About the Host

Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called The Value Advantage™ that helps in exit planning, value building and financial management.

About the Guest

As the US Venture Capital Leader for EY, Jeff Grabow works directly with rapidly growing, venture-backed companies and venture capitalists in Silicon Valley. He has been part of the venture finance environment on the West Coast for over 30 years and has experienced first-hand Silicon Valley’s explosive growth. Jeff is passionate about identifying opportunities for early stage companies to exploit global markets and promote sustainable growth.

If you listen, you will learn:

  • How Jeff got involved in the venture capital world and what his journey has been like.
  • What venture capital is versus other type of investment types.
  • Where the capital sources come from in this type of investment.
  • Jeff’s thoughts on maintaining a certain percentage of ownership as a venture capitalist.
  • What the process looks like from the entrepreneur’s perspective when it comes to establishing a partnership.
  • Jeff’s thoughts on situations where things went very well and when they didn’t go so well when it came to venture capital. Jeff also talks about questions that people should be asking as they evaluate their successes or failures.
  • Why expectations and honest evaluation is so important for entrepreneurs.
  • Thoughts on the new trend of corporations who are getting into venture capital thanks to the current market landscape.
  • Ways that people can go out and do the introductions and co-mingling between entrepreneurs and potential partners.
  • The latest big ideas and movement as it pertains to venture capital and Jeff’s best advice about balancing your optimism with a cushion.

Full Transcript

Announcer: 00:06 Welcome to Life After Business, the podcast where your host Ryan Tansom brings you all the information you need to exit your company and explore what life can be like on the other side.

Ryan Tansom: 00:16 Welcome back to the Life After Business podcast. This is episode seventy-one and have you ever wondered what goes on and what it's like inside of the world of venture capital? Well today we have one of the US' top experts on the show, Jeff Grabow, who is head of US venture capital at EY, which is formally Ernst and Young, and he shares with us his twenty-five years of experience, the ins and outs of the venture capital world. So you'll learn on today's episode how VCs are different from other types of investors like private equity firms, the various types of VCs, where their money comes from and what their motivations are, and then what a partnership would look like. Raising the money, partnering, working with the board, and then looking to eventual exits with that venture capital and what that would actually feel like as an entrepreneur. So without further ado, here's the episode with Jeff.

Announcer: 01:04 This episode of Life After Business is brought to you by Solidity Financial's growth and exit planning. Their proven process gives you clarity on all of your exit options and how those options impact your financial success, timing and future happiness. Sell your company on your timeframe to the right buyer at the price you want.

Ryan Tansom: 01:27 Jeff, how are you doing today?

Jeff Grabow: 01:28 I'm doing great. How about yourself?

Ryan Tansom: 01:30 Doing good. Really pumped to have you on the show today. I think you've got some crazy experience and a lot of different, uh, stories that we can dive into. And before we do that, you know, you and I sat down at the EY entrepreneur of the year award in Palm Springs. You got a ton of great exposure to the amazing people you work with and you've been there for a long time. For our listeners' sake, if you can even just give us a little bit of a journey through, you know, how you started in there and how you ended up in the VC world that you are today.

Jeff Grabow: 02:01 OK. So it's a unique situation and a unique job. So I've been with EY for thirty years. I spent my first five years in the audit practice and the last 25 I've been really immersed in the venture and entrepreneurial world. And so what I do is I kind of, three things that I do at EY, one is I help EY figure out where we deferentially invest our time to work with companies. You know, there's a whole host of companies out there and we can't serve them all. So part of my job is to help find companies that will be high growth opportunities for EY to serve and hopefully take public. A second is I do a lot of relationship building with VCs that we do a lot of work with. Uh, one thing I'm doing right now and spending a lot of time on is helping connect our large clients who are looking into innovation and figuring out that they can't always invent it in-house and to figure out ways to get them exposed and intertwined into the venture ecosystem and help them connect with companies that might provide either good point solutions for them to use, good companies for them to invest in or potentially buy at some point. And then the last is doing a thought leadership, uh, what's going on in the venture world and things like this.

Ryan Tansom: 03:22 And I think that's a perfect tie in to the kind of the setting the stage because I think, you know from the listeners, a lot of entrepreneurs, depending on the different size of the company is what is VC versus private equity versus angel investing and like all the different span. But you know, from the, the, the years of experience, can you kind of give us your definition of VC, what is a VC in its truest nature and where you end up spending your time.

Jeff Grabow: 03:50 And so from a venture perspective, venture investors, you know, their job is to maximize returns for their limited partners. And in doing that they need to find the best use of their time and the capital that they've been entrusted to deploy. And so typically they're looking for deals that fit a certain profile. And that profile tends to be what they want is they want companies that have a product by and enlarge that they've sold into a few different situations and solutions that have what they call product market fit they've under, so they've got a solution and they understand where they can sell it into and they've got a, a repeatable, a semi-repeatable process that they'll hopefully refine over time to where they can sell into companies and then hopefully they'll tackle verticals and then they can take those solutions up and then take them to other verticals with the idea that they can get acceleration and grow the company over time. Seed situations... an angel... are gonna be investing more on the product development cycle and where things are near solution or maybe in Beta in some of this is there may be some bleed over on both sides, but they are... The situation is such that it's never been easier to start a company from a cost perspective. Historically, you know, the, the cost to start these new technology companies has plummeted in the last fifteen years.

Ryan Tansom: 05:24 We were actually just, sorry to interrupt. We were just actually talking about that because like literally you don't need $20,000 worth of servers and a bunch of storage and all that stuff. You can zip some stuff up and put it all together without all the capital expenditure that used to have.

Jeff Grabow: 05:35 Yeah. And so that has created a very level playing field in a lot of areas where you can re, you can cobble together, now you can stand up a company on $50,000, which in a lot of regions that's not difficult to come by. And some people have the ability and the desire to write those kind of checks all the time and um, that, that typically tends to be more of an angel, a seed environment. Um, but then those types of investors typically will not, will not be heavily involved in the venture side. And then you, then you start to scale into growth capital, which could entail private equity. It may not, but private equity tends to invest by and large, given the, because of the size of the, of the funds that they have in these, these people are sitting on multi-billion dollar funds and they need to deploy hundreds of millions of dollars if not billions at a time. And that's hard to do in a company that's raised, you know, you know, 50,000 or 100,000 dollars. It's got two customers that may have paid them $150,000.

Ryan Tansom: 06:45 It would be interesting to see how they spent the whole half a billion dollars. If they didn't do that.

Jeff Grabow: 06:50 Yeah, probably not. Well then you're, then you get away from your capital discipline and you're, uh, you're a nature of being scrappy and uh, and that's not a good thing. So, um, but that's kinda the, the. Hopefully that gives you kind of a flavor for the, the breadth of the capital markets.

Ryan Tansom: 07:07 No, it does because it's important because we've had private equity firms on the show also family office firms and just, you know, really seeing the landscape and how everybody's different I think is just getting everybody's perspective on where they're coming from. And I think that is... leads into the next question on. So these limited partners. So let's dive into where does the money come from? Who are the type of limited partners and you know, when you're talking about the private equity funds, they're deploying lots of capital. How do you know, where did the limited partners come from and generally how are they expanding their portfolio?

Jeff Grabow: 07:39 So the, the capital sources for the venture funds are endowments, um, universities, insurance companies, institutions, large endowments. And venture is an alternative asset class inside their overall portfolio mix. It get also could entail private family offices. Some family offices will be, and I know some family offices that do have venture exposure, whether it's direct investment into VCs, into venture back companies or into funds. And so yeah, they're looking to raise... so VCs that get a partnership together, we'll draft a offering memorandum. They'll go around to accredited investor. So typically you're not going to just have anyone off the street and primarily because a) they don't, excuse me, they don't have capital because you're not going to take small floats of capital. You want, you know, if you're raising a 250,000,000 dollar fund, you're going to want people to do 20, 25 million dollar or maybe ten to fifteen million dollar placements.

Jeff Grabow: 08:49 And so... because you want to have, you don't want... managing your investor base just like an entrepreneur thinks about managing their cap table, venture capitalists need to think about managing their cap table. And the other study is, you know, the accredited investor nature of it, you need to have... It comes from sophisticated people who have - this is risk capital - so you have to have the wear-for-all to be able to put this capital in a higher risk asset class that you won't see for ten years. Because these partnerships agreements are ten years long. You can extend them, but they - I mean this is highly illiquid capital that's put into high-risk ventures with the idea that you are going to get very high returns for the differential risks that you're assuming.

Ryan Tansom: 09:31 So let's say you've got a bunch of limited partners that have aggregated and they've got the two hundred fifty million or whatever are the ones that they want to deploy a lot of private equity funds where they raised like, you know, a $300,000,000 fund or they've got a couple of them that get into the billions. They have a handful of companies that are, you know, mid-market, healthy, mature companies in this. Is there a certain amount of companies that they like because I mean is there a certain... you know, it's kind of like gambling, right? To a certain extent where they place their money in all these different companies and they expect, you know, a few of them... what are kind of the ratios and what are the expectations that they have for how they deploy that?

Jeff Grabow: 10:08 Well, I mean there's, everyone's got a different strategy on how they deploy capital and that's part of what limited partners who are going to look towards and help evaluate who they deploy capital to. So there's no standard playbook, but you know they are going to invest. Depending upon the nature of... the size of the fund, you're going to invest in x-number of companies because if you raise- if a company raises a $5,000,000 round and it's syndicated between two funds, so each puts two-and-a-half in, you're going to need to reserve a certain amount of capital if you're going to take additional positions. Because one of the strategies that you want to make sure that you do is as a venture investor, you want to maintain a certain percentage, typically of ownership, and so the $5,000,000 is not going to get you to the finish line, usually, because it always takes longer and more money than you ever expect. Which is one thing for one tip for entrepreneurs. And so you're going to want to maintain that prorated position, so you're going to want to be contributing in downstream round, so you're going to need a reserve. So you'll need to map out how much money you have, how many deals you think you're going to do at what size, account for reserves, account for salaries, et Cetera, and kind of do an entire budget and work backwards from that.

Ryan Tansom: 11:30 Which is interesting. What is the main percentage that most people like to reserve?

Jeff Grabow: 11:38 A percentage is hard to say. What I would say is that, you know, if you're going to put, you're probably gonna put, most funds are probably, you're probably going to think you're going to put, depending on the size of the fund, anywhere from five to probably going to put 10, $20,000,000 to work in any deal we ever take. Could be more, could be less.

Ryan Tansom: 11:59 The percentage I'm assuming changes as the different potential partners or people pop up and you want to make sure you're maintaining the level of involvement that you want in that specific deal.

Jeff Grabow: 12:08 Yeah. And you know, depending upon what kind of fund you are, sometimes that may, sometimes you may decide if the deal is is incredibly highly valued and evaluation just keeps going up and up then you just ride... the value keeps increasing, your percentage of the ownership may actually decline, but the pie gets so much bigger that you're fine with that. So it all depends.

Ryan Tansom: 12:32 Got It. So let's dive in a little bit to who are the limited partners and how to... When you and I were talking at the conference, it was, you know, some of the main things that we want to kind of dive into is, as an entrepreneur goes out and is picking, you know, a VC to partner up with, there's a lot to take into consideration. So not only do the ventures that are out there deploying to specific deals or looking for things - and I think that that's a whole episode in itself - but it's also when you flip flop it as the entrepreneurs looking to raise the money and looking at the different types of deals and the different types of partners know what is the involvement and what is the kind of the process look like as the different types of partnerships that are out there?

Jeff Grabow: 13:15 So from an entrepreneur's perspective, if I was to raise money or to work with an entrepreneur and talk to them how they're doing it, what I would say is you need to understand who is doing the types of deals that you are. So if you're a software company, you know who does software deals? So if you're a software as a service company, you know, deploying your solution as a SaaS solution, who does SaaS deals? And knowing who they are, knowing... So because they've got expertise, they're going to understand these general markets. Then also know what deals they've done. Understand who is in your ecosystem. And you don't want to approach somebody who's done a competitive deal and it doesn't matter that you may not think that they're competitive to you. Um, if the venture firm thinks that they compete, then that's where, that's the definition of competition because then you're going to spend all your time trying to convince them that you don't compete with what their investment and not talking about necessarily what you do and how you can help make them money, but then you look for opportunities that you kind of come up with a small, a short list of people of who do you think for whatever reason makes sense to invest in your company. And that can be from an individual partner perspective where they sit in the ecosystem, what they can do, a whole host of things. And then I would put together a target list of firms that you want to approach.

Ryan Tansom: 14:48 Well, it's so interesting too because when you think about there's a lot of capital out there that wants to be deployed from a lot of these different big institutions and which we can talk about in a little bit, but you know, as the entrepreneur, coming from their perspective, is like finding the money, whether it's smart money, dumb money, whether it's strategic money, you know, I think there's a lot of different things to think about because you know, you're getting $5,000,000 to build your payroll and you know, do the rnd or whatever it is to deploy it, doesn't mean that they're going to necessarily provide value to you in that. Is that kind of what you're referring to the ecosystem is like how you can leverage their talents or skills or whatever it might be?

Jeff Grabow: 15:29 From a venture partner perspective, you know, these... part of their job is to... it's not just money, it's also all the other things that they can help you do because at the end of the day, they're supposed to help grow these companies so they should... Dave Hornick wrote an interesting piece on it. It was linked on his twitter feed the other day about, um, what makes a good board member? And good activities of a board member. I thought it was interesting just because, you know, he talks about making yourself available to provide insight and help because you know, a CEO's job, you know, think about it is very, at a startup company, is very lonely. You are the, you're the person, you are the man or the woman who the weight of the world, that company, is on your shoulders.

Ryan Tansom: 15:29 And now $15,000,000.

Jeff Grabow: 16:23 And that can be a very lonely position. And so you need to have others that can help you, be resources to you, and a lot of people look to you. But then, so on top of the capital and the fuel, it's, do you know we're trying to sell into X, Y, Z company. I see that you know people there. Can you help? Can you help me get connected, because we're having a hard time finding the right person? Helping recruit people, helping close people to come to work for them, providing candidates. A whole host, a litany of things, around how you help build up the corporation and how you help build a business and time into the company accretes back to them in an increased valuation.

Ryan Tansom: 17:10 That kind of goes into your, one of your first comments about how you spend your time because you can leverage time with those kinds of connections and that those are significantly valuable if they line up with- the VC lines up with the right business or ideal.

Jeff Grabow: 17:28 Yes, return on time is a huge. Time, is the one resource that we all get an equal amount of. [Ryan interjects: 168 hours a week!] And it's non-regenerative, so once it's gone, it's gone. And so how, you know, finding people who can help you maximize that and create value. Because money, like you said, money is money, but sometimes you might just need money. I mean, this is all situational, too. If you truly need cash early on, but you know, thinking about how you finance your company, I guess stepping back, you want to keep it moving forward and having people who have been there done that on the team and making sure that there's room for them on the cap table so each time we go back and raise another round, that there's plenty of room for additional people to add value versus just taking large amounts of money from people who may not be able to add any value or who won't stick by you or won't be by your side when things get a little dark.

Ryan Tansom: 18:36 I'm sure with your experience, you've got a couple stories that come to mind in a scenario like that. So maybe if you want to toss up a story, a short story on someone that you've seen do it really well and maybe some that you've seen kind of go south when the pressure got on.

Jeff Grabow: 18:52 So when we think about that, professional investors have a tendency that, you know, this is in their job description and things don't al- you know, every professional investor's got examples of situations where things worked out really well and things didn't work out so well and that's the nature of their business because in reality, most of the time it's probably not going to go well because they're kind of in the business of outsized returns. Nothing ventured, nothing gained. That's why it's called venture capital, you know, so you can figure out who, you know, when you think about who you line up with, there are, you know, everybody clicks with different people for different reasons. And so even inside in an investor base, you're going to find people that you may more naturally have an affinity for over others who can provide certain things and that would be part of your decision making process in terms of who do you approach and who do you target to get into your company. So, um, because we don't really talk about, you know, horror stories and everybody's got them. But, you know.

Ryan Tansom: 20:02 I think, you know, it isn't necessarily talking about horror stories, I think it's about, you know, one of the biggest things that I don't think people think about until afterwards, which is kind of the whole start, build, grow, finish, exit and it's how that partner's going to be involved in all parts of those because you're just as married as with them as you are with your spouse and you know, [Jeff interjects: probably more so.] I would agree with that! Right? A hundred percent. And so how you're picking that partner, whether you're clicking with them, there's the strategic value that they gap but how they interact and the decision making I think is important. And you know, I think that's a lot of things that, things that happen in the PE world where they don't realize who they're partnering up with and then whether it's micromanagement or no oversight. And so when you think about that whole with as the entrepreneur's partnering up with the VC and working with them, what are some of the key decisions? Or is it the questions that they need to be asking about? Whether it's when something goes wrong, how do they deal with it, you know, when and how they exit? I mean, what are the things that they can do to be... What kind of questions do you think they should be asking along that?

Jeff Grabow: 21:06 Well, you know, if we're talking about evaluating, it's talking to people. The interesting thing today is information is widely available compared to where it was fifteen to twenty years ago. So it's talking to others who have worked with them and understanding, doing kind of reference checks on people that you're, you're wanting to do business with or, or part of that could be in the approach process because you're going to hopefully try to find somebody who can make an introduction to somebody you know and that introduction process you can ask the questions around so what is it like? Because that's, you know, that is a great way to get in front of somebody has to be referred in by somebody who's known to them and you can kind of figure out what it will be like to work with them. You know, one thing is that it's also how you handle bad news as well and how you deal with it and how you present it to your board because the board never likes to be surprised. Even if things aren't going necessarily great, you're probably going to be rewarded well if you keep the board apprised, they keep them ahead of the curve rather than feeling like they're being told about bad news after either after it's occurred or after it's too late.

Ryan Tansom: 22:22 Well, I think, I think you hit on a really important topic because a lot of entrepreneurs- their biggest fear is, I mean they have this idea, they birthed this baby of a business that's going to be out into the world and who they're partnering up with, how they're dealing with the problems. And the biggest fear is Travis with Uber, you know, understanding like "I can be ousted from the company that I started" or the jobs are all these, you know, the story of the big stories that everybody's heard of, you know, how do those situations come to be? And then how do you protect yourself if you're the entrepreneur and then what are ways that you can mitigate that situation?

Jeff Grabow: 23:06 One interesting perspective is to have everybody look to a handful of icons who birthed- started their company, took them public and are still either CEO or chairman today. And there is only a few of those people, and there are eighteen thousand plus startups in the United States today. So most people, most entrepreneurs won't end up there. And that's not necessarily a bad thing because you know, do you really want to run a company of 20,000 people? So everybody's got a different passion. But it's figuring out how you lay that in and work with your investor base, you know, over time to grow the company and your interests are aligned when it's, when you're talking about trying to grow the company and create value because you know, you as the founder have equity in this company. And so whether it's you getting it to a certain stage and then you know, taking a chairman role or taking maybe your passion is product development and somebody else needs to come in and take it to the next level. Is that necessarily a bad thing? Not necessarily as long as the value is continued to be created for everyone. It's hard for, you know, having never been an entrepreneur myself, so it's easier for me to have that perspective after having not gone through that because at the end of the day I think everybody's trying to make sure that something's bigger and better at the end when the ultimate time for exit is such that everybody's walking away with something for all the hard work and the risks that they took.

Ryan Tansom: 24:40 Well, I think that was very well said and it's a degree of self-awareness and I don't know how many people or, you know, entrepreneurs or deals that have been blown up because how often do you see that the entrepreneur has unrealistic expectations of becoming Jeff Bezos or someone that's running this company and doesn't realize where they fit into the story line as the company grows? I mean, how do you guys, how do VC... how do people deal with that?

Jeff Grabow: 25:07 Um, that's something that, you know, the board has to... that's one of the things that would fall under the board's purview and it's about giving the CEO, the, you know, giving him some feedback on how things are going because part of the job is, you know, hopefully the founders growing because they're going to learn a lot. The founders are going to learn a lot going through this process and you don't always get it right the first time and most founders are serial founders, so going, you know, and what can you pick up on? What can you learn and what do you not do again? What do you do differently the first time- the second time that you didn't do the first time?

Ryan Tansom: 25:49 I was going to say, what do you think are the biggest mistakes that entrepreneurs make as they're going through this process? I mean are there like a couple that you see that are common trends that you could kind of almost see them coming because they happen so often?

Jeff Grabow: 26:03 The two things that we see consistently is, and it's not, you really can't fault anybody for it, but it always takes more time and more money than anyone ever anticipated and it's for a variety of reasons, but one part of it is how quick product adoption happens, but when a lot of times when these deals are being pitched, it's all blue sky. I mean these are markets that will evolve and we and investors and entrepreneurs think they know how the world is going to evolve, but then life starts to happen and other competitors enter the market and people find out that, oh, it's not as useful. Or they didn't like it for x necessarily, but they may have liked it for y, you know, for a different solution. And so that's when you start to get real feedback and that's the art of entrepreneurship is how to deal with all that feedback in a real-time basis and um, process it all, take it all in and continue to push forward. And the analogy we use, it's kinda like when you leave San Francisco to go to Hawaii sailing, it's not a straight shot. The art of sailing is tacking and it's going back and forth and catching the wind and sometimes you're going to, sometimes the wind is going to die and you're going to have to tack and figure out how to pick up the drift to keep you moving towards Hawaii, even though it may not seem like you're moving towards Hawaii.

Ryan Tansom: 27:25 And I think that's a great analogy because I mean who you're sailing with are the people that you need to be on the same level of communication with. Because if you're not communicating, there's no way you're going to actually get there because it takes, it takes a whole team.

Jeff Grabow: 27:40 Yeah. If your time horizon's off, typically you're spending cash while the time extends, so typically takes more money and then there becomes a time at which point you think that there may be optimal time to turn up the energy and so that requires typically a lot more cash.

Ryan Tansom: 27:54 So how do people go about that situation, then? If they're communicating most of the time, they're probably all... it's probably closer to a non-event, but you know as... is there a certain breaking point where you see people shut down the deal because it's just, there's no, you know, light in sight? Or like how do they go about actually making those decisions because if it's a 10-year time horizon, I mean that gives you quite a bit of leeway. But how do you deal with at the time and cash horizon?

Jeff Grabow: 28:24 Well, I mean in a specific situation, a lot of times what you'll find is it's time to raise your d-round, so to speak, and you've got your other investors in, but typically you'll need to find a new lead investor and the inability to find that new lead investor would be a trigger to say, OK, well we either need to sell the company or shut it down. If we can't find anybody to buy it, well, we'll need to shut it down just because we've reached the stage where, OK, for a variety of reasons we can't... We're not going to continue because we may have hit our, we may have hit the spend that we thought we were going to spend and we need somebody else to help validate what's going on or help spread the risk.

Ryan Tansom: 29:10 Got it. Let's shift gears a little bit because I want to make sure we talk about it for a little bit is you know, as we looked at, you know, where these funds are coming from. You mentioned at the beginning from the endowments in the universities are insurance companies and such, but there's this new kind of wave happening in corporate or corporations that you and I have talked about, which I think is very interesting because it's something that's different for them trying to hit their returns, but can you explain a little bit of how corporations are getting into the VC game because of kind of the market landscape?

Jeff Grabow: 29:41 Yeah. Um, when you actually do spend a lot of time talking to some of our large clients about this. And I've done some work for some of our clients on deals and it's not so much a, uh, the, the big trend that we're seeing if the tech-enablement of industries. And so you look at it in financial services, healthcare, insurance, transportation, logistics, you know, there's a lot of things going on that, um, are being tech-enabled. And so as a response to that, we're finding that corporations- some corporations are saying, "OK, we may no longer be able to innovate as effectively inside as companies as entrepreneurs can outside." And so what we may do is raise up our head and decided to look around and look at what's going on outside our four walls and they find that it helps give them a greater perspective on what's happening. In a lot of cases it's a better approach to take because it's better to look around to see what's coming as opposed to wait for somebody to show up on your doorstep and show that they can all of a sudden, you know, apply technology in an innovative way and take a significant piece of margin out of your business.

Ryan Tansom: 31:02 Does that follow the kind of, the philosophy of Peter Diamandis, the exponential organizations where they're... these big companies are buying these incubators and leading them away from the mother ship because it's so difficult with the bureaucracy of some of the bigger companies and they're trying to almost develop the company that could put them out of business, like the Blockbuster starting like a Netflix almost or something like that. I mean, is that kinda what you're seeing? Or is it more just about staying in line with where their current businesses that they're just slowly venturing outside a little bit.

Jeff Grabow: 31:34 A lot of it depends upon the nature of the organization and what their DNA looks like. But you know, a lot of times it can be a mix of we will get some financial return for this. It will be... We can maybe find commercial deals that, you know, technology that we can put into our product. Maybe it's technology that we can sell. We had worked on some deals where there's been side arrangements where we're the client, our clients investing in technology and there's also they're gonna sell the product through a dealer network that they had. And so we think we get a double lift and you know, and maybe something we might ultimately buy you know, if it becomes very successful, maybe we may want to buy this thing or we may not. They may just give us exposure to what's going on into an evolving area.

Jeff Grabow: 32:24 And it just gives us better visibility into how the world is developing. And so it's a mix of those. It can be a mix of those things and it depends upon the overall strategic, you know, the nature of what the initiative is being under, you know, being pushed forward based upon. But I mean typically what we see is, and to be successful, I think what, what corporations need is a kind of a two-fold approach is you need somebody who understands what the wild looks like, you know, who can go out into the wild and has been out in the wild and has done deals and has seen technology and has worked with entrepreneurs. But then you typically need to pair them with somebody who's, who knows how to navigate the ecosystem inside the corporation because it, a lot of stuff can come, can be brought back in and killed.

Jeff Grabow: 33:14 And so, um, I had a friend who used to who had that problem back in the late nineties, early two thousands for a very large global conglomerate and he would come out to Silicon Valley and he would find all this really cool stuff and he would go back. He was headquartered in, he was in Europe, but you go back and nobody wanted to see it because it wasn't invented there and he became very frustrated by that and so having kind of an outside-inside ability because you can help, you know, getting good deal flow is a critical success factor of any venture investor, whether you're a corporate or institutional, but if you're, you know, navigating the internal organization if you're being brought in from the outside can be very difficult because you don't have the history and having somebody who knows the history of the organization and what's been tried before and who sits where and where the bodies are buried and who put them there is important.

Ryan Tansom: 34:08 Well, I do... And what's really important about all this stuff that you've kind of explained to you is, you know, for an entrepreneur to actually successfully go through the intro, start, grow, exit phase... Knowing all this stuff that you just talked about is crucial because you're understanding the motives of the buyer. And I think, you know, in my perspective, there would be a heck of a lot more successful partnerships if you understood why these buyers are doing all- the partners are coming in and doing this stuff because then you will have a pretty good self-awareness of what the end goal is instead of just navigating yourself trying to go, you know, steer yourself, set it to Hawaii and go completely over to New Zealand or something like that because you've got at least the same campus and where you're going. So as we kinda shift this around a little bit, what are, you know, when, uh, when... what are the actual physical ways that people go out and they actually do these introductions? Are the VCs out there cold calling or is it networking if you're an entrepreneur to get partnered up? What are the actual ways that all the co-mingling actually happens?

Jeff Grabow: 35:15 So VCs are out speaking at events, they're out there out attending events. They're very public in their profiles in terms of web pages and you know, most people know how to get to them; what venture folks are looking for are kind of curated deals. So from their network of people that they went to school with, that they maybe have funded before, you know, they're looking for introductions and so it's trying to find, you know, and so when you look at the ecosystem, there are people that will help make introductions and that can be people that they have funded before. People who have been successful entrepreneurs before, um, service providers who work with them. So we make introductions. If we think something's interesting, there may be opportunities for us to make introductions. Bankers, you know, the bankers that work closely with the venture people and help provide venture debt and other things are good sources to make introductions as well as attorneys. Attorneys that um, a lot of times we're sitting in, acting a secretary or sitting in the board meetings with the, with venture investors on other deals.

Jeff Grabow: 36:30 And so they've got, they're in close proximity to people who are looking for more deal flow. That is qualified, that it's some degree of qualification, because the challenge is, is how do you wade through everything that's out there?

Ryan Tansom: 36:48 Well yeah, and kind of the ecosystem you keep referring to is... you're also really vetting the individuals too. So it might be a great idea and all this, but I mean you got to figure out what degree of crazy is this person that's bringing this deal to you so you can vet him out through the created ecosystem as a VC, you're mitigating your risk because you've got a lot of people that are vouching for you.

Jeff Grabow: 37:08 Yeah. And somebody's not going to because of the way it's kind of like an unverified yelp review. But you know, if I send off five crazy ideas to people, they're going to stop answering my emails. So I have to have a degree of conviction that something's going to happen is, does anybody else who passes along and says, hey, it's worthwhile to take, to have somebody take a look at this.

Ryan Tansom: 37:37 Do you think that those situations that you just referred to, are they more successful? If someone has an idea that says, hey, here's the, you know, the few companies, here's what I think, here's why I would be a good fit, literally looking way down the horizon, or is it too bold to kind of be that presumptuous or is it more beneficial because they've got a little bit more foresight?

Jeff Grabow: 37:58 Um, I'm not sure I understood, but...

Ryan Tansom: 38:01 So if, you know, if an entrepreneur sent out a little note that says, "Hey, you know, what, here's my idea, I've got a lot of conviction, here's what's going on." But if they took it a step further and said, "Hey, you know, this is, I believe the potential exit options or the people, the buyers, or here's literally, you know, a couple of steps in advance." I mean, is it almost laying the map or even a little bit more, would that be something that would be more beneficial or do you think it would be too presumptuous and potentially hurt the communication line?

Jeff Grabow: 38:29 I don't think it's too presumptuous, but I don't know if it's necessary because you don't know how things will... You don't know if that's the way the world will develop. That's the assumption. But if you can paint out a picture that says we think we can, yeah, we can provide the solution that solves this pain point and we know that- and we've got three customers that have bought it, then that gets their interest because you know, if you're solving a high value problem, there's probably many more people out there that will pay that will, that will pay for it and then you spend. But once you spend your time doing is finding out ways to get very targeted introductions as opposed to a cold call or an email drop into somebody's box. You try to get somebody to share the opportunity with them and seeing if there's, you know, on your behalf. I think that's more powerful. And then yeah, and making sure that you communicate that there, you know, that there is a huge market out there as well.

Ryan Tansom: 39:31 Right. And I think that piggybacks into one of my last questions is you and I had talked about, you know, there's like this sliding scale from you've got the angel investors that are looking for the rnd or the seed rounds that are really just trying to get something off the ground and then in the VC world there is kind of this, there's this narrow spectrum in my mind and then, because you and I had talked where then eventually you get to the point where you could get different types of financing, whether it's from a PE firm or a family office or whatever word - you know, how in like the operational maturity of the business or where you know, you keep referring to the people that I've got some customers who have proven that there's a problem. What are some of the criteria that in that spectrum that you would really like to highlight?

Jeff Grabow: 40:17 Well, not every deal is a venture deal. Venture deals need to be companies that have the potential to deliver out-sized returns. If you, if everything works the way you think it's gonna work. So opening a coffee shop, you know, on the corner of your hometown is not a, is not necessarily a venture deal. Opening up a global coffee chain maybe is, so you know, size of scale. It's understanding where it fits in that and private equity deals are typically going to be put into companies that are already operating.companies that are typically generating profit. They're EBITDA-driven, profit-driven where you can do carve outs of divisions or very interesting things that may have a lot of financial engineering around them. Whereas venture deals tend to be deals that are... it's kind of brave new world and it's a better, faster, cheaper, but it's better by factor of ten or fifty or 100, and it's faster by a hundred.

Ryan Tansom: 41:23 The fact that everything's not a venture deal. And again this is kind of the difference between the coffee shop and the Caribou Coffee and you know, it was way different. It's the big idea and I think, you know, Jeff, your spectrum and your oversight of how much you see, you know, can you kind of give us a little bit of a market overview of what you're seeing, what are the big ideas that are out there? Because I think you mentioned that the tech-enabled industries are disrupting a lot of things and I think a lot of people see that, but what are some... where are the big ideas coming from right now? What are the things that people need to be looking out for or where do you, what are, where's the movement happening?

Jeff Grabow: 42:04 Well, if I knew that, my wife would be much happier, we'd be living a much lower stress lifestyle, et cetera.

Ryan Tansom: 42:08 It wouldn't have been talking to me.

Jeff Grabow: 42:18 I'd still talk to you, but uh, yeah, that's what I tell my partners. It's like- because they always ask me, "Is this going to be like the next big thing?" And I'm like, "If I knew that, we wouldn't be having this conversation." I wouldn't... I'd be calling it in from the beach. But I think the trend on tech enablement, I mean that has a huge tail and I think that reaches across the country because you- I think you're going to find there will be people in the next several years who find ways to apply technology into businesses that dramatically drop cost and take significant costs out of business, enhance margins or just drop prices altogether. When you look at... and we're looking, EY is looking at the application of technology in our business. We're taking a serious look at that and figuring out ways to take analytics into our audit practice and provide much greater transparency on trends, much greater analysis in a much quicker time.

Jeff Grabow: 43:18 And in a way no one ever could, probably. That's just one example. You'd think that we would not be, you know, besides buying laptops, you would think that's all we would be doing. But now we're looking at that because we think that is the future of how we, you know, deliver our service. And I think there's numerous industries across the US and around the world that can reap the benefit of that. Especially when you start thinking about all the, you know, and this is sounds a little cliché because I hear it a lot, but all the data that gets thrown off from all the digital footprints that are being made every time a keystroke happens and how you take that, compile that, parse it, and make sense of it, compare it, analyze it and deliver a better solution.

Ryan Tansom: 44:08 And that's every industry and what I find interesting too as we're talking kind of global technology trend, too, because I see this whole wave of baby boomers that are going to be... as they're looking to exit or sell their companies. But there's the technology disruption in every industry is so huge that you know, where the value is placed on different industries and different companies is going to be so interesting to see how it all comes out. Because someone could create a software platform like you said, for 50 grand and they can create an entire ecosystem of inventory that already exists versus because they got data versus the service distribution models that are, you know, very prevalent in the US right now.

Jeff Grabow: 45:00 Where is value in a digital environment, in a rapidly growing, enhancing, digital mobile first environment. Where is value? Thinking about it in that realm from an entrepreneur's perspective and how do you capture value through a solution that companies can't live without.

Ryan Tansom: 45:14 It's really interesting. Have you ever read the Book Platform Revolution? [Jeff answers: I have not.] It's a fantastic book that kind of talks about the different kind of way like it kind of dives into the value and where these platforms are creating value in the different KPIs that they're measuring value on because in the digital world there is no inventory or lack of inventory because it's all abundant so you can race to zero marginal cost crazy fast and it's kind of an interesting concept when you... How do you project out future value when potentially you could be racing to zero instead? [Jeff interjects: Well, zero cost, one hundred percent margin.] Right, right. But what I was saying that, what I was going to say is that it depends on the- again, if someone else comes out with another $50,000 platform, they can undercut you. Where it's like what business is Amazon in? Because it's all about where their profit center is and what else can they give away because they had zero marginal costs in other areas.

Jeff Grabow: 46:13 Well, because they understand.. they have such exposure to you across so many different aspects of your life.

Ryan Tansom: 46:21 They've got the data. Well, I really appreciate you coming on the show, Jeff. I mean all the different pieces that we've talked about. If there's one thing that you were to leave our listeners with that we either talked about that you want to re-highlight or leaving them with, what would it be?

Jeff Grabow: 46:42 I think that one of the points I made... a couple of points that I made is it always takes longer and more money than you ever anticipated and it's not because- and people are always optimistic and they wouldn't be optimistic, you know, if you're a... You can't not be optimistic and be an entrepreneur, so building in some cushion around that is is helpful because it gives you more runway from a finance perspective and a time perspective.

Ryan Tansom: 47:10 And being aware of that and how you communicate is huge. I agree. Thank you so much for coming on the show, Jeff.

Jeff Grabow: 47:15 Thank you very much, Ryan.

Takeaway

Ryan Tansom: 47:19 Thanks for sticking in there. Until the end. I hope you enjoyed the episode with Jeff. I think the world of VCs is so intriguing because they're at the forefront of all the best ideas that are happening in the US and the world and how all these different companies and all these different industries can take off and if I had three main takeaways from the interview with Jeff one was exiting once to a VC is an actual thing. Whereas in you birth an idea, you have this business that you were starting, you've got customers, you've really beta tested the market and have started solving a problem and partnering up with a VC is a form of an exit because you have to pick a new partner that is going to be in the thick and the thin

Ryan Tansom: 47:59 of everything with you. So really knowing how you're partnering and exiting with that person for the next ten year stretch and then again there'll be a time to exit because the whole point of that as a return for the different players at the table, so understanding what partner you're partnering up with and where that eventual exit will take you. you might not know, but knowing who you're partnering up with is crazy important. The second is being very self-aware of all the different motives on the team. I think if I can constantly reiterate anything in this show, it's follow the money and you'll find the motivation, so understanding where the money's coming from, who are the partners, what are the motives that the partners have, because when something comes to a challenging decision, there will have to be decisions made and knowing where the motives are will help you navigate those scenarios so you can have the best outcome that you possibly want. Which brings us to the third takeaway, which is the ability to communicate with your investors, with your board, with all the people that are riding on this idea, and this business is really important and being transparent with that communication will always help you come out the other side in the best light possible. I really hope you enjoyed the episode with Jeff. If you're liking the show, please do me a huge favor going to itunes and give me a rating. So until next week, I hope you have a good one for.