Businessman and Philanthropist
James Sowers

"The best product, the best technology doesn’t always win. It’s always the one with the best adoption."

- James Sowers

James outlines what he looks for in a start-up

Talk Takeaways

There are a lot of takeaways from this conversation with James Sowers. While timing plays a factor, startups have to be saving time, money, and figuring out that “painkiller” in order for their product to resonate with many people. Gain insights from the discussion on liquidity preferences, dual class structure, private vs. public company, crowd note, and how an investor can balance out his portfolio.

About

James was named a top 50 Angel Investor #22 by Forbes. In 2018. James was an early Bitcoin, Ethereum, Litecoin, Stellar , Ripple and Initial Coin Offering adapter. During 2016-2107 he participated in 9 ICO unicorns . James is a sought after keynote speaker , startup coach and mentor.

As an entrepreneur, Investor and technology thought leader James frequently speaks about exponential technologies and startup investing at elite conferences most recently Opals Direct investment virtual forum . He has been featured online by the Huffington post , Forbes, Entrepreneur, fuel for startups, Thrive global and Equites Magazine. He was a mentor at Stanford for CS359B decentralized applications for the blockchain inaugural class.

The full #OPNAskAnAngel talk

Jeffery:
Perfect! Let’s kick this off. So welcome everybody, today we are at OPN Supporters Fun Ask An Angel and I’m pretty excited today because we’re meeting with James Sowers and I’m probably saying that wrong James, so you can correct me. But I had the pleasure of meeting James, I guess online and then we jumped into a conversation and it was fantastic. And I couldn’t wait to actually get into an interview and chat with James because I thought, “Man, this guy’s got so much energy that we’ve got to figure out how to bottle this up and get it out to everybody.” So James, welcome to the show! We’re super excited to have you and you know what, why don’t we start off by you, giving us a little bit of a background on kind of where you’ve come from who you are and then to end it off, one thing that we will not know about you that you want to share.

James:
Okay, great! Yeah, thanks for having me. I’m James Sower, so you did pronounce it correctly. You get you know, A+ right?

Jeffery:
I like it!

James:
And I’m actually adopted from South Korea. And I was an orphan as a child but then I got adopted and I lived in Baltimore, Maryland and as a little kid I was kind of a little hustler. Would find pennies on the ground, save them up, and then buy packs of swimsuit cards. And I think it was about 25 cents for the whole pack and it was 12 cards, and I would break the pack up and sell the cards. As pieces you’re gonna make a profit. Get whatever I could at least 25 cents a card but sometimes you get a couple dollars if somebody really liked the card. So that was kind of basically my introduction into business even though I didn’t really know it was business, and you’re managing profits and losses, and read about you know athletes and investors and people at the carnegies and rockets. Their way of thinking then maybe one day I can be like them. So by the time I had gotten to college, I had saved up some money and started investing the stock market and I got lucky because one of them did pretty good. And about four years ago or so, I really got involved investing in startups through different vehicles. So that’s kind of how i ended up where I’m at now in the last four years, I’ve like- it’s been a real journey. I’ve learned a lot and it seems to be ever-changing. It’s like an ever-changing thing what was relevant four years ago, isn’t relevant today and probably four years from now, it won’t be relevant.

Jeffery:
Well, that’s very true and what’s that one thing that nobody would know about you?

James:
About me? But I haven’t been back to South Korea since I was adopted like a lot of people think I’ve been back but I’ve never been back and that was the only time I actually ever flew. I was obviously flown from South Korea to United States and I haven’t flown since then. I was going to start flying in this year but then the COVID happened.

Jeffery:
Ah very cool.

James:
I actually started talking to wheels up and I was going to get a membership but then the COVID happened and I was like, I think I’ll you know, put a halt. Don’t travel anywhere from now because before that the last four years, I’ve been driving around everywhere seeing the whole country I mean it’s kind of crazy in a Toyota Prius.

Jeffery:
That’s wicked I hope you recorded it all and posted it everywhere. It sounds like a great little story, great adventure!

James:
It’s great to mention, for sure.

Jeffery:
I love it! Well, there was one thing that we talked about that I thought really goes back to your background. So you’ve always been kind of finding ways to hustle and what Iloved about that is that when I talk to a lot of investors or a lot of entrepreneurs that a lot of their childhood exploitations really come out when they get older. Like they probably didn’t even realize that like you said when you were selling cards that you were doing something to generate revenue, generate money, find ways to kind of keep moving forward, and how much that changes and shifts to your current life now that you probably went through, and then one day, you’re working on a new startup you thought, “You know what, I forgot all about this. “I used to actually sell cards, I used to do this, I used to do that,” and you really look back that a lot of these skill set that you’ve built up you learn from when you’re a kid, do you find that true today in a lot of the things that you’re doing?

James:
Oh, I think that’s so true in every aspect in life because I remember hearing some speech on YouTube that Steve Jobs gave. I think it was at Stanford, about connecting the dots and you really don’t really see the dots going forward, but when you look back you can see how they connect. And I really think a lot of things that defines people, and don’t really notice their habits. And you really form habits when you’re younger by the different things you do and the people you meet associate with and the things you learn. You start forming habits and discipline and things like that and I think especially in public markets, too. Emotion and discipline in psychology is more important than anything else because a lot of people might have got into the right stock and ended up being the next Microsoft, or Tesla earlier but they sold way too soon, so if they didn’t have the discipline the whole low enough to realize massive gains then they would have never got them.

Jeffery:
That’s a good point and I think this kind, kind of works into your thesis on how and what you’re looking for when you’re working for startups, correct?

James:
Right, because you’re looking for certain traits in the founders because – so the one thing I’ve learned is the timing is really the most important thing. So if it’s the wrong time you could have the most genius founder, the most genius idea, even the most genius product, but if it’s not time for either a technology inflection or adoption inflection, then people just aren’t going to do it. It’s just like Uber and Lyft, people had that idea many years before Uber and Lyft but until you had not just the iPhone but you had the Geo Tagging, where somebody could press the button and the car shows up in five, ten minutes that people would use that versus alternative services because it was to me, I’m learning. It’s making people’s lives better, it’s saving them time, so if you’re saving people time, money, or kind of like releasing a pain- I call them your “painkillers,” then people are going to use it. Because I’ve also learned the best technology, the best product doesn’t always win. It’s the one that gets the best adoption.

Jeffery:
No, you’re right.

James:
I think people are resonating with those products and that’s why they adopt even though it may not be the best technology.

Jeffery:
And you mentioned timing is key and I totally resonate with this. And I think it goes with the cycle but also trying to figure out what fits in that timing, what if it’s herd mentality, what’s actually going to get other people to see through what I’m doing, so that they’ll want to adapt to it and use it versus “Ah, this is too complicated.” So as an example, Zoom took off. We’ve been using Skype, Google Hangouts, all these different platforms, but as soon as there was one change that happened which was COVID, then all of a sudden everybody started to figure out “Oh i need this platform. How am I going to work with other people? How many?” Well, there’s a million platforms, but Zoom seemed to come in there. I don’t know if it was because it was one word and it just happened to be what was people were looking for but man, it just took right off. it had been. We’ve been using zoom for a couple years before that, nothing crazy and it went on to the markets, and then all of a sudden everybody and their grandmother including schools educators, everybody were like “Wow, I gotta use this.” So, timing and some good luck obviously helps but it really is how that market shifts and how people are actually working within that market. So now being able to work online seems a lot easier because all these other tools are starting to flutter to the top and now everybody’s more comfortable with it, so now working from home is not as strict and hard to do as it was two years ago than it is today.

James:
Right, I think zoom had a big adoption reflection because COVID kind of sped that up. I think that sped up a lot of adoption reflections because I think kind of the directional errors is we’ve been moving towards technology becoming more symbiotic with us. But it’s been moving, yes and all of a sudden it went like that and did like seven years and seven months. People- because they had to adopt they did and of course, because Zoom’s made a lot of changes too since COVID started.

Jeffery:
That’s true. Yeah, they added more security features and a few other things. Just to share that the video on your end is kind of a bit choppy, a little bit. Just as an FYI, but we’ll keep going so far it’s holding well. So as you’ve kind of been working through and I love the adoption inflection, and timing, saving time and money, and bringing this painkiller and solving it. I think those are really reflective of how a startup should be viewing themselves. A few of the things that we were really dove into the other day which thought would be something to touch base on was, when you’re going into these investments and you know there’s different opportunities on different products, different services, and things that you’re looking at, there was a lot of stuff that we chatted about which was on the terms and how investment are working, and things that you’ve gone through and experiences. Maybe we can talk about a couple of those because I think highlighting kind of how you look at a startup from beginning to end and the things that you’ve learned from the first time you invested to the time you’ve invested now, what kind of nuances, what kind of things that you look for to ensure that you’re securing your investments? So that you know, four years from now you’re actually going to get an exit versus a thank you and you walk away with nothing?

James:
Yeah one thing I think a lot of people have learned not just myself is that the original pre-money safe had a lot of flaws in it. One of the flaws was actually bad because a lot of the founders were getting diluted so much, they didn’t realize it. Another problem I’m starting to see too is the stacking of safes. So people are doing one round, using a safe note and then another round using a safe note in another round and I don’t think they realize how bad they’re diluting themselves. And what happens is when one of these convert they’re like “Oh my god, I thought I still own 50 percent of the company, the founder” and now they’ve owned 12 percent and the next thing you know, COVID hits. They have a down round, they’re like “Oh my god, now I own three percent.” It’s not really worth me to keep on going, so they just shut down the company. I think a lot of that is going on nowadays. And I know YC tried to fix that with the post money safe to help out the founders, so in theory they would know how much they’re being diluted. But I have a feeling until these things actually convert people don’t really know. Another thing I’m starting to wonder about too is, I’m seeing not all the states but some [inaudible 9:31] say converts to safe preferred shares, so is that subordinate to regular preferred shares? I mean I don’t know and I don’t think anyone knows until these convert because one problem you run into with some of the startups, they’re doing really well is they’ll get a big round from some big BBC or now a sovereign wealth or PE fund but that fund puts in you know enormous amounts of money. 10 million, 50 million but they get a two or three x liquidity preference. So if that company ends up getting acquired even though you were the first check-in, if it doesn’t exceed that liquidity preference, you could actually be getting zero.

Jeffery:
That was the one that really kind of piqued my interest and maybe you can talk a little bit more about that, the liquidity preference because I think you’ll see this more in US-based investment options versus in the Canadian or global aspects. But it 100 percent does occur and it does happen when it’s bigger money, so maybe touch a little bit more on that and where that can be beneficial for an investor to take a look at or but also on the startup side on things that they should also be leery of when they’re signing these Deals.

James:
Right, so the hard thing about that is because if you were in first and they come in later, you don’t know that’s going to happen, but you just got to be mindful that this could happen because just to use easy math. If somebody like a softbank, not to pick on them but just using an example because everybody knows they can write monstrous checks at will. Writes a 100 million dollar check but a 3x liquidity preference, if that come even though you see you hear in the news “Wow, someone still had a billion dollar evaluation or whoever invested 100 million.” You don’t realize it’s a 3x security preference, so if that company sells it, say 300 million, everybody else get zero and the softbank whoever the big player was that wrote the monsters check just gets a 1x which isn’t great for them. But you could have been the very first check in even an idea at a one million valuation if you got that lucky and think you’re doing so great and you would end up getting zero because of that. I mean an example but there’s a lot of examples too but people don’t understand when they hear a company got acquired. It was like “Congratulations!” Yeah they see on Techcrunch whatever or whatever and they don’t realize all acquisitions aren’t great. Some can be like milestone payments, so you might have got one x or nothing back and then later one if they hit certain milestones you get four acts or certain payments. And then there was examples two before COVID, I had a couple companies get acquired and you don’t necessarily get the money right away, so you’re supposed to get the money in like three months or six months or whatever and then COVID would hit, and now the acquirers you know alleging to everyone “Hey, we don’t have any money right now, so nobody’s getting anything,” so you’re probably not going to end up getting anything because if that company acquired them ends up you know, going bust or whatever. So it’s not always you know, all I guess puppy dogs and everything everybody thinks when it’s an acquisition.

Jeffery:
So does it does. It- in this I’ve seen this in other instances too. Is it- it’s until the money’s in the bank you kind of have to be a little bit more cautious of how you orchestrate your dealings, but do you look at you know, there’s options where you can do vested options if you do get purchased, it can be stock options, where you’re being invested by your company gets purchased and then you’re invested in that new company and then your stock valuation ends up going up from say the value of your company was 10 million at the set of the sale price, but the other company’s worth 200 million. So you’re buying into that at that value, they give you maybe a one percent buyout over three years. So are you looking at kind of shifting the way that that should happen and try to do more deals where you’re getting more cash up front? Or what things do you recommend for an owner to take a pay attention to as they’re going through this and they’re giving out equity and they’re they’re building the structure of getting to this hundred million dollar company, is there some things that they should be looking at and taking a better approach on their cap table or how they’re they’re operating?

James:
Yes, the startups should definitely be mined for their cap table. Especially, with we kind of mentioned the stacking of safes. And also I’ve noticed too a number of companies do more than one convertible note because it seems like the seed rounds have gotten so large and like the old seed round, I mean the old series A is now the seed round, and they’re getting bigger and bigger. So now companies will have five seat rounds and they’ll call them like angel round, three seat, seat, c extension before they even get to a series A and some of them won’t even do a price round. They’ll just keep raising two or three million on these convertible nodes or safes. I think they’re gonna be in for a heck of a surprise when they convert and they’re diluted way more than they think. So really I think being mindful of your cap table and not only that, you know once stuff happens, it happens and everyone learns. But I’m starting to think too some of these startups too, when they get to a point they’re going to be converted they may find a BC who wants to invest 10 million but they don’t have enough room, so they may say “Hey, can you possibly buy out some of our previous investors at a two or three x?” If they’re willing or a 5x, if they’ve only been in a year or two because for a year or two that’s not bad and just kind of thinking about these things. Because otherwise it becomes a serious mess when it’s too late.

Jeffery:
And in the US is there-

James:
So I really think cap table management..

Jeffery:
Yeah, I like that and in the US is there any rules or regulations against the number of people on the cap table before it becomes private, non-private, or goes into some other structure because you’ve got two 300 people on the cap table, or is there 50 minimum and then you have to go to become a market dealer? Like is there something along those lines that you have to start looking at or it doesn’t work that way in the us?

James:
There is, but they had made a change several years ago and I think it’s part of the reason why so many companies stayed private that it used to be. I don’t know the exact number but I want to say it was like around 500 people including the employees. You had to start reporting as if you were a public company but then they changed it to some higher number like either. I don’t know the exact number, it could be three thousand, five thousand not including the employees. And you figure as you really start to scale out having all those employees was the biggest number of people in the cap table, so now that allowed them to have more and more and more investors and now they have new tools like Reggae plus and RegCF where people can have thousands of investors and being a merging business or something like that it’s called and have very minimal reporting so people are doing things like that. So they’ve really kind of kicked the can down the road where you can stay public. I mean private a lot longer and people don’t want to deal with the hassle of going public because one thing I’ve learned too a couple of my companies had looked at it and the cost of errors, emissions, insurance for the board and stuff, and things going public is very expensive nowadays because there’s so many class actions against public companies going public. And if the stock falls for like one month, they get hit with this stuff. Even for rebounds, they just get hit with you know all these kind of things and those are extra costs. So it raises the cost of everything.

Jeffery:
And Zoom was like that when they went to the markets. They had a down at the beginning of their race and came out about the security issues that the platform was sold to investors that it was very highly secured and then it came out that it was very low secured. So they started to hustle, they got sued by all the investors because they said this stock will never go up over 50 bucks or 75 bucks. And now I’m sure the investors hopefully the investors pulled that lawsuit back because obviously, they’re all walking around in the Bahamas loaded but obviously at over 500 dollars a share. So I’m not sure what occurred at that onset if they did cancel it but you’re right. There’s a lot of risk and concern around the governance of once you get to that state of making money, people want to make sure they’re getting paid too.

James:
Right it’s not.

Jeffery:
It creates a lot of it. Creates a lot of stress for sure, so in that that governance side of things, how have you found that a lot of companies are managing this governance to ensure that the company is moving through the right systems, raising at the right time, do you help companies with that? Or is that something you’re part of or you leave that up to the board how do you manage through all those different types of growth issues?

James:
Yeah, so kind of the way I kind of do it, is you know the founders if I invest in a company, they can reach out to me anytime, they want and talk about things you know, regarding the business and things like that or if they just want to like vent about something in the business. But normally, you know somebody’s gotten that far long series B or whatever that they have a board and they have you know general counsel and things like that at that point so nobody’s really gonna listen to what I’m saying that they might bounce some of it off me and then do the exact opposite. Because I have a saying, sometimes people just want to be heard so they already know what they’re going to do but then they’ve gotten far enough along but they just want to call somebody. They know they’ll listen to them and they’ll say what do you think and then when you tell them, they’ll hear it but then they have like five other people telling them something totally different and they sometimes they just go that way. But I think they just want to be heard. And sometimes they don’t necessarily have a choice too because there’s been times where people question some of the things that the startup has done in the acquisition and it may have been the acquirer or the legal counsels that force that not necessarily the founders. And a lot of times the founders get forced out at a certain point too later stage. They bring in the professional CEO or whatever they want to call it.

Jeffery:
Yeah, exactly. And that was kind of going to go to my geared towards my next question and that is, you know is there a way to and do you look for this where you’re protecting the investor but you’re protecting the CEO as well? Is that something that a CEO can do when they’re raising funds and ensuring that a VC doesn’t come in and take them out as well? Like that’s a very common issue too, right? Where VCs own a good chunk of the company and they just decide you’re going the wrong way, we need to take this back, and swoop in and make those changes. Have you been through that? Have you seen that before? Is that something that startups should pay attention to along their journey as well?

James:
Right, so I’ve never personally been involved in a situation where someone tried to protect themselves but I have started advising some very early stage startups I mean very early. And I’ve mentioned to them about the do class structure because you know, if you set up the new class structure and you get a hot company the VCs, the investors want to be in, they’ll accept That. Now, maybe if you’re having a hard time raising and they won’t accept that then maybe you would have to change it and I’m not sure illegally how hard it is to change. But if this is your life’s work and your own mission and you’re someone who executes fast and you’re building the company and it’s rocket ship growth, then you know you could set up the dual class structure and that would definitely protect you as a founder.

Jeffery:
And can you explain what this class looks like?

James:
So, yeah there’s many different ones and recently palantir had some strange one where they had F shares for founders shares. But it’s basically, you could be a very minority owner of the company. Like almost less than one percent or even not nothing but you have two class shares that own fifty percent or fifty one percent of the voting rights, so basically your voting rights has all the power at the end that the other peoples don’t really have any power because the final say if you have 50.1 percent or even if it’s just 50 percent, I would say even it’s like 49 percent. It’d be very hard to get 51 percent of all the other people together on one thing so you’re probably going to win. But basically 50 or a little bit over or slightly under like 49.9, you basically control the company regardless of what happens.

Jeffery:
And is that that’s how we work? Did it correct they insured well one thing but they-

James:
I think that he had all kinds of weird structures because he had weak company and he had rework and then he licensed on the trademark or something. He had all kinds of weird stuff going on, but there’s definitely a lot of companies that are very high prestigious. I know Facebook has a through class. So does Alphabet, what used to be Google. I think Snapchat does. There’s a number of companies to do, so it can definitely work but I guess it all depends on the individual because I have learned too, some individuals when they get to a certain point, they hit the wall and all of a sudden the pressure is so much, they would prefer a professional CEO to come in and then just to be like the chairman of the board or on the board or just an advisor to the new CEO because even with advisors investors that people who call you up for advice you know, if you don’t keep growing you’re gonna hit the wall with people that are growing they’re gonna outgrow you. So I always try to keep learning and keep growing, so you know I don’t hit the wall and get outgrown. But I perfectly understand if I found who really relied on me for a year or two. All of a sudden gets to a point where they’re raising hundreds of millions of dollars and somebody else has had more experience they want to rely on them more. Of course that’s a smart thing to do.

Jeffery:
Agreed, yeah. There’s you know, when we work on boards or we work in other businesses, I always tell the startup that you know, as they they progress we’re here at the beginning which is the early pre-seed and seed round area but when you get up to that series A and series B, we’re good as a sound bike but we shouldn’t be on your board. We shouldn’t be part of your business. You should have a whole different dynamic of people that are going to help you elevate your business to that next stage. We come into the bottom and help you get out get your feet wet and drive and start to build, plant the seed, and grow the trees but there’s a point where you know you’re building the jungle and you need to go big and better so you need to find the right people that are going to fit in that space. And sometimes that fits with the CEO or it fits with the management team. You know you’re looking for people that carry that experience to keep bringing you that next level.

James:
Right. Think the second part to your question about investors protecting themselves is, I think one of the unintended consequences that nobody saw coming is staying private so long because it used to be like three, five, seven years and now it’s become 10, 12, 15 years. I’ve been some that for private 30 years now going public I mean just bottles my mind is that maybe going in if everybody realizes “Hey, I’m coming in but you know I’m looking to be out in five or seven years,” that now with a robust secondary market you actually can get out. If it’s a company that’s well desired and now with this I call it the “spec attack.” I think a lot of emerging companies are gonna get out a lot quicker in the three to five seven year range and it’s going to help a lot of people that have already kind of raised too much money and got too high evaluation that was based mostly on fundraising and growing like a weed. They’re gonna get lucky because somebody’s going to stack acquire them and they’re going to get the valuation they want because I think one of the problems with going public as an emerging company is the cost. But with these specs you also can do the pipe where you get great investors like fidelity, Wellington, T road price, and these pipes are raising hundreds of millions of dollars. So these companies have hundreds of millions if not billions, so now they can really go to market especially in stuff like emerging technologies you know, electric vehicles, space technology, clean energy, just things that require a lot of capital and it gives them the chance to succeed. Because one of my things too I always think too is, you have to have enough money to be able to survive long enough for the right time for you to really take off in those those types of businesses.

Jeffery:
Yeah, I fully agree with that and totally support that comment. Now you mentioned something about this three to five and five to seven and even going up to 30 years before they actually go public

James:
Yeah (Laughs)

Jeffery:
I think that might be a lot of the time. I think that a lot just happens to be the company’s doing well they’re making good money and they just don’t see the reason to go public. But over the last 10 years there has been a, like you said a big shift. But I think the shift is actually rotating back into companies wanting to go public faster, quicker, sooner but trying to do it under the right governance level. So there was years where they were getting like maybe one to two companies that were going public that had any value in any merit to go public and then during the Dot Com, everybody was trying to drive into that public space, getting out there because the money was huge. Then it kind of dried up and they had a really low number of people IPoing and then the last couple years it’s starting to pick back up again. And I think people are realizing these public markets have so much money liquidity and value that they really want to target that. We’ve had companies that and this was crazy making an investment and the company was RTowing in their first three years of business and we were like, “Hold on man Like you’re not even at this stage yet. How can you be going that fast?” and they’re like, “You know what, we’ve got five million in the account. We’re ready to go up on the venture exchange and we’re going to work our way through this.” So I think there’s a time and value for it, but are you finding that in the US based structure that companies are looking to move quicker because there’s burnout happening and it’s happening at a faster rate, so they’d rather get into the public markets, driving some dollars, move a couple of people out of the business even if it is the CEOand then just drive this business into the position where it needs to be?

James:
I think we are moving that way because people are starting to see also that when you’re a public company it gives you extra credibility with customers, it gives you an extra currency with your stock, the stock’s high, where you can make acquisitions with the stock. So I really think we are moving towards that way and it may be five to seven, years maybe the right time and I know what you’re talking about with the RTOs. i see a lot of psychedelic companies and the cannabis companies from the old boom in one to three years doing the RTO and then you guys have the Neo exchange which is they do a little bit more vetting. Where you’re more of an established company they say and you have to hit certain criterium before they let you do that on the Neo.

Jeffery:
Correct, yeah. And I guess from a government standpoint that works as long as you’ve done all the right things in the business, so that when you do go into a public space, you’re lined up and you’re not getting sued and you’re not getting beat up for patent infringements and everything else. And then you end up syncing your own company because you can’t carry the weight. And I do know that you have to have a good chunk of cash, liquidity in the company sitting there in order to support it because it costs a lot of money just to maintain your governance and being able to file every quarter, and if you miss a quarter and you bump it out, well then you’re pretty much shooting yourself in the foot because they only allow a little bit of leniency and then boom they they drop the gauntlet down on you. So you really have to build a good finance team around supporting your your quarterly updates in yearly year end. So it might be a little bit tougher but again is the mindset there that “Hey, I got to get my money back into the hands of the investors. I got to really drive this out,” so maybe that’s the place we need to be and maybe our target. Instead of 10 years from now, it’s going to be in five and is that reasonable based on the growth that they have.

James:
Yeah, I think in the US, it is going to change back to the five to seven year because it started changing to well you know, 10, 12, 15 years. No who cares but the companies are, like you said 30 years, those were companies that are making a lot of money and intend to stay private and were very closely held mostly owned by a family.

Jeffery:
Yep.

James:
And I guess they’ve seen now with all the liquidity in the markets, “Hey, it’s time to take some chips off,” because a lot of people don’t realize too, your paper net worth versus your liquid net worth can be very different. There could be people that are billionaires on paper because they have this closely held family business and they’re barely making it on cash because they’re paying themselves so low, a salary just putting everything back in the business and growing and taking care of the customers and the employees. And then once they hit that IPO, if they’ve had the company 30 years and they can finally breathe a little bit.

Jeffery:
Yeah, I hear you. Yeah, that is, that I think that’s way more common than not, Right?

James:
I think it is too.

Jeffery:
Worldwide, I think in some things that Trump posted it was very similar to that as well. Everything is net worth is all built inside the books and then on the other side everything is just managing right?

James:
Right.

Jeffery:
So and again tax systems are way different in the US than they are in Canada, but I think that you’re getting more universal in a tax setup anyways because countries are all trying to work the same way to bring the same balance in and it kind of switches us into something a little bit in the same bucket but a little bit different there’s also tax incentives for investors. And in Canada, they’re regionally based. They’re set up by province, they have ways that investors can get half cash back and things like that. In Ontario, there’s not really any tax benefits for us if we make investments, is there any benefit to the investors in a US based structure that they can benefit from investing in early stage companies?

James:
So that, I can’t remember the exact IRS number for it but there is something, if you invest in a company and if you’re in the company for I think at least five years, ten times your money can be tax free but you have to really like cross all your eyes and Dr. T’s and there’s some debate whether or not safes count. So people say like it was a convertible note until it converted it probably didn’t count. But does a safe note count as starting the clock? And then you have like the 83, I think it’s a 83b election that may not be the right number where if you’re an advisor or employee to start up you can buy these shares for like one tenth of a penny or 100th of a penny. Whatever they’re saying it is and you can file an election, so you don’t get taxed twice. So there’s different kinds of tax incentives but you have to really follow all of it to the letter to law or it’ll get denied. And then they have this thing that’s more recent called “opportunity zones,” where if people invest in an opportunity zone, they may be able to further capital gains 100 percent. But I think that was initially made in thoughts of just real estate but some tax advisors are saying that with startups if you invest in an opportunity zone that counts, I don’t know if that’s true and I bet you, it’s a gray area until it ever gets challenged no one really knows. Just like the stacking of the safes and the preferred safe share versus you know, regular preferred chairs nobody knows what’s senior until it ever gets challenged.

Jeffery:
It’s interesting because you’ve brought up a lot of great points around different ways, different safes, tax benefits, the way companies got to protect themselves. It really sound very pure, sounds super basic, compared to the level of interest theses that have been put together inside of startup world in the United States. And I don’t know if this is done to keep that high net worth individual focused in on what they’re investing in or if it’s done to prevent others from coming in encroaching in the space and wanting to invest money because now you’ve got these social platforms that are coming in that are also allowing for everybody to kind of invest into startups. So now, it kind of feels like you’re gonna get stuck in this mayhem where people are gonna start fighting back. That they’re investing in companies like ICOs and they’re really just capturing money walking away failing the company and the owners walk away with all this money and there’s no way to govern it, manage it, or control it.

James:
Yeah, that’s another interesting thing too. So for first of all, the safe I believe was created by Paul Graham and Y Combinator to save the founders money to the spend you know 50k just to get the regular docs from the lawyer, so I think that’s why that was created. And there’s been innovation on the safe because of course, they found you know bugs in it for lack of a better term but when the computer science guy invents something you know, he wasn’t really a legal guy I guess he might have had some legal guidance. And then I think historically the accredited investor rule has been meant to keep out the little guy but they have all these great platforms like you said Reg CF and whatnot but they’ve even come up with things like called the “crowd note” now and I’m kind of wondering you know, are people going to be in for a surprise when some of them don’t convert an acquisition or an acquisition, if it didn’t convert the way they thought or when the company goes public. Because technically the crowd node, a lot of them I’ve seen don’t convert unless there’s an exit and it’s not real specific on what kind of exit because when they first came out with some of those platforms you know, I test them out like a hundred dollars or five hundred dollars where the minimum was just so I could see the docs and see how it works. And you know, it’s so early in that crowdfunding thing in the last few years, we haven’t really seen any challenges to anything yet to know what’s going to happen as a result of something unintended.

Jeffery:
And is there any tax incentive or tax issues that come out of it? Like if one of them does exit has there been any exits in this way of gaining capital as well that you’ve seen? I haven’t-

James:
I think there has been-

Jeffery:
-seen much but..

James:
There has been some small exits in the crowdfunding space where a company might have had some VC money and some regular people money on accredited investors. I guess they call them “common phone” for lack of a better term.

Jeffery:
Okay.

James:
And they’re kind of quiet. So we don’t like if they got acquired and it wasn’t good acquisition you probably never really hear about it. I even under do the people in the crow on the top because I know I had invested in the company that did a game but I had invested as a credit investor they got acquired a company for stock only. And so you know, I know I have stock in this new company. I’m more to people who did it on the crowdfunding platform what happened with them were they even notified or maybe they didn’t have stock in it because a lot of those crowdfunding platforms are using the crowd notes and on some of the platforms it’s just one entry on the cap table on the crowd note and some are using some kind of trust or something so it’s one entry. But then there’s other ones where they’re selling common shares where they have two thousand people on the cap table, so I imagine it largely depends on the structure of when they did the crowd sale for lack of a better term. And then ICOs was interesting too because it showed the number of people who wanted to get into these things early. Just the problem was a lot of these projects didn’t even have a pro- it was just a white paper or an idea and of course most of them were grossly incompetent. Even if they didn’t intend to be a fraud what they were trying to build literally would take hundreds of millions, so of course they wouldn’t make it even if they raised 10 million because there are some companies that were legitimate that raised hundreds of millions that are just releasing the product three four years later and they had VC money too and they just were able to do it because it was just impossible to do at the time technically. It took that four years of experimentation and literally spending hundreds of millions of dollars.

Jeffery:
Yeah, it’s crazy and I know the ICOs got block and now they’re see they’re IC, ITOs or ISOs or whatever the new term is but yeah there’s been a shift in that space, and now like what you’re talking about it really makes it interesting because I’m finding that a lot of companies are doing whatever it takes to raise money. So you know they’re accepting terms they probably shouldn’t, they’re putting out things in terms that they probably shouldn’t put out there, which means they’re losing the wrong value but they’re not paying attention to it because they just want money to stay afloat. And then they’re going to these social platforms and they’re allowing those to go through and it kind of in a way yeah, you said, like you said earlier, you might learn something through this process but I don’t know if in five years you want to learn that you own one percent of your company that you’ve been working and hauling bud on, and now you own one percent of it. Sure if you’re making a million dollar paycheck, I guess there’s some good value in there, you’re still getting paid, maybe it’ll go somewhere else, and the the winning option is that you liquidate or get bought out. But it kind of gets a little scary that when we’re all fighting or everybody’s fighting for that penny that things might get missed and then you’re gonna find out later years later that there’s a bigger problem that you didn’t foresee and that could be around the social investing all the way through to the type of safe or the type of documents that you kept using when you should have got legal in there to help out.

James:
Yeah I think we’re really moving into a world of super haves and have nots. So like the COVID had really stretched it out. I mean you had the haves and have nots and now it’s becoming super haves or super duper haves and have nots. So you have one group that can raise the money get the terms and raising ungodly amounts and another group that is just doing anything they can to raise money so they can survive and it’s funny too, you mentioned the different names. So they went from ICO and they talked about the STO which was a security token, there’s a few of those out there hadn’t really taken off yet. I think it may in the future but we’re very early. Then they have IEOs, initial exchange offerings, that took off for a second and then died down and then took off a little bit again. And now we have IDOs, initial defy offerings, where you’re not even raising money but the people who are actually adding value by using the platforms like uniswap get a gift of an airdrop of a token. I actually like that idea but I’m fearful that you know regulators eventually are going to come in and poison that and make them securities in the United States.

Jeffery:
Yeah and they almost all from everything, I’ve read and seen a lot of them fall under securities no matter what. Anything that you’ve got when you’re exchanging money equity or value at some point in time, it’s hard not to regulate it around some sort of financial structure that will balance it out because you’ve got an exchange of dollars coming from one entity to another to help support the growth and build and I think that the fear is that there’s ways around it. And all they do is keep morphing and changing it to avoid that connection, but at the end it is- it’s money changing hands. So I’m not sure.. go ahead.

James:
I think the problem is too, is even if you do initial d5 offering you’re just giving the token to the users and saying it has no value. The minute people start it gets on the exchange and people are buying because they think it’s going to go up in value or people are trading it on you know peer-to-peer dexes or whatever because they think it’s going to go up in value then you start getting murky because people are expecting to gain value off of something. So then it make because it’s-

Jeffery:
Who’s exchanging free [ inaudible 37:13 ] like very rare, do you exchange here take my free piece of paper eventually somebody wants something for it and it’s going to exchange for some sort of value. No matter what there’s a value. I don’t know if you remember way back in the day there was that, was it the “red paper clip” and the person started off with one paper clip and he wanted to get a house or something that was his end goal and he traded a paper clip all the way up until he actually owned a house. So and all he did was trade things, so there’s some monetary value that got all the way through from trading one thing to a next to get to that house. Now, did he have to pay tax on that? I don’t know but I’m sure that would be interesting to find out and now I’m going to be super curious and I’m going to go back and read that story. But it literally was something like 20 changes and he went from a paper clip to a home and I think the home was in like Manitoba, Canada or something like that and it wasn’t massive but I’m telling you now, that property’s worth a lot more money than it was 20 years ago when the internet started kind of thing, right? So it’s going to be interesting how the securities exchange and everybody else start to monitor how these ICOs, and CTOs, and IDEOs, and all these things are actually working and how they’re bringing funding and dollars into a market and how they’re funding companies and then what that payout is expected for the entrepreneur and for the people that are investing. It scares- it’s kind of scary in a way when you look at the investment side. When you’re trying to get funds and you don’t care where it’s going, how many of these businesses are validated and does it you know, does that mean that because you went to the public that it’s at their own cognizant that if you’re scamming them, you’re scamming them and you just have to accept that it’s a scam? Like what’s validating that this company’s real? Who’s validating it? If it’s just a system and I drop this up there and I say, “Hey, this is my next new cool, super idea,” and like you said, “it could take hundreds of millions of dollars to build this but I get enough regular people that just don’t invest in early-stage companies and I raise a million dollars on a social platform.” And then I say two months later that it failed. Is that not a scam and is that not illegal? What determines what can stay structured and make that an entity that’s worth investing? Who’s validating that these things are real? Just like a company from another country can come in and demand cash somehow gets it and then walks away and I don’t know if there’s a regulatory body that manages this per country but all of these things are kind of the due diligence isn’t there, right? So it’s just like going to an angel group, if nobody’s doing that background check or that double effort then you could be stuck investing in a company that doesn’t exactly exist. It could just be a shell or some sort of ponzi scheme, right?

James:
Yeah, those are real tough questions because it’s hard to know someone’s intent. Because like I was saying a lot of these ICOs were just grossly incompetent they weren’t actually intending to scam and then what happened is when someone I think jealous team Fomo comes in. somebody here so-and-so raised ten and then they get it over their head because all of a sudden they got all this money in a bank account, they buy a real big office, they start sponsoring as cards. So they’re basically using the money incorrectly even though they didn’t actually steal it. But then you have other cases where people just took in all this money and said, “Thanks” to the memories and disappeared, obvious scheme.

Jeffery:
Yeah.

James:
And then sometimes people intended to do it well. It took you one or two million dollars and said, “Oh my god, we can’t do this with one or two million.” Let’s try to raise what we need and then just started saying things that weren’t true saying anything to get the money and it became almost like a ponzi scheme right over their head.

Jeffery:
Yep way in over their head for sure. Well, it’s interesting James. I think one, I love this conversation because we went right across this whole spectrum of how investing really works and the in depth of all of it. And I’ve never actually had to get to have this conversation with someone because we’re always talking about really the fundamentals of how a business works. Not really on the side of what are the pitfalls, what are the things that we got to look for and investors, what things do we got to be scared about, and we gotta validate. I had one startup tell me that you know, they got to the point of like literally ready to invest money into this startup. And there was something that triggered them they checked into it, and they just literally was off the wall type of thing, and it was all a scam and they were inches away from dumping in a million dollars.

James:
Wow!

Jeffery:
And it was you know, those things to me and you’re thinking, how is that possible but really at the end of the day when you build something that is covert enough people may not see a lot of that information right? And if you’re not getting enough people doing that due diligence or diving in, man these pop possibilities can happen and we’ve had- we had similar things happen in one of our companies where you know, just blew our mind that somebody went through the lengths of building a relationship with the startup and then pretending they were investor and then not being. And you know, you’re just, it blows your mind what people will go through and what they’ll do but I guess in a way to keep this positive is that investors have to do their homework and startups have to keep their cap table clean and their equity available, but also managing how they’re going to grow their company. And that means putting things into timelines and lining things up when you need advisors, when you need coaches, when you’re taking in funds, how you’re taking them in, and use the lawyers and use the people that have the smarts to make sure that you’re balancing that out. And if you do go to social markets to raise funds, you’re just as accountable to them as you are to the people that are accredited investors, and make sure that you treat everybody as equal and making sure that you’re growing that business and keeping everybody fed with information so that your success is their success, and vice versa.

James:
Right, I kind of look at it too. Like even in the public markets, something could end up being a scam or not what you thought it was. Especially in some of the smaller cap companies, so you got to kind of even in public markets, you got to really be careful, and the way I kind of look at it as long as somebody’s managing their own personal risk as not putting any money in anything. Even in a big company like a Microsoft. I mean I doubt this would happen but something could happen where someone disrupts them later and Microsoft stock could drop 90 percent. So you got to kind of manage your risk and you only put in anything that you think you could afford to lose and just have a spectrum of risk almost like a barbell, really risky, probably moon shots isn’t going to hit. But if it hits, wow it really make all the difference and then you know some of the blue chips and everything in between kind of managing your risk. I always kind of look at like 70 20 10; 70 cooler, 20 complementary you know, in what your mindset is in your mental framework and then 10 other bets. And then you hope the 10 other bets one of them is going to make all the difference and it’s going to be so much drastic with the power law that your growth happens there and the probability is that other 10 percent could all go to zero, but if it did it wouldn’t ruin your life or screw up your investment portfolio or anything like that.

Jeffery:
I love it, yeah. That 10 of high-high risk, the moon shot, but you got to have something in that bucket. So yeah I do think that’s great and that’s 70 where- what bucket does that fit in, what is that? How do you look at that 70 percent?

James:
So I would say like your core competency. So just you know not giving anybody investment advice or anything because we’re not RIAs but just let’s say like for instance in public markets if you were in public markets if 70 was like in your SMP 500 index or like a nasdaq index, if that’s what you liked or you know, I guess if they haven’t encountered a TSX index or CSC, if they have an index like that. So that would be your core, so you’re going to get basically what the market gets and I’m not sure how it is in the Canadian indexes but United States like the SMP is market cap weighted. So you kind of have to be careful because really five or six companies is driving the whole thing but those are also the five or six companies that are basically growing the most at this time in our technology and doing the best and as time goes. You know the SMP will change companies in the index, so I think the dow is price weighted. So it’s a little different but the SMP has 503 or 504 companies, it’s actually not 500, it’s more than 500 because a couple of them have two classes shares believe it or not that are in the index. But I think that being your core that’s more safe being in like an SMP 500 for your 70 percent core and then 20 percent complimentary. For example might be the stuff you really like to use or know like your Facebooks or your Amazon or maybe it’s the product you really like. I’m not thinking of or like starbucks or if someone loves Mcdonald’s, if they love that kind of thing or Chipotle something like that. And in the last 10 percent, it would be like really risky things like your crowdfunding or if you’re an accredited investor, some really speculative startups that are going to change the world with Biotech or some kind of clean energy or something or if you’re not accredited even some just risky Biotech small caps in your 10.

Jeffery:
I love it.

James:
Or ICOs even Tokens and I always say stuff like the bitcoin gold and silver are kind of like insurance. So everybody should you know, possibly have like one percent of the liquid net worth and some kind of insurance like you know, mixed up with bitcoin gold silver, or something like that, or if they really like bitcoin one percent, bitcoin or maybe even a little more it’s their personal preference. But just as kind of an insurance policy, so I look at the bitcoin more as digital gold.

Jeffery:
Diversify yourself as much as you can and it sounds like you’ve got a great mix of how you diversify. It’s brilliant! I like it.

James:
Thanks!

Jeffery:
Well, I’m going to say that I’ve learned a ton and I’m super excited that we got to chat James. So now we’re gonna jump into the rapid fire questions and then we got a couple last questions for you but this has been awesome. So let’s jump into the rapid fire side. So how did you get started in early stage investing? You said you started this four years ago, what got you into it? What made you think “I got to work with startups”?

James:
Yeah, so I got invested in early stage investing mainly in 2016 and the reason I really wanted to invest in startups is because like any other type of investment, you get to work with the founders early, and kind of be part of something. So they’re building the next great thing and if it works out you can be like, “Wow, I was part of that. I was one of the first checks”. Now of course if they become the next Facebook, they were the kind of person that would have made it anyway and executed but I’d like to think that I had something to do with that since I was there in the beginning.

Jeffery:
Brilliant, I love it. What’s your favorite part of startup invest startup investing?

James:
So my favorite part is really the privilege of working and getting to know great people and networking. I’m meeting great people like you and people in your audience, and speaking at different events, networking, and learning because the learning is invaluable. Because I never know what in the future is going to come up or something I might have learned that seems so innocuous. It could be something that could make all the difference either in my personal life or in someone else’s life.

Jeffery:
Well, you’ve done a fantastic job because I think you were telling me earlier that you were in like the top 50 list of investors in North America. So you’ve done a fantastic job on moving yourself through the funnel and getting interest and getting people excited for what you’re doing and I think that’s brilliant. All right, how many dollars or companies do you invest in per year?

James:
Yeah, so when I started out, I started out doing a lot more getting a lot more data points but going forward I’m probably gonna do like four to twelve companies a year. Maybe you could take a little bit bigger size and also doing a little bit more diligence than I used to do because when you first start out you don’t really know a lot about what to exactly diligence. So you know, I would go to accelerators, demo days, and invest in some of those companies because I figured they did the basic diligence. But outside of that and through time I learned more and more the kind of things you would need to diligence and to check and you should even double check that they did that stuff because you never know things could have changed. Or maybe they just didn’t do it because I’ve seen examples of companies raising massive rounds getting a series DEF these days and it turned out that none of the early investors did any diligence in the data room stuff. They just received a data room and they just invested because some hot lead invested. It was a hot company and nobody ever checked things, that’s how we ended up with the theranoses of the world.

Jeffery:
Oh, I- yep agreed with that. I think about one percent of investors actually review any content that has anything to do with the company which is tough. I think this is reality, right? It’s tough.

James:
I think the stage two has to do a lot with how much diligence you do too, because obviously when they’re very early there’s not as much diligence.

Jeffery:
Agreed, I do follow up invest and what percent-

James:
So yeah I’ve probably followed up with about five percent of the companies. I mean I don’t do it a lot because I kind of looked at the ones that are really executing and did what they said they were going to do, hitting their KPIs, of course there’s going to be some variants where like they did a pivot or they didn’t have a certain KPI. But really I found the founders are able to execute and move fast are the ones that you want to follow up on and they have the ability to attract a lead investor in their later rounds that has some meaning.

Jeffery:
I like it. Any notable portfolio companies you’d like to share?

James:
So a lot of the stuff in the last four years, the stuff that and I don’t know if you would turn a company into the ICO and exit or not that turned out big so not really on that frame. But I think now, in year four some of the companies that I invested in are going to end up being notable. I mean one of them just did Google for black founders sheer share and they just raised a big round that was announced and they got a lot of investors in there now, so I think they’re gonna do really well. And then a company called Bloom that’s actually in Canada used to be called Lbox but they changed their name, they’re doing pretty good. They went through 500 startups. [ inaudible 50:21 ]

Jeffery:
Yeah, yeah.

James:
Yeah, a lot of people have heard of them. They’re doing really well. So I think those two and then hopefully a couple other ones that are getting ready to raise another round and try to go into blitz scale mode that have really hit product market fit. Hopefully those end up doing really well but you know only time will tell because sometimes the ones who are doing really well today, end up not being the ones that end up being a really big exit because I’ve seen some companies that were doing really well before COVID that ended up shutting down. and I’m actually surprised and some that were just kind of like peering along slowly growing took off from COVID so..

Jeffery:
The world’s magical. Any verticals you focus on?

James:
Yeah, so I try to stay sector agnostic because I’m trying to look for where the puck is going and I’m looking for founders that can execute and they really have their own vision of where the world is going and not where it is today. So I always say non-consensus and right because that’s where all the outsized returns are probably going to be. Because if everybody’s in a space you’re trying to do something, it’s crowded like the restaurants, and it’s too much competition but there’s not a lot of competition you can get to a scale that acts as your moat. Because I always say you can’t fork a community, so if you have a big community when people try to copy, you have some protection because nowadays it’s too easy to start a startup anybody can almost copy anything.

Jeffery:
For sure. Do you guys look to take board seats or lead rounds?

James:
Yeah, so I’ve never led a round before. I’ve started to think about doing syndicates or something to lead rounds and maybe starting out becoming a board observer to kind of do more networking, more learning, and learn how that goes but not necessarily being on a board right away. I was going to be on the board once for a company that was trying to do a reggae but they ended up not being able to do the reggae because it takes forever for the sec to approve it and they kept incurring more and more and more legal cost and it got into like two three hundred thousand they ran out of money. They never did it.

Jeffery:
Wow, okay. Yeah, that’s not gonna be good. Any final things that you do when you’re making an investment on the due diligence? Any paperwork, anything that you like that’s a must that you like to make sure that you have when you’re making a deal?

James:
Yeah, so I’ve started to make some changes because you know, initially started out with very light or no diligence and then you know looking at the data room and things like that and now they have a couple customers. You know, I might want to verify a couple of customers or talk to a couple other investors. But one thing now I really decided to do too is like if I commit to something saying, “Okay, how long do you think it’s going to take to raise?” Of course they always say, “Oh, I’m going to close in 30 days.” I’m like, “Are you sure?” so maybe they say 90 days, so if you don’t close in 90 days and my commitment may have to be rethought or renewed or I still may do it. But that also shows, do they have the ability to raise that money in the time they said? Again because you don’t really have a lot of data points proven they executed. But one thing I’ve started doing too is doing diligence just talking to somebody as diligence. Not the person’s a good when people say background checks they think, “Oh, is a person a good person or criminal?”. I mean obviously you want to be a good person not a criminal but the thing is, I want a diligence now what have they executed before in their life. Have they done something totally unrelated this their life but they executed and everything they did they may have executed like, “Wow, this is the kind of person that gets stuff done.” I mean like if they swam across a certain ocean when the ship was sinking to come from another country, or you know that they were an orphan, or something and they overcame it, or maybe they broke their leg or something and said they couldn’t play baseball but they wanted to play so bad as a child they played anyway. Stuff like that because it shows the person’s character and their habits.

Jeffery:
I love it. Yeah and I can see where that’s coming from. So 100 percent agree with that. Love it! Dedication and drive and can they execute. Is there any preferred terms do you care if it’s prep shares common shares, convertible notes, safes, or you avoid safes and everything else works?

James:
Yeah, so I’ve been thinking about that a lot but unfortunately, in some of the hot deals, if you really want in, if you want In the safe is, the way the only way you can get in that’s the only way you can get in. but obviously preferred shares and you know, if you could get a senior liquidity preference that would be better but I mean as far as I’m concerned as long as everyone’s on the same playing field with liquidity preference that becomes para passe. I think they call it pronouncing it role in the United States that if there’s a downgrade everybody kind of gets the same preference. You know I’m cool with that but the thing about common shares there’s been a lot of debate whether or not you should invest in common shares. I’ve done it before because the United States, a lot of people don’t know that the board’s duty is actually to the common shareholders not to prefer because you’re supposed to know better. So if something bad happens they’re supposed to act in the interest of the common now, whether they do or not you know it remains to be seen but preferred shares though for venture investments early is probably the best thing or that you know that’s going to convert to preferred. But I’ve learned is one of the lessons that sometimes it says the convertible note converts to preferred but the company does a rake CF which is technically public. So they didn’t lie it converted to common like the doc said but nobody thought a reg CF or maybe didn’t even really exist at the time would make your shares go calm and convert you.

Jeffery:
The little tricks of the trade.

James:
Yeah and I’m sure the founders didn’t even know that it was probably a surprise to everyone.

Jeffery:
Exactly. Little fine print. I like that, all right well that was great questions. So the next one I have for you is, we always look for a nice story that really exemplifies something that you’ve seen or you’ve been through with a startup and that could be brink of destruction. They pulled it off, they made it work, hockey stick growth, or it could be the total reverse. Like you said, they were sailing along doing great things, COVID hit, and they sank. Is there something that a good story that we can all get behind and really just you know take a learning from?

James:
Yeah, I think a good story is another company they were kind of you know, just moving along slowly. I mean some people would call it a “zombie” because they had some growth came down a little bit they were moving along slowly. Because what happens sometimes is some of the ideas are innovative at the time if you don’t move fast enough, somebody catches up to you, and I think people had caught up to them. But then COVID hit and just magically their growth like that and then all of a sudden instead of looking for investors because they were getting by because you know, they had some revenue and stuff. An investor contacted them and invested over a million dollars. Became the lead and now they’re able hopefully, it really takes off because they’re getting ready to raise another round because the growth really took off. So they’re gonna use this money they just got to really try to hunt your blitz scale. So I’m hopeful on that. So it’s kind of a lesson in determination because one of the things I look forward to is, is this the founder’s life’s work? How easily will he be persuaded to quit? Because a lot of very talented engineers could easily go to google or something get 250, 000 a year. If you’re an AI data scientist, you’re top-notch 600k but you’re struggling with the startup. So what’s going to keep them from not taking that opportunity? At what point? Because at some point it may be in everyone’s best interest that they do that.

Jeffery:
I like it.

James:
I actually had a company that was doing well and the CTO decided because I guess I mean I don’t know the real reasons but I’m guessing he might have got fomo because friends of his were in startups raising hundreds of millions and other friends or making four or five hundred thousand you know, as data scientists. So he ended up you know, wanted to leave that startup and they ended up deciding to fold because they knew they couldn’t replace him and they had somebody left. So they gave people back you know certain amount of the dollar. So that’s another kind of thing that could happen.

Jeffery:
No, that’s good. I like it. Well I think we kind of hit the spot there on our full scope of of business preferences and going through all that. So I appreciate that and we’re gonna switch just a little bit for a second into more of the personal side.

James:
Okay.

Jeffery:
So what’s your favorite sports team?

James:
Well, in baseball and it’s LA Dodgers because not just because they just won. I’ve been a dodger fan forever and-

Jeffery:[inaudible 57:50]

James:
I remember Kirk Gibson, hitting that walk off home run. I think it was in 1988 game, one the world series. I believe that’s the last time they won and they’ve lost like four or five times in the last decade or so and I think it was two or three years ago. The Astros allegedly or they were caught cheating. I don’t know if that changed the result of the world series but I go around saying we were robbed. And then in other sports I’ve become more of a fan of players like in football. I become a fan of quarterbacks, so I don’t necessarily have one team but I kind of like start to follow one quarterback like I used to follow Dan Marino. The dolphins and thought he was the greatest and they never won. So I’d never bandwagon that but they never won a super bowl and then I became a Peyton Manning fan and he did win a couple.

Jeffery:
Yeah.

James:
And then I became kind of a Brady fan but now I’m kind of becoming a fan of that Pat My Home’s kid whether or not he wins because I think he has so much talent. He’s changing the game of football just the way he’s throwing it like a baseball player and be able to do so many crazy things.

Jeffery:
Yeah, agreed oh that’s awesome! Well the next one and that’s awesome that you’ve got these teams and the reason why I ask these questions is because it’s a good way for people to find ways to connect with you, right? So they learn a little bit more about your site. So they don’t have to always come at you with that and I learned this from a podcast through one of our companies on skip the line they run a podcast and they ask these types of questions at the end. And I’m like, “These are awesome, this is a great way to get to know somebody,” and since I’m very bad at personal stuff, this is a great way for me to learn and become more personable. So the next one is, your favorite movie and what character would you play in that movie?

James:
So my favorite movie is a series it’s a Star Wars series.

Jeffery:
Okay.

James:
And I think it was empire strikes back that they introduced Yoda. I always like Yoda because he looks real small but he’s really old and wise, and I think in one of the later editions where they showed some of the old school they showed him fighting with the lifesaver this little guy jumping around all crazy. And I was like, “Wow, he even got skills there too and you wouldn’t really think that.” So I think people underestimate him but a lot of his sayings too are very wise that he would say and you might have to really think about them to get the meaning and I’m sure they can be interpreted in different ways but I just think a lot of his stuff was really wise and he’s underestimated. Because he doesn’t look threatening or powerful in any way but he really is.

Jeffery:
Yep. i love it! Star Wars and Yoda. My mind was going to Lando, do you know do you remember Lando?

James:
Lando Calrissian?

Jeffery:
Yeah.

James:
Yeah he’s sneaky.

Jeffery:
So when you said Star Wars, I was thinking that would have been your guy. I’m like it’s gotta be Lando cause that guy had the most character, the most charisma, always strategically planning everything. So I’m like he’s going to pick lando and then you’re like Yoda which is even better because Yoda obviously is maybe not as energetic but man, that guy knew what was going on no matter where the hell he was. So I love it! Both good but I like Yoda. That’s cool. I don’t know if you’re only three feet tall but I kind of pictured you a little taller than that.

James:
Yeah, I’m five-four and a half. So I’ve heard that Asian people are getting taller over time and a lot of Chinese people now are six foot but I’m Korean but and I’ve heard that from my age brains people were like between five-foot and five-four now. They’re like between five-six and five-eight, so they’re getting taller every time but yeah, I’m five-four and a half yeah.

Jeffery:
You picked Yoda. then that’s good, I love it [Laughter] Well, James this we come to the end. Man, it’s been a pleasure. I love the energy. You’ve done a fantastic job. I think everybody’s gonna learn a ton from this and the way we like to end our show is that we give you the last word. So anything you want to share with investors or startups, i leave it for you to end the show for us but tell us what you’re thinking and again thank you for your time today.

James:
Sure, thanks very much for having me. It’s been a lot of fun and what I always like to say when people ask you to add one of note is, as you know the media and everyone acts like we’re in the worst times ever but I actually think we’re in the greatest times ever with technology and the way we’re living. And you know, if somebody dreams of something or wants to do something, just keep at it keep learning and never give up, and eventually you’ll achieve your goal because if you start a company, and your vision was to do a certain thing, and it doesn’t paint out now, you can start the next company when the timing’s right doing exactly that. The example I always give is Reid Hoffman of Linkedin, had social net. It didn’t make it but then later he had Linkedin that made it. It was still a social network but social net it just wasn’t the right time.

Jeffery:
I love it! You’re a good man James, thank you!

James:
Thanks man!

Jeffery:
Thanks for today. We will be in touch but have an awesome day, man! Thank you, that was awesome.

James:
Appreciate it man.

Jeffery:
Good, thank you have a great day!

James:
Thank You!

Jeffery:
Oh, that was brilliant! Great conversation with James Sowers and man, energy. That guy was brilliant! Really enjoyed the whole Conversation. I love the idea around you know, if you’ve got to be saving time, money, using the painkiller making it work, I talked a lot about all the different from liquidity preferences to class shares, and how to structure the company things to avoid, and this is from an investor this isn’t a lawyer this is awesome. Just the things that he’s experienced and the nos and the dos, and the good things, the bad things, a lot of stuff to pay attention to there for sure. Even on the side of you know, getting a company that’s going to close in 90 days and that might change the way you’re investing or the preference side. So I think that there’s a lot of things there that we can learn. Man it was great! Really liked it. Balancing your portfolio for investors from you know, 70 percent in you know, common companies that are doing things that you like usually cap weighted SMP style companies, and then working on that 20 that complementary things that you use, and work with every day that you support, and like and then that 10 percent of big shot, move shot companies. Man that’s great, so good way to diversify and a way to look at your portfolio. Anyhow James, the community thanks you, brilliant!

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