"People are always going to tell you that your idea sucks and some others are going to tell you that it's brilliant even if it isn't, and you have to discern what the truth is based on a very limited amount of data points as an entrepreneur. "
Greg Smith on why would anyone give you money
Greg Smith, president of Blue Vista Ventures, outlined his journey from founding a service platform for the US mortgage industry to becoming a successful angel investor. He shared his insights on the importance of working directly with the customers, hearing and understanding their feedback, and how this is critical in the earlier stages of the startup to avoid problems in the future.
A key aspect of his investment process is looking for a startup with a “selling CEO”. Greg’s “King or rich” question can indicate the CEO’s personality as well as his investment decision.
Greg Smith serves as President of Blue Vista Ventures, LLC, and is an advisor and consultant to early-stage technology companies. Smith has personally invested in 11 start-up companies and funds. Smith formerly served as vice president and general manager of Xerox Mortgage Services. Prior to Xerox, Smith co-founded and served as CEO and Chairman of Advectis, Inc., the exclusive provider of BlitzDocs Collaboration Suite, one of the mortgage industry’s most widely-used solutions for electronic document collaboration. Advectis was acquired by Xerox in 2007.
The full #OPNAskAnAngel talk
Greg: doing great Jeff. Thanks for having me.
Jeffery: awesome and Gregory or Greg? Which one do you prefer?
Greg: Greg, it’s fine.
Jeffery: love it Greg. Where are you calling from?
Greg: I’m in Atlanta today. It’s always hot here and today is no exception.
Jeffery: Well, Toronto’s still not kind of falling right behind you. It’s nice and hot here too. I think it’s 30 and muggy and rainy. and tomorrow it’s going to rain for four days so we’re taking all the rain from everybody. Okay, well pretty excited to dive into what you’re doing because you’ve been working on a lot of great things over the years and especially from the time you sold your company all the way through and i kind of want to dive back into that and if you could share a little bit about your background kind of where you’ve come from where you are today and then one thing about you that nobody would know.
Greg: my undergrad study was mechanical engineering. and then i thought it would be a good idea to get a master’s degree in international business. and because I liked beer, and I thought of becoming a mechanical engineer, why not learn german? so i ended up learning german and studying over in germany as well as here in the states. After finishing my masters, I got married. I moved to Atlanta for a couple of years, working for a company here in industrial products. so, I was on the sales and marketing side of that. We did an acquisition in Germany. I went over and helped for a couple years to integrate that company. I got into sales for a couple years then went back to Germany. I came back to the states. and anyone who has been to a foreign subsidiary and then they come back into corporate, it’s a readjustment coming back into the big corporate umbrella. and I didn’t really do so well. So, after a few years, I decided I wanted to get out of industrial product sales and marketing and get into the software business. so, in the year 1998, I left and I went to work for a restart software company in Atlanta. restart meaning they’ve already been through their series a and they had to raise more money not because they were growing fast, but because it didn’t work first. I like to think about experience as what you get when you don’t get what you want. and that’s what I got in those two and a half years at my first software startup. I learned a lot about what didn’t work in a startup environment but that certainly helped me later. I started our company “Invictus” here basically in the basement of my home I still live in. In November of 2000, it was a software as a service platform for the us mortgage industry. We essentially helped mortgage banks connect all the parties to a transaction together over the web and to share documents securely over the web as opposed to 20 years ago via paper. so that business did very well and in 2007, Xerox heard about us and they wanted to own it. and so, we went through a dance and ultimately our business was acquired by xerox in October of 2007. and then ever since then, it’s just been working with early stage companies and working your way through and helping them grow their business. I stayed with Xerox for about three and a half years. As you probably remember and certainly some of your viewers will remember, that was a challenging time in the mortgage industry. as it turns out, we didn’t know that at that time. So, the company that I thought I sold them to was not the company that they ended up buying. So, I stayed to fix it. After three and a half years, it was time for me to move on. and so, I left literally 10 years ago last month and became a full-time angel investor. At that point, I had done a couple of deals while I was still there. but I basically went full time at that point.
Jeffery: Well, congratulations on the 10 years. That’s amazing. it’s a very exciting ride. I want to dive back into a bit of the learning that you mentioned, where you learned a lot about what didn’t work. I like that line, which was kind of your first kick at the can to figure out, this is what I want to build, didn’t work so. you kind of moved on and then you ended up getting into a position where you did find something that was changing the way an environment worked. you built out in that. In the insurance space, can you give a few tips of what you learned that didn’t work that could probably help others to pay attention to when they’re building their companies?
Greg: yeah, so one thing that comes to mind Jeff is the company that I worked for in the late 90s, the CEO believed that we could launch multiple verticals at the same time, maybe one in healthcare, one in mortgage, one in real estate et cetera. and what I what we learned the hard way, it’s that that’s just a good way to go through the cache three times as fast. and then you end up with no vertical fully developed before you’re out of money again. and so, it’s tempting for entrepreneurs. I think sometimes to hedge their bets or want to hedge their bets; this technology could work here and it could work there. So, let me try a little bit. but at some point, in my opinion, you have to burn the boats. you have to commit to one and put all your chips on that table. and hopefully if you get it over the edge, where that becomes cash flow positive, you can use some of that cash to maybe start another one later. but if you try to hedge your bets too long, you end up killing the goose if you will. I remember it was Staples and they had that fast go button or something. I want to punch that button right now and have this whole screen light.
Jeffery: I think so many companies tend to get carried away with the excitement level of having discussions with many different companies and verticals that some of it is, as you mentioned, it’s testing. but a lot of it is going to play it on the ego side, which is they’re just drawn into these deep conversations and they’re tackling everybody thinking that this is going to close this, is going to close this one’s huge, this one does this and they forget that they don’t have a focus vertical and the fastest way to close is to have focus on that one vertical and allow yourself because herd mentality would say that if you line up enough people in the same industry, same space, they’ll all want to be part of that growth or that opportunity because you’re solving that one problem. and if you do forget that you’re one step closer to basically the death of the business, again, in the early stages especially before you take other people’s money, maybe there’s a time to experiment and to go kick the cans and so forth. but at some point, you have to commit to one and then pick the lock on that vertical. and it is like picking a lock. it’s not just sitting there for the taking especially if you’re first generation technology play in a space. you are teaching the market as well as learning from the market at the same time. and while you can, that’s the way to become the number one player in a space. It also takes longer and normally takes more money big time and I think one of the things that your kind of just alluded to as well is that when you start to make ground in that area that you’re focused on, that vertical and you start to get to making dollars, converting clients. that there is a point where you can start to make that differentiator and say, what now? we can start to go into another market. We’ve made some dollars. we’ve got some profit, why don’t we allocate 10,20 and try something out here to see where that’s going to take us, how much time and effort does the team need to shift in order to be able to focus on this new market? so as you took a lot of this insight as you were going through it the wrong way, I guess the first time, but getting some good insights and learning, when did you decide that that was a good time to shift? and we see this with product companies where they go to market with 12 products and they think that this is what the market needs and really they need one product that everybody really likes and then you can start after a year or two after you have some really strong market penetration to start to offer something new because you’ve got a really good structure. you’ve got a lot of commercialization, a lot of product stability. Is there a timing that you would say, you mentioned, profitability is when you know the trigger’s there? or is there well I think its past profitability because it’s really when that vertical starts to become or move towards a cash cow position where you are afforded enough bandwidth?
Greg: it’s not just about the money, it’s also about the mind share of your organization because as you split off a second vertical, the company essentially splits. and so, if you don’t do that right, you can end up in no man’s land again and so you can go raise more money to do that. That’s one way to do it. that’s often done sometimes. I think that certain startups can raise so much money that affords them a lot of bad decisions for a while and some of the better deals that I have been a part of. These are not going to compete in Silicon Valley deals. These are not going to be unicorn companies but solid companies that can get to tens of millions of dollars in revenue and can be a nice tuck-in acquisition for a bigger player. I just think that you make smarter decisions when you really know every dollar in your bank account and where you have to allocate it. it forces you to make smarter decisions and, in many ways, that’s actually really good for us as startup entrepreneurs and founders. I went to a talk, probably six years ago, and it was with Steam Whistle Breweries. they’re a big brewer in Canada and the founder CEO was on stage. and outside of all of the crazy things he talked about, from his brew master that sleeps in the brew house for months and months just making the beer, was that he had been making the same beer for 20 years straight, the same beer. and he said he never changed, didn’t deviate. Everybody got exactly what they bought and we focused on just this beer. We wanted to be the best beer you possibly could buy in this vertical. nothing more, nothing less. and 20 years later, billions of dollars’ worth of sales has gone through this company. They’ve now created a second product. so, you can see, and I think that’s a great example Jeff. Sometimes founders will tell me, how do I know how to segment my market? how do I know? and you know the key to that is, what I have told my teams is, what can we do best in the world. Now, that means we’re going to have to segment the market down at least one level, be up beyond or below what the current defined market might be, that might be not very well defined. Our example was, we came from a document management software, a horizontal platform, and what we decided to do was become the best in the world at the US mortgage document handling space. That’s all. Now Jeff, I had people come to me and say, you know your technology would work in the hospital networks, all the network entities that are connected around a big hospital. and so, we had to make a decision. Do we want to try that at the same time we’re doing this? and ultimately, we made a decision to write a business plan to do that and to shelve it until we got the mortgage thing printing money. and it worked.
Jeffery: I like that, shelve it until it prints money.
Greg: Well you know, when we sold the business, we showed xerox the plan for health care, they ascribed some value to that plan even though it hadn’t been executed because we were able to have the track record to execute on one. they gave us partial credit on executing a second one but we didn’t even have to do it.
Jeffery: That’s awesome. and that brings a lot of value back to your business to the IP and knowing that the team could still execute this in time if they implement that and when they’re building you into their company. I love that. and think that’s very valuable. And I think that’s one subject that doesn’t get touched on enough, is really helping founders understand what that market fit is and then helping them really stay focused on it because I would find that over time, entrepreneurs become empowered with imagination. and through being the top dog in their business, that imagination flows even more because they’re always trying to solve problems. they solve the main one which they think they’ve solved and they’ve figured out exactly how it needs to work. and they think that it’s going to be a seamless run all the way to the top and to the bank when there’s a million problems that they’re going to be faced with. and that focus will allow them and their teams to be able to divert and have the problems and solve those other ones that are out there inside their business. but their focus is the product or the service that they’re on and that they don’t have to really break off too much from. but at least they know it inside and out. they can face problems faster and commercialize themselves which gets them to that process that you went through because you were able to take a market over. they saw that there was a gap that they needed. and that became a lot easier of an acquisition.
Greg: That’s right. I think very often founders, not all founders, but many founders, fall in love with their ideas so much. and while they don’t always want to admit it, they’re afraid to ask the market around about it because they’re afraid that the answer might not be what they want it to be. and so, what they do is they keep working on it. They keep adding to it and making it more complicated before they go out and ask the market for the honest feedback and truth and listen with humility. I mean, I had a lot of people tell me that my idea for the US mortgage space would never work. What I had to do was take that and couple it with other feedback and make a determination as the CEO of what I believe the truth to be. People are always going to tell you that your idea sucks and some others are going to tell you that it’s brilliant even if it isn’t, and you have to discern what the truth is based on a very limited amount of data points as an entrepreneur. you don’t get reams of data to make decisions like you do in the corporate world. You have to make, sometimes on one or two pieces of data, make a big bet. And so, I think the more market feedback, true honest questions of the market and the ability to call the baby ugly, if it’s ugly early, is where I see most successful founders make it through. I also believe that the CEO has to be, to some degree, a selling CEO. If the CEO wants to delegate the pitching of the company, or even the pitching of the product in the early days to someone else, I generally will pass on that deal. Even if they had a patent turning saltwater into gold bars, I’m probably not going to do that deal because I want a CEO who is the representative of the company and can lead the rest of the people through what will be a battlefield. Anyway, you got to have a selling CEO in my book. That just takes the very difficult stacked against your business startup, and makes it even harder if you don’t have a selling CEO.
Greg: I love it. I’m hitting the red button again. I think that’s bang on. and the reason why I like the way you say by calling, the selling CEO, is that even throughout this process of that learning, as you were talking about earlier. where you’re learning through the good, the bad and the ugly, if you’re not an operational selling CEO, you can miss some of them. you don’t actually learn how to pivot from because you’re not in the weeds. you don’t need to be in the weeds when you’re at a series b, c or d. but when you’re really early on and you’re learning what a customer needs and you’re learning what’s going to fail, what works, what doesn’t work, if you’re not in there alerting your customers and learning what they have to say and what their feedback is, then you’re two or three leagues removed. and problems are going to happen way too fast and you’re not going to be able to shift and change because everybody else doesn’t care about your business the way you do. and if you’re not in the weeds at the beginning, you’re going to have a tough time trying to find market fit and understanding where this business needs to go in the next two to three years.
Jeffery: I just hit the red button for you. I like it. I’m going to buy this red button.
Greg: I think it’s even more than that. I think companies that lose their way, whether they’re public companies or just large private companies, often lose their way because leadership isn’t paying attention to the customer. they’re in the ivory tower or they’re whatever, I mean, you have to stay close to who’s parting with their hard-earned money to buy your product or service. and if you lose that, you know that changes a lot over time too. it’s not a static thing. It’s a dynamic thing. so, you have to stay close to the customer, and if you stay close to the customer, you can avoid a lot of pain. When I worked in a corporate way back in the day, I remember that I had bucketed how their CEOs worked and the CEO that was coming in for high growth. The CEO was always a product guy or woman and they knew the product and the client inside. Note that they couldn’t tell you how the rest of the business ran and they didn’t care how it ran because the board and everybody else would run it. all they cared about is they knew how to sell. and then when the company was going under a restructure, it was all about the numbers. and that was the CFO. so, they would put the CFO in there to crunch down and lock it all down. and you got it, regrowth. you put in a marketing person. So, this is the idea of how a business works at the high end for big corporations and that’s pretty much how it’s got to work at an early stage as well. you got to get in there and figure it out because if you’re not in there, you’re not going to survive. Here’s the other thing. I don’t know what your experience is with this. I’ve seen companies that hire a VP of sales too early and let me tell you why I think that can happen. First of all, in the first three to ten customers, they don’t want to buy from someone that has sales on their business card. they want to buy from the CEO. They want to look the CEO in the eyes and make sure that there’s a personal bond where basically I’m taking a risk by signing up with you. don’t screw me, that’s basically the bond. so, they don’t want a middleman in there at the same time. you don’t want a true VP of sales. and that when I say a VP of sales, a VP of sales is best used in a business where we know what the product or service is. We know how to pitch it, we know the profile of the buying customer and basically, we just need to do it. We know what it is and we need to do it. but in my experience, one of the things that I love to do is, I call it I pick the lock on the market, you need a lock picker. you don’t need the scaling salesman until you’ve figured out how to do it right. and those two people are motivated by different things Jeff. A good salesman is motivated by turning tricks and selling big deals. The CEO is normally motivated by solving the problem, figuring out the problem and solving it. and so, it’s two different discrete skill sets and they often don’t live together. In other words, I’m not the guy to blow out a big sales force. That’s not what I want to do. it’s not what I’m gifted at. I like to pick the locks with a small group of intimates, my co-founders. And then once we get the lock picked, I hire the right people to blow it out. and I think that’s overlooked a lot of times in the startup world, that it’s a different skill set to sell the first deals. it is to scale.
Jeffery: I’m hitting the red button right there. It’s hot punching the button right now. That’s awesome. and what I like about the way you bucketed those two is that you said the CEO shouldn’t be changing this VP process until you’ve learned it. you’ve got it down pat and you’ve built the process. you’ve turned it into a cookie-cutting machine. and why is that important? because when that VP comes in, he’s there to print money and he can’t print money if you haven’t figured out how to make it properly. That’s not what he’s turning tricks for. That’s what he or she is really good at. and so, if you bring him into an environment where that’s not figured out, they’re going to fail and they’re going to feel terrible. and there’s going to be a lot of gnashing of teeth internally. so, you’ve got to do it in the right order. and then taking that CEO’s side and saying that they solve problems. and you’re right. They have to solve problems. they’re the end goal. they’re the uprights. nothing goes through if they don’t solve it. so, they really have to figure out who fits in what stream. and it’s interesting the way you say that about picking locks. My whole theory around the whole sales cycle is that I’ve got 100 doors in front of me and my job is to pick every one of those locks. The difference is that when I pick the lock and I open the door, I’m shuffling the team in there because everybody else is better at resource management, holding hands, kissing babies, all that stuff the team can do that the rest of it is, I’m on the next door. so, as you’re picking the locks, that builds the process. So then, that’s where you can start to tie in, hey you know what, now that we’ve gotten this far, it seems like we really figured out a way to break into all these locks. Now we have to bring someone in that can scale that and I think that’s kind of where you’re going. and I love that analogy. And I do think that through all of these things, we’ve just talked about is that, a lot of this falls back onto that CEO really understanding their business, understanding what they’re trying to sell and then figuring out. and the word I love using even if it doesn’t fit is commercializing what they’re doing – what’s the go to market and why would somebody if your product or service costs 50,000, why would somebody spend a baby Mercedes Benz for that? tell me it’s not just fifty thousand dollars. it’s like that represents something that they could have had and enjoyed. So why would they do that and what’s motivating them and what is the problem underneath the problem? And how do I understand it? how do I get to the soft underbelly of that and really craft not only a solution but also a message around the solution so that your target market can easily digest what it is you have to offer if it is in fact good for them and also be willing to say, you know what, in your situation, I don’t think this can help you that much. and you know you’ll be surprised if you’ve ever said no, I don’t think I want to sell this to you because of this and this reason. well they’ll be going, holy cow! I would buy anything from that individual if they ever came back to me because you’re actually putting yourself on the same side of the problem as your customer and asking the question from the other side of the table. Yup, I love that. So now taking all this great material on how a business kind of structures themselves and how you move forward now, you started working, you sold your company, you said that the company changed without xerox expecting that at the time of sale. so, you spent some time rebuilding the company. well it was the financial crisis we didn’t realize that mortgage companies were going to go out of business at an unprecedented rate because they would get their warehouse lines pulled and they’re gone in 24 hours. So, xerox didn’t know and we didn’t know. I mean there was a little bit of froth there. but it was nothing like what we experienced in 08 and even into 09. 08 was a terrible arrow. 08 my bank account said I should be very happy and it was the most miserable year of my life. That’s not a bad thing either. so, I guess. but what I liked about this transaction that went through is that you fell into the world’s biggest use case which is xerox. Everybody loves xerox. and they have since day one they’ve built a process. They’ve commercialized how selling works. It’s a very strong business. It’s a case study in every MBA, every BA type course. What can you share that you learned from being in that commercialized space inside of the business that you had to restructure? Were there a few elements that you got out of the corporate slash entrepreneur world that really helped you now that you’ve gone into venture investing? that you kind of pulled from that processing and things that xerox really brought to the table?
Greg: Well, I mean xerox, it’s just a huge company. but what they have that makes them dangerous as other large companies is a huge balance sheet right. In other words, we did deals with companies because we were owned by xerox that we could not have done on our own. I could not have gone into Freddie Mac in Washington DC and got them to run all their loans through my platform. but with the CEO and CFO of xerox we made that happen. and so, I think they owned us. but they left us alone as an operating unit and so we had the benefits of the big mothership. with at least in the first couple years, very little of the domineering oversight. Even though we were in the teeth of the biggest financial crisis in decades, I was grateful. The CEO of xerox, when they acquired us, was a woman by the name of Anne Mulcahy. and she is largely credited with saving them from bankruptcy. and when my investment banker gave me an article that was in Newsweek about her. I was just moved to the point where I said to him, don’t screw this up, I want to work for her. and I really wanted to be a part of that organization because I mean she’s still one of the most amazing business leaders I’ve ever had the good fortune to be around.
Jeffery: anyway, that’s amazing. I’m getting goosebumps because you actually thought about, if my company is here and with the management and direction of this person, we could actually become this much better and bigger. so, it gave you something to go after and want to accomplish it and then get that certain learning that you took over three years of being under that management. that’s huge. when you talk to a startup and you say, hey, where do you want to be in seven years? where do you want to exit to? they’re like well, I don’t know and you’re like just find one company that you think could really dominate in having you on board and it’s the toughest thing for anybody to visualize and you guys obviously did that well. it wasn’t my idea they came after us. and I was open to having a dialogue with them. But after I read that article, I just wanted to work in an organization that had a leader like that. I was proud to be a part of that organization. I was grateful the first time I got to meet her face to face was right before a big global executive meeting that happened to be that year in Atlanta. and After the acquisition, we were planning on growing our headcount to about 40. but because it was the teeth of the financial crisis, we had to do a layoff two months after the acquisition. so, it was awful. but she came down and came to my office before that meeting which I ended up going to and spending a few days there with other executives. but she just knew I felt bad. but she’s like, we’re going to get through this and she’s just the kind of leader. I think you probably worked for a handful of people in your career that you’d like to take a bullet for and she was one of those.
Jeffery: That’s amazing and you’re right. Everybody needs a good strong leader to run a business. but I think it makes a big difference when you can vision how your business is going to fit in and how you can work in that leadership role too. you can’t always be the lead entrepreneur. you have to work with everybody else. That’s right. I felt I found the same through the years of doing the venture side that we’ve been managing and working with. But, her name’s Genevieve Tinge and she’s the head of Ash Quebec and she just came on to Ash Quebec. and as soon as I got connected to her, I was so ecstatic. I’m like this lady is going to change the way investing works in Quebec and Ash Quebec had this kind of rougher name around their investing. but then when you see this profile where she came from, you’re like man, this is going to be huge. and they’ve been shifting and changing quite a bit. so, it gets you excited because the more of these types of players that come into a space that you see, that just isn’t surviving the right way, it makes a big difference to how you play in this space because you get excited at the opportunities, they’re going to now come out of it.
Jeffery: absolutely! That’s leadership. It is key to anything you do. So now in the last 10 years that you’ve been investing, are there a couple of things that you could say that you look for in investing that really stands out through all of these experiences that we just talked to? and what kind of derives from a great startup or a great leader and an entrepreneur? Are there a couple of points, maybe three or four, that you feel that really stand out? What do you look for in a company or in a leader?
Greg: Awesome, I have a job, I have a sequence, I kind of go through. one is it’s a big leg up. If I know one or more of the founders already or I have a close relationship with somebody who helps, then I get into the business idea. What is the business idea? If I’m not interested in that, the problem is solved. I’d probably lose altitude quickly but if given that I still have interest, then I ask why this founder or founding team is uniquely qualified to lead this. and why now, why does this matter to that? they should do this now. and is this group a group that can get this thing into orbit. Then I look at things as an angel investor. These are things you look at more than you do. if you’re in a venture, I think or even pry or private equity. but how capital intensive is this business likely to be. because if I got to do five rounds and raise 200 million to half a billion dollars, I’m probably going to be so insignificant on the cap table and lose control of the deal. that’s not as exciting to me. Maybe we can do this with one or two rounds. and then honestly, I look at the valuation in the terms. Those are not insignificant because valuation and terms are so frothy right now. and you know on average, you’re going to be in a deal for five to seven years. I just signed a deal last week or two weeks ago. I was there for 10 years, got half of my money back which I’m pretty happy about because I thought I lost all of it. but so, the valuation and terms are important. they’re not everything but they’re not unimportant. but I make the decision at the end once I check all those and I’m still interested. How do I feel I can work with a CEO? Is the CEO coachable? Is there a level of humility? Does the CEO think he or she knows everything already? how will they be when you know everything’s great? When you write a check, everybody’s happy. What happens when we’re down to our last 10,000 in the bank and some very difficult decision? how are they going to function when you know they’re in a vice and the pressure’s on? and so you can’t always get that right. But that’s something that I look at and think about and I know having done 25 of these or so, it’s very rare that you get one that goes from zero to a hundred without almost wrecking the car a couple times. that is true or they wrecked the car a few times but it still was drivable to get. Now you’re not going 100 but maybe you can at least get off the ramp exactly, get some fuel and fix that front brake. So, in these things, it comes back down to the team again and teams obviously heavily important in any type of investment. How do you explore that side of the CEO? like how do you get into the relationship side? How long does that take? Is it months, weeks, days, hours? and how do you kind of propel yourself to get yourself excited about this company at the same time? Because you know they’re busy, you’re busy. It really keeps that trigger going. the other element that I didn’t spend much time on that is actually in there is that, is there somebody else that I know and trusted that is in the deal already? and what feedback do they have? For example, I looked at a deal three or four months ago that involved a really close friend of mine, an investing friend. and he’s on the board or was on the board at the time. and I wanted to do that deal. I was predisposed to write a check in that deal but when I got to the CEO coachability and their cap table was a little wacky, I’m like this guy doesn’t get it. This show is not about him. it’s about the company and he thought it was about him. and I said, dude, I’m out. I’m not putting any money behind that. life’s too short. I’m not giving him an s-class, let alone a c-class or something more than that because I don’t think he gets it. and another guy that was looking at the deal that I also respect came to the same conclusion as we just walked from it. and ultimately my friend resigned from the board. He was so upset about it because he knew we were right.
Jeffery: That’s interesting and it carries weight. and sometimes you don’t see things that are in front of you. and it takes other outside perspectives and you got to be open to hear it. and you’re not always going to get it right. In fact, you’re going to miss a lot. but you at least have your eyes open and are asking the questions. and again, entrepreneurs are used to making decisions based on finite data, a very limited data set. But I find, honestly, that some of the ones that I’ve messed up on, had I spent more time looking into the background of the CEO and maybe asking more questions of people that they had worked with in the past, that I would have found the problems before I wrote the check. I’m thinking back to the companies now that I’ve had that have failed. one was purely investors, another one was the CEO. and it’s interesting. like one thing that I stand behind is that I’m not there to make friends with the CEO. I’m there to make business acquaintances or whatever you want to classify that as. Here’s the question that I often ask the CEO before I write the check. often when I have the checkbook open, sometimes before that, do you want to be king or rich? and they go, what do you mean? think about it. just make a decision right now. Do you want to be king or rich? And if they say king, I will explain that. because that’s the wrong answer. if you want to be king, then you’re not going to manage my money the way that needs to be managed, that we can all make some. And so, if the right answer is five years from now, that we need to replace you, so that you can make a lot of money and you’re okay with that, then that’s the kind of relationship I want to have. but if you’re guarding this spot, this CEO role at the end of the bayonet, whether or not you’re the right person, I mean it, when you write a check, you wouldn’t write a check on a deal if you thought you had to replace the CEO in the first week. you wouldn’t do that. but you might see that CEO can probably take you a couple years and then you might not be able to. In three years, you might see some finite growth in that individual and that’s if you want to be king or you want to be rich. And you know that’s very telling. The answer to that question can oftentimes be very telling.
Jeffery: I like that. I’m actually going to add that into my questions. It’s a good question. I’m thinking back one of them was market fit, the other one was over time, I think the person. I think how you refine this or where there are the checks to this but if they don’t get the qualified market fit, then they stop. they just feel like, ah, this isn’t going to work anymore and then the CEO kind of steps down you’re like, what the hell? like you can pivot. you can change how you lose energy. I’ve had a situation where the CEO goes, here’s what you know, here’s what I sold you, this is what I wanted to do, this is some new learning that we got. That has convinced me that what we wanted to do is not doable. What do you guys, as the investors, want to do? you want the rest of your money back? or do you, here’s an alternative, we could try to pivot on? but that’s not why you wrote the checks.
Greg: So that is a CEO with integrity because I mean what we do is risky. What the founding teams do is risky. What angel investors do is very risky. they’re not all going to work. Sometimes you have calculated risks in them. But when I have a situation where the CEO is that honest, even if we run out of money, I would consider backing that one again.
Jeffery: I love it. Well, we’re going to transition a little bit now. and again, I appreciate that. That’s an amazing insight. Question, so in the time that you’ve been working with startups and including the ones you’ve invested in, is there any story that kind of really just topped over with uh good or bad? We like good stories, of course. that just showed that you know maybe one of your founders she or he just blew it out of the water and you couldn’t believe what it took to be an entrepreneur. it really does resonate. You know entrepreneurship is tough but this is what really made you kind of think, man these guys did an amazing job.
Greg: Well you know, I was thinking about sharing a different one with you. but the way you just asked that question, I’m going to change the company. This is an investment I made earlier this year. and it was with the same individual that resigned from the other board. He brought this deal to me and it was a technical CEO, never run a company before. and he wanted me to give him some feedback on his investor pitch. so, I was basically brought in to kind of like show him where all the holes were and fill it in. The company’s called Stoke Space Technologies and this is a founding team that came out of blue origin and they built the largest rocket engine. these guys built the largest rocket engine for Jeff Bezos at Blue Origin and then they left to start stoke. and these are truly rocket scientists. They are rocket scientists and the vision is, they wanted to build the world’s first 100 reusable rocket to deliver low and mid-level satellites into space, 100% reusable. so, I’m sitting in there just like, we are on a zoom call and I’m ready to like find a piece of, you know, just get in there and kind of, you know, tear it up a little with the guy. and I ended up committing to do the deal before the video was over. I actually committed. So yes, I mean, there’s two companies out of 25. I made the decision the first time I met them. and that was one of them. and so, it wasn’t a huge investment for me but that company has subsequently done another round and they’re getting ready to go out for a series A and they’ve got some big companies around them now and it’s exciting. It’s really exciting when you look. I didn’t understand it but when you look at what the market’s going to be for satellite deployment over the next 20 years, it’s ridiculous and it’s not easy to get a single satellite into orbit. you got to hit your ride on some big rocket now. and not only is it expensive, you don’t get to go up when you want to. so, these guys I think are in potential to carve on it. but the real story for this was I went in to be a hard ass and I ended up writing a check. so, they went above and beyond by impressing you on all accounts. so that’s a good thing. The CEO was born smarter than I ever was or will be. and yet he has a dose of humility because in terms of designing the world’s leading rocket engines, he’s right up there at the top. but he’s never run a company before. but he is open to learning and has just been amazing to work with.
Jeffery: alright! we’re going to jump into our rapid-fire questions. Are you ready? pick one or the other. founder or co-founder?
Jeffery: unicorn or four-year 10x exit?
Greg: 4-year 10x exit.
Jeffery: first time founder or second or third time founder?
Greg: second time founder.
Jeffery: first money in or series a?
Greg: First money.
Jeffery: favorite part of investing?
Greg: helping others get what they want.
Jeffery: number of companies invested per year?
Greg: two on average.
Jeffery: preferred terms?
Greg: I prefer straight. vertical is the focus. I prefer B2B SAS but will do so. Here’s what I won’t do. I won’t do healthcare tech and I won’t do b2c. Anything else is potential. Jeffery: Okay, two things that a startup can do to help themselves stand out amongst the crowd.
Greg: Firstly, the number one job of a CEO is to not run out of money. it’s not to make the investors rich. it’s not to change the world. it’s to not run out of money. so, the CEO needs to understand that. and that’s another question I ask before I write the check. what’s your number one job, and if they say to make you a lot of money. I say nope, it’s to not run out of money. so that’s one. and two, things change and often change rapidly. don’t be married to the past if the past has left you.
Jeffery: I love it. Perfect. alright now, we’re into the personal questions. book or movie?
Jeffery: Superman or batman?
Jeffery: pizza pop or ice cream bar?
Greg: ice cream bar.
Jeffery: five minutes with Bezos or Orpah?
Jeffery: alright! Arsenal or Manchester united?
Greg: Manchester united.
Jeffery: trophy or money?
Jeffery: hotel or hostel?
Jeffery: I actually added this question in. king or rich? [Laughter] Last, political question. Will Trump go to jail, yes or no?
Greg: for his tax issues, no idea. I’m betting no. But I have no idea.
Jeffery: yeah, I just like to throw that one in there for fun. I’m going to say no too. um okay favorite sports team?
Greg: Well, this is down here. Clemson tigers. I don’t know if it’s college football. I watched them play a year and a half ago. It was in Pittsburgh. When I was there, I was going through Pittsburgh to Washington and I can’t remember where they were playing. I saw them play at the university they were playing against. I’m pretty sure Clemson was playing against them and they actually won. I teach a startup class at Clemson on Monday night.
Jeffery: I love it. Well, they have a good football team. favorite movie and character you would play?
Greg: I love Forrest gump. character I would play, I would play Clint east wood in one of those drifter movies.
Jeffery: Alright! The last question on this one is, what’s your favorite book?
Greg: I got two. One is Crossing the Chasm by Jeffrey Moore. it’s an old book but it’s really a bible on how to market to technology companies. and the other one I like, is also probably now, 20 years old, is Blue Ocean Strategy and it’s how to create a new market space where comp and to make competition irrelevant. So, I love both. When I was growing my company, I would read each of those books once a year, the Blue Ocean Strategy and yeah Crossing the Chasm.
Jeffery: I think I actually have a Blue Ocean Strategy here somewhere. and uh I have agreed on the Crossing the Chasm. I think I’ve read that one as well, a great book. Yep, alright. What is your superpower?
Greg: Sales. when you boil it all down, I’m a sales guy. and you know the other thing is, now I’m going to be 59 in a couple months. so, I haven’t made enough that I’m good. what can I leave and help others with, it’s just it’s a lot more fun? and i don’t need to have as much as Jeff Bezos has. I’m good. it’s the realization of it. The hunt is over. you can start spreading it out and helping other people. well it’s like the best thing about having a little extra is the freedom it gives you to do whatever you want to do. it’s not having a big bank account. It’s a freedom agreement.
Jeffery: It’s great. I love it. well said, Greg. I’m going to say thank you very much for all your time today. Like I always do, I took lots of notes. I’m a note taker. I copied down some of your lines, added in your question. so, it was a brilliant conversation. I appreciate all of it, all of your time and the way we like to end our show is like giving you the last word. so, anything that you want to share to startups or to investors. I turned it over to you but again thank you for all your time today.
Greg: Well Jeff, thank you for having me. I’ve enjoyed my time together with you this afternoon. I mean, I think I’m passionate about helping the startup world. Its where new jobs are created. new jobs are not being created in big companies. if you look at the net, it’s all new growth from underneath. and so, as we, as a continent, you can lean into helping the younger generation. The next generation shares some of the things that we’ve learned. they’ll share some of the things that they’ve learned. you know we can help the next generation get what they want and to help enfranchise the generation that follows them. So, if you’re an angel investor, just for the money, you’re in the wrong field. The other dividends you get are actually working with the entrepreneurs and the satisfaction that comes with that.
Jeffery: So, I wholeheartedly agree. Awesome. Thank you very much again. Okay, that was a great conversation with Greg Smith out of Atlanta. Awesome. He shared lots of great insights. I love the whole thing. the CEO’s got to be selling. That’s what it’s all about, strong background in building a company, selling a company and now he’s been investing for the last 10 years. and um I love the top five things on what he looks for when making an investment, relationships. or others are bringing relationships to him so that he can make an investment. Why is this the team now that’s going to solve this problem? How do they capitalize and will this business be capital intensive in the next 10 years or can they grow and build this business without making it too capital-intensive? And of course, like he said valuations and terms are really important. and the last one is can you work with the CEO? So again, awesome. awesome interview. I am really excited for all the great things that Greg’s done and appreciate all the sharing, lots of insight there for the startup founders. So, thank you for joining us today. If you enjoyed this conversation, please subscribe to our YouTube channel or follow us on Spotify, Apple Podcast and, or Stitcher. and you can also check us out at supportersfund.com and for startup events at opn.ninja. Thank you very much and have a great week.
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