Portfolio Manager – Tactex Asset Management
Sheehan Burns

"You can have the best idea in the world and have flawless execution and be completely focused on creating the best widget as it were. If you can't sell that and get that out there, it's not a business. It's an idea. And it's not going to be profitable."

- Sheehan Burns

Sheehan on Liquidating your business.

Talk Takeaways

(JP) Jeffery Potvin takes on an interesting leader and Angel Investor in the person of the Portfolio Manager of Tactex Asset Management, Sheehan Burns.

Sheehan gave a comprehensive overview of his background, from school to all he has accomplished as an investor. He talked about his law degree and his first career as a Corporate Governance Research Analyst at Glass Lewis. Sheehan also discussed what he learned from his vast legal and entrepreneurial experience in terms of risk assessment, red and green flags to watch out for, liquidation procedures, trends in the market, and many other topics related to legal and entrepreneurship.

It’s a great episode for aspiring entrepreneurs to learn a lot from.

Topics discussed:

  • Sheehan’s educational and employment background
  • Sheehan’s perspective on risk assessment
  • Building a board for Early Stage Companies
  • Liquidation Period
  • Sheehan’s Best Practices with Liquidation based on his experience
  • Trends in the market, including Impact Investing
  • Success story of a founder that Sheehan had worked with


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The full #OPNAskAnAngel talk

Jeffery: Welcome to the Supporters Fund Ask An Angel. I’m your host Jeffery Potvin and today we’re going to welcome Sheehan. How are you today?
Sheehan: I’m doing well, Jeffery. Thank you for having me today.
Jeffery: we’re really excited to dive in and learn a lot about where you come from and all the great things that you’re doing in this ecosystem. So, the best way for us to start is perhaps you can give us a little bit of a background from school-wise all the way up to all the great things that you’ve done and then we’ll dive into one thing about you that nobody would know.
Sheehan: Sure, I’d be happy to. Yeah, so I’m legally trained. So, I’m a leader by training. I’ve never actually practiced law but I have a law degree from University of Sydney and I think that that legal background is good for a lot of things. I think as investors risk management and being relatively conservative always serves us well and I think the legal training is a good foundation for all of that. So, that’s how I come at things from an educational perspective. My career started as a corporate governance research analyst at a firm called Glass Lewis which basically advises institutional investors on corporate governance policies and how to manage corporate governance issues in their equities portfolios. So, it really involves a lot of breaking down public companies on a very granular level and identifying risks in their corporate governance structure. And I think as investors, if we dig deep into finding corporate governance issues with concerns about management and or directors, usually where there’s issues with corporate governance concerns, there are deeper issues with the companies. And a recent example of that in Canada could be Rogers. So, that’s an interesting one. from corporate governance, I went to Nesbitt Burns in Toronto. I worked as a portfolio manager there for approximately 10 years managing portfolios for both private high net worth and institutional clients and made the transition in the fall of 2019. And I’m in the independent world currently. So, I’m partnered with a firm called Tactics Asset Management headquartered in Montreal. I’m still in Toronto here and two main lines of our business are traditional long only North American equity portfolios. So, we manage those portfolios much as we did where we’re looking at high quality North American equities, so if you think of the Canadian financials, the TBs, the Traditional Bricks and Mortar Brookfields CNCP rails Google, Bank of America, Goldman Sachs, those types of things, so very traditional high quality North American equities portfolios. And then the other side of the business on more of the venture or early stage type of investing, we invest in early stage public and or private equity companies. We are very sector agnostic so we’ve invested in anything from mining to fintech to med tech. We’ve done gaming. We’ve been pretty broad based in terms of investing in the early stage public and in private space. And on a high level, that’s really what we’re about, I think the risk management combined with a very healthy entrepreneurial approach to things would be where we fit into things.
Jeffery: That’s awesome. And I think this is really key to the growth and opportunities that happen in the early stage market. They eventually make their way to people like yourselves where if it’s going to go public or even staying private but getting into a lot of dollars that are going to be invested. There’s a lot of work that goes on at the top and I want to look at it and say well there’s all this great work that happens at the top to go public. How much of that information can we learn from today that will help businesses at the early onset to work their way through this a little bit easier? so that when it does get up to these positions where they’re IPOing or they are going public or staying off from being public but going to be taking in hundreds of millions of dollars in investment. what are the types of things that you look for? and you started off by talking a little bit about this which was earlier on in your profession which was risk management or risk mitigation. And I’m wondering if we can dive a little bit into that risk side because a lot of the time, a lot of the questions that come from early stage companies or startups is they don’t need to create boards. it’s not needed. I don’t need to have any of that right now. it’s not helpful. it’s only going to slow me down. And if I have all these people in there, I don’t want to lose my company. I hear all these horror stories and we try to mitigate that by saying look that’s one in a billion. This is very rare. if you’re going to run naked through town and do all these crazy things then maybe there might be a reason that you might get moved out of your company. but even then, it’s probably pretty tough. but when you’re looking at a risk assessment and you’re looking at all of these angles in order to decide if this company is something that you want to invest in and put in a large dollar amount into these companies, what are you looking for? What are the things that really set either red flags or green flags however you want to put those together? Can you dive into a bit of that for us?
Sheehan: Sure. I’ll come at it from the standpoint of maybe a founder from the outset and perhaps speak to some of the things that people should be aware of as an early stage entrepreneur or business person. you have a you have an idea and you have [Music] a means to getting that to at the end of the day generating earnings and therefore value in your company and value for your shareholders. at the end of it, that’s a pretty simplistic process. but we know that there are a lot of moving pieces in there. So, to break that down a little bit, I would say at very early stages, you need to look at advisors or strategic advisors. And even if it’s not in a formalized board structure or a structure where you look like a public company with all the traditional checks and balances that go in there. On a very basic level, find people that you trust and have that relationship that you can work with and have that mutual trust that they will give advice and guidance in the best interest of the company and help you along. The other thing I would say to people is get folks with diverse backgrounds. So, if you’re a technology specialist and you’re very good at tech, just talk with someone and learn from someone who has a background in in financials and get someone who understands capital markets and understands what your capital structure should look like, how you should raise funds, how you should structure things, speak with someone who has a legal background and understand just the very basics of structuring your business and how you should allocate equity. If that’s the case, if you’re bringing in advisors and compensating them with equity in your business, understand the longer term implications of how that works and make sure you have at least a good understanding of potential control issues going forward to your point about control over the business. And at the end of it, if you’re taking that entrepreneurial risk, you’ve worked extremely hard for that, [Music] the shares should not just be granted to folks. don’t go liberally handing out your shares for the sake of advice. be very focused on who you bring into that business in an ownership capacity. So, I would advise people to, first and foremost, bring in people that you trust and can work with long term. bring in folks with a variety of backgrounds. I mentioned legal and financial. If you’re not a salesperson and some very technical people are not sales people, that’s fine. but get someone who is that. That’s a fundamental point for any early stage company. you can have the best idea in the world and have flawless execution and be completely focused on creating the best widget as it were. if you can’t sell that and get that out there, it’s not a business. It’s an idea. And it’s not going to be profitable. So, those would be three areas that I’m mentioning on a high level that are key areas of focus. So, these three areas really help you propel your business forward. start getting the right people, the right advisors, all supporting that outcome that you’re looking to grow.
Jeffery: is there a time where you would say, and again going back to your the legal background and your risk factor background, when would you suggest that it’s the best time to actually put together a board even if it’s a small board of three people? is there a recommendation around that side? and then I guess to really propel the business forward as you start increasing revenues tens of millions, is there a goal that you should be shooting towards as a startup business? Is there like a sweet spot that it’s either a process that can occur or where you decide you should go public? This goes back to that risk and governance again and I’m just trying to look for what are the targets that you want to shoot for as an early stage company. Start thinking about it when you hit this goal.
Sheehan: Sure. Yeah. So, to your first point, on a board, I would go back to my point on folks that you trust, that have a diverse skill set, that can help you, and I think that in an informal structure, as trusted advisors, to me that’s a day. one thing where whether it’s formalized or not, you should certainly have within your network those folks that you talk with and bounce ideas off of, so that’s to me a day one. as a very least an informal structure, I would suggest, after you have stepped beyond, call it friends and family types of funding. And that bootstrap stage of funding outside investors will start to want a more formalized governance and or management structure. So, I would suggest to people, when you’re starting to look for either equity or debt financing from outside investors i.e people that are completely outside of your network and investing purely for a return on their investment, that’s when you’re looking at getting a more formalized structure because those investors will look for that type of oversight. So, that would be the first point in terms of revenue and when someone should go public and all these types of liquidity events. That’s a really good question Jeffery because I think you see very often particularly in Canada, the way the Canadian capital markets operate, companies go public very early on. And particularly where you see this is the RTO race and all these shells that exist out there. And the bankers and other promoters are looking to get people to list. And selling this as a great idea for early stage companies, I would really caution people early on, particularly in this country where there are so many of these shelves, you don’t know the quality of what you’re getting into. oftentimes, you realize you’re coming into an existing capital structure with existing shareholders. In many cases, you don’t know what you’re getting into. So, someone promoting a shell as a founder. be very conscious of what their incentives are. And I think this doesn’t go for all RTOs, that they can be a very successful way of going public. but when someone approaches you with the idea of doing this process and saying that they have this shell for you and that you can get this public listing, just step back a little bit and question, okay, what is their interest in this? What is their shareholding in this structure? What are their fees looking like? and who are these shareholders? are they going to see the price of this shell pop and run? because in many cases that’s exactly what they’re doing. The other thing I would say to people is don’t see a public listing. whether in Canada or the United States. That doesn’t have to be the ultimate goal. For some people, I would suggest that for private companies. if you’re able to attract capital and have a good investor base that’s essentially what your equity investment is from public or private markets. it is what you’re after as a founder. you can often have a more closely held company with people who understand the business model. they’re not looking in in most cases for quarter to quarter earning results. they’re understanding a longer-term business cycle and you sometimes can scale things without that shorter term pressure from public markets. Having said that, if you get to a stage where it’s looking like a public listing, it is the right way to go. make sure that you get good advice. And by good advice, I’m not talking about just lawyers and investment bankers. talk with other founders who have gone through the process before, folks that have an inherited interest in taking you public and doing that structure. They are more than happy to give you advice because they’re making fees for doing so and they’re incentivized to do that. That’s not to say that there’s anything wrong with that. be careful. talk with other founders who’ve done it before and get their stories on this because that to me is extremely valuable for people.
Jeffery: I love it. And maybe you can share a little bit more about this liquidation period because I think there’s always a little bit of an incentive for investors to push founders to sell. they get to that seven year itch I guess if you want to call it that. And they start pushing them to say hey maybe you should go public. maybe you should open up some sort of liquidity event. And it always tends to be an RTO or something where it is more public so that the investors can trade their shares right away, get their money back. because every investor is looking for some liquidation. especially if it’s been seven years or ten years or longer. Are there other ways that you can look at this instead of pushing that way? you’ve mentioned private capital. there’s obviously debt. What other vehicles are out there that we can utilize or founders can start to investigate because that RTO might not be successful. or the way you imagined it. And it’s going to be a pump and dump because you’ve got seven years of investors just waiting, itching to get out and that is not good for the business especially on the optics side, but also on the capital side. you can’t utilize those dollars if they’re crashing and you’re not able to buy it back 100%.
Sheehan: no, that’s a great point Jeffery. And I would say this, look at other strategic options, talk to private equity. if you’re a business in a niche sector, you manufacture. take your peak consumer products. For example, we’re working with a US-based company currently that buys successful e-commerce businesses so they will come into businesses that are doing between two and twenty million dollars of revenue and write them a check. they will buy the business. they will roll it into their platform. In most cases, they want to keep founders involved. So, you’re participating in a bigger network with your existing business. you are able to obviously compensate your early shareholders so they get a liquidity event and you can either participate with the new parent company or do something else. So, there are many of these aggregators that are sector specific and will come in whether it’s technology, whether it’s industrial, consumer, there are these firms that will come in and acquire strategic businesses and that’s one way to get along with a larger entity. give your early shareholders their liquidity event. get some cash for yourself and either continue on or go and do something else. So, that would be one option. it could be either a sale to a competitor or someone in the space. So, look at your competitive landscape. And if you’re getting to a point where you want to buy some shareholders out, maybe there’s a competitor that wants to make an acquisition, you can go that way or you can do the opposite. you can go and start buying others. And there are many debt financings of vehicles available to do things like that. you can use various sources of capital where you can structure different vehicles to strategically acquire in the process then leveraging that to buy out shareholders that way. So, that could be an option. So, you have that as well. So, those would be a few examples of ways to strategically get some shareholders liquid as it were. And then do some other things so that it doesn’t necessarily have to be a public exit.
Jeffery: agreed. is there, and I’m not sure that we’ve had a couple of companies that have gone this approach and I’m curious to get your perspective, when you’re cleaning up the cap table and getting the company ready for private investment, if you’re able to pull in say 20 million, you need maybe 10 to operate and grow over the next 18 months, that extra 10 is a buyout for your or a buyback for your original investors? is that something that you see commonly happening where they’re going in to taking maybe one percent to two percent or five percent of the earlier investors paying them out for that and using that as a way to clean up the cap table, regain some value in the business? so that when they do go for that private equity, they can show that they do have a really strong balance sheet. They can show that they’ve acquired a good portion of their business and then utilize those new dollars for strategic growth over the next two to three years.
Sheehan: absolutely. I couldn’t agree more with you. you’re accomplishing two things there. you’re making your early shareholders happy and hopefully giving them a good return on their initial investment. And to your point, making yourself an entire attractive target with a clean cap table and a group of shareholders that got a definitely a cleaner cap table.
Jeffery: I think that’s attractive for anyone. And again, cleaning up the cap table side of things, when a transaction is going to occur, everybody’s looking for positive cash flow. they’re looking for reduced debt. Are there other things that businesses can look at doing on that side of the table as well to figure out how we clean this up? And maybe there’s businesses out there that just focus on cleaning up companies before they look at rolling and scaling into this larger size. maybe 250 million and up. There’s somewhere where you can bring in some consultants or something that will help clean that whole business up and move it forward because I find that a lot of companies today as they go into that five to seven-year horizon that things are pretty messy and it takes a lot of time. And I think that a lot of time ends up burning a lot of money for the business. so, I wonder if there’s somewhere in there because you mentioned like you’ve got secondary markets, you’ve got a lot of things that people are taking money off the table for you because they’re taking their shares and they’re selling them and making good cash off them and you’re not. So, I think that there’s got to be somewhere in here when that five to seven year window starts to come around on that horizon that you start looking at okay here’s three things that we need to do with our business. we need to, one, clean up the cap table. Two, buy out ten percent of all of our earlier investors. Three, we need to reduce our debt load, clean all that up and we need to bring in a real strategic partner that can put in a good growth capital. is that something that you should be looking at? because that’s going to really put the wheels in motion for that. we’ll call it the Blitz Scaling if we want to use that term because then it’s all about dumping money in, going into massive debt but growing the sales and revenue lines by a hundred times month over month. So, is that a game plan that’s happening right now, that is happening more often that you’re seeing?
Sheehan: absolutely. I think to get that outside perspective and particularly around that, call it five to seven year mark, quite often, having someone that hasn’t been on the ground with you all the way through and can bring a fresh perspective to it can give you meaningful comparables to others in your in your sector and really give you that perspective to move to the next level. Certainly, if you’ve gotten to that scale that you’re talking about, you’ve obviously done a lot of things right and have been very successful in getting to that scale. If you do want to get to that next level and make that decision for yourself and your other shareholders, then absolutely get that outside perspective. And I would suggest that there are [Music] a lot of very good, I would call them boutique or smaller capital advisory slash investment banking corporate finance types of firms with people who are more than happy to be compensated on a success basis. So, if they’re able to get you through to that next level, their compensation is based on their ability to execute. So, for example, if your goal is to become a Nasdaq listed company and you can partner with a firm that will guide you through that process and be compensated on a success basis, they’re able to get you to that listing into that capitalization level, then that’s a good model. the traditional model of extracting a monthly fee and retainers and things like that, you can often get away with it from that model with some of these boutique firms. they’re selective in who they partner with. they’re often longer-term thinkers and they’re getting stalked. So, they’ve got skin in the game with you and they’re getting paid. It is dependent on working out for everybody. So, two factors. One, you’re not sitting there paying out large fees to JP Morgan or Goldman Sachs. nothing against the big firms but I’m looking at earlier stages with these companies. And you can get great advice. you’re not paying a monthly retainer fee, etc. you’re paying at some stock for folks that are incentivized to grow that. The other factor is, they can be selective enough that they’re not going to partner with businesses that they don’t see as having a high potential return rate. So, they’re not just going to sit there and tell you what you want to hear. they’re going to make those hard decisions and make sure that they’re making their money at the end of it as well.
Jeffery: agreed. is there, on this M.A. process, or I’m guessing you’re probably stepping a little bit out of the M.A. side but when these companies that are going in for that the next three to five years of really making this a successful business and bringing in the capital and doing all the right things to grow. they’re getting faced with things today which weren’t happening five ten years ago from SPAX and IPOs. And all of these different vehicles to expand into RTO obviously are becoming more popular nowadays as well. But are these vehicles worth exploring or are they getting beaten up right now from all the things that we see and read of companies that are taking these shells over? they’re getting obliterated online through the markets. And then it feels like it’s a duping effect. I’m guessing that this is supposed to be a liquidation. but it seems like there’s only maybe a few people that are winning off of them. So, is staying leery of these things, walking away from them, just focusing on growing your business and focusing on hitting your new targets and not worrying about these I guess overnight success stories that are coming out on all of these different liquidation vehicles and just sticking to the traditional way of growing it.
Sheehan: Sure. Yeah. Now, the alphabet soup of liquidity events, I mean specs, RTOs, etc, at the end of it, again, these structures can work extremely well and have done for many businesses. be careful when you look at these things in understanding. They are inherently complicated so that’s one thing to remember. someone may be presenting this to you as the straightforward, most efficient structure of getting liquidity or going public. Look. These are complicated structures. you have to understand the shareholders owning the paper as it were and the embedded fees involved with all of these things, performance fees, etc. they can often be extremely expensive ways of getting that liquidity in spaceland. we’ve seen obviously just everyone. And their brother created these things in the states and when you actually dig down into the economics of this, there are a lot of people getting paid before you do as a founder. just remember that. So, I would say at very least, look at traditional options. If you are looking at going to public markets and you want to get that, whether it’s a Nasdaq, or another big board listing in the states, or if it’s a TSX or a CSC listing, or other in Canada, look at the traditional roots. A direct listing can be a very good way to do things. It can be very clean. it can often be relatively quick. And you have in most cases much better visibility about what you’re getting into. So, when I talk with professional investors and strategic advisors to companies looking to list, very often, particularly recently, they’re saying do a direct listing. that this is the most, or sorry the cleanest way, to do it right now with the fewest unknowns. And I think that’s something that folks should really take a serious look at [Music] as well as alternative facts, etc.
Jeffery: I like that. And I’m all about keeping things simple and clean. I totally agree with that. And I think sometimes founders get wound up into too many other obstacles and not paying attention to the bottom line because it’s being pushed by maybe the investors that just want to get paid out. And they want the biggest payout they can get and they don’t care if the business at that point takes a beating, or the founders don’t get paid. they care about themselves and I think the founder has to take a moment and think about him and herself because they’re the ones that built this company and they need to take a second and really take in the information, decide what is the most valuable outcome that’s going to keep the business surviving and growing, versus everybody getting liquid and the company falling apart. So, it does take a lot out of everybody when it’s in a public face because now you’ve got more scrutiny against the business as well. So, if you are going to do something, keep it simple. keep it clean. And the direct listing is pretty straightforward. And especially if the company’s hitting the right numbers and it makes sense for the company to do that. And maybe that’s more when a company’s valued over the 750 to a billion mark. maybe that’s when you can start at least evaluating it. but until that point in time, I think you should just keep working on scaling and building the business to where it needs to be and not being worried about liquidation events all the time for your investors.
Sheehan: I couldn’t agree more with Jeffery. And look, it’s a whole industry around people in fancy boardrooms wearing expensive suits and talking about big projections for you as an entrepreneur or a business owner. And I think go in there, knowing that you’ve created something very valuable. And the fact is that, just be aware that the group on the other side of the table, with the Bay Street or the Wall Street office, and the expensive suit, look like those things have to be funded somehow. And their advice is often colored by the fact that they’ve got a very good financial incentive to get that liquidity event for you. And playing devil’s advocate, sometimes their interests are not what’s best for you as an entrepreneur. So, get really good advice from someone you trust and ideally someone that’s not incentivized by one way or the other, or collecting a large fee based on your decision. I think that’s absolutely key.
Jeffery: I love it. well we’re going to have to ask and we got to jump into this because you work in a lot of different spaces work a lot of different verticals, understanding businesses from a very high level. but of course at the stages where they are thinking about going to this public side of things. Are there a lot of trends that are happening right now? like we could name impact investing is pretty big at this moment. you ask somebody if they want to invest and they’ll say only if it’s changing the world. So, a lot of people are shifting from oil and gas into anything green, anything that’s going to be renewable. And even those terms are getting beat up and reset as well. So, are there a couple things that you can share that you’re seeing on a trend line that maybe startups or even investors should start looking at? because they’re creeping up and they’re interesting and you guys are really diving into them as well.
Sheehan: Sure. Yeah. I think that particularly you look at the world, in the last two years, and I think a lot of broader trends that were already happening have been accelerating. And I think that’s pretty obvious to most people. So, a very simple one I know, I published a note back in April of 2020, and I said look at the time. I was saying this is unprecedented. We don’t know how long this is going to go or how this is going to end. but the acceleration and adoption of technology is going to increase massively throughout this period. So, at the time, I was talking about SAS software as a service. I was talking about digitization of analog industries and adoption of technology to create efficiencies. And that really was the right idea at the time. And I think this is a continuing trend. applying technology to old problems is going to persist. And there are still massive inefficiencies across things like supply chain, across things like financial services. you look at healthcare construction. There are just opportunities within traditional industries for innovation and disruption through technology. anytime you go to a pharmacy and you have to fax something to your doctor’s office, I always laugh at that as an antiquated process. And I think that’s just one very small step in that whole ecosystem. you look at the supply chain, I think that’s a pretty obvious one to a lot of folks. And the massive inefficiencies that we see there. And using technology to create efficiencies across supply chains I think is a very persistent trend that we will see accelerate going forward. if we look at industrial, I was speaking with a founder, starting early stages with a business that partners with heavy industry, whether it be mining pulp and paper energy services, anything that involves off-site trades and various contractors, and this particular business provides a solution for digitization of the workflows and from time sheets, to materials, etc. And creates upwards of 20 savings for these industries with their contractors. So, things like that where you’ve got huge room for improvement. So, that would be one. the whole digitization trend to your point about the environment, and focus on sustainability. Again, it’s been talked about for a long time. We’ve got one trend that we’ve gotten behind is the electrification of vehicles. And if you look at the fact that a few years ago, the BMW’s, Mercedes, Dimers of the world, to the North American GMC, Ford, etc. these guys got caught incredibly flat-footed by Elon Musk. And the fact that he just completely lapped them on this trend. And they were really married to old technology. And it’s a really interesting example of how an industry can get turned on its head so quickly by someone who’s a forward thinking generational visionary. And a guy like Musk, and so I mean the electrification of vehicles globally that’s happening. we know that. So, how can we be involved in that? and if we look at things, you’re not necessarily saying, go buy Tesla today. but if you’re looking at that supply chain, if you look at the types of materials that electric vehicles need to use from battery metals to more efficient alloys and composites and things like that, we invested about two years ago in a mining company that is pre-production in manganese which is a battery metal. And if you look at the supply demand going forward, it’s going to be a huge supply constriction on this stuff. Globally, there’s not going to be enough of this stuff. And whether it’s the traditional automakers of the Tesla’s, the world needs it. So, yeah. the digitization in the EV would be two. I would highlight it as continuing.
Jeffery: that’s awesome. And I like how you phrased that or the way you looked at it was that you’re looking at something to where it’s going to go. you’re not looking at where it is today. And I think a lot of visionaries have to see where the world is going. what the trend is going to look like. And is this going to be sticky enough that if I invest today what would it look like in five years. is it going to be scaling? is it going to be high demand? and right now, as you mentioned, magnesium is a pretty big requirement. Cobalt and all of these different types of metals that are needed for the making of a car, making of a battery, that’s something you can perceive as being high demand because the world is shifting to that. So, I guess in throwing this out there for other startups or other inventors or people that are looking to start something, it’s looking at what the world is looking at right now and how heavy they’re going to start investing into these areas. And if they do, that’s where the innovation starts to happen. because founders can jump into these spaces and start to analyze. well am I too early? am I right on time? or am I too late in building a company in this space? or this mine that’s going to be building and growing magnesium or bringing that into the fold. So, I think a lot of the mindset has to be really where are we going to be in five years and can I turn this company today and be ready for the upside of when that’s going to come through even if the industry changes over and finds another way to make batteries. can you shift at that time as well if need be? so there’s a lot of elements that get tied into that. but I really like the fact that you guys, three years ago, were envisioning where this needs to be and how the market is going to go and keeping track of where Tesla is going to be. So, now Tesla is the largest car manufacturer, not by sales volume but by market share and where they’re going with their cars. And how they’re being manufactured, they’re building plants everywhere and they need product. So, these mines are now going to start taking off because they’re needed so can startups look at their business model the same way and figure out how they fit into these trends.
Sheehan: absolutely. Yeah. to your point, I think being forward thinking and entrepreneurial go very much together. you’re looking at figuring out new ways to tackle old problems. And Tesla to your point, I think is a great example of that. And you take a very well established and multi-billion dollar global industry, it goes back to organizational structure and culture at a place like Mercedes-Benz or BMW. And I mean, if you talk to people in that industry, they were adamant that this American guy didn’t have a chance of touching their offering and that their advantage of the internal combustion engine and technology that they had with that. And I think you’ve got a cultural layer there where we’ve been doing this for a hundred years this way. And no one’s going to want a battery-powered vehicle. And it’s not cool. And they’re always going to want an internal combustion engine on their Porsche or their Audi, and that’s been shown to not be the case at all. Now, they’re all trying to catch that trend. So, I think the world is changing I would say at this point in history faster than it’s ever changed. things are just happening so quickly and access to information through the internet and other sources is more democratized and easier than it has been at any point in history. So, it’s pretty fascinating when you think about it. If you go back to probably dating myself, during my early years as an undergraduate in university, I had a dial landline telephone in my first year dorm room and a desktop pc that had sketchy internet at the time. And if you go to a college campus today, these kids are on a whole different level of tech. And their ability to learn and work together is just on a whole different scale from what we did not too long ago. And if you go back to my parents’ generation in their university days, guess what, they were going to the library and picking out books from the stacks and submitting paper essays under their professor’s doors and all that kind. it wasn’t that different but now you go from the late 90s to 2000s to the 2020s and that’s a massively different world. I’m just using a specific example of a university but you look at the world generally in how we do business. It’s massively different. So, to come back to your point, I think entrepreneurs have a point in history where you can get on that and figure out ways to do things more efficiently or to do things better. And one thing I’d say to people, just as a general business sense of things is, don’t confuse a good idea with a viable business. So, if you’re looking to make this a successful business, come at it from both angles. you don’t need to be the next Elon Musk. just find a disruptive corner that you can work in, and turn it into a business and then go from there. you don’t need to necessarily go for the moonshot every time. just create, build a viable business in one of these niches that exist.
Jeffery: I love it. just get out there and start something. it could allow you to work your way through the next level and maybe your first business might not be as great as your second or third but as long as you start, you’ll get addicted. And you’ll keep doing it exactly. Yeah, well we’re going to shift over a little bit here. So, we’re going to ask one last question before we jump into the rapid fire questions. Throughout all your time of working with startups and founders, late stage companies, is there a story that really stands out on what it takes to be an entrepreneur for you?
Sheehan: That’s like a really good fundamental question. I would say, in terms of finding a group, I’m currently working with a group of American guys. One of them, the core founders, are American companies. It’s a US business. There is a founder from Toronto here. So, there’s a Canadian connection that way. And these guys met about a decade ago at Wharton Business School. And they went off their own ways after business school and started in some of them, working for larger firms. So, they went to Amazon, they went to Google, one of them worked for Ray Dalio at Bridgewater, really smart people. they went out in the world and most of them had some sort of a technology angle with it. And then a few of them went out and started businesses which they then successfully sold and came into it with, I think a very diverse perspective from where they started out of business school. And when these guys came together, they looked at an industry, and in this case, it was the e-commerce industry and said what can we do here because we have some experience with this. We think that it’s very fragmented. And there are a couple of incumbents that already work as aggregators of e-commerce businesses. So, they had proof of concept with the fact that there were successful firms already doing this as ecommerce aggregators. The incumbents were using debt to finance these acquisitions which was a new concept but that had now been proven. And these guys, with their experience, came together and said, we can have a go at this. And so they started this company which is an e-commerce aggregator. they took their diversity of experience. So, with capital markets, with financial services, with technology and applied it to this, they got accepted at y combinator which I’m sure many of you would be familiar with of Airbnb and many others that have come through that model. So, they were able to go through that process and they would tell you learned a lot and in terms of structuring and working with mentors through my combinator. And I think that’s impressive in itself in that these guys who had been successful doing things before were happy to go to this incubator and buy into that model. they weren’t saying okay, we need to do it our way or not at all. They were happy to look at the y combinator model because it’s proven to work so they were able to do that and then learn from that. So, that would be one. one key factor for me is they weren’t too proud to go and learn from others and take in new ideas and ways of doing things. The second takeaway I would say is look, they brought together a group that had diverse skill sets and had done a bunch of other things that could apply to this business. So, they made that key decision there to work together. related to that was the fact they trusted each other. They went to school together. they’d known each other, going for beers at Wharton back in business school and they had that level of trust that they could trust these guys. And they wanted to work together. So, they had that the other thing I would say is, they were strategic about what they were doing. They looked and said okay, here’s a niche in the market. The e-commerce marketplace is massively fragmented. you’ve got people in their garage selling five billion bucks a year on Amazon. that’s fragmented. we can do better than that. We can professionalize that industry and roll these things up. So, they didn’t have to reinvent the world. they just had to go and figure out a structure to buy these things. The other thing they did is they were very lenient. So, they’re not running around throwing around piles of money on advertising spend and all kinds of other things. they’re strategically acquiring these businesses and rolling them in so fast forward, they’re 10 months a year into this. These guys are doing 50 million usd in revenue and with 20 margins on this. So, it’s a real business. they would tell you that they have line of sight and for the next 12 to 18 months of 500 million usd in revenue, and they just continue to improve their model as they go. So, it’s again I think a good example of applying technology to a very simple business model which we all know is producing something and selling it to end customers. So, they didn’t have to go out and invent Tesla. they took an old industry and applied some tech and applied some of their know-how to it. And I think a good example is some basic principles that people can follow.
Jeffery: That’s amazing and a great story for founders that they came together after careers and looked at it and found a gap and went after and I think with a little bit of strategic thinking and some strategy, you can really put together something that is incredible and great. And it doesn’t have to be reinventing the world, it needs to be filling a gap and fixing a problem and being able to generate revenue. And they’re obviously proving all of those things. So, pretty impressive for a company that’s only a year old. Absolutely. It’s an interesting model for sure. Brilliant. Well, we’re going to jump into our rapid fire questions. we’re almost there. pick one or the other. ready to roll?
Sheehan: Let’s do it.
Jeffery: Alright. founder or co-founder? unicorn or four-year 10x exit?
Sheehan: unicorn.
Jeffery: tech or cpg?
Sheehan: tech.
Jeffery: brand or tech?
Sheehan: tech.
Jeffery: Ai or blockchain?
Sheehan: That’s a good one. Blockchain.
Jeffery: first time founder or second or third time founder?
Sheehan: second or third.
Jeffery: okay. first money in or series a?
Sheehan: series.
Jeffery: angel or VC?
Sheehan: VC.
Jeffery: board seat or observer?
Sheehan: observer.
Jeffery: safe or convertible note?
Sheehan: safe.
Jeffery: lead or follow?
Sheehan: It depends.
Jeffery: okay. equity or interest payments?
Sheehan: equity.
Jeffery: favorite part of investing?
Sheehan: new ideas.
Jeffery: number of companies invested per year?
Sheehan: 10.
Jeffery: you’re above average. I love it. preferred terms?
Sheehan: quality.
Jeffery: okay. we’ll take that as an answer. verticals of focus?
Sheehan: technology and finance.
Jeffery: ooh. Alright. it’s right in our wheelhouse. I love it. two things that make a startup stand out to you?
Sheehan: people and the cash flow.
Jeffery: okay. Alright. personal side. Superman or batman?
Sheehan: superman.
Jeffery: pizza pop or ice cream bar?
Sheehan: ice cream bar.
Jeffery: five minutes with Bezos or Oprah?
Sheehan: oh, Bezos.
Jeffery: alright. Arsenal or Manchester United?
Sheehan: Arsenal.
Jeffery: yeah. they lost. they lost, man. last night, 3-2. It is terrible. Bike or rollerblades?
Sheehan: bike.
Jeffery: big mac or chicken McNuggets?
Sheehan: I’ll go for McNuggets.
Jeffery: trophy or money?
Sheehan: money. sounds mean isn’t it?
Jeffery: nope. Beer or wine?
Sheehan: beer.
Jeffery: alarm clock or mobile phone?
Sheehan: mobile phone.
Jeffery: hotel or hostel?
Sheehan: hotel.
Jeffery: king or rich?
Sheehan: those are mutually exclusive. I don’t know. I’ll take some. I’m sure there’s poor kings out there.
Jeffery: concert or amusement park?
Sheehan: concert.
Jeffery: fortune cookie or birthday cake?
Sheehan: birthday cake.
Jeffery: Ted talk or book reading?
Sheehan: Ted talk.
Jeffery: favorite sports team?
Sheehan: I’ll say the Leafs. they’re having a good run right now. So, it’s fun to watch.
Jeffery: Okay, we’ll probably edit that part out just so that this video will get processed through your company.
Sheehan: they’ll probably want to make sure that gets edited out right. Hey, maybe you could say like team Canada or something like that. be very Canadian to me.
Jeffery: yeah. exactly. Alright. favorite movie and what character would you play in the movie?
Sheehan: Oh god. That’s a good question. Slap Shot. I’ll play Paul Newman’s character.
Jeffery: awesome. We haven’t heard of one yet but it’s following the line of hockey. So, I like it. favorite book?
Sheehan: favorite book fiction or none?
Jeffery: doesn’t matter. Anything that pops into your mind is your favorite book.
Sheehan: Catcher in the Rye. Never heard that in a while. trying to be different.
Jeffery: It’s good. the first brand that pops into your mind?
Sheehan: Nike.
Jeffery: most famous person that pops into your mind?
Sheehan: Bill Clinton.
Jeffery: alright. What is your superpower?
Sheehan: creative thinking.
Jeffery: I like it. very cool. Alright. well Sheehan, I’m going to say that was fantastic. I took lots of notes as I always do. I’ll show them even though you can’t see them but I’m a big fan. Thank you very much for giving us all that insight. I think it’s going to be very helpful for a startup founder to better understand where they got to go and what things they need to do before they get there. There’s lots of innovation and tech out there figuring out their way to success, but at the end of the day it was a pleasure. And thank you very much for sharing. And what we like to do and the way we like to end our show is we like to give you the last word. So, anything that you want to share to an investor or to the startup community we turn it over to you. but again thank you very much for your time today.
Sheehan: absolutely. Well, first off, thank you Jeffery for having us. it’s an absolute pleasure, really great to chat and great questions, so much appreciated. I suppose for folks watching, if you’re in that space where you’re starting a business or operating business or thinking about doing so, remember it’s not easy. if it were, everyone would do it. I think all that people see perhaps from the outside. know yourself and know that it’s definitely a grind for people. And it can be a very humbling but also very rewarding experience on both sides. So, go into it knowing those challenges. I think it’s like everything. The risk reward is much different than a lot of things. And if you’re a career professional, you’re a partner at a law firm or an accounting firm or whatever, the entrepreneurial side is always there. And I think seeing lots of people make successful transitions and do it. but just remember, the challenge or risk reward is there for a reason. And having said that, those who do it successfully and have done successfully, congratulations. It’s not an easy thing to do. And that’s what makes business work. It makes capitalism work. So, yeah, that’s my take on things.
Jeffery: I love it.
Sheehan: So get out there and just do it. get after it. It’s rewarding in the end.
Jeffery: Exactly. Awesome. Alright. Thank you very much again.
Sheehan: alright jeff. Thanks a lot. I appreciate it.
Jeffery: Sheehan that was great. So, from the trends in tech, there’s lots of stuff happening. And I love this story about just that early stage company and how these guys are just crushing it on the SAS model. but as he mentioned, there’s SAS, there’s supply chain converting, digitizing old to new health care even in the vehicle platform side of things. lots of great things. And even when he talked about governance and being able to set up a board of advisors and doing that relatively soon right away. find some people that trust and believe in you and get that board set up or get that advisory group set up right away at the beginning. And then as you start taking a dollar, start setting up those boards but also start looking in the future in five to seven years. they’re going to be figuring out how I clean my business up and how I go public or how I go to secondary markets. What are those angles? I think those are important for businesses because five to seven years is a long time. Regardless, always look for great people on your team and manage that cash flow. Sheehan thank you very much again for all your time today. fantastic insights. So, thank you everybody for joining us. If you enjoyed the conversation, please subscribe to our YouTube channel. follow us on Spotify, Apple podcast and or Stitcher. You can also check us out at supportersfund.com or for startup events, visit opn.ninja. like us, share us and comment on all those great things but thank you again for all your time.
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