Steve Gilpin

Jeffery:
awesome. Well just like we always do it. OPN and the supporters fund and, and ask an angel, we like to jump right into things. So welcome to uh, to our podcast. Very excited to have you here today Steve. I’ve been going through mountains of data and I’m so excited to get to chat with you about a few things and today may be the best way to start is if you can give us a little bit of an idea of your background, maybe a little bit about what you’re doing today because we’re going to dive into that, and then of course, the best question of all one thing about you that no one will know.

Steve:
Okay. Um, um, yeah, okay. My background, I’ve got a long time ago, Bachelor Science and Computer Science and Math and an MBA from Western. Always wanted to be an entrepreneur though. Um, and after about a 10-year stint in corporate, I stepped out as an entrepreneur and uh, and really haven’t looked back since. I have a very short 18-month stint as part of my uh, my entrepreneurial journey, I guess you’d call it. I started a consulting company, then merged with a couple of other consultants, then sold to a company, then we exited from there, and started a couple of other companies after that. So uh, mostly an entrepreneur all my, all my life, although I will call it um, an old school entrepreneur.

So, uh, I started the company with my, my, one of my most recent companies with line of credit on my house and uh work my ass off to get the cash flow break-even as fast as I possibly could so that I could then face my wife and tell her that everything was under control.

Jeffery:
I love it, I love it. And, and, and one thing about you that we won’t know

Steve:
A few people know this, but I’m a kiteboarder.

Jeffery:
Cool. And where do you get to do that out of?

Steve:
Usually down in Turks and Caicos?

Jeffery:
Okay.

Steve:
We’ve been down there in a year and a half, so that’s kind of disappointing. Very disappointing. But uh, I typically don’t do it up here, although there are lots of places to do it up here, we’ve got a cottage and it’s on a small lake that’s not conducive to kiteboarding and I’ve got other things that I enjoy in the summer, so, so that’s uh, that’s where I do it.

Jeffery:
Well, that’s pretty exciting. Well, I want to kind of go back to a little bit about what you’ve shared and I love that you’re, as you called it, I guess, and an old-school entrepreneur I guess. And I see that you spent a good amount of time learning the corporate world being at Eddie Bauer for 10 years, which I think is a fantastic learning experience. And I’m sure there’s gotta be some good stories in there that occurred during that time and maybe you got to meet some celebrities, who knows, But I know they were pretty popular brand and always have been. So, um, you’re welcome to share any, if the, if that’s the case, if you did get to meet any celebrities during that time.

Steve:
Uh, no, not really, other than a few mountain climbers who are celebrities in their own, uh, in their own right, but not to the general population for the most part.

Jeffery:
Uh, fair enough. Well you did jump into starting off a few of your own ventures and then sold them. And what I’m, I guess the first part of my curiosity is you will start off with the old school part where you started this from scratch and you did a line of credit and you dropped it on your home.

One is that super uncommon now that entrepreneurs just really aren’t taking that risk, I’m gonna throw in a little bit of anecdotal information myself when I started. I started Very similar with a credit card and I set up a corporation and the banks wouldn’t give me more than a $500 credit card, so that’s how I ran my company. And then after year one, I went back and said, Okay, I need some more funding. They said um well we’ll move it to $1000 but you need two years of data.

And I was like what the hell, Two years. So then I worked another year and I went back and they said this is great, we’re going to move it up to 2500. I was like, you guys are ridiculous. And then ever since then they would always reach out and say, hey, we want to give you more credit. And I said, I don’t need your money, but thank you for not helping me when I did need it because you drove me to figure out how to balance my business.

And I’m now curious to see is you know, based on the experience you had, do you find that that actually righted the ship and got you into a better position to be able to manage through and see how companies can actually really expand themselves and do this on their own without always having to go for outside capital and obviously being an angel, you want to be able to bring capital and, but what have you seen change in the landscape and how much do you appreciate it differently? Or what side you kind of fit on in that sense?

Steve:
Well, I appreciate the world’s a lot different than when I started my business is, I think my second last business was in 1989 or something like that. So there were very few venture capitalists out there. I’m sure there are a few angel investors, but I don’t think that term had even been coined back then.

And uh, and so, um, it was just the way you started a business, you just, you know, you scratch together whatever kind of funding you could come up with, and, uh, and you took a chance and you knew that you were, you were taking a chance and so you worked your ass off. And um, uh, and then I say I was lucky enough to, to, uh, to own a good portion of my home, so I was able to get a line of credit and you, and at least have a bit of a credit line to operate the business against, but knowing full well it had to come home and face my wife every night. So I had to make sure that I didn’t dip too deep into that. So today, um, the world is a lot different. There are a lot more funding sources, angel investors and VCS and, Um, even friends and family are I think more of a better funding source now than it certainly was back in back in my day. So, uh, so it’s just a different, it’s a different world and I get that. I think there are still entrepreneurs out there that try to build the business all by themselves and own 100% of it. There’s others that follow the playbook, the playbook, the formula, and do extremely well at it, you know, going through multiple rounds of financing and reducing their uh their share of the business, but not their share of the ultimate proceeds because they’re building the business faster than they’re diluting their ownership.

So, which is, that’s the way the game works uh in terms of a positive result. So, you know, that’s just uh that’s the dream everybody has. Of course, the other thing is, a lot of these entrepreneurs are some of them still in school or just come out of school or whatever, they don’t have a home to, to get a line of credit against.

So, and the banks are the same today, if you go with a great idea, and, but no, no equity, no uh no security. Then they’re not gonna lend you any money either. So they haven’t changed in that regard.

Jeffery:
That’s very true. Even when I had started with that credit card and I pushed throughout time, but it was always around, I would tell everybody make sure you have some assets, uh, they’re really important, especially if you do start a company, you need something to leverage and assets, having an asset like a home or something is a great way to, to start anything.

And if you haven’t got there, then, you know, that might not be the means at the time. You may have to find other ways to build up that idea. But I always looked at, you have to eat up enough risk to get other people just as interested in what you’re doing. And it can be a little bit more stressful and, you know, but at the end of the day, the great thing is that even though you had to come home to the wife to make sure she understood it is that it was an equally balanced budget, that you were both striving to accomplish multiple things, but without that boss maybe you would have went a little bit too far and who knows what could have occurred.

So I think having uh and it goes to a couple of things that you talked about in some areas that you get into, but really being able to bring a lot of communication in around the startup with the people that are invested in the startup. But even outside the start up, all of these make a big difference in helping you drive your business forward.

Steve:
Yeah, I have one other little anecdote to tell you along those lines before you, I’m sure you want to move on to more current, more current things, but I um actually while I was at Eddie Bauer, I I became friends of uh Tim Snelgrove, who was the owner of Timothy’s Coffees of the world.

And he and I got talking about starting a business together in direct marketing, essentially the predecessor of catalog marketing predecessor of e-commerce for coffee, coffee and coffee products etcetera. And he said, he said, Steve, I want to do this, but I want you to invest some money in the business.

And I said why do you want me to do that, Tim? Because I’m bringing all the expertise. He said, he said, I want you to come home at night every night and I want your wife to greet you at the door and ask you, honey, how is business today? And I want her to really mean it. So I’ve always remembered that when you’ve got some money at risk, everybody’s uh family is very invested in making sure that you’re successful

Jeffery:
That’s a great line and i completely agree with that. It ties everybody in right makes everybody make a little bit more eager to get behind the opportunity or to share more information with their friends and help promote it and sell it right

Steve:
Yep for sure

Jeffery:
Oh that’s great and taking that experience that you had in creating taking from the eddie bauer and moving into your own ventures um you also kind of created your own venture firm and have had that for a long time so how much of the experiences do you that you had early on really shaped the future for you getting in to be an entrepreneur and then you investing and starting to work with Startups?

Steve:
Well it was a very natural progression. I mean i really almost didn’t know it was happening um you know as we became more successful i had a partner in my final business and as we became more successful um you know we’d stumble on an opportunity or two coming you know along the way or somebody had a great idea or what appeared to be a great idea at least they thought it was a great idea um and we’d take a look at it and potentially invest and uh we actually invest in one idea that ex that fell through and so we end up getting our money back out of that which was kind of fun or funny. But but then my business partner i was i was working my way out of our business and he through a friend of his got looking at a at a company through GTAN, through the Golden Triangle Angel Network and uh suggested i should take a look at it so i went down and took a look at it and it looked uh it looked interesting so i invested a bit of money in it and um and as a result, I joined GTAN and uh because at that time FEDDEV had their IBI program investing in business innovation program where they matched 50 of any angel funds that were invested in the company on a an interest-free loan basis uh which was you know a great way to leverage your investment but you had to belong to a recognized angel group um so I joined GTAN and uh then thought well geez i’ve spent this money to join this organization i guess i should go down find out what it’s all about and ended up meeting some fantastic people very very quickly, seeing some other very interesting business opportunities very quickly and that was back in i think it was 2010 so the rest is history as they say. So I’ve been at this for uh on a formal basis then then i finally knew i was an angel investor so so i’ve been at it for about 10 years.

Jeffery:
Amazing and there is a lot of great people that I’ve also met yourself included over the last i think five years that i’ve been part of the GTAN side of things but it’s been amazing there’s uh so much knowledge all jammed into that room at one time and everybody’s sharing and working through screening and all of the other events so it’s pretty exciting, to say the least. So now you’ve spent 10 years working through all these different types of startups they vary across all boards i know that GTAN does focus a little bit more of the healthtech biotech space and then there’s a couple of other really prolific startup scenes that are kind of tied into that what have you learned from that is there certain things that really drive you on the investment side? Did that shape your investment thesis? Did you start going more towards the areas that they liked or did you kind of keep it pretty broad?

Steve:
I started out my final business — we provided outsourced technology and marketing services with uh real strong folks in life and health insurance business. So my background knowledge was in sales marketing and technology enterprise technology so and back when I joined GTAN that was the major focus of of GTAN and really the major focus of startups there was some med tech stuff going on but not anywhere near as much as there is now of course there’s no ai and a bunch of these other streams of investment so I could easily understand the business case for most enterprise technology plays and so that was where i was most comfortable. But there were there’s i invest in a few outliers a couple of med tech companies and only because A they sounded really good conceptually in terms of what they’re trying to solve and B i had a couple of co-investors friends of mine from GTAN who were very knowledgeable in the space and therefore i could trust their product knowledge and their expertise in that area and i could look at the company though from other perspectives and this is where as you all know jp angel investing is where the best leverage is in angel investing is when you invest alongside other people that have different areas of expertise that they can bring to the table in the due diligence process and then in the process of advising and helping their companies going forward you know you’re a technology guy so i can rely on you in terms of your technology expertise i’ve got more of a sales and marketing event so you can rely on me…

Jeffery:
Oh we lost we lost your mic. Oh nope it’s back now okay

Steve:
I was waving my hands so maybe i somehow blocked it i don’t know. Yeah so yeah it’s that’s where the angel investing formula works extremely well from my perspective. Both in the from a due diligence standpoint and then from helping the companies going forward because there’s a varied level of expertise that comes to the table

Jeffery:
And that’s a a really important point to make is that when you do make investments it’s not about just you going in and walking away that there’s a lot of other people that get tied into this investment. And you do try to feed off of their experiences so that you can move quicker
through due diligence but also so you can get through all this material because there usually is quite a bit of it so that everybody can get a good understanding and usually the lead has a really strong background in the area so they can help you move through, talk to the right people and make those decisions. Maybe we can touch a little bit on uh via fora because i think you’ve been with them for um quite a bit of time maybe in that process when you first started with them to where you are today how did you find that that shift went into it like did you go in as an investor then became part of the board and and how did that really structure out the learning that you could take and share that with the audience.

Steve:
I invested and part of what GTAN often does if they’re the lead investor in a round, they’ll ask for a board seat and when angel investors as you won’t know jp, when angel investors invest it’s often pre before most of these companies have a formal board. Their board is just a couple of founders perhaps maybe if it’s a single founder it’s them and maybe their wife or something like that. So but they need to get a formal board in place quickly. I found — this is kind of interesting in terms of and again you’ve probably seen this too where you start talking to a company about potentially investing in them and talking about the board and board structure and they don’t want to have any outside directors. They think the directors are going to come in and steal their company. And which is not the case. i’ve never seen that happen you know in my 10 plus years doing this. But there’s some that just have this fear that’s going to happen. Of course that’s the signal to walk away from the investment opportunity but so it’s you know it happens sometimes but companies need to have a properly-structured board with someone that’s going to make sure they’re doing the proper governance and that sort of thing so that then when they go to do their next investment round, the due diligence process is smooth and straightforward there’s nothing there’s no warts and or no significant warts that have to be cleaned up before an investor would invest in company uh at that particular stage. And in fact you know if they haven’t had good governance in some cases that can create an investment deal as you’ve probably seen too so so that’s why they’ve got to have a good instruction board. So anyway that was um a long long way around to this story back to Via Fora. So we asked for a board seat and um and we talked amongst the investors in the group and —

Jeffery:
You’ve got — you’re hitting the mic or something the mic’s

Steve:
Okay. Better now?

Jeffery:
Yeah, sorry it’s it’s going up and down so

Steve:
Yeah. okay okay yeah i think i know what to do now okay i can keep my hands still. So anyway i drew the short straw but Benton Leong joined the board as well, so there were two of us that joined the board and i learned a lot that was one of my probably my first board actually and as you can see from my profile i’ve been on a number of different boards i’m on fewer now as at some point time an angel investor has to hand the baton off to somebody else typically companies don’t want to grow their boards beyond five you know five people for the most part from an efficiency standpoint so angel investors handoff to VCs and VC’s hand off to other VCs and and on and on and that’s a good thing and and uh there’s some downsides to that as well which we may get to in our conversation through the rest of the hour. But so it was a good experience for me. I left the board via four about maybe two, three years ago so since then they ran into some difficulties as you may or may not know went through bankruptcy and but are still very much alive and well right now but but um but it was uh you know it’s hard work though uh i will say for the most part sometimes you catch a real lucky rocket ship that uh you know you just kind of guide a little bit and the company just happens to you know catch that’s that rising star and the way it goes and you get lucky in a way you go with it you know in many cases it’s hard work there’s all kinds of things that entrepreneurs need that they don’t have at the start they don’t know anything about. You know HR policies, and legals, and accounting policies, and structures and you know various and sundry other things that you’ve got to help them through. and uh so a board position is not a you know once every three months kind of uh kind of gig for the most part with these companies again as you know um you’ve got to roll up your sleeves and dig in and particularly the chair of the board is the one that does probably more of the heavy lifting from that uh standpoint

Jeffery:
No and i love that you brought all that up and shared that because i do think a lot of founders may not have that understanding of what a board is and why it helps. But on the reverse side i think a lot of investors don’t realize what work needs to go in to help support a company from a governance standpoint and the fiduciary responsibilities that come with running a board and i find that a lot more of the investors that i interview they all have the same qualms against the board and how it works and what they’re trying to get people to realize and better understand because it plays such a significant role and there are there are a few things that we’ll dive into a second but i is there a time that you look for when making an investment in a company where you think they should be implementing a board. Is there a good timing that you think really works?

Steve:
I think they should do it the first time they take any investment outside friends and family

Jeffery:
Done! Bingo, bingo! I was gonna like lights and action but i completely agree with you 100%!
I’m liking this right now on the Facebook and everywhere else but 100% agree with that. I think there’s that fear and you you earlier mentioned the fear that people were going to take over their company and change the direction and change all of that maybe you can talk a little bit outabout how to ensure that that feeling isn’t there for the founder and letting them kind of know that when you put a board together the reason you’re putting a board together is around governance but there’s a lot of other things that do tie into this and one of them isn’t about taking over your company

Steve:
Well that’s um i’m not sure you can prepare them for it i think they’ve got to be prepared for it themselves i’ve never found that i’ve been able to convince if someone’s dead set against it i’ve never been able to convince them otherwise. You know i i’ve tried to convince them and and show them and give them examples and and get them to call some of my other CEOs that i’m on the board of or whatever so they can get a feeling but they if they get that they’ve got that in their mind for some reason or other it may be that that they um uh they’ve heard about it from a friend of theirs or seen it from a family member or something i don’t know where they get it from but i found for the most part i’ve never been able to convince anybody otherwise. I haven’t run into very very often either i think certainly most of the companies that we see as angel investors come through the Regional Innovation Center network and uh and so they’re prepared for it for the most part already by the by the ricks they they school them on this kind of stuff so so it’s not usually a problem.

Jeffery:
Which is good. We were going through this with the company right now and and they had the same similar comment was that well i need to save room for when the VCs come in and um well the VCs are probably still another two years away, hopefully sooner. But let’s just say that it’s two years away that’s a lot of time for you to be working on other elements of your business and to be getting input and insight and being able to feed that out so they’re now into that consideration of i never thought of it that way or i didn’t want to create this i think maybe there’s some pushback of thinking that it’s creating more work. But i think to your point if if they’re not willing to create a board then you should almost be not willing to invest because i think that there is a lot more things that we may not know about under the covers that we’re not learning and if they’re not willing to open up pandora’s box at the beginning then i think that there could be a bigger problem that is lying underneath that and not that i want to imagine that’s the case but i do think that if you if you’re trying to be open-ended to make an investment you really got to open up all aspects of your business to the angel investors into that Community.

Steve:
Yeah, absolutely. You gotta you’ve got to think entrepreneurs got to think of their board as partners. They’ve got to look at them as people that they can call on for help at any time and
and are there working with them towards the same goal — build a fantastic company.

Jeffery:
And i love it so is there some metrics or some structure that you like to see being put into a board when you’re setting one up with the company?

Steve:
Well from a structure standpoint you know you want to have regular board meetings and you know properly manipulate them and that sort of thing. In terms of metrics the metrics uh are dependent on the business you know if you’re in med tech it’s different metrics and you’re in a SaaS place so it’s the metrics of the business and the metrics change depend on the stage that the business is in. Early stage you know cost of acquisition you can’t calculate that lifetime value you can’t calculate that you know um you know you can you can calculate it but it’s not very meaningful because it changes every time you get a customer. So there’s you know just simple metrics at start and then then it gets a little more complex as you become more mature and but they’re all pretty standard for uh depending on the business that the industry that a company’s in.

Jeffery:
And do you put any recommendations on boards for is it like three year notes is there a percentage that you’re willing to give up as a founder in the company? Do you want to make sure that you have insurance for the of the board any types of things like that that you can share

Steve:
well sure there definitely should be uh directors insurance without a doubt um uh my view is that investors should not be compensated for their board work so so no shares if if you’re if you’re working on a board and you’re not an investor then yes you should get some options as opposed to share some options but and that varies depending on how much time and effort you’re going to put in you know into the company. so

Jeffery:
i love it now there was a couple of pieces that i think that i wanted to dive in that you could share some insight on and and this goes into the investor info information rights. Maybe you can talk a little bit about that because i think the audience would be probably let’s just say that their understanding of this key point is huge so they should learn a little bit more about this so maybe you can walk us through a little bit of this.

Steve:
Well it’s a bit of a pet peeve of mine when typically when certainly when i’ve led a deal or or any GTAN investor has led a deal we negotiate information rights investor information rights as part of that deal and that includes quarterly reports uh financial statements at the end of the year that sort of thing and often what i see happen very very often uh what i see happen as soon as the first VC comes in they squash those information rights or they restrict them to just uh what they call majority holders and that’s holders of five percent or more of the company which means them and the other VC that’s beside them and the and the founders of course who of course already have full access to information and leaves out all of the early investors who took the highest amount of risk. So the VCs are riding on on our shoulders the ones that have worn the significant amount of risk you know the founders obviously take more risk than we do particularly if they put some money in but so and i i’ve never been able to get a VC to explain to me, give me, a valid reason why investors other investors should not get the same information rights that they have. And continue to have information rights right till the exit to the final exit. And they always come up with with some kind of reason that something like oh they’re gonna give the information to a competitor well i’ve never heard of that, i’ve never seen it. Why would you do that you’re just damaging your own investment. It just totally doesn’t make sense whatsoever. Some founders i i know will say well then they’ll have questions and that’ll be that’ll waste my time. Well it won’t waste your time because if you need help in a particular situation let’s say you’re getting a little tight on money you’ve got a you’re talking to vcs or the next round of investment but it’s a couple of months away and you need a bit of a bridge the ones to give you the bridge your current investors well if you haven’t kept me up to date with how the company’s doing and withheld information from me then i’m not going to write you a check to give you a bridge to get through to the next round of investment because i don’t know anything about the company. Other than what i learned when i first did my first due diligence back when i invested a year or two years ago or whatever the heck it is. So so anyway it’s uh it’s a uh it’s from my perspective one of the reasons this happens is that um companies particularly the first time they get a vc as an investor they’re excited about it and it’s kind of oh this professional investor and and and they of course they bring the term to bring the the paper they usually uh bring all the documents to you know and and they say i want you know no information rights for these guys and i want this and that and they and they just kind of bow down and think that this is this is the way it’s supposed to always is and the way it’s supposed to be. and they don’t realize that they have um a fiduciary responsibility to all of the shareholders. And one of the reasons this happens too is that they often go off and uh negotiate this deal and and of course the boards are at fault here they let them negotiate the deal with their lawyer who also doesn’t have any stake in the game uh so they don’t really care whether that whether the company gives up information rights for uh early stage investors either. So the result is the board effectively abrogates their their uh their right their responsibilities to look out for other shareholders. So it sounds like a small thing but i i did i know it sticks in the craw of of angel investors and you’ve probably seen it before too where you’ve been cut out of information rights and it’s you know sometimes you’ve got a founder where you can pick up the phone and call them and they’ll give you an update but that takes more time than than if they just send out a quarterly report or gave an update. I’ve got um one of my investments i think their late their last round of financing was a series d okay so hundreds of thousands of dollars hundreds of millions of dollars and the the ceo of that company religiously every quarter conducts an investor update meeting uh within a week of the board meeting and he uses virtually the whole deck from the board meeting to to give us our update uh all the bad news all the good news uh and all the financial stuff everything else he’s got no concerns whatsoever that we’re going to do anything stupid with the information or whatever it takes them an hour to go through it uh and at the end at the the last one which was a couple of weeks ago he said uh by the way uh our business is kicking back in coming out of COVID really taking off and uh and so i’m looking for more customers and they look like this and if you have any contacts connect them directly with me and and people are tripping over themselves to give him connections because he’s kept them up to date over the years you know, so so it’s worth doing so that you can you can get not only additional financing from from existing investors if you need it a bridge or otherwise or participate in a round and just fill it around or whatever but it’s also if you want to get you know regular leads and that sort of thing. People companies pivot companies change their target market and everything else and you don’t keep your uh existing shareholders up to date in terms of where you’re going what your target market is what your customer your ideal customer profile is then they won’t be able to make connections for you and every time you tell them what it is and uh update them on things they’re thinking about your business. I know virtually every time i go through one of those updates for this company i usually uh you know connect you know that company with uh with someone else one of my other companies or someone else because because the thoughts uh you know high in my mind.

Jeffery:
That’s a brilliant story and i think i’m gonna reference this now every time i have a discussion with a startup because it really does make a big impact and we follow the same suit we do a a full deep dive in every company every quarter just to update where they’re at and what they’re doing and i think it’s something that if you start the pattern early it continues to fold all the way through and if you don’t then you’ll find an excuse not to do it and it’s i find that to the exact reason that you just shared is that when that information is being pushed out on a regular basis or even if it’s chunked out in little tidbits of information flowing that’s what’s going to keep your early mid and late investors continuously in the loop but also feeding them to want to go and do more help and it’s like you said that once you’re tied into something you want to keep driving and helping where you can and all of those little progressive updates make a big difference for that investor. I know i can tell you a million stories of people that have complained all the time how they can’t get a hold of the startup they invested in 10 years ago four years ago one year ago and i think that you know those are all normal pain points but they shouldn’t be normalized it should be enough of a quick dissemination of information that everybody can stay behind what they invested in and still have that drive to talk some good things about them and i think it starts by the founder being aggressively sharing what they know and hopefully at that point some new information might come out that benefits them at the same time if an investor catches something that they can always share it back to.

Steve:
Yeah you mentioned uh tidbits that’s uh reminds me of something that i always counsel all of my companies including ones that i’m not on the board of to do and it’s what i call the drip method of sending information out as soon as you have some key news, whether it’s a new customer you lost a customer you know you lost your director of client success send that news out to investors. Don’t wait to do a four-page treatise on what’s happened in the past quarter either because a 25 word uh quick update will get read it gets you back top of mind and keeps everybody informed and engaged. i just sent out an update for a company a new company that i’m working on on the board of and i just sent an update out to investors the company’s a month and a half old and i said we’re in a financing round if you know where and we’re actually presenting to Equation Angels in june mid-june and um and i said if you know any investors that are part of the equation angels group or any other investors that might be interested please connect them with me i got one connection within uh four hours of sending that notice up. So i get a 25 000 check from out of that it was well worth the uh the half hour that i put into drafting that uh that update. So…

Jeffery:
Exactly wow that’s awesome and now to take that i guess one step further there’s a few other key pieces that outside of that drip and keeping people um really informed of what’s going on in your business there’s a couple other things one of them is preempted rights. Can you share a little bit about what preempted rights mean and why you want them or why you don’t want them and how does that work in the early stage world.

Steve:
Well certainly um GTAN when we invest in a company the first time we’ll negotiate what are called preemptive rights which means that we get to participate in the next round of financing on a pro-rata basis. In the ideal world an investor has enough capital to be able to invest in multiple rounds and maintain the percentage ownership that you own in a company. if it’s a good company you want to. You want to do that you see VCs doing that all the time every time you see an announcement of you know investment round in in company x it may be led by a new VC but all of the previous VCs have all written a check to maintain their ownership position because they really truly believe in the in the company and want to go forward. So this is something that angel groups and angel investors typically will put in the agreement. Then the VCs come along and they squash it along with information rights uh and and retract that and just restrict it to the majority shareholders majority holders as they’re called in there you know five percent owners or whatever you can maybe negotiate them down from that. But in my view this is totally wrong as well and the and the reasoning for this is also uh bogus from my standpoint uh it’s you know it’s gonna slow us down in doing a financing. Well i don’t know about you JP but i’ve never seen any financing withVCs that’s been able to be from the point of a term sheet to final paper and checks uh and money uh passing hands i’ve never seen it take less than 45 days. And it maybe has in the odd occasion but but generally it takes 45 days or more and generally you don’t need to make it happen that fast either if companies running out of money then they need a bridge round if they’re that close to being out of money then they need a bit of a bridge round anyway to get through until they can properly close the uh the deal and not rush the negotiation of the of the terms. And so uh you know what has to happen there’s generally a 10-day as you know a 10-day period prescribed that that shareholders have to be notified and asked whether they want to exercise their right to purchase you know their their
pro rata shares. And then if they don’t respond that’s a no and um and the way the company goes and some some do and some don’t my my observation is that most angel investors don’t participate in follow-on rounds when in fact i think they should. Most you know most of the companies that i see that do this an awful lot of them are good companies and definitely worth an additional investment in and effectively you’re investing in a in a company that’s lower risk than the initial company you invested in or when you initially invested in the company. so so it makes a good sense to do a follow-on round uh if and when you can. And i’ve tried to do that with uh with a number of my companies i’ve wondered you know a few of them i’ve i’ve followed on four or five times and and it’s been worth my while to do that. The um the key reason i think that uh VCs negotiate this since they want to keep all the future shares for themselves. Just honest pure outright greed from my standpoint. And again i don’t think that that’s fair to the early stage investments investors who have taken on the largest part of the risk. In getting this company going they should be rewarded and encouraged to to follow on and continue to invest in the company. So another one of my pet peeves and i haven’t come up with a good solution to it but it’s on my to-do list to get together with my favorite lawyer and buy him dinner and conspire in terms of what we can write into a shareholders agreement that will last the revision of a shareholders agreement once a VC gets a hold of it so that early stage investors do get preemptive rights um and continue to hold trans rights uh going forward.

Jeffery
Well it’s interesting to say that it it is so common and i think a lot of it is control factors the VCs want to ensure that they are controlling anything that’s going out and anything that’s coming in and and you’re right it’s uh around information rights it’s around governance there’s so many things that i i think that they look at it as if too much information gets out and that means you can make more money. I don’t think i agree with that i need to choke everything and disbelieve that you brought any value to where we are today and that all the value is going to come from us and if we can control that and ensure that um we’ve put enough process in here then this this startup is going to survive. And i think that duration of 45 days you’re right is probably the fastest ever that would be investment in that time period but i do think that a lot of vcs will extend the runway as long as they possibly can because i think they look at most companies that when they’re looking for funds when they’re really depleted of funds that the control falls back on them. So the longer that they drag it out the better opportunity of reducing the value to get them to agree to a lesser investment for more equity and it’s unfortunate but it goes back to that whole when you should be investing and you should always be getting investors six to eight months before you need the money because however long it goes through the process is that you want to be as a startup in control of of your destiny versus putting it in the hands of others that are pushing you into the direction that they feel that you should fit. and i’m pretty sure angels carry a really strong moral ground when it comes to helping these companies survive to get to that and don’t get me wrong we all believe that VCs and larger investment opportunities are needed and they’re there for a reason. But it is allowing the owners to have a little bit more understanding and being able to balance out the benefits of everybody that have come into the company at any stage.

Steve:
For sure

Jeffery:
It’s fascinating and i guess that’s something that we could probably really talk a lot more on maybe in another interview we’ll get into that but there really is a lot of pieces that really have two groups of of investment community really separated and it’s unfortunate

Steve:
And i think just the one last point i’ll make here for the companies out there that might listen to this or be listening, involve your boards. Make sure that your investor representatives at the board table are involved in the negotiations. And help you go through the negotiations for the most part. You have not you know these entrepreneurs have not gone through negotiations with a venture capitalist. Most a lot of angel investors have. i’ve seen it with my companies you know um countless number of rounds of investment with venture capitalists so i’ve seen I’ve seen a number of these deals and most board members have so get get them to help you okay. and don’t count on your lawyer to to do everything for you either so because they’ll sometimes take the common path so to speak as opposed to make sure that they’re looking out for all of your stakeholders.

Jeffery:
Agreed. I love it. Well uh thank you Steve for kind of diving into a lot of those pieces of contracts and governance. i think it makes a huge value proposition for the startups to better understand that whole aspect of when they are racing and what the next investment periods are going to look like and how to protect themselves. We’re going to jump now into our rapid fire questions before we get into the final personal questions. So rapid fire, are we ready?

Steve:
Yep. All right. As ready as i’ll ever be

Jeffery:
i like it. What is your favorite part of investing?

Steve:
The people that i invest with and and working with young people. That just keep me young

Jeffery:
Awesome. How many companies do you invest in per year?

Steve:
That’s i can’t give you a number. I can give you an average number. Probably let’s see uh two to three would be the average. But… i was um my name is steve gilpin and i have a problem, i’m a binge investor. So i went hard and fast for three four four five years and then have uh laid off and sat on my checkbook for uh for a long time uh other than supporting my existing uh my existing companies. So i’ve had a couple of exits and just waiting for one or two more before i start writing some new checks.

Jeffery:
i love it that’s a great average and it’s almost like saying that you’re addictive but that’s what we like people that are heavily passionate of helping early stage companies

Steve:
yeah

Jeffery:
Are there any verticals you like to focus on?

Steve:
Still enterprise software, SaaS plays. But i say i’ve got outliers and you know med tech and uh boutique, real estate, and winery and that sort of thing so so it’s kind of uh you know it’s partly a function of my friends and co-investors that might have something that looks good to them that they kind of drag me along.

Jeffery:
I love it yeah anything that you look for when it comes to due diligence that you really emphasize that you need to have to make a commitment?

Steve:
Well it’s probably pretty standard for experienced investors. you know it’s got to be a great idea or at least my my view it’s got to be a great idea i might not be the best judge all the time but to me it’s got to sound like a great idea. It’s going to look like there’s a really sizable market for that idea. And then and then the deal breaker is the uh the founder and the leader or the leadership team. uh they’ve got to be extremely passionate, and very very coachable to for me to to uh to invest. So it could be a great idea in a great market if they’re not the right team then i’ll back away. So um you know you can have a B idea and an A team and that will be a very successful company. But if you’ve got a A ideea and a B team then potentially it’s not going to work.

Jeffery:
I’m a thousand times supporter of that last line actually all of what you said but including that last line. okay on the uh investment side is there anything else that you look for when it comes to outside of the team or outside of the CEO you gave the the three things from marketing ideation and founders is there anything else that really kind of drops in there that says you know what if they don’t have this I’m out?

Steve:
Well the terms of the deal matter to me. If i have my druthers it’s an equity deal. i’m really not a big big fan at all of CDs for the most part i have to pay tax on money i don’t get the interest uh the company has to report the interest to CRA and uh send out T5s and so i have to pay tax on that money and you don’t send me the money so therefore i’m paying tax with money i don’t have um and uh and then it’s going to turn out to be you know that that money gets rolled into shares at some point in time maybe in the number of CDs that i’ve invested in i would say probably half of them have converted uh in the term or under the term and a number have gone beyond the term and you’ve got no no opportunity to do anything. Maybe maybe terms within the deal that says you can you can call the loan and say okay i want my money back you’re not going to convert to equity i want my money back but the company doesn’t have any money to pay it back so it’s a moot point. So so i’m not a big fan um of CDs on the occasion i’ll i’ll bite my tongue and invest in a cd if it’s i think it’s a you know great team, great idea, great market. I’ll uh swallow my pride or so or whatever. And then safes i i don’t i don’t if it’s a safe i just walk away even the guy as you know the guy who invented safes is the worst thing he’s ever done his entire life so so they’re not a good instrument i don’t understand why investors uh even uh contemplate them.

Jeffery:
So well there was a stat that said only three percent i think of all investments are done on safes but the world all pushes them. i think a safe is good early early on just to start off if you’ve got nothing. it’s a cheap format to get your business going but you’re right after that things have to change. You have to kind of mature up and get into a better position because there’s so there’s not a lot of information that needs to be shared and there’s not a lot of ownership given back to the investor so it’s kind of like throwing your money into a big pot and hoping the right person grabbed it and that you’re going to get some information back on what it was used for.

Steve:
Yeah yeah one of my successful founders that had already given me a great exit came to me with a safe to invest in new companies doing i i’d write a check and uh he wouldn’t have to talk to me for more than two minutes and i’d write a check on it on a safe but that’s a different uh situation than somebody that i’ve never met before and done business with.

Jeffery:
Agreed uh well you did mention that you like to do follow-on investments so that’s awesome and you mentioned that you like taking board seats and is that still the case?

Steve:
Yes it is yeah yeah although my company is most of my company’s a little more mature and i’ve handed the baton off to in a few of those cases so f

Jeffery:
Fair enough. Last question do you like to lead rounds?

Steve:
I don’t mind leading rounds. It’s it’s hard work as you know but if people like you and i don’t step up and and other investors don’t step in lead rounds then there won’t be any rounds. I’ve seen rounds in good companies fall fall apart because there wasn’t a lead in place uh and it’s not rounds that i was involved in even interested in but i’ve observed them from afar and you know a bunch of people put up their hands 10- 15 people put up their hands and the deal just kind of goes sideways because there’s nobody that has stepped up and um and taken the lead. and so investors out there have to do their share in making this whole thing work and that means that you’ve got to you’ve got to lead sometimes, so you don’t have to lead every deal but if you you know — in gtan we had you know when i went through most of my deals there were probably half a dozen of us that were very very active leads uh so we might lead two or three deals a year. And but you know so i’d invest in a deal that you’re leading and you’d invest in a deal that i’m leading and you know i did you know a couple of times you know two or three investments all at the same time but i led one and and a couple of friends led others and um and so it works right so you just depend on your friends to uh to take care of the heavy lifting on the other deals.

Jeffery:
Completely agree with that and it is so helpfulbecause there’s a lot of deals and you need some good people to support each one of them if not they fall through the cracks and then they become a waste of time and the investors never go through because they’re not doing this full-time. They’re not spending their time trying to deep dive into companies they just want to participate and they need someone to kind of hold the the pod open for them right.

Steve:
Yeah

Jeffry:
Yeah.Awesome. Well thank you very much for sharing that now we’re going to get into a couple of personal questions

Steve:
oh oh okay fire away

Jeffery:
all right favorite sports team

Steve:
oh probably Toronto Raptors

Jeffery:
oh they’re a good team. I like that. All right well they weren’t so good this year but they have been pretty good in the past. All right favorite movie and what character would you play?

Steve:
You know what i don’t have a favorite movie i think the last time i watched a movie was probably five or six years ago so so i couldn’t even answer that question jp

Jeffery:
All right how about favorite netflix show?

Steve:
Don’t watch netflix either

Jeffery:
Oh my god, steve! It’s amazing! Through COVID i have become a netflix watcher before that i was like a documentary king. And now I’m like these shows are actually creative so I’ve actually got into that. But I hear where you’re coming from totally.

Steve:
i spend my a lot of time just working and doing research on you know various investment things and that sort of thing. And i do watch other sports but that’s kind of my uh my tv is goes
60:05
towards uh
60:06
mostly sports stuff.

Jeffery:
i love it i love it. All right what is your superpower?

Steve:
My superpower oh jeez i’m not sure i have one. No i can’t i can’t answer that. i just i i’ve never…

Jeffery:
I’ll give you some scenarios some uh the one that i like the most and again this is probably about my learning from working with you as well i think you’re you have a great analytical mind so you can see the touch points coming in and that’s probably due to marketing and working with companies a lot but i think you kind of envision where this has got to go and you’re putting those two and two and three points together so i think that becomes pretty valuable i don’t know if it’s your superpower but i found that and i think also your calmness so you’re able to take all this information and still be able to bring out a direction or get people questioning things and understanding where they’re going at least of the investors

Steve:
Well thank you for that i if i would uh i might rephrase that to say that i listen

Jeffery:
that’s the word okay yes

Steve:
i i listen and a lot of people form opinions fairly quickly and and they’re brighter than i am i i tend to listen and think it through and and uh and then try to try to form a or express a fully formed opinion as opposed to uh just throwing an idea out there. so

Jeffery:
I love it well i’m glad we were able to help find your superpower then

Steve:
So that’s good. thank jp i’ll have to get the t-shirt

Jeffery:
I like it i like it well there’s there’s one last question this actually came up because i was interviewing an investor from india and then he asked me the question and uh i said you know what i’m gonna use that going forward because i like it. And he said what is the secret sauce to investing for you? So i’m going to ask you what is the secret sauce for you for investing what’s the one thing that just always if you’ve got that you’re like this is great even if you don’t invest you just that’s great it’s the secret sauce to make you convert you into wanting to invest

Steve:
It’s the it’s the people connection with the founder. And they don’t all have to be the same. They aren’t all the same but if i can connect with them on a one-to-one basis you know around the business and and outside the business then then that’s that’s the secret sauce uh for me. It means that we’ll have good communication and be able to work together and uh and hopefully do some great things together.

Jeffery:
Well it’s no longer a secret sauce anymore but thank you very much for sharing that and i do agree it’s that connection makes a big difference

Steve:
thanks

Jeffery:
So we’re gonna wrap it up today thank you steve so much for sharing. All that insight. I always say i’m not gonna take notes but i can’t help it i just right away i learn a ton i’m a big fan thank you very much for everything. The way we like to end our podcast is that i like to give you the last word which is for you to share anything that you want to share to the startup community or to investors i turn it over to you. Again thank you for all your time today, Steve, it’s been a pleasure

Steve:
well geez jp i think i probably said everything that i really want to say too. so i’ll probably just reiterate you know a couple of key points which is that communicate with your investors, over communicate with your investors, it will pay dividends and along with the communication make sure you ask them for things that you know that they can provide for you whether it’s connections to prospective customers connections to potential employees that sort of thing so communicate regularly and then protect their rights going forward as you go up the investment scale to venture capitalists and and larger venture capitalists

Jeffery:
i love it you’re a good man thank you very much again steve. Okay that was great uh i’ve had the pleasure of working with steve for the better part of the last five years for the GTAN side of things and you know what just to reiterate communicate communicate communicate always key when it comes to working with other angel investors bringing people into your business. And i love the other one too both protecting your investors trying to find ways to make sure that as you build and grow your business that you’re building the right board and you’re protecting everybody that comes into it and from uh outside of that some other advice that he provided that i thought was pretty bang on too as well is you know what have a great idea learn how to market it and make sure you’ve got a great team supporting you these are the de-risking factors for your business outside of that it was great chatting with steve and if you guys can like share comment we look forward to hearing back from you have a great day and thanks for joining us.