"You're going to have to manage your cash flow fairly well and you're going to have to get fairly granular into where your cash comes from, how that might change going forward, and you're gonna have to manage risks significantly."

- Bernard Batt

Bernie outlines what he looks for in a start-up

Talk Takeaways

For this interview, Jeffery Potvin sat down with Bernard Batt on how angel investing is Bernard’s way of giving back to the community. While majority of his assets are deployed in the real estate asset class, angel investing keeps his synapses firing and lets him understand what is out there in the community on a macro level.

Bernard also talked about his investment portfolio thesis where he shared the investment mix he has employed to get him through a recession. True to his finance background, to get through these hard times, Bernard advises companies to look at your business in an insolvency standpoint. Entrepreneurs have to look at where the cash is coming in and where the cash is going out.

About

Bernard is currently the Finance Director and safeguards the financial wellbeing of KEY, a provider for Admissions Consulting, Early Childhood Education, SAT and SSAT preparation and tutoring for students in BC and in China.

After university, Bernard consulted within the financial advisory group at Deloitte & Touche LLC in the restructuring practice. Bernard left Deloitte to join the first jointly TSX and SEHK-listed company as Assistant Controller, where he was based in Vancouver and Hong Kong. He returned to Vancouver where he contracted for the controller group at Goldcorp Inc., the largest gold miner by market capitalization in the world at the time. A graduate of St. George’s School, Bernard attended the University of British Columbia majoring in accounting followed by obtaining a CMA accounting designation.

The full #OPNAskAnAngel talk

Jeffery:
Bernard Batt, welcome! I’m excited to spend some time learning a little bit more about you and what you’re looking to invest in. And today we’re asking Angels so, we don’t like to waste time, we like to jump right into things. So, Bernie why don’t you give us a little bit of background about yourself. We’ve known each other for a few years, we’re part of the same screening committees, we work on lots of different projects, chat all the time about startups, but now, I get to explore a little bit more about how and what you think and see in the world of startups. So, maybe you can give us a background of kind of where you came from and what you’re up to now.

Bernard:
Yeah, okay. So, I guess a little background by myself, I am I guess, I’m an angel investor currently. Invest in a lot of different asset classes but I also work as an analyst for the angel group and I guess I really started my career working for Deloitte and Tuition, Vancouver under the restructuring guidelines, so, I would go in for performance enhancement reasons or for insolvency reasons. So, that’s a little background, I have some experience as an entrepreneur. In that, I have a company back in Vancouver that’s still going on – that’s an educational consulting business and then we also have brick-and-mortar classes. Not currently given the COVID crisis but other than that, yeah, I guess I have some real estate ventures in town here, and yeah so, that’s kind of me, a natural.

Jeffery:
So, it keeps you busy. So, maybe give us an idea of what actually got you into the investing side? Getting into the angel world, what kind of steered you in this direction?

Bernard:
Yeah, I mean, I was looking for a way to deploy capital that kind of supported the better side of things. So, I guess I have a background in it, working for a coal miner in Mongolia and so it’s a metallurgical coal business and it’s a minor. And I guess getting into the angel world was kind of my way of giving back to the community, I guess.

Jeffery:
Very cool! So, is there one thing that you like a lot about the angel side of things around it? Like what’s your favorite piece of the investing side? What kind of gets your blood flowing?

Bernard:
Yeah, I mean I guess that the angel side, kind of I guess, for me, I- the majority of my assets are in real estate but I guess when you- I’ve always thought of real estate as an asset for those that are not so intellectually stimulated. I guess, so, I guess working with angel community is a way to kind of keep all my synapses firing and kind of understand what’s out there in the community and I guess, I’ve got really gotten into the macro side of things over the last little while and as a result kind of my investing methodologies kind of changed a little bit.

Jeffery:
Well, that makes it sound a little bit more interesting. I want to kind of pull back onto your real estate side because you mentioned that maybe this is the plain jane space for investing and that it’s maybe not as people are probably looking at it a different way. You obviously got into it because it’s an asset class but maybe you can give us an idea of where you see that going right now? Obviously, the world’s trying to figure it out. People are working from home, they’re talking about no one’s ever gonna go back to an office again. I’m kind of thinking that’s not true but you’ve got some properties in that space. So, the commercial side is there something in your mind that you’re saying, “you know what, we’re innovative but this is the direction we’ve got to go.” How are you guys looking at the real estate side from an investor down?

Bernard:
So, I mean I’ve been pretty lucky from the real estate standpoint. In that, I don’t have a whole lot of my tenants that are hit super hard. I don’t have any retail, I do have office space which for which some of my tenants have been hit pretty hard, but mostly just the really small ones. So, I’ve got Canada post in there, Canada post is not going to close down its shop. I’ve got a company that’s probably fine firing on all synapses because of not all synapses but firing all cylinders. Because they are banking software companies so, they are actually- the demand for banking software and stability is just so high right now, and then my other big tenant is a company called Northern Commerce, in town here. And they’ve been targeting some bigger and bigger companies as a result to this COVID crisis. People have to move online and they’re just one of the companies that does that really well and at a lower cost basis than and then a lot of other companies out there just because we’re based out in London Ontario. And then I have some industrial buildings, and they can’t move anywhere because they and they’re not shutting down either and they actually do better in recession because they people tend to buy less wholesale when they’re not building as big things, and they buy more retail and the whole move towards just-in-time manufacturing processing, and all that it actually helps these guys out. So, I you know, when I bought all these buildings, I bought them all four buildings in 2016. And when I bought them I was thinking man we’ve got to be super long in the tooth on this cycle so I tried to buy things that wouldn’t get hit super hard in the event that we had a recession, I don’t think we have a recession due to a virus but, I did think we’d have a fairly deep recession this cycle.

Jeffery:
So, you kind of planned that out when you were making these investments. So, what made you jump into the real estate side? And then, now back into the angel side was the- did you look at the portfolio and just say, “you know what, I’m gonna balance this out by doing something that’s gonna be more long-term play. Dig it in and then over here I’m going to look for more innovative innovation,” is that kind of the idea behind it?

Bernard:
I guess I got into the angel side of things more as a philanthropic prospect in order to, you know, if you donate to a charity, it only helps people for a month or two months. Whereas, if you donate to or if you invest in a business then, they actually, they hire people for a longer period of time and all those benefits continue for many years. Hopefully yes, and-

Jeffery:
Sure, well if you’re donating money, I can find a few places for you to make some donations, but in the startup world, but I think I do like that. I like that you’re looking at when you have a balanced portfolio, you kind of have to figure out, “okay, if I’m going to do a little bit in real estate, this is why I’m going to go summer in startups. I’m gonna, I want to give back, I want to help build the base so, the communities continue to grow and move from there,” is there you mentioned a bunch of the companies that are actually working inside your the buildings and they’re almost COVID proof it kind of looks at even when you look at the startup world are you seeing from an investor’s standpoint that there’s more going on in trying to find investments that are covered proof?

Bernard:
Yeah.

Jeffery:
More virus proof?

Bernard:
So, I actually looked for deal flow for the equation angels group. So, I have had an incredibly difficult time finding deal flow and the reason for that is that I, nobody I guess, right after it happened nobody had adjusted their models yet so that kind of shows me they’re not ready to come back into the game yet, if they haven’t adjusted their models at all, right? I mean you have to take into consideration that there’s going to be a difference in demand whether that be up or down, that’s definitely something to think about. And then, the next question that I really wanted to dig deep into was how they were going to get their next round of financing because you know, with vcs going, risk off as well that next round of financing is going to be extremely difficult to get for companies that aren’t in certain sectors because vcs are not spending money anymore but they’re targeting sectors that are going to do really well. Going forward.

Jeffery:
So, you mentioned they haven’t changed their models, can you give a little bit more detail around what you mean by that? Like COVID is a one instance but, are you now saying we need to be more insular around protecting our companies to be able to operate in any pandemic, in any environment and, any issue? Because this is going to roll out in six months and then life goes back to normal or- and you know what, about all the companies that weren’t that way and you know, they come back and flourish again, so, how do you really balance through that?

Bernard:
I’m more talking about the worst-case scenario, where the company is still predicting that their 2020 sales are gonna be x amount. When clearly so, that the short term forecast is definitely an easy way to draw some red flags. Now, is that really going to impact the value going forward, I mean, I’m personally of the perspective that companies are going to like- everybody has a customer, and a lot of our customers, and in that we a lot of our companies that we bring through the angel crew are b2b plays, and for those b2b plays you gotta step into the shoes of those customers of those b2b plays, and think, “are these guys gonna really buy this kind of software when they’re in the middle of pandemic?” Usually, those budgets shrink significantly if like even if top-line revenues go from a 100% to 90%, you’re gonna see marketing budgets that’s significantly lower. We’ve already seen that, if you look at what kind of revenues that advertising advertisers are producing like on content. Yeah, you’re getting a lot more views but the value is a lot lower. So, I think going forward that we’re gonna see a trend where marketing spends gonna be a lot lower now, companies that actually lower the cost basis for these companies, they’re gonna have an easier time because companies are gonna be looking left, right, and center for ways to save money. But, not really for ways to spend it more and then, if you’re looking longer term which you should be doing, if you’re angel investing, you need to find the companies that are going to shake out in the end. And, actually you know, they’ve got a sufficient level of innovation that that’s going to move the company forward. So, I think going forward when the pandemics stand done, you’re going to see two types of companies emerge that are doing well which is going to be the consumer secular. So, anything that’s basically the same regardless of where we are in the cycle like Campbell’s soup, you know, people need to eat soup and I guess if you and if you’re looking at companies that innovate a lot and change the way that people do business, those are gonna be important too if the innovation level is pretty much flat, and it just makes it, introduces new costs but doesn’t have enough benefit to who they sell it to. That’s gonna be a company that’s not gonna do well.

Jeffery:
You mentioned that when companies are- you’re starting to look at forecasting for the future, shifting budgets. I know your background is in finance and accounting side of things so, is there any recommendations that you kind of see that if a company is going to have to, you know, go another three to six months, what kind of things on the bottom line that they should start focusing in on? Because of that next raise that’s going to help them get there, you mentioned cutting out softwares and things like that, is that you know, even as a startup you got to be looking at certain things to be removing, right?

Bernard:
Are you talking for advice for a startup or talking for advice for companies?

Jeffery:
Both sides. We’ll do both sides because you’re looking at it from both sides, right?

Bernard:
Yeah, I guess my advice is actually pretty similar for both startups and companies that have been around for some time. It’s that you’re going to have to manage your cash flow fairly well and you’re going to have to get fairly granular into where your cash comes from, how that might change going forward, and you’re gonna have to manage risks significantly. So, you know, if you’re- I- everybody gives the restaurant example but I’m gonna do it too. So, you gotta take into account that people are gonna have to sit further apart, you’re gonna have to figure out can you make any money doing that, and if so what are you gonna have to do that? Are you gonna have to raise your prices, or are you going to have to make do with less staff and serve the same amount of people? And if so, how are you going to keep everybody safe? Because you’re not going to if you get one scare, where everybody knows that Joe’s restaurant, a lot of people got sick there, then that’s your one chance really to get your business back and running, and I guess, I’m assuming Joe’s restaurant that doesn’t have a whole lot of assets because really, you gotta look at it from the insolvency standpoint. You almost got to look at every business from the insolvency standpoint. So, you gotta look at where the cash is coming in and where the cash is going out.

Jeffery:
You make a good point. I think that sometimes, we forget about our push to grow sales, we forget about what occurs if one bad thing happens, can it crumble my entire business? I was reading an article this morning on Airbnb, they said, “It took us 12 years to build something that almost died in four weeks,” and it’s pretty crazy what they’ve had to go through, and shift through just to survive over that four to six weeks, where everything shut down and nobody was using the platform, and how much cost goes out when nothing’s coming in, and what they had to balance through that. And I guess, in a way, the same problem is that if they looked at it and said, “Well, if we keep pushing people into places and something bad happens, that looks bad on us even more and that becomes more catastrophic and can ruin the brand and ruin everything.” So, I think sometimes restaurants, or people may forget that, you know, one bad review, you can work through that, but if that bad review happens to be that you infected a massive group, then that can cause some bigger value that you may lose sales for the next six months to a year, right?

Bernard:
Yeah, and then it’s like okay, any catastrophic event like you lose people’s credit card numbers, you get people sick, you know, I still remember when Jack In The Box got a whole bunch of people sick on E. Coli, and that just kind of you think about that every time you go to Jack In The Box, you think about it.

Jeffery:
So, now you’re only having beer, you’re like, “You know what, I guess I’ll have a beer today.” “Do any food?” “Nah, I’m all right yeah I guess in time that it doesn’t seem to go out of your mind right

Bernard:
Right, right.

Jeffery:
Totally agree with that.

Bernard:
Yeah, so, yeah I mean, I’ve seen a pretty big pullback in investors. So, you know, I see a lot of people just kind of you know, in the face of uncertainty you get a lot of people just wait and see?

Jeffery:
Yep.

Bernard:
And I guess that’s not what I’ve done. I’m kind of- I’ve got an investment thesis and I’ve- I just go with that and that’s what I’m- I think I want to do. And whether I’m right or wrong, that’s what I’m doing, and it’s changed a little bit and I’ve been- I’ve actually spent like the last two months thinking out if I’m positioned, “okay, it you know given worst case scenario, right? Am I positioned?” Okay because I yeah, I guess, I worry about- I would worry about freely traded financial Assets, so angel assets are not freely traded. So, they’re fairly stable, you’re not going to see like a huge pump up in value like the stock market is currently. You’re- you just you know, you- it has supply and demand. Like it depends on how many investors are out there but there’s not that many investors who are willing to put money in right now so, therefore, you’re kind of got a little bit more negotiating power right at this very moment.

Jeffery:
While you’re setting me up for this perfect question that I want to ask. I planned this whole thing out which was, it was all around the stock market and then you’re just talking with someone else. So, I was gonna like, I’m like, “Is this the right place to ask this question? It probably isn’t because it wouldn’t be really defining the purpose of having this discussion around how investors are thinking and how they’re working. But we’ll have this discussion later, but it really does pull around this whole idea of false inflation herd mentality, and right now I think the stock market is the world’s largest Ponzi Scheme. And because of the fact of it’s taking a total different direction the way the markets are going, people tend to back in 2008, 2001, everybody pulled back. There was the fear, the control, managing of it, and now it seems like the markets are in their own control and they’re- they don’t care so much about the news. They care about how much I can pile on and get people into either false news or good news or bad news. And you said like, it doesn’t trickle down to the startup world, so it kind of is interesting because you mentioned that a lot of investors are kind of pulling back or you said you’ve got a thesis. So, in that thesis it’s kind of like it doesn’t matter where we’re at as long as I’m kind of hitting these spots. Can you define a little bit more about what your investment thesis is? Especially how it relates back to early stage companies?

Bernard:
Yeah, so, I’ve got, you know, I’m- I manage things all my assets it as a portfolio, even my house I consider as an asset that’s within my portfolio. So, you know, I’ve got a exposure to residential real estate in London Ontario, I’ve got exposure to residential real estate in Vancouver, and I’ve got exposure to commercial real estate in Southwestern Ontario, and then I actually, I don’t want people to follow me and suit but I’m actually betting against the stock market currently. So, my stock market position is bearish but I would caution folks to follow what I do from that standpoint, given that really what I see in financial markets right now is a bubble that’s being fed by the federal reserve bank, who just put in three trillion dollars into bond-buying in the states, and so anybody who has access to those bond markets, they’ve instantly got all this liquidity, and they got to put it somewhere. So, they’re not going to put it back into bond markets because bond markets are inflated. So, they’re going to put it into the stock market, or they’re going to put into cryptocurrencies, or they’re going to put into gold. And so, you got to, you’ve got a situation where that’s a little bit too volatile. I’ve got it, I mean that kind of money is just kind of playing around, it’s almost like putting my money on red but I guess from that standpoint, I’m comfortable with the amount that I’m risking in that market and then I’m also comfortable with the amount of risk that I’ve gotten my real estate assets and they’re all cash flowing real estate assets with the exception of my house. So, I guess so I’m fine with those positions because that’s kind of where I think you’re going to need to be as you get into like an environment where, I guess, we’ve got all these federal programs that are stopping people from going bankrupt. I guess and then once all those federal programs stop like Serb paycheck protection program, CWS which motivates people to keep staff on once you’ve got all these programs that kind of motivate people to do certain things. Once they’re gone, those certain things that people are motivated to do, they’re not motivated to do them anymore. So, we’re- you’re gonna, I think we’re going to see a lot of insolvency from a guy who’s got a background in insolvency. I think that people aren’t going to be able to pay the bills. I think that you know landlords have this program to right now where they can pause their mortgages, but really when they need that it’s six months from now when the Serb thing wears off, and your tenants can no longer pay the mortgages or pay your rent which pays your mortgage. So, you know everywhere down the chain you’ve got debt which is, in turn, someone else’s asset and that someone else is at risk I would think in the next year or so, and I guess as things get as things potentially get worse and worse and you know, who knows what kind of programs they’re going to roll out. Maybe they can stop this from happening but as things get worse and worse, you’re going to see companies not being able to make as much income as they be able to be. And that’s going to make the companies go have some insolvency issues as well. So, and then, you know I was speaking to one of my colleagues and he was talking about how he received a consumer proposal from- not a consumer proposal because it was a company, but I guess, a proposal saying, “We’ll pay you ten percent of what we owe you,” and this investor, he works for the Koch Brothers in the US and he just had to take the ten percent. And so, you got companies and then that company just started back again like as if nothing happened. So, you gotta, you get a whole bunch of good companies that get impacted by bad and you know, as a result, we’re gonna see less capital out there where and I guess the deals are gonna get better for us investors if you have capital.

Jeffery:
And as long as the these companies have the right solution, the right mix, and drive to be able to attack the market, even if the market is 50% down or unemployment’s higher than what it is currently, right? So, there’s- there is- you really do have to be picky, choosy now on the companies you’re going to jump into, and even when I remember back in 2008 when working in the same space, there was you know, there was a lot of deals that could be had, but the fear was, it wasn’t as I don’t think it was as big as it’s going to be over the next few months because in the next few months, when all of these packages do drop off by the government, things are going to shift one more time, right? And it may not be shifting because of COVID but it’s shifting because of the fallout from COVID and really it’s you know, how do these companies survive? So, there’s been a pullback now to kind of look at your portfolio and say are they always going to survive? And where can I throw in some cash to keep them going, or do I just let this one fall off and I guess while you’re kind of going through that process, you can’t save everybody on your portfolio. So, you’re going to start to pick and choose the ones that work best for you or work best for your growth, are you looking at that same perspective?

Bernard:
Yeah, I know that one of the companies that I’ve invested in is, I unless they start figuring out how they can do business in COVID, they’re probably not going to survive this and I’m not going to give them any more money because I guess, that I’m not going to send good money after that. One of my, I guess, my biggest angel investment that I’ve done so far, I just completed and that was for a company called, De Gero out of Kitchener Waterloo, and they offered a debt product which is convertible at my option and it just had a huge coupon on it and so I feel like I’d prefer to have capital in two, three years whenever they can repay that, then have their shares because even though I know that company is going to do well. And I- and they’ve definitely been killing it through this quarantine because they’re actually connectivity, high-quality connectivity services for broadband companies and for- I’m sorry broadcast companies, and also for you know, like companies who really require really high-quality services, like if you’re gonna do your corporate earnings call, you’re probably gonna need really good quality connectivity for that just to make sure that everything comes across perfectly, right?

Jeffery:
Yep.

Bernard:
So, this company’s been doing incredibly well because that’s the one thing that holds things together right now. So, and I’m more than happy not getting a share of the profits but just getting that high rate interest and you know if I got that protection if they got bought out then at least I get a little bit of the share of the upside. Although the evaluation is pretty high on that convertible, I’m very happy with that because I guess, I think that there’s gonna be some huge opportunities in, I guess you know, financial markets go down. So, if there’s no money to be made right now, then there’s definitely some money to be made in a couple years.

Jeffery:
And how do you position yourself to make sure that you are ready for that type of action that occurs and that starts now? While the next two years unfold, you’ll be able to start positioning yourself by making investments that are bringing cashback, being able to be liquid at the times
that you need it, and there’s not enough leaky liquid, right?

Bernard:
That’s correct, yeah. So, I’ve actually got a pretty significant portion of my net worth in these kind of, I guess, debt instrument assets or instruments with high liquidity and also super high returns as well. And they’re things that do well in this type of crisis. So, yeah, I’m just- I’m happy with where I am right now, and I just- I’m just kind of in a holding pattern to see what else I’ll do if I see something interesting.

Jeffery:
Is there any when you’re kind of reviewing all these different spaces, all these different areas that you’re going into that you can be a little bit more liquid when the time, is there a vertical that you’re more comfortable with right now? That you’re seeing that’s kind of offering these opportunities?

Bernard:
Yeah, so, De Gero, is the corporate debt, so, you know, corporate debt’s a little bit higher risk than some of the other things or I’ve got- I’m in a fund which is a lending fund that lends against government receivables so, and they actually can receive their government receivables directly if in the event, that the company goes insolvent so, it is actually very secure in insolvency times. And it pays an incredible return for the kind of security that you get and that’s in that particular product so, I put a lot of money into that. And then, there’s another one that I did which isn’t doing quite as well, but I didn’t put that much money into that one either, so…

Jeffery:
We’ll talk about that one then that one’s not on the forefront. So, it’s not as important. No, I like that. No, that’s good. So, it’s pretty interesting like you’ve really talked a lot about this real in-depth portfolio thesis and how you’re kind of executing on it and it seems to be flowing quite nicely and you’re balancing yourself out for the COVID even though COVID wasn’t in your front or your front mirror. It happened, you adjusted, you continue to build up, and move forward. Is there, I guess when you’re making these investments, are you looking at your other portfolios? And saying, “Maybe I should shrink this, maybe I shouldn’t put as much money into the markets because it looks like a bubble is gonna burst, and do I put some powder on the side and just prepare for this whatever is going to happen?” Or are you still kind of thesis minded and you’re just kind of eating and feeding and feeding and making your way to where you want to be?

Bernard:
I’m close to fully invested. Even though, I guess, I don’t know like, I guess the way that I’ve got my company set up like, I just continue, like pretty much all my regular business earnings just go into an investment fund. So, I’ve- I haven’t allocated this year’s investment money but like it’s just kind of sitting there, and I guess but everything else that I’ve got is fully invested as possible because I just- I’m fairly confident in the assets I’ve got and you know, time will tell whether or not I’m really smart or really stupid but… (Laughs)

Jeffery:
Oh, that’s all right. All right, well I like it. So, a couple of a couple more questions before we go to rapid-fire time, and you know, it sounds like you’ve got this. You’ve got a great learning from your background, and that’s really helped forward, and all the things that you’ve done, is there been a mentor, coach, advisor, somebody that you’ve kind of leaned on throughout all this time and would you recommend to other investors or startups? That this is a good way to go or you know, how does that look in your world?

Bernard:
Yeah. I guess, I’ve been just, I had a kind of a mentor early on in my career, but that was more from like a financial accounting standpoint. And then, now I work with a gentleman named Dennis Ensing, who’s got some really deep experience and really and he really thinks things out really thoroughly, and I’ve got a lot of respect for him. And so, I obviously- the key to success is to continue to learn, so I do a lot of my learning through books and through like consumption of information, and but then, I also- it’s also very useful to have that firsthand person, like he’s really had some really deep experience in like, I guess cash management which you know, even though I’m coming from the insolvency side, I just haven’t like kind of walked through a lot of these aspects personally for a company. So, it was really useful to kind of talk with someone who has done that for my business out in Vancouver and that’s really- that’s been really immensely helpful.

Jeffery:
So, you recommend that investors and startups should have some sort of coach or mentor on the side that can really bounce ideas off learn a bit more from?

Bernard:
Yeah.

Jeffery:
Share a lot about it, do you talk about kind of all your assets and think, “Hey, what about this is coming up, do you think I should change that?” Like is that the types of questions you’re asking or is it more just, how you feel the markets going and you’re kind of just working along with somebody and learning as you go?

Bernard:
I guess none of my mentors are really kind of investment coaches, like that there’s just like you know, some aspect where you can draw a lot of value, and you know obviously it’s important to also return that, the favor and you know, you see some young companies and they’re struggling because they don’t understand something that’s vital to kind of moving- move their company forward. So, it’s important to impart that knowledge on to it’s kind of a cycle.

Jeffery:
No, I agree, I like that you and you- it’s bang on people do need to find somebody that they can relate with that they’re comfortable with that they can share things with not your family member, but somebody outside the circle. So, that way you can get some unbiased direction but you don’t always have to take it more input is good. You learn from there and you move forward and you make like you said, “You’re- you don’t know if you’re going to be the smartest guy in the world or the dumbest guy tomorrow,” but you’re going to make that risk and see what happens, right?

Bernard:
Yeah, hopefully it’s somewhere in the middle and because I don’t want to be the smartest guy in the world because then you get all these guys like following you, but if you’re somewhere in the middle you’re doing all right and at least you put in the thought, and you did the thought exercise and you allocated your assets, as you in a way that that’s gonna preserve your wealth for you for the next generation. And then, you kind of you know, I think there’s gonna be a brand new paradigm in two, three years like investing in two, three of the years is gonna be way different than today.

Jeffery:
No, that’s interesting. We’re gonna- before we get to the crystal ball, I think what we’re gonna do is, we’re gonna jump into the rapid-fire questions. So, I’m just gonna fire the questions off and then you just jump on each one of them. All right, so how many companies or dollars do you invest per year in early-stage, pre-season seed, which is where we invest? What’s the average norm? Doesn’t have to be exact, but just, what do you think?

Bernard:
So, I’ve been at this for three years or I guess close to four I guess. And I started off pretty slow, and right now, I have invested 260,000.

Jeffery:
Okay, let’s go more rapid.

Bernard:
Yeah yeah.

Jeffery:
We’re wrapping fire questions, ready?

Bernard:
Yeah

Jeffery:
Do you do follow-on investments?

Bernard:
Yes

Jeffery:
Percentage?

Bernard:
Percentage of?

Jeffery:
Portfolio like 30% you always make sure all 100% you always follow on..

Bernard:
Oh, I don’t know. I’ve only done one, so..

Jeffery:
All right, so that’s- we’ll call it ten percent or one percent done. Any notable portfolio companies that you’d like to share outside of the one you just talked about which is the De Gero?

Bernard:
No, I think I’m okay with just sharing to zero done.

Jeffery:
Do you have any preferable verticals that you like to focus on fintech, healthcare?

Bernard:
I don’t really have a theme. I guess just tech and in general, I haven’t focused on.

Jeffery:
Innovation’s good.

Bernard:
Yeah

Jeffery:
Do you have any preferred terms prep, shares, safes, anything that you like to mostly invest in?

Bernard:
Like convertible debt.

Jeffery:
I like it.

Bernard:
Because of the downside protection and the liquidity preference.

Jeffery:
You have a timeline for your investments that it takes you from beginning to end?

Bernard:
I expect these investments to take about 10 years.

Jeffery:
Okay, so you’re more of the long term. What is- do you lead any rounds?

Bernard:
Not so far.

Jeffery:
Okay, you take court scenes ?

Bernard:
I haven’t taken a board seat yet.

Jeffery:
Any interest?

Bernard:
Yeah I’d take a board team.

Jeffery:
Perfect! Well, that hits up our rapid-fire. We were pretty good on the rapid side. I needed to be better on the fire, you know, but we’re good. We were good. All right, so, the last two questions. Let’s take all the startups, all the investments, everything you’ve done over the last few years, and let’s compound those down to say, is there one or two things that you think help and make a startup successful? When they’re first starting off and moving forward, is there any elements that you’ve seen that if they really try to do this, they’ve got a better chance of being successful?

Bernard:
Yeah, I mean, I think it’s really depending on- it’s really dependent on how much, I’d say how much information the CEO is consumed, if the CEO really knows everything about the business then that’s really important.

Jeffery:
I like that because my whole thing is that fire invest, I want the CEO to be Crazy, I want her or him to be like nutso about what they’re trying to do because it’s the only way they’re going to be able to pivot and change quickly. Because they’re adapting, they’re learning so much about their ecosystem, their environment, and the more they know, the faster they can move and they’ll find other problems inside that market that they never even thought which might open up bigger doors and create more opportunities.

Jeffery:
Right, for sure.

Bernard:
I love that. That’s brilliant. Okay, so now, we’re kind of down to the wire here last big question. You kind of touched on a little bit of this so I’m really kind of excited to hear where you’re going to go with it, but you got to crystal ball, what’s the next 12 months or 36 months look like in the investment world, not markets but more in the startup world, what do you see changing? You mentioned it, do you think-

Bernard:
Yeah

Jeffery:
I appeal what it’s going to look like?

Bernard:
So, if I had to look at it, look through my crystal ball, I would say that valuations are going to go down valuations have kind of reached an all-time high and even with you know, it’s kind of like the real estate market. You see valuations at a certain place and you think your house is still worth that but it’s not anymore. When it’s really a subject to supply and demand and like I said, there’s definitely a lot less investors out there who are willing to invest right this moment because they just they’re uncertain of what’s going to happen next, right? Investors are regular people, they can be- it’s easier to hold than it is to buy, you know. So, therefore I could see evaluations going down, I could see a lot of startups having a hard time, especially those that deal with companies face to face and that’s a lot of startups. So, I know I’ve been watching one startup really closely and they do work in ticket resales essentially, like so, you go to a venue and you see all these seats down there and you want to pay a few extra bucks and get down there. And that company is basically gone now because there are no events, so how can you test your product, how can you get your product ready? it- if there’s no events and yeah, there’s eventually going to be events and that product may actually be exactly what event managers need, going forward when their theaters are still super empty. So, you know, I guess, you’re gonna see a lot of founders give up, I think.

Jeffery:
It’s interesting to say that because the world is in 2008 a lot of great companies started up because of downtime and in the last four or five years, there was this big push that to be an entrepreneur was amazing. It was the best thing in the world, and then the last year or so, I noticed that being an entrepreneur people realized how hard it was, and I think it’s kind of faltered a little bit, it is not the same prestige as it used to be, and but investing also has taken that in the last few years, there was a lot of people that out of nowhere became investors and now, I kind of feel that, that’s starting to fizzle too because they realize, “Wait, I don’t have 10 years to wait for this. I’m trying to get money now and I got to survive now.” So, I think there’s a big shift that they’ve glorified so many things around early stage, and investing, and Airbnb, and all these great things. And now, it’s something I’m coming back down to earth and I think, you’re going to start to have to see like you said, things are going to level out. Some things are going to take a dip in cost and value and that’s where I think there’s going to be a deal and where people are going to have to spend a little bit time doing research to support and get behind the right companies.

Bernard:
Yeah, I think that an important question is are we in 2008 right now or are we in 2007 because I think that we might be in 2007, because we’re we- you have, you know, all these government programs are essentially a plug. They stop the revenue, they stop the outflow of revenues that companies otherwise would have just made because the markets were open, you know. So, you’re it, everything’s kind of suspended in the air.

Jeffery:
Yep

Bernard:
And then, when economic realities start to set in, and you know, people figure out that this temporary layoff wasn’t temporary. In some cases, it’s going to be hard to spend money and I guess, I would draw parallels to the recent almost depression that they had in Japan where people just kind of there was a big deleveraging, and I guess, folks just set their balance sheets back up. So, they started saving more, they started paying down their debt, their companies were making money but instead of borrowing to invest more. They just paid down their debt so that their balance sheets could get set up and they weren’t vulnerable in the event of another crash, you know, an event like this is, it just kind of really sets in you kind of like the actual great depression in the US. You know, you’re just in a situation where you never want to be in that position again where your savings are insufficient. So…

Jeffery:
Agreed. Well before, we before, we jump off. I got to ask, I got to get you to tell us one amazing cool story that’s heartfelt like, “Amazing! These guys came from nothing. They got to hear and things are growing,” you have one of those last stories you want to share that just kind of makes everybody think, “God, this is amazing! I love startups!”?

Bernard:
I wish I did, really don’t- unfortunately I, you know, I haven’t been in the world for that long and unfortunately, I haven’t had tremendous success in my investment, so…

Jeffery:
There’s still coming. You got time, right? You bit benchmarking 10 years, so you got lots to come. Yes, well how about we do this, then I’m going to give you the last word and the last word is, what are you telling a startup and what do you think some great advice that you can share to them? So, that will be some upswing to help them through what’s going on today?

Bernard:
I mean worst case scenario, capital is going to be a lot harder to come, about six months from now, nine months from now, a year from now, so my advice, is that you get out there you build a case for why you’re worth money right now, and you go raise money before it’s too late and you can’t and capitals really hard to come by.

Jeffery:
Well, Bernie that was awesome! I love the stories, I love the insights, all the information like I always show and I always do took lots of notes, but I appreciate all of your time that was a great last word but I want to thank you, again. We’ll chat certainly after this but it’s been a pleasure getting to learn a bit more about you and obviously all the things that you’ve been doing and-

Bernard:
Maybe in the future when it’s face to face again.

Jeffery:
Oh, it’ll happen soon I suspect it will you’re looking forward to it.

Bernard:
Maybe I think that maybe, January, right? We’ll see because we, I think, we’ve officially moved all the screenings and all that stuff offline for next year up until January. So, I’m hoping that things will be face to face before that.

Jeffery:
Well, I’m looking forward to seeing you back in January then.

Bernard:
All right talk to you soon.

Jeffery:
All right buddy, have a great day and thanks again!

Bernard:
All right have a good one, bye!

Jeffery:
All right, there you have it! That was Bernie Batt, he is part of the Southwest Angel slow and nice great guy I’ve been working with him for the last three years. And he had a lot of great things to say, but I think what I liked the most of what he really brought out, is you know what cash flow making sure that you understand your business being granular about it, but I think one thing that really stood out was the last comment he made, “build a case and go raise that funds.” Excuse me because you have, no idea where you’re going to end up, and where things are going to be in the next six months, and if you’re being cautious, and from a finance guy being a bit cautious isn’t a bad thing. So, you know what, get out there, prove your point, and go lock in some funding grow your company and make sure that you can survive the next 12 to 18 months because when that u-shape or v-shape curve starts to happen, you want to make sure you’re ready, and you’re there, so what is it? Keep your stick on the ice, keep stick handling and go score a goal so get out there as fast as you can and it’s been great enjoy your day and thank you for watching.

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