Norman Light

"It's extremely important that you can explain your projections, you can answer questions, and don't stretch any information about the company. Just tell us like it is..."

- Norman Light

Norman outlines what he looks for in a start-up

Talk Takeaways

For this interview, Jeffery Potvin sat down with Norman Light as they talked over Norman’s corporate life and how his passion for helping small companies led him into angel investing. The real thing Norman looks for in a start-up is the team’s persistence and coachability. This interview also touched base on why many businesses, even when the product is great – fails.

As a startup, one should really do his homework, and once the product or MVP has launched, it should be backed by customers and that feedback gathered should help steer the direction of the company to ensure market fit.

About

As President of Enlightened Private Capital Inc., an Exempt Market Dealer registered in Ontario, Quebec Alberta, Nova Scotia, and Newfoundland, Mr. Light applies his strong finance and strategic skills to the selective sourcing of private debt, film financing and shares in unicorns for Accredited Investors. He also provides financial advisory services to a number of private companies.

Previously, he was with Manulife Financial for seven years where he occupied several senior management positions in finance and investments, including SVP and Corporate Controller; SVP and CFO, Investments Division; and SVP Global Investment Management. He acted as a director of several companies, including Manulife Bank of Canada, Elliott & Page (mutual funds), Independence Investments, Declaration Management and Research, Hancock Natural Resource Group, and MFC Global Investment Management. Mr. Light was a member of Manulife’s Management Committee (top 28 globally).

Prior to Manulife, Mr. Light was an executive with Royal Bank of Canada for 17 years where he played a key role in strategic planning; mergers and acquisitions including Royal Trust, Richardson Greenshields, and insurance companies; assessed all major capital investments bank-wide; led key financial policy and financial strategy functions; and led the important consumer deposit business.

Mr. Light obtained an MBA with distinction from Harvard Business School and a BComm., Summa Cum Laude, from Concordia University.

The full #OPNAskAnAngel talk

Jeffery:
Welcome! We can jump right into this, as we’re already live, so we’re pretty easy going. Sometimes, we get people to join because I just do it last minute. I don’t try to do this as a big push so that we get hundreds of people. We just do this to get that out there and then we can kind of edit and stick it out into the world of the ether, and get everybody interested. So, Norman, thank you very much for joining us today. Very excited! I’ve known you for a few years, we met first at york angels. Always been a fan of how you do things and today I get to actually learn a lot more about you and your investment strategies, and how you work in this space. So that’s very exciting so, maybe to kick things off, why don’t you give us an idea, a bit more of your background of where Norman’s come from and the great things that you’re doing today?

Norman:
Okay, that’s great! So, my background, very interesting. So, actually until about 10, 11 years ago, I spent my entire career working for large companies in senior management positions. I was with the Royal Bank for a number of years. I was with Manulife, mainly if I was in the senior vice president of the top 20 in the world. So, very senior positions, very large companies which is sort of very different from, you know, from this space but interesting enough, along the way or through many years, I felt a little bit sort of like fish out of water. I didn’t feel like that was the right place for me. I did well and made good money, and all that sort of stuff but I wasn’t into the politics and all those things you sort of needed to really, you know, excel there, and I always had in my mind, I like to help smaller companies. And I even thought through many years ago, I’ll leave, go on my own, do some consulting, and all that but the main problem I found in looking at that was the small companies need the help but they can’t really afford to pay what, you know, what they’d have to pay for, you know, for that sort of expertise. So, it was always a bit of a conundrum. I never really, you know, pursued it. And then in 2008, I left Manulife, so my hands didn’t have to work. I joke about that sort of, you know, pre-that recession but anyhow, but started seeing some interesting investment opportunities myself or myself and a partner, putting in whatever hundred grand 200 grand type of thing liked working with the companies but then also found most of them closed. So, while I was going through that, a couple of people said to me, “Oh, I know someone, they’re looking for a million dollars..,” whatever, some much larger amount which was not something I was going to write my own, you know, check for myself. And so, I started thinking, “Okay interesting,” so I evolved from there into turning it into a business. Gotta register as an exempt market dealer issue myself and a few years ago my son joined me by the capital and basically, we financed, you know, small companies. And basically, we sort of – I sort of come at it two different ways, there’s what I do personally which is more through the angel groups, which tends to be equity. It could be convertible notes or preferreds but you know to me, it’s an equity risk. And then the company well started doing private equity, initially, we found over time that became actually very difficult, unfortunately, and the reason was the lack of liquidity and we heard this from the angel groups about the lack of exits and how many years et cetera. So, you know, and to give you an example of it from a business point of view, when I started I had some, you know, started with friends and people I knew in the colleagues’ et cetera, and had some people say to me, “Okay, I’ll invest in this one before I make a second investment. We’ll see how it goes.” Well, you know, we tell people five to seven years don’t exit. So, how do you build it? How do you build an investor base? [Laughter] That way and in fact, I remember a conversation with a particular investor who said that, “That’s exactly what he did except the exit took nine years and then he did a second investment.” So, you know, very hard to build a business that way. So anyhow, we found althoug, I started before the recession, horrible timing, the investor appetite, you know, disappeared and then slowly came back every year. We found about five, six years ago that I faced a new obstacle which was the investor appetite was greater but there was a big lack of liquidity, and so more and more investors said, “To be, you know, I’ve got all this money invested in privates. As soon as something turns, I’ll write another check for your next deal.” But I haven’t seen anything in four years, so again hard to sort of build the business. So, on the business side as opposed to the personal side, we sort of pivoted away from private equity and we now do debt and we have hundreds of investors, it’s grown tremendously, we do private debt. But we do private debt that could still help all the companies that maybe may be watching this eventually because we’re still targeting companies that are not yet profitable. They’re close, they can’t be pre-revenue for a debt model but they’re not necessarily, you know, wonderfully profitable yet they’re close for getting to break even, we’ll help them get over the top and that’s the model we call, venture debt. We’re one of the few parties in Canada, it appears that does that and we’ve developed a lot of expertise in doing that, so typically where I am now is I do some equity through the more mainly of the angel side, and then I do the debt through the business side. The difference on the business side because I’m bringing an offering to hundreds of investors, we may end up with a few dozen whatever and invest in any particular deal but we’re doing million dollars plus on the debt side, and on the, you know, my personal side is much smaller, but in both cases, I love helping entrepreneurs – help you know, like to see them you know, become successful and I hope I can help them a little bit you know, on that journey.

Jeffery:
Amazing, no I love that. And well, we have a lot of things in common, we certainly love to help early-stage companies. I love the fact that you’ve built another equity route or sorry a debt side. I’m also going to pick your brain now because I have a product that now I realize I should be talking to you about it, and then on the other side of it, going in and working with angel groups to get in there again in that equity side to help build that up. So, I think those are two great different streams and offer two different clientele opportunities to be able to disperse. And when you’re looking at a portfolio, you want to split your money up in different ways, different risk levels, so, I think that that’s commendable on any investor to look at what are the two ways that I can get into this early stage or into diversify my portfolio, so, I really like that. So inside of that, you’re looking at debt, you’re finding different ways, what got you invested into early stage startups and getting part of angel groups? What kind of triggered that what got you
interested or what got you into seeing that there was this angel networks and joining one of them to go that far?

Norman:
I guess, initially, I was looking at how am I gonna, you know, if I’m interested in
these types of investments, how am I gonna find them, right? I mean, one of the big advantages of an angel group is they have deal flow, right? So remember York Angels members, Spark Angels, York I think they receive four or 500 applications a year, and then they screen whatever x percent of that and they bring to the investors 30, 40 or whatever the number is. But as an individual trying to get into the space, how are you going to get access to hundreds of hundreds a year to look at, right? And so, they have the deal flow and then beyond that, you know, there’s a lot of expertise. You know, I may have come out with maybe a bit more experience than some but or you know because of my financial background but even for people in my background, there’s a big advantage to looking at a company as a group because it may not be the financial part, it may be you know, this particular product, this particular market segment, you know. There’s lots of things that I’ll see that I don’t know much about, you know, manufacturing for example. I’ve never worked in and so, you always have people in the room who have expertise that they can bring to bear on that either from just their background, sometimes it’s very specific even that industry. Some even know these companies but even if that’s not the case, they bring a lot more expertise to bear to help you assess a company because in the day, you know that’s the most important part of investing is to assessing the potential investment and no one person can have the knowledge to be able to do a good job on, you know, such a wide range of companies in various industries, various products. Some are obviously, you know, b to c some are b to b, some were you know, both you know, a lot of complexity and so it’s great to have other people that have knowledge that, you know, they share as part of that process. So, that’s why for those who are not yet participating through angel groups, I would encourage them to look at that avenue because it’s really a great system to provide support. Obviously, the deal flow is one element, but just in terms of actually assessing investments, you know you’ll end up collecting a better job than one party can do.

Jeffery:
No, that’s a good point you’re right. It’s- it really does that collective herd and if you can start to pinpoint who’s good at what, it allows you to make a better decision because you can figure out who was more industry-focused. Ask them some questions which will allow you to better suit that startup and say, “You know, what I’m interested, what have you thought of these things, I learned this..,” help them out, maybe connect them. So, it’s a really a wide-open network that allows you to network in, figure out more details, and then that allows you to invest in multiple areas instead of just finance because that’s your background or whatever things that you’re really efficient at, it lets you open up that breadth of investments and get more opportunities.

Norman:
Absolutely.

Jeffery:
Is there any favorite parts like something you’re like, “Man, I love this! I can’t wait! This is the exciting part of startups,” is there something that really gets you going?

Norman:
Well, sometimes you know, most startups have some sort of proctor service that you know, we haven’t seen before that as a benefit to us as consumers or to society, you know, but sometimes you see one that just sort of, you know, hits that in spades, right? So, you know, so some just maybe stand out that way and then the other part that I always like and I laugh at is you know, let’s face it, you know, I- I’m 63. I’m not, you know, the most up-to-date on all the social media and you know, what’s going on in technology today. I used to be more up-to-date years ago and so I, you know, I always laugh when we see stuff at the age, you know, opportunity group. That’s really the market is our kids you know, and the joke is okay who- who’s gonna evaluate this, you know, who – who’s gonna you know, call their children first, right? So and there’s I’m gonna mention that I’m not gonna spend a lot of time on particular companies but I gotta mention one that you’re familiar with enthusiast gaming, which is now public. And we’ve all done very well in it but the joke of it was, “Okay, we could all call. I’ll call our kids,” you know, so how smart really are we, you know. So anyhow, but you know it it’s just interesting because it just goes to show you that you know we can and should look at all different market segments and customer segments even if we’re not going to be the customer and I noticed from my business when I started I’m looking at something and I think, “Okay, do I like this product or service?” and after all, I start realizing well whether I do or don’t I’m a sample size of one. So really, how useful is that right? And so, you sort of realize how you know limitations of your own analysis, right? I mean your sample size of one and if you love it, okay that’s one and if you hate it that’s one, you know. So, you know, you need a broader perspective.

Jeffery:
Agreed and I think it’s great too that you brought your son in to help too because I think that really helps you hit those different aids categories as you mentioned and he’s gonna see things a little bit differently than you will if it’s on the social marketing data side versus what you’re looking at. And I think that probably carries a lot of value and we see that just in having seven groups in our syndication and the people that are screening the younger synd – sorry – the younger people that are doing the deep dive, they have a total different perspective than someone that’s been doing it for 20 years. And it makes a big difference because they’re going to have more interest in something that’s more functional that fits into their realm of everyday tasks versus with somebody else who doesn’t use any of that stuff. So I think it’s pretty valuable to be able to carry those different age categories or groupings in your business.

Norman:
Oh, I agree

Jeffery:
So, in this investment world have you found – you mentioned a few things that you like that you still diversify, is there any verticals that you really like to focus more on and that you have more interest to invest in?

Norman:
So, there’s enough. I would say on the you know, people say you must do a lot of tech, right? And on the business side, we’ve done by some tech companies, you, I think we’re both investors in one or two, but we haven’t focused exclusively on tech, and what we find is particularly, for debt, you know, sometimes the less you know fancy or hot areas, there’s lots of opportunities that sort of get ignored and those companies need help too, right? So, we just find through deal flow that we end up with a mixture and sometimes, the hot areas are actually less attractive because the valuations get bit up, you know, various other factors come into play that often we can – we feel we can get a make a better investment outside of the hot areas which is sort of counterintuitive some people, right? But you know, we’re not trying to target particular sectors or just – there’s a few that we’ve never – I’ve never been on gas or mining even when they were popular, something they had the expertise to bring that to my investors, you know, be credible so, we’re not really excluding much. We didn’t do cannabis because we felt our investor pool was you know, was sort of pretty conservative and you know, seemed to be a bit polarizing to start you know, doing that crypto really isn’t a business but other than those we haven’t you know, really excluded anything. We’ll take a look sometimes it’s a black box you say, “Well, it’s not for me,” you know, yeah, I still have to understand it. I have to basically understand the business or I’m not going to get comfortable you know, I have to be comfortable that and agree with their business strategy. So, occasionally we’ve seen business we love but we did, you know, we felt that the way they were approaching the market, what segments they’re focused on, whatever, we just didn’t think of the, you know, the most – the best way to do it. So, we might pass but yeah we’re pretty open to, you know, pretty much any industry. You know, the one we haven’t done, we haven’t approached at all is real estate as an investment as opposed to tech and all that real estate and just because in my particular case a lot of my investors are in that field and I just felt like I would have too many conflicts and let’s, you know, we don’t need that so..

Jeffery:
Too much overlap.

Norman:
Yeah, yeah. So, we haven’t done any good in real estate at this point so…

Jeffery:
Well, you mentioned that there’s a comfort level, which I agree, with you really do got to dive in and really understand the company, understand where they’re trying to go and then of course, the key to this is the strategy and how they’re approaching the market and I guess overall, do you have a strategy on the types of companies or the amount of companies that you’re going to invest in every year? Is it like every year I’m going after five and I’ve got to try hospitality and next year I’m going after medical? Or is do you have-

Norman:
No, it’s what- it’s whatever comes at a time that we feel is that you know, for the business words, the debt side, you know, there’s a bit of a narrow range in terms of the stage they’re at. You know this idea that they’re going to be close to break even, there’s a narrower focus than on the equity side, where it could be revenued it could be further along or some sort of wider range, right? So, we’re driven more by the stage company than by the you know, the sector but you know, interesting enough what we find with entrepreneurs is some of them don’t they, you know, but help understand how investors think which is of course part of your process, and very helpful and we often hear, “We have a great product!” And often they do that’s great but you have to understand, if you have a great product, we wouldn’t be having this conversation like that’s really step one because an average product is not going to succeed, right? So, you need a great product to then start filling in the other parts of the equation, do you have the right management team, do you have the right strategy, do you have all these things? Because great products fail and poor products succeed and you know, why does that happen? Well, it’s all these other elements, right? It’s a strategy, it’s the management team, in some cases financing, but that’s often not really that – financing is often not really the biggest factor in why companies aren’t successful. It’s usually because they haven’t defined, they’ve accessed, they haven’t used them as efficiently as possible to you know, to make the company progress far enough, right? So, there’s a lot of elements to you know, success here and particularly, I tell people that “You know people with poor products can succeed doesn’t mean I want to invest in them but they can succeed,” they look at me funny and it just shows you the importance of all these other elements.

Jeffery:
That’s true and so I guess that leaves it kind of like an open box that there’s probably a good number of companies that you’ll invest on both sides from the equity side to the debt side each year, do you also reinvest in these companies as well like do you have a percentage that you hold back in your portfolio to make-

Norman:
So, typically by the way, we typically on the venture debt side you know we’ve done probably for a year we can increase it. It’s really a question of seeing the right deals so, it’s not we’re not really limited on the private side. I’m doing sort of one or two deals a year. Part of it is because on the business side I- my mall is, “The investor will not see a deal that I don’t invest in myself,” and i’m typically a large percentage. The amounts you know, add up significantly so, given the slower turn on the, you call the angel investment side, the events, the amounts, and frequency, tend to be smaller because that money is going to be sitting longer. You know, the debt does turn, right? It’s supposed to turn. Do we do three-year loans, right? So, it’s a little bit easier yeah, so, we typically do, you know, maybe like I said maybe for a year but there’s no build major, you know, limit on that.

Jeffery:
And you put a percentage in like you do reinvestments as well because it’s a part of-

Norman:
So we don’t sort of go in with the intention to reinvest. So, it’s happened but on the debt side, the ideas we do alone, it’s three year loan. We get repaid, we have some warrants if everything’s according to plan, we should need to reinvest because we come in a stage where it should get them over the top, where they’re profitable and they can either then borrow more cheaply, which is great or they might do further raises at the end for growth but they – they’re not- they shouldn’t be desperate for more funding. So, you know, our attention going in is we don’t expect to reinvest. On the equity side, the angels, that’s happened on a few enthusiast gaming was one. There’s another one I did recently where I’ve gone in a couple of times, but that was more, you know, somewhere between expected or it might happen, right? It wasn’t like a down round that there’s a problem. It was simply that, you know, they probably will. They’re raising in stages, they probably will need some additional funding a little later. It wasn’t a surprise you know.

Jeffery:
Fair enough. Well, it sounds like you’ve got a good portfolio. Though, you’ve got a good style to where you go at it, you’ve got two sides, you’re balancing them out on where you’re making the investments, converting, moving things, sitting in a little bit longer, and other ones are revolving pretty quickly. When you’re going through this, is there a duration it takes for you to make a decision? And what is those over the top things that will help you make those decisions on the four companies on the debt side, or the two companies on the equity angel side? What are those extra DD things that you’re looking for? You mentioned a couple of things around strategy and maybe the team management team, what maybe you can refine a little bit more of that, but if someone was looking to come to you, what kind of things do you think are really important?

Norman:
So, on the debt side obviously we’re focused on you know can we get repaid, do you like taking risks? Companies are not yet profitable so, obviously, the projections are quite important and you know, how credible, you know, we think they’re achievable. We all see (inaudible) projections and so, you know, we have fortunately a little bit easier. We have some history there you know, pre-revenue company, there’s no history here. We have some revenue, you can see how it’s progressing, you know which customers, you know if it’s B to C, you can actually get the names of customers, sorry, B to B, we actually call some customers if it’s b to b. We do some calls customers to understand you know, why they’re buying this product or service, what do they like about it, you know are there some things can be improved, all that sort of thing. We sometimes actually get some good vouch for the company itself as part of those calls and so, that’s an important part of it. But at the end of the day, it’s mainly what I’ll call cash flow lending. Where you know, there may be a little bit of assets there, but we’re not really going to get repaid if the company fails you know, that’s not really our source of payment, it’s really cash flow so we’ve got to be [inaudible 22:04] of a company to either reduce them, or do a lower value a sensitivity or lower sales etcetera. We wanna understand if they run into problems, you know, costs they can cut, we understand you know, what could happen, and what our risks are, you know, along the way so, you know so there’s a lot there but besides the obvious of understanding the product, and the market, and the management skills, etc., you know the whole customer side is very important, right? And are they focused on the right things we’ve seen you know, entrepreneurial teams that sometimes you know, are spending too much time in areas are less important or not enough time that’s most important. Or you know those sorts of things so, at the end of the day so much of this is comfort and confidence, right? Because you’re having some of your money and it’s- are they going to take it and use it you know, the most efficient, effective way, right? And so, that’s very important. So, for example and I mentioned this, I’ll mention to any entrepreneurs that might see this, you know, it’s extremely important that you can explain your projections, you can answer questions, and don’t stretch any information about the company. Just tell us like it is if something you know, if you know, if something is there’s a sales proposal out, it’s not a sale. Tell us that’s what it is, don’t tell us it’s a sale, you know, or it’s guaranteed or this and that because as soon as we find something that you know has been stretched, it affects our confidence, right? And so, you’re better off telling it like it is works and all and people understand the rewards, right? The companies are at a certain stage they understand that they expect that, right? Versus trying to sort of make everything sound too rosy, and that’ll usually come back to bite you because people see through that and then they won’t invest. And then you know, you’re worse off. So, it’s very important that people don’t stretch, they tell us you know things like they are.

Jeffery:
Tell you like it is, I like the idea around the product side. I think a lot of times investors look at and you talk about it before so, it is a part of your analysis that you’re looking for a strong team, strong strategy, but that the product has a fit, and that you’re calling customers up, and you’re making sure that, that customer is giving you the raw dirty facts about this product. Why they bought it, or why they bought this service? I think that is something that most people don’t know normally talk to but, I 100 percent agree with. Done lots of calls to customers, “Why did you buy this thing?” I learned a long time ago when I was investing back in 2000 in stocks, when the Dot Com crashed and all that stuff, someone always told me, “Invest in the products that you use and learn enough about them to figure out how they operate and work.” And so, my investments were Nortel, Apple, all in the beginning because I saw that those products were things that I got behind, and things that I liked. And I could support and then I could buy their product and use it. So, it wasn’t this far-fetched dream of this product is so cool but no one will ever buy it because it doesn’t fit anywhere. So, I kind of like that philosophy but at the same time, you’re a customer but you can also understand what the customer is coming from and how it’s solving their problem. So, I really like the fact that you put some time into understanding why that service or products being used.

Norman:
We even will call suppliers again, if it’s like a key component from a, you know, sole source supplier type of thing I mean we may speak to suppliers as well just to get, you know, just get comfortable there, right?

Jeffery:
Yeah that’s good, yeah. Everywhere you can I guess if you’re being rooted everywhere, figuring out where you can nip off that extension cord that’s hanging out and just clean things up to get to the right spot, right? It’s always about making sure everything’s efficient and running the right way and sometimes suppliers have different insights, how they’re paying bills, what they’re not doing, what they are doing, right? Where they see the product going because sometimes, they’re helping invest in the product or help build it so those are all valuable insights. I love that, that’s great! So, is there any factors that fit outside of dd? Outside of the people, the customer service, is there anything on a paperwork side that you really try to emphasize like you want to make sure that if you’re coming in on the angel side, that you know they’ve got the shareholders agreements? They’ve got all this locked in, is there anything that you specifically want to make sure that they do have because you’ve been burned or you don’t want this to happen to the company?

Norman:
Well, I mean certainly we’ve come across issues which is not where we start. We sort of say just tell us how this, you know, what the situation is, now we’ll look at the agreements later because you want to spend the most amount of time, you know, keep in mind we don’t invest you know, we invest in the- on the debt side less than one in 10 that we see. So, you’re only you know, you’re in our business, you’re trying, you’re not trying, but you sort of have to get to know quickly you can’t spend a month on a ‘no.’ It’s going to kill you, right? So, you’re dealing with give us the information first, and you know, as we go further, we may come back and verify some of it through agreements, but we don’t need to read 100 page agreements first, right? So, that’s how we operate but yeah, occasionally, we’ve had you know, the agreements don’t quite support what you’re telling us. Again comes back to this conference issue, one area that I’ve seen, it’s not one area that’s a big factor here but one area I’ve probably seen a bit more than others is when somebody has maybe licensed something or there’s some sort of shared ownership [inaudible 27:42] iep. Sometimes what we’re being told up front and what’s the case with the agreements, isn’t quite the same and that’s again tell us like it is, if there’s some problems upfront, let us be aware of it we might decide to focus there first, but don’t have this because all due diligence find out you know, we’re at you know, we’re 90 percent there that there’s something that’s a problem and people walk away very quickly because again, it’s all that confidence you know that it’s hurt – is hurt by that, right? So, it’s a problem we’ve seen a number of times, unfortunately.

Jeffery:
Yeah, I agree. I remember one in particular where I remember, we were doing the deep dive and it was a unique and different product and then we found out that 50 percent of the product was owned by another company and that they also took royalties. And any new products that they got, they got to take 50 percent of that new product, and we were like, “So, what do you actually own here? Like Tracy, what are we investing in?” So, it does become a little bit too much when you spend time at the beginning trying to understand it and they don’t share it till the end.

Norman:
Absolutely.

Jeffery:
Which is unfortunate.

Norman:
Yeah. One area I do find that companies tend to underestimate is competition. They tend to downplay what the competition is doing, who put up the competition, etc. And I would say it’s a very important area for investors. So, they want to you know, help us understand what the competitors are, helps understand the strength to weaknesses, but you know be realistic in your assessment because you know, we’ve seen [inaudible 29:23] that I’ve seen a number of times, that’s a bit of a chemical weakness. They said, “Well, you’ve got this great product, it’s better this competitor..” and you know, I look at the competitors got a million customers and they’re starting with zero, right? And sort of say, “Okay, well how easier for that competitor to do something like what you’ve got, right?” In some cases, it’s pretty easy. I said “Well, they’ll just wait unless you have a success, they’ll copy your product, offer their million customers, and then worry you, right? So, maybe a great concept but sometimes great concepts are not going to be successful for those types of reasons. You’ve got someone within trench market position that could basically scoop it or block you or whatever it is. I mean it’d be like trying to compete with google today right so people have another-

Jeffery:
It spurs on other innovations-

Norman:
Yep.

Jeffery:
So, your product could be amazing and not have the amount of clientele that it’s looking for and that’s going to spark other companies to create new innovative things. So, now you’ve created your own competition which is great. Competition is good, it helps from marketing standpoint, helps you get the product out, but if you don’t have a strong base you can lose that really quickly, and they can gain ground much faster than you could if they have a larger base.

Norman:
So, it’s really understanding the competitors, understanding their position, understanding how they could react, what they’re able to do, and I’ve seen this number of times when the entrepreneur was relying on competitor being dumb, and it says, “Say well, you know, people usually wake up, they may not be right away, they just wake up.” So, you know, it’s not where I want to put my money that you know, you’re going to be successful as the competitor, you know, is asleep. It’s not a great horse to bet on, right? Could it work? It could, but there’s all kinds of risks associated with that.

Jeffery:
Is there- when you’re kind of going through an assessment’s risk on the paperwork side, is there preferred terms that you have like, you don’t want safe so, you’re good with saves. You’re okay with convertible notes or you want equity common shares. What do you look at?

Norman:
On the what I call the equity side, because you’re not into the form, right? Because whether it’s convertible mode or not, it’s really the same, it’s an equity risk it’s – it requires an act to get money out etc. as opposed to my debt deals, right? You know, I’m okay preferreds or convertible notes, I really don’t like safes sometimes the discounts are pretty weak. I, you know, I frankly – I don’t – I usually don’t have this choice because by the time, it gets to me. They’ve already got a structure, other people have come in under, but often I prefer equity over convertibles because the problem is with these convertibles is the price is being set later. But I’m taking the risk now and I don’t often think that a 10 percent discount or whatever it is, is enough to compensate for that differential risk over the next couple years till it might convert. So I actually think a convertible, an investor may off be giving up upside for a little bit of downside protection, so it’s actually not my preferred route to have a price set later. I understand why it’s done but it can be to the investor’s disadvantage, right? On the business side, again, we have a pretty standard sort of debt structure that we use and we’re you know, we try not to tweak it very much because the investors, our investors know it very well. So, when they see a deal, it saves them a lot of time to know it’s a venture loan. There’s no changes in structure, I know the structure it saves a lot of time back and forth, so we’ve taken a little bit occasionally like a couple of deals but really not very much so we – we’ve sort of got it fairly standardized for that reason.

Jeffery:
Well consistency is good, right? People then become more adaptable, they move quicker, so that’s what you’re looking for. You want to convert within three to four weeks versus three to four months so..

Norman:
Right and actually come back to your earlier question how long is our process right and basically on the debt side typically you know we meet you and we will complete a due diligence in about a month and then we’ll go to investors and close another month so it’s reasonably quick-

Jeffery:
Yep.

Norman:
Compared equity deals as you know could take quite some time.

Jeffery:
Agreed. Well, that’s good and if you guys, do you look at leading any rounds in this process? Or do you focus strictly on working with the other groups in closing off either debt or equity side?

Norman:
Okay, Jeff, can i just do a quick response to something here? [Laughs] Sorry to do a little video.

Jeffery:
Yeah, go ahead.

Norman:
We’re closing like several deals at the same time which is why it’s been so crazy and this one literally has to close today and i just got a question for someone so I’m just going to refer them off to my son and

Jeffery:
Dynamic business, I like it!

Norman:
It is what it is.

Jeffery:
Yep, it’s good.

Norman:
In fact, I spoke to this person before the call to hopefully avoid this but I should have said if you have any, you know, make sure you send it to him but anyhow, it is what it is so..okay, done. Sorry about that.

Jeffery:
Oh, that’s good.

Norman:
Yeah, so we’re pretty quick compared to equity on the debt side that’s reasonably quick and we don’t have a fund with syndicate, so that’s one of the reasons it does take us a little bit of time versus a fun where I, you know, we approve it. We write the check within days but we have a pretty efficient process. We’ve done it so many times now.

Jeffery:
And do you look at leading any rounds? or do you-

Norman:
So, of course, on the debt side, it’s our round, right? It’s typically around our investors, we’ve occasionally agreed with somebody else, institution, that’s- but they may provide equity or maybe writing a shred loan or something else in conjunction with our venture debt, but typically our, you know, our piece is ours, right? It’s- we you know, we’re originating it, we’re structuring it, we bring it to our investors. So, we’re typically always the lead. On the equity side for the angel groups, I haven’t typically taken on that role but it’s mostly just because of time, yeah. You know, and maybe one day I’d you know, be able to to do more there but just haven’t really had the time.

Jeffery:
All right, that works, you’re doing lots already. So, if you were to look at I guess all the companies you’ve invested in, the companies you’ve worked with over the years, is there an underlying one, two, or three things that really stand out in your mind that companies when they’re starting off they should really look at doing before they take that, before they take equity, or release those, is there something you can say? And it can be around any of the things you’ve kind of shared already, but is there something that you really think, really drives success in the business that gets you interested, if someone comes to you and they show you x, y, and z, you’re like, “I love this! I’m in!” Is there something that really stands out for that?

Norman:
I think a key factor is from the intergroups. A lot is how coachable is a management team, right? Many of these are youn,g they haven’t done this before, as opposed to some people that it’s their third ex you know, their third time around, and you know, the ones that have been successful, you know, will listen and learn and in many cases, some most successful businesses over time, actually had to pivot and so you don’t listen to learn, you know, you’ll be stuck you know, trying the same thing over and over when it’s not succeeding, right? So and there’s a lot of expertise available. Think of the intergroups for example, so you know, when you see someone, we keep someone who’s a bit headstrong, they know everything. For an investor, it’s a bit of a red flag, right? Because they may know a lot but things change and yes I may not know your industry, but we’ve got people with decades of business experience who’ve seen everything, right? So I think the key is you know, are they coachable? Particularly, when it’s their first time around in a new business, they’re you know reasonably young. It’s a very big factor I think people, investors look at is you know, are they gonna listen and learn? Because everybody’s gonna have some learning to do you know, to get to that stage of being successful, right? And that’s extremely important.

Jeffery:
Is there you know, kind of you’ve gone through this process, you’ve made, you’ve gone deep dive, you’ve learned a lot about the company, you find that you’re aligning with a lot of their next steps, you can even make the investment. Now, are there things inside of this company because you found that you know, they’re communicating, they’re coachable, so you’re really excited about them, what can they do or what can you do to keep helping them outside of finances? There’s some other things that you look at supporting them with? Or can you support them that way? Or you kind of made the investment and now you’re looking at other companies? How do you continue to keep that company engaged and helping you know what’s going on inside of them?

Norman:
Right, so for and for the loans, we have a loan monitoring process because I have to update our investors, we and this is a key element that we find that a lot of companies particularly, intergroups, we here fall down on and that’s just keeping our investors up to date. And so, you know, we look for whether it’s on the business side or the other side. We look for sort of a quarterly update. It doesn’t have to be you know, 10 pages, tell us how you’re doing you know, financially you know, successes, failures, etc., again felt like it is.

Jeffery:
Yep.

Norman:
And the negative I hear for investors the most, the concerning the most, is I don’t hear all my investments doing and then of course, human nature, they usually assume the worst, right? So, as much as it’s a bit of a pain, you’ve got a business to run. You’re working under 10 percent of your time, you know, take a few hours once a quarter, put out a note ever to appreciate that they’ll understand you know, where you are, and sometimes they’ll say, you know, “Can i help?” et cetera. So, I think that’s a very important element that a lot of companies, unfortunately, you know, fall down on for us, you know, once we make the investment you know, we look at even before mechanics, look at do we have potential customers to refer them to? So, if it’s a consumer entered product, we bring in a financing, we bring in 30 investors, they’re trying to add 200 customers, you know, a week it’s not going to matter, right? It’s not going to move their numbers, so maybe they make it a few more customers. It’s not going to really move their needle, right? On the business side, however, we’ve had cases with you know b to bs. We have customers of size that we’ve introduced them to and they’ve become customers and maybe bringing in others and it can be much more substantial. So, we’ve certainly seen the cases of that and so we try and help that of course, it helps, helps us, helps the company, where everybody’s happy, right? So, we certainly have had cases of that happen.

Jeffery:
No, that’s great and I think all help works. When it’s early-stage companies, they all need a little bit of support somewhere and that could be on sales, it could be on legal, or connections, networking, whatever, mentoring which actually brings me to my next and one of my closer to my last few questions but because you’ve talked about coaching, and you’ve talked about all these things that you can do to help support them, do you think the early-stage companies or the founders, should look at things like getting mentoring, or getting supported, coaching, or building an advisory, or a board, really early on? Do you think that’s valuable for those companies versus maybe waiting until they’re two, three years in? They’re maybe doing a million an arr or maybe that’s when they start to look at really branching out and getting to that next layer, is that a better time to do it? Do you have kind of an idea around that?

Norman:
I think earlier is better because you know, the ones that don’t do it, may not get to the million dollars arr, right? So, you want to get, you know, the help earlier. Again, it also depends on how experienced or inexperienced they are, right? We do some that are more experienced than others, right? Entrepreneurs but I think it helped now having said that, you know, it’s got to be, if it’s one mentor, it’s got to be sort of a fit. They’re not, you know, always the perfect fit, you know, an advisory board is a good concept. Some hunters do it and they put the names out there to impress investors but don’t really use them effectively and others really do, you know, take the advice and call them and all of that. So, I think used effectively early can be very helpful because getting to a million dollars arr is not necessarily an easy task. In many cases, that’s harder than going from a million to five, right? So, you know, I think earlier is better. In many situations, now recognizing, you know, it’s time-consuming and all that but a lot of these entrepreneurs could use more advice. We, beyond the monitoring, we also always available for advice, you know, as you know companies go forward, some picks it up and some don’t. We typically find that where they need the most help if the business is doing, you know, reasonably well next stage etc. is it can be negotiating, you know, customer agreements. It could be small acquisitions, there could be those sorts of things where they have no experience, and too many just sort of approach it as another business challenge, not realizing how different that is and so we’ve seen some problems where people not have- not gone for advice when they should, right? And unfortunately, sometimes get called when it’s a bit too late or there’s a mess on their hands or whatever. So, you know, these are very important. Can be very important agreements and you have to have their expertise at the table to do it to them properly.

Jeffery:
No, that’s a good point and getting as much advice anywhere you can before you sign something, is huge. I think I’ve seen that a few times and I shake my head and scratch it and think, “Man, if that quick 30 second phone call, I would have yelled stop on the phone and put the brakes on.” And let’s re-analyze what you’re trying to achieve here because what you’re achieving right now, you’re going to lose big time on if we don’t take a bigger approach to this so..

Norman:
One of our companies we – we’ve financed through a loan. We basically saved the company, a long established company, not an entrepreneur, not a, you know, startup. They’ve been doing well for years, so industry agreement for, in this case, the US structured very poorly and it also almost cost them their company. So, you know and it wasn’t necessary. They could have structured a proper agreement, you know, been fine.

Jeffery:
Yeah, sometimes, I think people too look at taking shortcuts and when you take a shortcut, if the shortcut’s not your shortcut intention and someone else’s, you tend to find the hard way there. You learn the hard lessons, so being thorough and making sure that you’re doing things properly is going to benefit you and really at the end of the day, you got to keep self-protection in this because your business means everything. It’s your business so..

Norman:
And there are people who have done this you know dozens of times so why not learn from them?

Jeffery:
Agreed, yeah 100 percent. So if I could kind of steer this way, we’ve gone through this whole journey about investing, and getting behind these companies, and supporting them, and communicating, and everybody’s kind of working together. You pick the things that kind of
really made the success of a startup, maybe one heartfelt story that you can share of your time from investing. Where you kind of thought this was a real shot in the dark, you didn’t know if they were going to pull through, and boom they came, and they ended up here.Do you have one of those real wartime style startup opportunities or investments that you made that you’re just blown away by and it’s a great story that you just love to share because you’re super excited for
where they came from and where they ended up?

Norman:
God hard to think of one.

Jeffery:
Well, you can share them all if you want.

Norman:
But no well, you know, sometimes a company can just be- they’ve got a great product or service, but you know, just too early, right? The market’s just not ready for them, right? And so I could think of two examples, one company, unfortunately, is not that well because it’s surprising to us but the market’s still not there, so I won’t focus on that one but another one is about to take off and leave some bounds because they were too early but the market is now just about ready for them. And so, it’s a company that’s developed very sophisticated software which in layman’s terms would be called for “pattern making.” So, what’s pattern making? Well, think of could be clothing, it could be industrial products, but things with fabrics, and to go from a 3d model today to what exact pieces I have to cut at what sizes in 2d is actually extremely complex and that’s what pattern maker used to do but you know those people all retired pretty much, right? So, and so they developed very specific software that could take that 3d model and figure out exactly the size of what has to be cut and factor it. It’s for what type of fabric it might stretch, it might sag, am I this or that and they’ve been doing this for other kinds of industrial products number of years. So, you know, the business has been sort of an okay size but not particularly successful, not, you know, they’re going along but they’re doing okay. And now what’s happened is the whole market of being able to order clothing online that fits you and have it made you know, for you, is about to take off and so they’ve basically called repackage what they have to add a few things for this. But they were 95 percent there, have years of experience doing this, and have now proven they can do this with incredible accuracy that you will love the fit. So, it’s just an interesting example where we thought the market for where they were already in was bigger or I mean it is bigger. But we have a lot of companies that are sort of set in their ways but while they were sort of, you know, trying to make that work better, this other market came along and they, you know, should be lift off very soon.

Jeffery:
So very close to the world, caught up to them, so they were really advanced on figuring out the world’s going to shift into more customs, so they can cut costs and be more effective and long and behold they were right and the market just took forever to catch up. And glad they didn’t sink they were able to maintain themselves and still build clientele. And now, the world’s shifted enough and they’re saying, “Hey, you know what this actually might be the perfect time for a boom here.” So, that’s pretty cool, yeah.

Norman:
Yeah.

Jeffery:
So, that’s interesting, yeah. Well, we’re down to our last question and it’s all been amazing learned lots which is very cool. Which I like to do is learn, so if I- the last question you’re gonna have to take out the magic crystal ball and say, “You know, where do we see, let’s say the next 12 months to 36 months, where do you see the investment community and startups going?” Is there a specific vertical that you really like that you think is going to take off the next 12 months or 36 months? Or do you think it’s more going to be agnostic and there’s going to be some shifts that are going to go on money’s going to change? Can you kind of give me some, just some high-level ballpark ideas of where you see the world in the next 12 to 36 months?

Norman:
It’s hard to focus on verticals because the world’s changing so quickly but you know, you think of the sort of the AI, big data you know, elements out there that we’re seeing more and more of and you would think there’ll be, you know, pre-rapid growth. You know, there but in general, I think we’re seeing, you know, short term with COVID, excuse me, we’re seeing you know, investors sort of pulling in their horns a little bit on the equity side, you know, on the private side because of the lack of liquidity, right? So, we’ve seen in our business some investors have decided to you know, go pause for now. You know, some of their portfolios have been hit, they may be just wanting to sell more cash just because of uncertainty some, of course, our businesses have taken a, you know, a step back et cetera. So, that’s all temporary but that’s sort of where we are today. The underlying longer-term trend though is actually quite in favor of private investing and private equity because what’s happening is people are seeing those potential higher returns. There’s still education to be done but more and more astute investors are seeing if I give up liquidity, I can get much higher returns. So, it’s not for my whole portfolio, I need liquidity for my portfolio but I can take a piece of the portfolio. I don’t need the money back so fast and I can potentially get much higher returns and so, there’s a long-term trend that we’re seeing on the private side. And just an example of that is another part of business, I haven’t talked about. It’s a little bit different but through some sources we work with, we offer our investors shares in pre-ipo unicorns, very large private companies unicorns or billion dollar plus valuation and we’ve had good success there. We’re just as we speak closing an offering of Spacex which has gotten lots of attention over a number of years. We’ve done, you know, Spotify and Lyft, and some others but what’s interesting about it is, inline trends. They’re re so, they’re you know, if you go back 20, 25 years, statistics are there were one or two companies that would qualify. Okay, now there’s 300 whatever the number is there’s hundreds and why is that? Well, the private markets have gotten deeper, and deeper more money is going into private equity so these companies like Uber was able to raise 10 billion dollars before it went public years ago. Impossible they went in public within five years of any of the kind of capital because the prime markets weren’t deep enough so, you’re seeing deep, pretty prime market, you’re seeing more money going into that. As much as I’m focused on the unicorn here which is sort of a particular element of that market, some of that is strucking down to the smaller private companies that more money, you know, people, investors are understanding there’s more opportunity there. I just have to will get some liquidity it’s not for everybody but for many people. They’re willing to take a piece of portfolio and do that and the reality is success, we get success, right? So, the more we see of the enthusiast gamings, for example, is one of the more recent successes that the angel groups have had the more they’ll track funds. So, I do think the longer-term trend as much we have a short-term, sort of step back here on investors investigate private equity. The long-term trend, I think is still in its favor and there’s certainly good opportunities and, you know, if people can give up some liquidity, it’s a great space and a great way to participate would be through someone. It could be our type of thing with debt deals where you don’t have the expertise but we bring that to bear or on the pure equity side, the angel groups, are a terrific venue- avenue, sorry, to get there because the collective knowledge and expertise and experience that they have, really reduces your risk, you know, in doing this so I do think, you know, the trends are in our favor longer-term. But maybe in the very short term, not so much but another way to look at it is, where were the angel groups 10 years ago versus today, right? They’ve grown by leaps and bounds because of these factors.

Jeffery:
No, that’s awesome and I think again you’re fitting into some nice little buckets that are helping your investors change up their portfolios. So, that they’re not just heavily focused in one area, but able to diversify, and in the future, there’s gonna be a lot more of these opportunities and you just have to decide which one’s going to work best for you at the time that you’re investing. And liquidity is becoming an issue 100 percent, you put a lot into these companies even if the companies are growing to be massive, if they don’t go to a liquidation from a sale or go to the markets then you could be holding on this for five, ten, fifteen years and great the company’s doing awesome. But you never get to liquidate, so you kind of start to wonder how am I gonna keep doing this if I’m not building up all these different avenues? So, all valuable information. So, that was great well I think, Norman, I’m going to have to say that was fantastic! I really enjoyed learning more about you and the investments. I’m sure we could talk for many more hours on diving into all of these different pieces but like I always say, I’ve taken lots of notes. So, there’s lots of good material here that we’re going to splice and put together and send out over the upcoming months. But I wanted to thank you very much for your time and I’ll turn it over to you for one last, I guess moment, if you want to share anything that you want to say to startups that you think will help them think a little bit outside the box or whatever that might be. But I give you the last word.

Norman:
Oh, just say, the startups that, you know, the key that we’ve seen to those have been successful you know, aside from all the obvious elements, you know that we’ve sort of talked through here is really is persistence. You know, these are never, you know, things never go in a straight line, it’s always going to take longer than you think, and maybe more money you think to be successful. But if you’ve got, you know, that right product or service, you know, stick with it and you’ll get there and then and all the success monitors will tell you it was never an overnight success story, right? So, just have to be realistic and persistence is very important.

Jeffery:
Perfect, well on that note, thank you very much, Norman! I wish you a fantastic day and I will keep you posted on when everything is ready to move out the door for you and we’ll share it along.

Norman:
Great! Well, thank you!

Jeffery:
Awesome, perfect, thank you, Norman!

Norman:
Okay bye.

Jeffery:
Enjoy your day! Well, there you have it, fantastic interview from Norman Light and at Light capital. And I think just to kind of iterate a few things is that when it comes down to investment, the real thing you got to look at, and you mentioned in the last word which was being persistent driven, to make success. Pushing hard, making sure you’re coachable, but I think the key to all of this is always about being coachable but he made a great point which is find out about that product, make sure that product zings and the people want it. So, you really got to do your homework, make sure that when that product or MVP is launched, that your customers are really back behind it, which means you really have to have customers right away from the beginning. So, I think overall, I’m pretty highly excited and impressed with all the information that he shared and I think that it’s going to be a great video to share. But I think he left us with some great things to think about, get some help, talk to the experts, they’re going to give you a little bit more insight and broader view into the world. Let them build some comfort, build a fantastic strategy work with your customers, giving your customers the right mix of what they need in order to accept and love your product so that the investors can come on board and see what great things you’re doing. And be persistent, keep kicking butt, and yeah. Don’t take no for an answer, make it work. All right everybody, enjoy your day, and thank you very much for checking us out and we’ll see you guys another time this week.

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