How to Raise Venture Capital: Pitch Deck, Traction, Burn Rate & Term Sheets

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Speaker D: We welcome you into another edition of, uh, Scrushy on Business. My name is Dave Green. Richard Scrushy, as always, is alongside as we are nearing the heart of the holiday season. How are you, sir?

Speaker E: Man, I'm doing good. I'm really doing good. I tell you. I've uh, had a busy week. I've traveled, um, and my daughter graduated from college, uh, my son in law graduation. Yeah, yeah. So we, we really enjoyed that. We had some, some graduation, uh, parties and that was fun. And uh, now she's home and I'm excited to have her here and looking forward to, you know, what God has got for her next. So, uh, how you been? I know you've been busy as could be.

Speaker D: We are very, very busy. Uh, we just closed on a transaction today. The radio station that I told you about that uh, we had purchased. So excited to have that finished before the end of the year and now uh, a lot of, lot of growing coming for that because it's, you know, these days you can't just air a radio station, right? You're a digital property, uh, and have to market it as such and sort of get people to change their habits, which is very, very difficult to do oftentimes. But we have more and more people, of course that are, you know all about the phone, right? What everything is coming from the phone, whether it's streaming audio, video, communication, obviously with, with one another through text and all the different social media. It's it's unbelievable how, you know, we went from the giant screen, right? Then we all had to have the big screen in our house. But, but, but really we all, you know, deal with something that is, you know, this size.

Speaker E: Yeah, yeah, yeah. Now, how do they value. How do you currently value a radio station? I mean, uh, is. It's got to be value has something to do with the power, I'm sure, and the reach.

Speaker D: So, yeah, there's been a formula that's been used based on the number of people that the signal can reach in the market that you're in. But it is incredibly difficult these days. We were fortunate in this situation. There was really a property buy that was, that was what, 95% of it was. So property and the equipment that came with it at the studios and the transmitter site. Because it is difficult to put a value on a piece of paper. And that piece of paper is the license from the fcc. And you don't really need it, Right. You don't need that license to broadcast. We're an example of that. Right this second, we don't have an FCC license to broadcast. We're recording this and it's going to go up on YouTube and as a podcast. And you can do it without the signal. So the values of those are coming down. What we're attempting to do is, you know, local media has completely changed. I'm sure where you are in Houston, you've seen it on television, right? The television stations don't have nearly the crews that they used to have. The staff, the reporters, the reporters are getting younger and younger. They're working for less, let's face it. Also, the people that you see on the news, they film that, they edited it. Right. They got it ready to broadcast. It didn't used to be that way. So local media is really changed, and I'm a big believer in local media. So we're. While everybody is trying to see how they can get, you know, people from big cities like Houston to record and air in the rest of the country. Right. We want to try and be super hyper local.

Speaker E: What programming? Ah, Are you playing music or is it talk Radio?

Speaker D: Talk.

Speaker E: Pretty much talking.

Speaker D: I don't know how you can do a music station these days. Right. Because again, I can pick my own music.

Speaker E: Yeah, that's true. You just don't. It just doesn't. So, you know, back in the day, you know, radio play played a major role in whether or not a record was a hit. Yes, song was a hit radio play. And even back in the day When I was in the music business and I actually had songs, songs that played on the radio. Um, and I remember that one of our songs went to number two on radio in a particular market, and we ended up going there and doing concerts, but it was driven by play, and that was it. Um, the facts are this how they do that now.

Speaker D: Nine out of 10 people used to be listening to the radio in their car. And the truth of the matter is that, that 7 out of 10 people are still listening to the radio in their car. So it's both less than what it was, but it's still getting a heavy majority of, um, the listenership in car. But that's coming down as more people connect to their phone, connect to apps, or connect to YouTube. It's amazing to me how many people at work and in the car are connecting to programming through YouTube. They're not watching the video, obviously. They're.

Speaker E: They're.

Speaker D: Hopefully they're just taking in the audio.

Speaker E: But, yeah, taking it in, yeah. Listening to the pod, believe it or not, podcast and I mean, that's what we hear. I have people tell me, I, I listen to your podcast when I'm driving into work every day. Um, it's amazing. Things have changed, haven't they? You know, I may be a little bit old school, but I actually watch, uh, in the mornings, the Houston television station, and see the weather and listen to what's going on in the community. And then I flip over to one of the, you know, one of the others. But, But I do catch that in the morning, and I enjoy watching and listening to what's going on in my community. But I think that's. That's a lot less than what it used to be. Huh.

Speaker D: Huh? It is. And it's a shame, but it's. But there are people that are out there that are doing it on their own, right? Doing it as a, as a podcast in a community or, you know, the truth is, you know, we're. To put it as simply as possible, we're not a radio station. We're a podcast network. It's people from St. Louis, in this case, doing podcasts about things happening in St. Louis. And so, you know, that helps localize it. And the radio is just another way to reach audience, way to get it out there.

Speaker E: Yeah, yeah, change.

Speaker D: A lot has changed. You've been watching a lot of things changing in big business. We started talking about this last week, um, about venture capital. And you continue to see, see some deals that make you, uh, maybe scratch

Speaker E: your head a little bit, uh, yeah, and I want to talk more about that maybe over the next couple of shows here. Let's, let's focus on that because we are, you know, people are uh, out there with ideas and concepts and they want to know whether or not they qualify to be able to raise money, you know, in the, from the venture capital market. And uh, let's just have maybe take a quick broad look at it. First of all, there are small cap venture capital firms, meaning that they're micro cap too. I mean some things that uh, are uh, under 10 million, where you can raise 3 million or 5 million or 10 million, they're funds that actually do that. Uh, and there are a lot of them still out there. Um, and then there's the ones that are over 10 million and up, maybe as much as 100 million or 150 million. And then there's those that are 3 and 4 and 500 million and some that do billions of dollars. And um, I was looking at, uh, I had a real good relationship with a fund called New Enterprise Associates back in the day when I was just getting started. They invested in my company, I actually put money into the fund and I had investments in other investments that they made, uh, as a partner with them in the fund. But um, also, um, I got to know their leadership. I understood how they worked. I went to many meetings with them. I uh, listened to the kind of deals they wanted. You know, what did, what were they looking for and what were they not looking for? What would they expect, you know, out of a company but in order for them to invest? And I just really learned a great deal about the uh, entire venture capital business and what people should expect when they, when they are out there searching venture capital. And you know, one thing they can expect, they're probably going to get turned down several times, get funded. And that's a fact. Uh, but also now things have changed a lot. But uh, in the venture capital business, speed and scale, speed of building and growing and scale is actually a little more important than profitability. Uh, profitability needs to be in there, but they want to know, you know, they're not. If you're, if you're going to do something that's just going to be kind of lifestyle fun and we're just going to enjoy doing this and we're going to take our time about it, that you don't need to go to a venture capitalist because they're not going to buy into that. They're looking for huge returns and they like 10 times, you know, I mentioned before, five to six times your money in five to six years. The more I study it now because of AI, uh, because of software companies, because of all the huge returns that these venture capitalists have got there. They're kind of accustomed to getting 10 times their money and more often now than they were in the past. So, you know, you got to be able to show that you're gonna, you're gonna be able to generate that, uh, kind of growth. So that, that's really important. A few things that you have to think about. Are you willing to give up ownership? Because you're going to give up, you got to give up ownership. And then they're going to want to be on your board, so you're going to have to have a board. And uh, so you got to give up some control because now when you hire somebody, they're going to want to know, how do you determine what you pay them? And I actually, in the early days, once I brought on the venture capitalist into, and uh, had invested in our business and they came on our board, I'd have to even go before them and say, this is what my raises are going to be this year. You know, I want to hire this person, I want to pay them, you know, this much money. And they would argue with me about, about that. And so I, uh, had to always have my gun loaded and be ready to present, uh, properly, you know, wine, justify everything before them. So what did that do? That made me better? Okay. And I didn't look at it as a negative, even though I didn't like it, but I saw it, made me prepare and made me better. So, um, those things are important. And, but when you, when you are thinking about raising venture capital and, you know, what is it exactly that you're going to replace, improve, uh, eliminate pain, uh, provide, uh, a better alternative, a better opportunity. You know, all you've got to be able to package whatever it is and justify that. This is going to make this world better. And here's how it's going to do it. Uh, it's important, very important. So, you know, what is the solution that you're bringing to the table? And then, and then why now? Why is now a time to do that? And then here's another question. Why you? Why are you the one that needs to do this? Yeah, what makes you. Why? I mean, why, uh, why, why you? And who are you going to bring to help you? And, and, and what is their experience? So, you know, you got to look at the. Found as a founder, you're, you're. If you're bringing this to the venture capital market. You're the founder. So you know, what, what, why you and why now and how, and what is the problem that you're going to eliminate or what is the opportunity that is out there? And then how, and then of course also you know, how, why, uh, uh, who are you bringing with you to help? Because you can't do everything by yourself. And so people, they want to know how you're going to scale it and how you're going to grow it and what uh, is a team. So when you put your presentation together to go to the venture capital and I'm putting this information out there because I want people to think about it, start with the problem. And this is, this is, are, uh, the opportunity, this doesn't exist today. And here's, here's what we're going to do, uh, you know, and here's what we're going to create and here's how we're going to solve a problem or create an opportunity or make something much better. So you basically have the solution and then you need to be thinking about and they're going to ask you this, what is the market size? I mean how big is this? Is this something that can be, is it just regional, is it national, is it international? Uh, is, you know, 50% of the people in, in the country are going to need this, are going to want it, or 20% or 30%. So you got to be able to talk about market size and then you need to be able to discuss traction. You know, how are you now going to go out and get traction with your product and what you're doing and how's it going to work? And I had to go through this. Now I've invested in a lot of, invested in a lot of companies. Back in the day I had several pharmaceutical companies. I put money in, I put in money into numerous healthcare facilities. Uh, and they all had particular niches that they were growing in. And, and look, I had to go to the venture capitalist when I put money in some of those companies and help the CEO raise the venture capital. And you know, kind of interesting thing, Dave, I remember one night I had a company that I had taken, uh, that was kind of a little different, A little different. It was actually a pharmaceutical company, but it was a little different than your traditional pharmaceutical company. It didn't have a patent or anything, but they had a drug that was out of patent and they were going to reman manufacture in a different format in a different form. Uh, but it was a Needed drug. And so I pitched it with this guy who was the founder and the CEO to multiple venture capitalists. We're in a meeting and we pitched the deal. And so uh, I had dinner with those guys that night. So they said we'll meet you at such and such restaurant and we'll meet you at the bar and then we'll have a little conversation, maybe have a cocktail and then we'll go have dinner. So I get to the bar that night and three venture capitalists are leaning on the bar, bar, having, having a cocktail. And they said, Richard, we have never invested in a company that was just like this. You know, we've invested in pharmaceutical companies that had, you know, products that they had created and they were new and yada yada yada. But what you've got here is a remake and a different, you're just putting a different twist on the products that's out of patent. You know, those patents run out in about 17 years. And they said to me, they said are you going to put money in it? And I said yeah. And they said how much you going to invest? And I told them and they said okay, right there that night at that bar, they said we'll put 3 million in. Well, the guy was only raising 3 million, so that was a done deal. But uh, what I'm saying is skin in the game, the commitment, uh, you know, the fact that I believed in the CEO.

Speaker D: Yes.

Speaker E: Felt like he had a good team. I believed in the product. And by the way, let me just tell you this. And they built that company over about a four year period. And every one of those venture capitalists that put that money in there got huge returns because they sold it to a m Major pharmaceutical company company, a national pharmaceutical company about four years later. So everybody made out, the CEO made millions. Everybody that put money in it made millions and they were all very, very happy. So anyways, uh, it just, just a little story of the fact that I was willing to put my own money behind that CEO and behind the concept. It went a long way. So you know, you got to look at um, growth rates, you get the traction how we're going to grow, what is the size of the market and, and you, and then your team. And now when you get your team together, you need to, you need, and you know, great slide is here's our go to market strategy. Go to market. In other words, here's my team, here's what their qualifications are now, here's how we're going to launch this thing and here's how we're going to go to market, here's how we're going to grow it, here's how we're going to scale it, and all of this. And so as you put that together, then the next thing that falls out is the financials because you've built. This is how we're going to market, this is what the opportunity is, and this is how we're going to grow it. So then you can take. And if you know that every time you do one of these widget sales, you're going to get a hundred dollars, well, you've explained how many you can do a month, how many you can do a week, how many you can do a day, are you going to, how many you're going to do a year? So you just back in, you create your, your financial pro forma and you show them what kind of returns are going to have over a period of time. And this is where it gets kind of queasy because the CEO will go, well, wait a minute, you know, uh, this is, I know I can do this. And you calculate that out and it looks like it's not going to give the, uh, not, not going to give the investors a return that they're going to require. So now you got to come with a strategy. How am I going to get the return there? So I'm going to have to hire more people, I'm going to have to expand quicker, I'm going to have to make some changes. I won't have to keep my costs down. And so you begin to build the model. And why is that important? Because if you don't put this together right. And Dave, I've seen this, I've gone, ah, I've had seen the CEOs, um, uh, come in and not be able to answer all these questions and they just turn them down. If you can't, you know, pitch it right and explain it and answer the questions, then they're not going to invest in you and your business is not going to be able to get launched. So, um, it's important. Now another thing you have to do is clean up your structure, you know. You know, Dave, a lot of people where may not start out in their business thinking they're going to have to go out and raise venture capital, right? So they just kind of put it together, brothers and sisters and neighbors. And we got all this, this thing put together and this is how we structured it. And it's an LLC or it's a limited partnership or whatnot. But it was, bottom line is uh, when you get ready to go to venture capital, if this thing is not really clean and structured appropriately, it's going to kill the deal. If it's got hair on it and it's not clean, I'm here to tell you you're wasting your time. They're going to put you through the microscope. Under the microscope, you want to have uh, a nice clean, especially venture capital. They're looking, take it public. If you structure everything as if you got to go before the SEC and you're going to take it public, it's all properly organized, then you've greased it, it's going to make it a lot easier. So you know, contracts. One of the things too that is real important. I'm just going to throw these things out. There's so much that we could talk about, but I want to throw these things out. Consider investing your employees that are going to be, that uh, are key. I mean, and when I say vest, investing them into some ownership m. Now venture capitalists like that, they, they tend to like a five year, three to five year vesting period. So if you bring in a cfo, you bring in a chief operating officer and you say, okay, I'm going to give them 10, give each one of them 10% of the company or 5% of the company. But they're going to, I'm going to give them 1% a year over the next five years. So they get the 5% or 2% a year. So they get this, you know, whatever, whatever it is or X number of shares is typically it's going to be X number of chairs over a certain period of time. Now you do that for two reasons. Number one, it incentivizes them and they consider themselves now part of the company and owners. And it shows that if they help you build this thing into a, you know, billion dollar company, they're going to make a lot of money. But also it's, it's, it, it tells the venture capitalists that, that, that they're going to be there. You know, you've basically got a chain on them now because they, they're not going to walk out, uh, without getting knowing that they're vesting. They're going to stay at least that five years. And then typically what happens is that they stay longer because now they're so committed. They own a nice piece of the company. They don't want to lose it, they don't want to see it go down in value. So they're going to work very, very hard to help grow that. And it eliminates turnover. And one of the things you don't want when you're out there as a venture capital backed company or uh, you're trying to get out there in the first two or three years where you're trying to get your traction and you're trying to build it and grow it and that's a real stressful period of time. What you don't want is your key people leaving, right? You got them tied into a vesting period, they're going to hang on, they got a reason to see it through. And so these are things that are very. I don't care how small your business is. If you're opening a flower shop and you've got somebody in there that can make arrangements really good, give them a piece of equity and watch them perform. Let them know that you know you're going to get 5% or you'll get 10% of this company and you, and keep them there and time into the company so that they can get some upside. If you're greedy and you're at the top and you're not willing to share with your really loyal, hardworking people, you're probably not going to do so well.

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Speaker E: And what do you think, Dave? I mean do you see the same thing in your business?

Speaker D: Yes. No, absolutely. You have to have buy in. You know we talked about before, how do you get the, how do you get the ownership mentality out of an employee? Well, the, the best way with really good uh, long term employees is to actually do it. Like Richard just said, give them that opportunity to earn, to earn that ownership. Ownership is something that a lot of people don't have the opportunity to ever have.

Speaker E: You know, that's right. And so one of the things they're going to ask you for, they're going to ask you for your cap table. That's capitalization table, your cap table. And the cap table is going to have everybody's ownership. Okay. And any money they put in. So they'll be able to look and see. Okay, here's the cap table. Here's who owns this company. The CEO owns 70% or 60%, and these other people own 5 or 6 or 3 or 10%, whatever, 20%, and they're going to look at that. And so a good, clean cap table. And your cap table needs to make sense. In other words, you don't want somebody at a very, very low level having more than the guy that's the chief operating officer. I mean, it's got a, you know, and if you can make it make sense in the way that you allocate out, uh, the ownership of the, of the, uh, of the business, that's going to go a long way. And, uh, and you need to have that, you know, it's got to be laid out properly. You need to have clear roles as to who's doing what, and that needs to be easily seen. And then when you put your org chart, your organizational chart together, the, the, you know, the authority levels are pretty clear. You can see, you can kind of see how it all flows and how it works, and all that has to be put together. And that's going to play a really good role also in your recruiting. When you start recruiting your leadership to run the company, you know, they're going to want to understand what's the organization, how does it work? All that's got to make sense. And, uh, and that'll go, that'll go a long way as well. So it can't be sloppy. It's got to be well organized. You go in there with some kind of sloppy structure and you're going to, you're never going to get funded. I can tell you that right now. Oh, yeah, yeah. It's not going to happen. So you got to get all your, uh, metrics in order. You got to, you got to get, you know, you got to be able to show your revenue, your growth rate, your margins, you know, explain, uh, how your customers are going to come in. And one of the things you'll hear, they'll ask you, what's your burn rate? What's your burn rate? All they ask is, how much money are you going to burn, lose every month and get this thing profitable? Now that's important. That's real important. Because if you don't know what your burn rate is, you're in trouble. You've got to know what your overhead is. So you got your revenue and you got your expenses, okay? And if your expenses are a lot bigger than your revenue, you're going to have a burn rate.

Speaker D: You got problems,

Speaker E: and you may have a burn Rate for a year too. So when you, when you raise money, uh, and for example, in this one company, they've raised $3 million. They had a burn rate, they were losing money. They went out and they hired 80 salesmen, uh, to build, to sell these pharmaceutical products that the company had. And until they, there was a point as those 80 salesmen got out there and they start paying them, they're losing money, first month, second month, third month. But then every month it got better and better and better. And by the end of the year it was profitable, uh, that sales were much larger than the burn rate, than the expenses. And you know, you're making money, so that's really important. And um, so, you know, your pitch deck has got to include all the things that we've talked about. It's got a flow very, very nicely. You gotta make sure that, uh, all of these things important. So, you know, you, in your pitch deck, you're gonna have your financial model, you're gonna have your cap table in there. And uh, any, any key contracts, customer, uh, references, uh, are also very, very important. You put those in there. If you have those, if you have them, if you don't, you know, in your startup and you plan to go somewhere, you need to explain who these are, the people we're going to. We hadn't got them yet, but this is what we're working and these are the people that we're pitching to. So there are a lot of things that you want to make sure you have in there and don't, don't get your feelings hurt when you go to the first venture capital meeting and they tell you, we're not interested in this right now, or we're not, we're not going to do this. And you know, uh, because let me tell you, you may learn, they may tell you, these are the things that, why we don't invest in you. And these are the things you got to, you may have to go back out, restructure, make your presentation better, um, hire whoever they, they may tell you, you know, come back when you have somebody with this experience or that experience. I don't know, I mean, it could be a dozen different things they're going to tell you. And then you may have to go out and find somebody else. But I will tell you this, and here's the good news, and we're talking about all of this. There are a lot of funds. So I started studying all the funds out there, just kind of digging up to see, you know, how many were small cap, how many, uh, Companies are out there right now that are investing in, you know, 2 and 3 and 4 and 5 million dollar transactions. And there are a lot of them and there's their companies. And I mentioned the New Enterprise Associates. I noticed that. New Enterprise Associates. And I got to share this with you. Let me see if I can find it, uh, because I pulled it up to look. Um, they invested in this company, uh, Clio, the, uh, that legal AI software company evaluation was 5 billion. 5 billion. And new Health, this, uh, this accountable care organization, and I'm not really sure how they pronounce that, it's spelled N E U E Health. Uh, that was a $1.44651 billion. $1,465,000,000,000 valuation. Um, and they invested, uh, in this, uh, wonder cloud kitchen. You familiar with that company?

Speaker D: I'm not.

Speaker E: Yeah, actually, I think we actually had some conversations with those folks. But they, they consider themselves the Amazon of food. They bought Grubhub. Yeah. 600 million dollar round, I think, with a 7, $7 billion valuation. And um, any a was involved in these. So, um, NEA did more than 65 investments in 2025. It's incredible, isn't it?

Speaker D: Yeah.

Speaker E: I mean that's a lot of business right there. A lot of investments. Uh, so they've invested in a lot of different companies. But, um, as I was looking, I mean here was a company they invested 7 million in. So here you got one, they, they were, they were in a $600 million round, they were in a $5 billion valuation. But here's a company they just put 7 million. And so as deal size was 7 million, so they, they do a wide range of investments. And I, uh, don't remember exactly how much they put, but they put several million in our company that I think they invested in two rounds. Uh, and I'm looking here, here's a $55 million deal, um, an $18 million deal. So, you know, that's pretty wide range of investments that they make. But as you study and you research on the Internet and you can find that there are funds to fit every size, Dave, whether you're trying to raise a billion dollars or uh, whether you're trying to raise, you know, 10 million or 2 million or 1 million, there are people out there, angel investors typically will get you in the low end of that, maybe a million, maybe half a million, maybe 2 million, 3 million. But, but, uh, there are venture capital firms out there that are looking for deals, and I like those deals myself. I like finding entrepreneurs that have concepts. Now Keep in mind too, that, you know, we, we found at HealthSouth with the original, uh, venture capital investment was 1 million. And then we did two more rounds, I think 5 or 6 million on each round, and we built it into a multibillion dollar company. So, um, and that was all the venture capital we had to raise. And then we were able to take the company public. So, um, you can take just a small company can become a multi billion dollar company. I mean it's just a reality and it depends on proven that more than once. Yeah, yeah, I mean, that's what I'm saying. You know, we took MedPartners, became Caremark, Caremark became a multi billion dollar deal. CVS bought it, we put 3 million in Caremark. That's how we founded that company. We only put 3 million in it and in that company as well. Just like that pharmaceut company. And it sold for over $20 billion, I think it was 21 or $22 billion, uh, to uh, CVS. And it's out there today when you see Caremark CVS, that was the company that Larry House and I put the original money in, founded that company and did quite well.

Speaker D: So, uh, we have a question I want to ask you that came in from Mark in San Francisco and you've kind of just answered it a little bit. But I want to ask you if this is totally about money really. He says, I hear founders talk about vent all the time. What do most people misunderstand about VC before they ever try to raise it? And I think you just kind of answered that, right, that there are funds available at a very wide range of numbers.

Speaker E: There is, there is. Um, but I guess, you know, uh, I, uh, I went to, um, my son in law went to West Point and I had an opportunity to go visit him. Visit West Point and go see where he went to, went in all the things and the regiment and all the stuff that they went through and you know, going into the room. And I'm using this as an example. You know, the clothes have got to be, everything's got to be folded a certain way. The bed, everything, everything's got to be perfect. When you go into a venture capital, venture capitalist, you're not going in there to say, hey, hey guys, good, uh, to see all y'.

Speaker B: All.

Speaker E: Uh, let me tell you what I'm thinking about doing. No, you, you got to be just like those cadets. Everything you go in there and you know, thank you for allowing me to come in and present to you my company. We're Very excited about what we're able to do. And you better lay it out, and it better be just like I just talked about, okay? It used to go. Because let me tell you, they love ripping you apart. Matter of fact, the young guys, the young MBAs, they have, and they bring, uh, all these people into the room. They're like alligators coming at you. And they do it. And to impress the senior guys. And then the senior guys have got to say something intelligent and ask you some questions in order to maintain the respect from the younger guys.

Speaker D: Of course. Of course.

Speaker E: I mean, you may go in there and just get your brain beat out and you feel like they have just ripped me to shreds. Even though you're well organized, but it may be that you answered all the questions, right, and they call you the next day and say, we loved it and we want to put money in your business. Or they may tell you before you even leave, right? And then. And then again, if you're not well organized, they'll eat your lunch. So it's not a, uh, I think I'm. It's not one of these deals where, okay, we're going to go in there and just talk to them. You do not waste their time. You better have it. Do not go to a meeting unless you are 100% ready. And you must. That presentation you're going to make, you need to have made it several times to other people and ask them to be real critical. And I like making it to an accountant or making it to a, uh, banker or making it to, you know, somebody else that has built a company, run a company, and find out everything. So the mistake people make is not being properly prepared and not realizing how serious it is and how valuable those investors that are managing a billion dollars or more. I mean, any $28 billion, you're not going to waste that guy's time, Waste his time. You're done. You're out of here. You be prepared. And you know what that is, Dave? That's respect. You got to respect somebody who's built a $20 billion business. And when you go before him and have me. And prepared is a way to show respect.

Speaker D: Do you have a story of someone who just came in and tried to pitch you, and you literally just had to cut them off and say, this is.

Speaker E: I've had more of those added. The other. I've said in so many of those. And I would. I'd sit there for about 10 minutes, 15 minutes, and I'd. I would size up the person and I would Say I. No way. And no way. First of all, I don't believe anything he's saying or she said.

Speaker D: That's just it. Right. Uh, here's. So Ashley in Dallas sent this question in and I think this, this goes right to that. When a VC looks at a company, what actually matters most? The idea, the numbers or the people running it? You know, first, first thought is to say, well d. All of the above. But you, you. The person who is pitching this idea has to win them m over quickly.

Speaker E: You know, it's that first what, 7. Who wrote the book? Somebody wrote a book. First seconds or first eight seconds. That is it. You know, you, you want them to be. Look, if you don't catch them in that first seven or eight seconds, they probably won't pay any attention to anything you say. So yeah, you've gotta. You are important in the way you present yourself, the way you look, the way, believe it or not, even the clothes you wear. You got to go in and look organized. Don't go in there with a jacket that doesn't match the pants, I'm telling you. Or shirt that's got too busy. Like a shirt I've got on. Now if I, if I am presenting to an investor, I got a. I have a white shirt on. Okay. And I'm wearing a dark suit and I'm wearing a, you know, probably a red tie or a maroon tie or something like that. And I'm going to look sharp and my hair is going to be coming. I'm going to. My shoes are going to be shined and when I walk in there, I don't want. Let me tell you, they'll look at your shoes and go, he didn't even shine shoes.

Speaker D: I have had that happen.

Speaker E: Yeah.

Speaker D: Not in the negative, but I had someone who said to me, he said, you. He said, you know, one of the things I decided why I liked you. I said, why? I said, your shoes are shunned.

Speaker B: Mhm.

Speaker E: I was like, I'm telling you, if

Speaker D: you think about it, I just did.

Speaker E: It's important. And you need to be shaving. You need m. Men need to shave, girl. Ladies, have your hair fixed. And you know, don't wear too much jewelry. You got to play that right. I would take, um. I had a gold Rolex. I took it off. I didn't go in a meeting with it on. I wore another watch and I don't have a gold now but you know, I did back in the day and when, when they were cool and I thought it was cool, but I Don't, uh, you know, there are things you don't do. You just don't do when you go in there. And, uh, and it depends on who. Who you. Who you're talking to. And, I mean, you can get away with some things with some people, but assume that. Not going to get away with.

Speaker D: That's what I was going to say. Assume that the person you're going into is going to be, for lack of a better term, a ball buster and is going to judge every single thing that. That you do. Now, maybe it turns out that you get someone who's relaxed and let them show to show that, but, you know, I hired a lot of salespeople and still do. And I always tell them, buddy, I decided if I was hiring you the first minute you walked in.

Speaker E: Exactly. That's what I'm saying.

Speaker D: That's how one of my customers needs to feel when you walk in. So did you have presence? Right. Did you do the little things? The handshake? Right. Whatever it may be, I would decide that, uh, the rest of the other 29 minutes of the meeting didn't really need to happen.

Speaker E: How about the way you said. How about the way you shake hands? How about the way you face the audience about. About everything you do? You know, I mean, I've had people I was interviewing come back and lean back in a chair and cross their legs and. And look up at me and pull their glasses down like that. And I'm. And I'm like, there ain't no way that I'm going to deal with you every day in my life. My life's too short and I'm too busy.

Speaker D: Yeah.

Speaker E: You know, and I mean, I have to go back to the guy that I was interviewing, and he said, hey, I'm. I'm looking for something easy, something in management. And I said, what? Something easy? Something in management? Man, you gotta be kidding me. That's where it gets hard. Management is tough. That's where you carry the load, you know, that's where you're accountable for everything. But anyway, some people don't get it. Um, but yeah, I think the numbers are not the idea. You know, if you make the right impression and you can get to the, to the concept and they, and they don't throw you out. And they say, okay, so tell me about your business. You say, you know, we're here, uh, we're building this company, and, you know, here's what we do and here's why we do it. And this is a huge opportunity nationwide or internationally or. And because, look, 50% of the people in America have to have this, and no one else has built one like, uh, us. And we can build this thing efficiently, and we have and, and grow this into a very sizable company. And here's, here's why. And these are the things that are important. And bam, bam, bam. And, you know, present it the way that it needs to be presented. Have your act together and then say, do you mind if I give you. I've got a presentation. I'd like to show it to you, if you don't mind. And they'd say, yeah, sure, go ahead. Uh, so if you get a chance to do a PowerPoint or you got your computer and you can turn it around and you, you start with the problem. You start and you show them. You know, we go right through the list of things that we talked about. Here's, here's the team. Here's. Here's the market, here's the opportunity, and then you build all of that. Here's the growth, and here's how we can scale it. And then let me show you how the numbers work. And here, tie the numbers right to it. And this is what we want to do. And here's, here's, here's kind of what our burn rate is going to be year one. And so we're trying to raise X amount of dollars because that will get us over the hump. And, uh, and we can build it. And you go through all of that. Now, I don't want to go through a whole presentation here, but, but you got to go in with confidence, you got to look good, you got to act good, and you got to know your business. So what's the next question here?

Speaker D: The next question we have, uh, is from Laura in Atlanta. She asks, besides valuation, what parts of a term sheet should founders pay the closest attention to before signing anything?

Speaker E: Well, yeah, you're going to have to look at the control and how much. You know, they're going to want board. Board positions. And one of the things that I always did, I didn't try to take control, uh, in some cases, they'll say, well, give me a Mexican standoff. You know, you put three people on, and we put three people on, and then we got six, and that way, you know, but if they come in and they say, I want five, and there's going to be six, and it's going to be you, and we're going to pick five, you got to negotiate that down, because that's not going to work. You're not going to like that. So, you know, if once they make a decision and you can tell that they want to put their money in it, then that gives you a little bit of an edge on being able to negotiate a better term sheet. Um, so they're going to want, like I said, piggyback rights. If you have to raise more money, they may want to put an anti dilution provision in there. You want to be very, very careful that you don't enter into that, uh, if you can get them out of it. I mean, you may have to do it to get the money, but you want to make sure you get enough money if you're going to do that. And what that means is if, uh, you have to do another round and you have to go out and bring in another venture capitalist and let's say they bought 30% of your company and they made it, they said, we've got an anti dilution, um, uh, you know, as a, as part of the agreement, um, it. What happens then if you go out and raise another substantial round of capital, uh, and those people come in and buy 30%, now you're at 40%. And uh, you know, because you couldn't dilute those guys, they keep the 30. So it begins to change all the numbers. So it really is very, very hard if they have an anti dilution, uh, uh, as part of the agreement clause in there. So there are things like that you want to look at. You want to look at the board, uh, size up, you want to look at the valuation, you want to make sure that they're not ripping you off on the valuation. And typically on a private basis, you know, I talked about this the other day three to six times. Whatever your earnings are now, if you don't have any earnings and you got a burn rate, then you're going to have to come about the valuation some other way. And a lot of times what companies do, they look at a trajectory over three years and say, okay, so here, here's how we want to, we want to value. Keep in mind that most of the time when you're valuing an investment, you're valuing it over. You're not looking so much in the past as you are in the future. Yes, you're looking for. So when you're trading as a public company on the New York Stock Exchange, the NASDAQ or the American, you're trading off of your next year projections. You're not trading off of what you've done now. Why. And think about this. Here's how you know that's true. If you were trading on the past, then you wouldn't have the fluctuation as you change your future earnings. So when a company says, okay, we're going to earn a dollar share next year and you're trading at 15 times earnings, so your stock price is $15, and you then change that and say, well, we're only going to earn 50 cents. Well, your stock price now is going to go down based on that. But if it's trading off of what you did in the past, then it's a different deal because you've already accomplished that. So when you are looking at raising money, it's the same thing. You're going to look, you're going to show them that, you know, over the next three years, this is what we're going to earn. Here's how big we are, this is the growth. And you're either, they're either going to price it off of revenue. They're going to say, we're going to pay 1 times revenue, we're going to value it at 1 times, 2 times, 3 times revenue, or we're going to focus on. And if you are a profitable company, they can put some kind of multiple on those earnings. So you got to look at how they structure that and uh, and go from there. And uh, and then, um, um, really, you know, you just want to make sure that you, you as a CEO are covered in there and they can't fire you. You know, you, it was your idea, it was your concept. So you want to have some kind of agreement, uh, that, um, you know, that they're, they're going to support you and work with you and that you've got some level of authority. And sometimes you go ahead and negotiate what that level of authority is. And it might be that you can, uh, spend $100,000, you know, piece of equipment, or hiring all employees under 100,000 or whatever. But at certain, some, some level you're going to have to get their approval to, at the board level. So, and then you talk about, um, even future board, you know, who, who, if one of the board members leaves, then how are you going to decide who comes on? Are they going to, what votes are they going to have, what votes you're going to have. So there's a lot of stuff in that agreement that you'll want to work through to make sure it's fair. Um, and my history, uh, my experience is that most of the venture capital deals that I did and I was involved in were fairly fair. I didn't, I mean, we had some Things we had to negotiate on occasion, but it wasn't really that bad and most of them had good attorneys. You want to have a good, uh, remember I talked about this too, Dave. You want to have an SEC attorney. You want an SEC attorney, somebody that knows how to structure a venture capital deal and that'll keep you out of trouble. Also, you'll make sure that everything you do is additive to your ability to take the company public down the road. So you want to do all the right things. So you need a good accountant, good accounting firm, and you need good legal advice.

Speaker D: Great advice as always from Richard Scrushey. You can always write in info@scrushionbusiness.com to get questions answered about your current business or potentially one that you're thinking about. And of course we'll continue to give these types of insights as we go. We're going to continue this same topic next week in our show because we have uh, several questions that we still want to get to and we'll continue. Richard will to give you some of the information of VC deals that are happening and things that are going on that have closed. Uh, but Richard will close out this edition of Scrushy on Business and I'll let you have the final word.

Speaker E: Yeah, you know, I enjoy talking about these things. I know that we have a lot of listeners out there that may, may be thinking, you know, how m am I, I want to build this business? Uh, how am I going to raise the money? Where am I going to go? Here's the good news. There's a lot of money out there. And if you structure your deal right, put it all together right, and you can find the market, they're out there. You can find the companies, the people, because look, they have the money. They're interested in putting money in good companies with good founders, good people with good concepts, with leadership skills. Uh, they want to build companies so you know, you got to there can do. And so if you can structure everything and put it together right, there's a chance that you too can build a billion dollar company. And that's what I want to leave you with today.

Speaker D: That is a great spot to end it, Richard. Have a great week and we will see everybody next week for a new episode of Squishy on Business.

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