to look sharp. They want to be confident in their outfit and we help them with that. But with COVID, there were no more social events. And our shoes weren't exactly the shoes that people would wear, like lounging on the couch in front of their TV. So we had like two big challenges that we needed to tackle. One was the retail challenge and the other was the challenge of like, people didn't need the shoes during this time. Jason Kirby (10:11.775) Yeah. Jason Kirby (10:29.865) And so this transition starts to happen. You have capital, but burning. And what's kind of going through your mind at this point as you start to now look at how the world is changing and how you're having to adapt. Chris Wichert (10:45.132) Yeah, there were lots of things going through our mind. It was my first journey or my first business, my first journey as an entrepreneur. So we needed to navigate and communicate all these challenges to our team. Right. And our team was in a phase where Most people had been on for three, four years and the conversations shifted to what exciting project can I work on now? What's the growth trajectory? What's my salary increase? What's my bonus? And all of a sudden we were in a very different world. So we needed to level set with employees. We needed to be like super transparent with them to tell them like, hey, this is the journey like right now. We need to find ways to make it through this time. And one thing that we actually did was for the whole team, I think for a month or two, we implemented a salary cut in order to bridge some time. We got all employees on board to agree to this. Everyone agreed it was a challenging time and we wanted people to chip in and contribute during that time. Jason Kirby (11:51.308) I think it's kind of fair. Otherwise, you know, there's no cash to pay them anymore. And the market was such a scary time at that point in terms of what was going to happen, where the world's going. So, you know, there's a lot of those kinds of decisions happening. Would you, would you say your team was over, uh, overstaffed at that point? Like, would it have been like better to lay those people off and you were just trying to do right by them? What was kind of the options you were weighing in that moment? Chris Wichert (11:55.554) Thank Chris Wichert (12:21.262) Yeah, I would agree with you that our team was overstaffed at the time. think starting a brand in the 2015-2016 era there was a certain playbook, right? You were driving revenue, you were driving brand recognition and awareness, and you wanted to have good, capable people on your team and like try as many growth projects as possible. The reality has shifted now 10 years later completely. Now there's the playbook of having super lean teams. They're saying like each team member should be driving $1 million plus in revenue for our kind of DTC businesses. So, It's a much leaner approach to everything. And that was probably also the right approach at that time. Again, this having been our first business, there was a reluctance to let go of valued, trusted team members that had become friends too quickly, too early on. I think that was something that we needed to learn. But in hindsight, absolutely would have been the right decision to make a cut there and work with a smaller team and really try to be a profitable, self-sustainable brand. That we then only realized a couple of years later. when interest rates started rising and we saw a few failed IPOs in the DTC space with Albert, with Casper, and all of sudden investors were viewing DTC not anymore as a business model that was going to revolutionize the world, more so like a distribution channel where they shouldn't be paying a premium for. And consequentially, yeah. Chris Wichert (14:13.772) valuations and multiples dipped and it would become very, hard to raise capital. Jason Kirby (14:20.267) I'm going to bring up this point. We're going to save it for later in our discussion. But this, this multiple comparison to like all birds. So all birds went public. Now there's a clear benchmark. There's a couple companies that got acquired, Bonobos and others. not all the metrics are super clear, but when all birds went out and a few others, it became very clear what the real numbers were and the market adjusted and basically priced them way below what anyone anticipated and more of a revenue and more of an EBITDA multiple, which was not what anyone was expecting with, going public and. I think this is going to be a, you know, I'll be at a tap into DTC and we're going to change this conversation. also want to bring it up for what's happening in software today and the AI space. Like software is now switching from a forward feature cashflow multiple than a top line ARR multiple, is. You know, something that a lot of founders need to start catching that win, you know, catching that wave and understanding how that's going to impact their business valuation and how what we saw in 2021 for DTC valuations quickly turned in 2020. to 2023, seeing a similar transition from 2025 to 2026 on software. we'll pin that one for later. with this realization, you're speaking in hindsight. You're looking at like, Albert's fell off a cliff. Did you have the foresight? Like, you saw Albert's kind of falling and collapsing. Did you see that impact impacting you? Or did it kind of like come later after you really sort of feel the pain? Chris Wichert (15:55.631) No, luckily at this point we were, I feel like we were pretty early on in the DTC space to realize that something needs to change and something needs to change today in order to preserve any kind of optionality that we still have. So at that time, I would say like early 2023, we were, well, my co-founder and I were looking each other in the eye and we were like, Hey, we're losing a lot of money here. At the time it was roughly like three million in EBITDA, minus three million in EBITDA that we were using earlier. And we were like, wow, we need to figure something out and turn this company around because we're not growing as fast anymore. don't have access to capital. And ultimately, what's this business worth if it is not making money? And at the same time, we were seeing like, wow, here we have this great brand that all these celebrities are wearing that people genuinely love. I think we have a phenomenal product. Like we would get people telling us, I've been wearing your shoes for six, seven years and they still look as great as on day one. So we had like all these softer metrics that were encouraging us and then we had the hard numbers that were telling a different story. And we kind of looked each other in the eye and were like we need to do like a dramatic shift here or it's gonna be over in a couple of months. So the first thing that we did was we aligned on this with our investors. Luckily we have had a very strong trusting relationship with all of our investors in Koyo, especially with our board. So we were very close with them and we aligned on making these changes now as like the number one priority. And what that entailed was Chris Wichert (17:47.063) Well, we came up with a plan of how we want the company to look post restructuring. essentially it wasn't supposed to lose any more money, but it was supposed to make money. And ideally we would do this without dropping in revenue. So our starting point was to really understand why people are coming to us. So we conducted churn surveys and both my co-founder and I went on calls with a hundred plus of our customers to really like dive deep into why they're buying our shoes. And what we learned was that most people loved us for these dress sneakers that they could buy, sorry, that they could wear to the office, to dinners, to dates, to strolling through the city, like so that they would feel comfortable in their comfortable and confident in their everyday lives. But the reality was that over the years we had expanded and we had expanded way too fast. We added skews not only for men but for women in boots. in loafers, in slippers, in heels and all of sudden people didn't really know anymore what Koyo was. Also with your limited marketing dollars, as soon as you start spreading them out across all these different products, well... your messaging is not as clear and your customer acquisition costs are kind of like all over the place because you're trying to advertise all these different products and all these different messages and some of them work some of them don't work. So we realized we had a focus problem and we needed to bring our vision back to what we started with. And that meant cutting SKUs. So we probably cut 40 % of our SKU portfolio and we also put product development on hold because we went from releasing 10 SKUs a season to releasing 120 SKUs a season. And we're really reeling this back in. Chris Wichert (19:47.247) Then the next step was what do we do with our team? We have been working on so many growth initiatives that we can't finance any longer and we probably don't need that big of a team. And we made the drastic decision to cut 70 % of our team in New York and shift to a remote first organization. So that was probably the hardest step. in this whole journey, letting go of people that have worked with you for four or five years, that became your friends, that you really trusted and enjoyed working with. But it had to be done or the company was going to be done. So we did that, we closed our office, we closed retail stores other than one, and we shifted into this remote setup and started hiring a few people that were really essential to the business in remote positions all over the world, whether it's South Africa, Brazil or Turkey. All of that, of course, there was a lot of friction, right? As you were like letting go of your customer service team and rehiring your customer service team, you're realizing there's no one to answer customer messages anymore. So, us founders had to go back to the early days and be super hyper involved. In hindsight, that was also a blessing because we discovered a lot of things that weren't optimal anymore after... years of like having processes build up and hierarchy build up in the team. Chris Wichert (21:25.551) And at the end of the day, we did this 18 month restructuring turnaround for our own business and the results were remarkable. We cut indeed 3 million in cost in 18 months, didn't drop in revenue and all of sudden we had a very clear focused brand positioning. We had a small lean team and the business was making money. Jason Kirby (21:51.775) So get to this stage, you went through basically hell and back, the self-realization of what must be done. But obviously there's other choices you could have tried to, some people throw in the towel at that point, it's too hard to turn it around. Yeah, and wind it down and. you know, tell your investors too bad, sad. You guys kind of fought through, you found a way to turn it around knowing that really there was no more capital left to go out and get a great, that was a skill you developed, raised 20 million in the DDC space. but that capital had dried up, interest rates had changed. No one's paying those premiums and those are the multiples. But effectively when you got to that point, okay, you salvage the business. Now it can be self-sustaining. It can generate a profit. Pat yourself on the back. But what happens then? What happens when now you have this cash flowing business? Did you have debt that you had to deal with? Did you have disgruntled investors? How are you navigating at this point? Chris Wichert (22:53.549) Yeah, great questions. The lucky thing was that we never took on real institutional debt. So our balance sheet was always very clean. The only position that we had that involved that was inventory financing, which was more than fully backed by all of our inventory. So we were always having like a strong balance sheet. And now we also had a relatively strong P &L. At the same time, we needed to be real with our situation, right? Like we had just invested another 18 months into the business. At this time, we've been with the company for seven to eight years. And we realized that we were pretty diluted after raising all of this capital and then not being able to keep raising at higher multiples. And so... We needed to question like, what's our long-term goal? Like we built a strong emotional connection with the brand and we also really wanted to make right by our investors who we've had a great relationship with. And we also wanted to prove ourselves that we can do it. But at the same time, we were heavily disincentivized. So yeah, again, one of the first things that we did was like talk to our investors and see if there's an alignment that if we keep running the company, they would. give us some more incentives in order to do so. So we looked at the liquidation preferences of the business and address them together with our board in a very productive way. That was kind of like step one. And I think what's been so important in getting this done is like having this trust with your investors, having them see that you are burning for this company and that you're really like trying everything in your power to Chris Wichert (24:53.993) to get it to a certain place. And that was always the case with us, right? That was always the case with us. all our investors were like, wow, like this is an unfortunate market timing and market condition, but you guys are really like trying things left and right and like, chapeau that we're at this position now where this business is making a profit. So my co-founder and I were like, so what can we do? Like generally when you look at the bigger market, you see all these big incumbents, you see some bigger DTC brands and you see so many small fragmented players in the footwear space. How can we create value here? In order to build the luxury brand, we realized it's a long-term gain. We're not going to accomplish that in another year or two. We need to keep investing in brand, brand, brand, brand to justify these price points. We need to keep building our... product portfolio, need to keep really evolving the core your brand. this can be another 10, 20 years to come to get it to the place where you want it to be. And I think the game in high end premium is very different than in a regular commodity kind of brand. But for us, we learned that it was a long-term game and we need to be willing to play that long-term game. So. In order to compete with incumbents without raising more money necessarily, we discussed the idea of doing &A, potentially mergers with other footwear companies that were or are in a similar situation in order to kind of combine forces, be able to combine teams, be even leaner, and then have the advantage of a little bit more scale, which can reflect positive in your cost of goods sold and... Chris Wichert (26:44.439) and try to compete from that point of view. So there was a period of time for a year where we explored the idea of partnering with someone else and combining our businesses. And what we learned was twofold. On the one hand side, and that goes back to your question of like, were we early realizing that the DTC market was going to shift or? were relayed. A lot of founders that we talked to were still at the belief like, no, my company is worth X, multiples on revenue. I don't want to accept reality. So the options were limited. But there were some founders that like where this mindset had kicked in that there was a new reality and they were willing to explore merger with us. So we explored this pathway for some period of time and ultimately decided against it to then. Jason Kirby (27:39.499) So I want to talk about that a little bit more because this happens all the time. you know, two companies kind of adjacent, nothing's perfect. Maybe are we stronger and better together? And you went through the exercise to suss that out. Why did you back out of that? Like what evidence or what data came about where you're like, this isn't the right path. Chris Wichert (28:00.879) So in order for these things to actually go through, a lot of things need to be true, right? I think you need to have great chemistry with the other founders. You need to have an alignment on. Who does what going forward? You need to have an alignment on how much longer we're committing to this. How much more money are we adding to this? What's the product strategy? And there has to be an alignment on so many different levels. And besides, do these brands fit together and does it make sense from a financial perspective? So. A, all of these conversations took a long time. It wasn't just like one or two meetings. It was probably three to seven months meetings to get to a stage where you could really fully assess what it meant and if it made sense, including getting your existing investors on board to potentially provide more capital for the new company. But for us, or what we learned in this process was that we didn't want to be running a footwear company for the next 10 years. That was a big learning. As we were analyzing the growth strategy for the next years, we felt like, honestly, pretty exhausted. We've been at it for eight years. We've tried a lot of things. We knew it was a long-term game. We did not necessarily want to commit to another five to 10 years. The other thing that we learned was that our balance sheet was very clean and not necessarily, that was not necessarily the case with some of the parties that we talked to. it kind of like, yeah, put us in a position where like, are these two brands together really stronger or are we like also inheriting like some new risk with this deal? Chris Wichert (29:56.891) And ultimately, yeah, we decided that this was not going to be the right move for us because of a combination of these things that we would rather shift towards trying to sell the business altogether. Jason Kirby (30:13.148) And so you succeeded in that effort. Let's transition to that experience of kind of identifying the buyer and running that process. Chris Wichert (30:26.797) Yeah, so the good news was that I had already networked quite a bit in the footwear industry and in the DTC space. And that also gave you an idea of like the investors in the space, potential buyers in the space. But we knew the situation was going to be challenging because we knew both founders wanted out. That rarely helps in a sale. Jason Kirby (30:53.726) Ha ha Chris Wichert (30:56.207) We generally, think footwear at our size is also a tricky category. It's not an easy add on for the big strategics. Steve Madden tried it with grades in 2022 where they bought the company and then it was too small for them to really care about it. So subsequently the company grew smaller and smaller and now they sold it on. So with that warning sign you also knew like that the big strategics weren't necessarily going to go for it even though we tried talking to a few of those. So the starting point was really like identifying the potential buyer universe right. Here we have the big strategics it's very unlikely. Here we have some PE growth players that could be interesting. And then here we have other DTC brands where footwear could be a good addition to their portfolio. And here we have other smaller footwear brands. Here we have a few aggregators. Here we have a few family offices. So we started collecting names in these worlds. I was meeting a lot of people. I was speaking to... Yeah, to bankers in the space to get an idea of like who these not so obvious names would be. And then started reaching out to them and started asking for meetings, introducing the company. And... We actually got quite a few meetings over the process of the next two years. had more than 200 conversations with potential buyers. So a real process started to form. Chris Wichert (32:47.567) Luckily, due to my time in investment banking, where I started my career, I had generally an idea of like how to run such a process, how to put together deal documents, how to present the company, how to put your data room together, what is it that investors are looking for, and kind of like tailoring our materials to that. So we got some momentum, we talked to a lot of people. And I think it was like close to the end of 2020. when we had still around 10 parties that were at a stage where they were interested and we were hoping to get to the LOI stage with many of them. Then early 2025 the terrors happened and all of sudden everything that we had worked for kind of just like disappeared because a ton of the players that we were talking to had China exposure, had massive China exposure and they were like, well, with this going on in the world, we really can't be thinking about buying another business right now. We need to have more certainty of what's going on in the market. But we were determined, like the business was in a good position, like late 2020 or the year 2024 was the best year in the company history and 2025 even topped that. So we wanted to use that momentum and close the deal. And ultimately we had still two parties in the race until the very end and then decided to go with the family office that is based in Miami because we believed that they would, yeah, really be able to take this brand to the next level and at the same time respect everything that we've built and cared for. Jason Kirby (34:42.291) What was that like coming to that conclusion after running such an insane process? 200 parties, getting 10 at the table, getting punched in the gut. tariffs happen, but still driving an outcome. Like from my experience in working with countless founders and countless transactions, like usually people throw the towel. know, people, you know, give up, they'll go back to, you know, trying to cash flow the business or, you know, try to create some spark back in the business. But, you you were able to drive it all the way home and, you know, be able to open yourself up to new opportunities because you were able to drive that transaction? What do you think made, what was your secret sauce, whether it's just your pure determination or something else that ultimately led to you driving that transaction all the way home? Chris Wichert (35:39.747) Yeah, great question. think 2025 has been a very emotional year, probably one of the most emotional years of my life because it ended a 10 year long chapter and it's been a roller coaster ride, right? Like as founders coming to terms with that this journey ends. even though your identity is so tied up in what you've built in the brand. I didn't even know Chris outside of Koyo anymore. Then trying to manage the company through all its ups and downs and bringing it to an end despite everything that was going on in the market I think was really a result of like Yeah, determination plus having had a strong foundation, right? I think our strong foundation consisted of us having cleaned up the company first and foremost, having a strong balance sheet and having strong investor relations. So we were aligned with our investors on what the outcome should be. They were supporting us in getting this done. There was no like gray area. Like we were driving towards the same goal. we had a very clean balance sheet. So the risk that anyone would take on with Koi was rather small. Like also the business, we had been in business for 10 years, right? You kind of know what you're gonna get. The company is not gonna go to zero in the next years, right? But I think over the course of the 10 years, like probably the biggest learning as an entrepreneur has been to deal with setbacks, disappointments, and to keep standing up, like the level of resilience. I think at the end, wasn't any different in that process. We had a goal. We wanted to get that goal done. So we were just more determined to get to the outcome than anything else. Jason Kirby (37:57.109) That's impressive. And I think that it's something that a lot of founders, think, especially it doesn't have to be DTC, but you know, anywhere, any industry that founders have kind of gone through this, this ramp up and ramp down cycle on their sector. I've come to the conclusion of like, see so many founders are just, no, we've got to keep going. And it'll turn around like whether it's magic that they have in terms of turning around the business and growing it to some exponential number or. you know, the multiples will turn around. I was like, I tell you now, multiples don't turn around. Once they, once they're set, they're set. And they only progressively get worse in most cases. Like multiples from 2022 to now, um, will probably be continuing to depress and or leveling out. Um, and so a challenge I talked to founders about, I'm curious to get your thoughts of like the, the time value of money and the value of your time versus, you know, taking cash off the table now, concluding the deal now at what the current market terms are, despite them never going to be what they were. But can a founder truly create so much upside, despite the headwinds, to where investing another three to five or 10 years into the business will truly actually yield a higher return to where the IRR, factoring in inflation, all that kind of stuff is worth their time. And it's better to, cause also it's like, what else could you unlock as a founder? Could you go build something else? Could you go do something in AI? Could you join a firm like Thunder? and so, you know, I'm curious as you ran through, you guys are tired. You know, I think that was an obvious statement that you made of just like the, time had come. but as you think about what it unlocks for you by selling the business and moving on to something else. Chris Wichert (39:28.815) Exactly. Chris Wichert (39:47.395) Yeah, I think a few learnings that we've had along the way was like, we started every year kind of motivated with like, here's what we're going to do. These are our growth levers, right? We're going to bring out this new product. We have this cool collaboration with the Jonas Brothers. We have a partnership with Nordstrom. We're expanding into more doors. We are testing Europe. Like we had every year, we started with these growth initiatives that got us excited. And I must also say. like the high-end footwear market, it's really a cutthroat market. I feel like we probably picked one of the most competitive spaces that we could have picked, where you have all of these growth ideas and you execute them, you put a lot of effort and energy behind them, you execute them well, and it often just translates into like very minor marginal upside. One example that I want to give is like, for example, like if someone posted Koyo on Instagram, Like we went away from like even five years ago, we went away from seeing direct sales and revenue because it's a high consideration item. People don't just buy it as an impulse purchase. And that was true for everything. Like that was kind of like the sphere for everything. So whatever we tried, we knew most things would only be marginal, but we were still so optimistic and positive about the next year. Right. And at some point you learn to be more realistic with what these growth opportunities actually mean. Right. If you've gone through that cycle and have been disappointed a couple of times. And as we were exploring mergers, we Chris Wichert (41:37.091) got exposure to other seasoned founders that have built great businesses where the footwear company wasn't necessarily their first business and we got a lot of perspective. And the perspective that they brought to us, which I'm super grateful for, was that, hey, you guys need to also start thinking about your opportunity costs. You can't just be like, trying to get this done in order to get this done and to do right by your investors. You also need to start thinking about you and what you ultimately want out of there and like what other opportunities exist out of there. And that kind of like kickstarted, I would say two, two and a half years ago, the process in our mind where we are like, yeah, probably for us, this is not the best path financially to keep. to keep doing this and keep testing these growth initiatives. And I think you need to be super realistic with yourself. And that also implies being realistic about the prospects of your business. Oftentimes, once your business has lost like real growth momentum, it's very hard to get it back. Very, very hard to get it back. And I would say 90 % of times founders are too optimistic about the value of their brand and how easy it is to grow the business. That's definitely something that I see now as I'm working with lots of founders across the DTC space that there is this level of being too optimistic about the next year. And we were too, we had to learn to not be. And I think the same is true for like multiples and valuations of companies. We were always saying like, this is probably the worst, maybe next year. Consumer sentiment is going to come back plus our this growth initiative hits and then we could sell for 20 % more. But yeah, if you've after having done it long enough and after having spoken to other people who've sold companies before I feel like we we got a perspective to be more realistic and that realism helped us to drive to an outcome today rather than tomorrow. Jason Kirby (43:52.651) So you brought up a really good point there of, if we just do this, we can get 20 % more. 30 % more. And that's usually an arbitrary number that's like, you know, finger in the way. Like, that's what I feel. And I feel it's so important to get like the data and how it's trending over time to kind of understand what's happening to the comps. And also it's, it's so tough for founders to have the truth of like, this company sold for 300 million. Like, it's like, well, I had a founder come on my, come on as a client that saw their competitor close 300 million. And they're like, wow. Chris Wichert (44:03.203) Mm-hmm. Jason Kirby (44:29.612) like they're probably doing 50, you got six X revenue. was like, no, we found out that they were doing like 350 in revenue and they sold for 300 million and they were profitable. And you know, that was just such a shock to their system of like, wait, so they got less than one X revenue. I'm like, we're not taught, we should stop measuring in revenue multiples in this market in particular, do you see? and know, consumers and things that consumers CPG, know, the multiples is just completely shifted and like getting that outside perspective, someone that can kind of come in and be honest with you about the reality. I think it's such a crucial thing for founders to experience to be able to get to that realism that you had and understand like, okay, if I just reshape my perspective, look at the pros and cons of my alternatives, and I can make a. a real decision. Cause the other thing is, is I'm always seeing in some cases, unless the company is continuing to hit 20, 30, 50 % year over year growth, like the multiples, you know, the value will decrease over time in terms of like who's, who's willing to pay what, you if you flatlined or you're growing like 5%, 10%, you know, the mojo is lost. Someone's going to look into coming and acquiring it from an opportunistic perspective, most likely, you know, where they're going to want to, they're taking on risks. So they want to buy it at a price low enough to where they can potentially turn it around and make a sale for themselves. And so it's important for founders to realize like, okay, if you had a good year last year, maybe now's the good time to take it to market and try to run a competitive process with a realistic expectation on exit value, knowing that unless you got the energy to rapidly growing the business, the faster you sell, the higher value you're going to capture. I'm curious with kind of now with your expertise and what you're seeing, Chris, because full disclosure, Chris has joined Thunder as a partner. He's leading our DTC side of the business helping company, DTC founders do exactly what we're talking about here. Transact, &A, debt or equity, whatever the situation might be. For Chris, for what you're seeing right now, what are you observing from founders in the current market today that are looking to transact? Chris Wichert (46:56.399) Yeah, good question. So I think like this DTC phenomenon of like venture orphans is very prominent, right? It's like companies that raised money pre-pandemic at high valuations. They're now in a situation where they can't raise at the same valuations. So they would either have to raise a down round or they can't raise at all. So generally, I think there is going to be this bigger wave of consolidation coming. think more and more founders are becoming more realistic with the value of their business, like compared to what I've seen three, four years ago and now, like I feel like there has a big shift, right? There has been a big shift. We've seen, I've seen so many founders that started with us in the consumer space that just like closed shop and ended their businesses. And for the founders that are still staying on board that are... have run their business now for quite some time, they're also realizing that DTC is not the end all. game here and that just focusing on DTC is really really hard in terms of building your brand. It feels like every year it's going to get harder to grow through meta and the more you're exposed to just your own website as a selling channel, the harder it is to grow and the harder it is to diversify your growth options. So what we're seeing in the market is definitely that omni-channel brands that are not just Chris Wichert (48:36.331) Pure Play DDC are demanding higher multiples and what we're seeing from founders is yeah I think a combination of like reality kicking in plus having exhausted some growth options plus being open to finding new ways to really create value for them. I think a lot of founders are at a point where they're trying to understand what's my business worth, how much value have I really created, like how much longer do I have to do this before I can take money off the table? And yeah, and I think what we're really good here at Thunder is to like help founders get clarity on this and also to think creatively about how to maximize the outcome. Jason Kirby (49:31.691) Yeah, it's also setting their realistic expectation. know, you and I had a call earlier today, founder, real business, real revenue, you know, has dealt with ups and downs, been doing it for years. And it's tough. Like sometimes like people just want to, cash out and you know, it's, it's fun when we talk to founders as they, they feel they have to present their All their options are like, no, yeah, I'm open to staying with the company or I'm open to this or that. And like, you can also kind of tell deep down inside, they would just love to cash out and get as much money as they can and try something else. But it's just, it's so hard for them because they have to always have their defenses up. Always have to have their guard up. Cause you know, if they say the wrong thing, do they lose an opportunity? I can definitely empathize and I know you can on that front of just always having to like kind of puff your chest and be like, no, everything's great. yeah, we're doing great. It's like, but it's hard to have a candid conversation and really get to the facts when those guards are up and people can't really identify what's going on to provide any kind of support on that front. Chris Wichert (50:41.517) Yeah, absolutely. I think two things that I think are that I've learned over the years that are important is like, If you are starting to think about how to realize your value when you need it, it's probably too late. If you want to run a full exit, you need to really prepare for this. You need to be in market. You need to start building relationships. You need to start optimizing your business for the metrics that these buyers want to see. So it's not something that just happens overnight. And I think having clarity on what your strategy should be in order to maximize your founder outcome is a super helpful thing and you should start thinking about this rather earlier. And I think this is where we'd love to help, to help you get to that level of clarity. And the other thing that I think is key here is that your capital strategy that you choose early on or that you choose on any given day really determines your outcome down the line, right? If you go down a certain path and then not commit to or not commit or for whatever reason not hit the numbers that you're supposed to hit with that are associated with that path, then you're in a tricky situation, right? We raised VC money on day one and our business is a business that didn't necessarily need VC money or it's a more traditional business. We should have properly partnered if we needed money with family offices, with strategics, with angel investors more so than with VCs and we needed to course correct many times over the next 10 years in order to get to an outcome that was still beneficial for us founders. So I think it's super important to think through Chris Wichert (52:32.599) your capital strategy early on to yeah and have this be a much bigger piece in your overall puzzle of how to build a company and brand. Jason Kirby (52:47.077) And it's. the, and not just early days, but also just knowing before you make the move, like there, you know, one thing we haven't talked about is I think you avoided it, uh, merchant cash advances or like the, Stripe capital or the Shopify capital loans. This is what most founders in this space fall into. And it's, it's such a trap for it's like, Oh, here's easy money. Oh, like it just comes out and like, it doesn't feel like a real loan. It just, you know, comes out of your page, you know, out of your, uh, it's like basically first money out. like before, you know, credit card fees are even paid, like they're, getting paid, daily or weekly sweep. And this is something that we had a client of ours that pulled one of those. before we were able to get to market with a proper debt package, an equity package, and because they pulled that loan, they basically, all the options were dead. Yeah. And then that's the thing I want to share with any kind of DTC founder listening. It's like those, those loans are a sign of, unhealthy balance sheet or an unhealthy business. And if that's the only capital you have in like some cases, like this client didn't need that capital. They just. didn't realize that they could talk to other people that could provide higher quality debt. Jason Kirby (54:07.638) And what often happens is now have countless of my friends that have these businesses and the two to $20 million range, in this cat and the GDC space, but they keep drawing and like they're all their gross margin in your country or sorry, other country beach Mars is going back to paying these, these loans and it just can't get out of them. And the math is hard. It's really hard to kind of figure out the math on these MCAs and determine like, what am I doing? Right? What am I doing wrong? Like how much is actually coming out and paying these? And the products are designed that way because they're super high risk for the lender. And so they have to like have all these schemes in place to protect their downside and capture as much of that cash upfront and return the capital so it can be redeployed as quickly as possible. And it's such a disadvantage structure for founders, especially in DTC, have to manage like cash flow conversion cycle or cash conversion cycles and inventory management. You have to have all this cash going out to be able to make money. And people kind of use these MCAs as a stop gap because it's easy. Oh, I can get $400K right now. Easy. Chris Wichert (55:16.665) That's the thing, right? You can sign up to it with a click of a button. You don't have to really go through an underwriting process that's long. So it's so easy and so quick. And I think, yeah, that makes it so dangerous. Jason Kirby (55:31.146) It's usually when a business goes from growing to surviving. Chris Wichert (55:36.515) Mm-hmm. Jason Kirby (55:36.588) And that's what I've noticed is, and it just becomes like, it becomes so hard to fund the growth of the business when so much cash is coming out so fast to pay back those MCAs and the effective rates on those things can be anywhere between like 20 to 50%. Um, in terms of like APR, cause you're paying it daily. So cash is going back when you actually factor in the APR. doesn't like, Oh, it's only like a 1.2 factor rate. You know, or something like that. It's like, nah, it's like something like 30 to 50. Chris Wichert (55:57.921) It's very. Chris Wichert (56:02.447) And it. Jason Kirby (56:06.541) 50 % Chris Wichert (56:07.867) I think the real danger is where it gets really tricky is when you start stacking them. When you don't just work with one of them, but you have two, three. And then all of sudden your future cashflow is just like promised to other parties. So yeah, the future revenue is very important for you to protect because you want to have this to reinvest in the business. Jason Kirby (56:31.475) Yeah. I always tell founders, just pretend that money doesn't exist. You know, hit the X button when you get the ad for it. when you're logging into like, it's just so it's brilliant business for Stripe and Shopify and all the providers that offer it. Yeah, unless you used, unless you have like rapid growth, like you need to be growing faster than the percentage of which the cost of capital is. Otherwise it's just going to eat you alive. And the problem is like, Oh, you'll just grow out of it. You know, no problems. Like once that, once that one's taken, I see very few companies grow out of it. And it constantly becomes the only source of capital to get access to. And the only way to get out of that is they go and get worse capital from some, you know, kind of very, like they all serve a purpose in the market. So I don't want to say anything bad, but it's not like shark loans or anything of that sort. But it's like, very aggressive loans that you will live to pay back those loans. You will operate the business to pay back those loans. And it just makes the business not much fun for a lot of people. it's, but then it's like, well, how do you get out of it? And it's just, it becomes a painful Chris Wichert (57:28.687) Mm-hmm. Jason Kirby (57:35.646) So, um, as founders are exploring their options in this space, stay away from those loans, talk to, you know, we'll take a call. We'll be happy to kind of share, you know, what other providers out there will be able to help you on those particular situations. Just make sure you're always coming before you need it. Cause if you need it, it's 10 times harder to get it. But if you want it from three, you know, like in a few months, or you have some plans, you want to grow, that's always the best time to bring it up. It's always best to start your options as early as possible, especially in the in a front, Chris, as you were saying, need to be in market as early as possible. Whether you're saying you're for sale or not, just having conversations. People need to know you exist. People need to know what you're, what you're building. cause as much as AI is eating the world right now, people like to do deals with people in the finance world and fundraising and deal making. And, people only want to do deals with people they know. So. Chris, it's been great having you on the show. Obviously you and I are going to do some more shows. And we're going to talk more about D2C, what's going on in the market. This is more of an introduction for people to kind of know who you are, hear your story, what you built at Coyote. And it'd great to leave some parting advice for those founders that are currently exploring their options. Chris Wichert (58:54.637) Yeah, I think it really goes back to be proactive and be early. Like, don't try to preserve your optionality while you have optionality. And if you, if it's already past that point, then like try to recreate your optionality. Like don't wait until it's too late. Really like make capital strategy a key cornerstone of your company's pillars. Not just an afterthought. and be prepared so that ultimately you can optimize for your personal outcome as well as just building the brand. Jason Kirby (59:34.219) Well said. And if anyone wants to talk to Chris or myself about their business, wants to have a conversation about what could be done, what options might exist for them, uh, shoot us an email. You got chris at thunder.vc or myself, Jason at thunder.vc. Uh, always happy to have a conversation and, uh, you'll feel free to subscribe to our newsletter and our podcast, uh, down in the description below and, uh, hope you enjoyed the show. Chris Wichert (59:59.097) Thank you, guys. Jason Kirby (01:00:01.913) Right on the hour.