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Transcript of Interview with Todd Dean

Introduction

Dan: Welcome to another episode of Shoulders of Titans. This is Dan Lok. Today, I’m so excited to bring you an individual who’s a visionary in the entrepreneurial community, an angel investor, a deal-maker, Mr. Todd Dean. Todd, welcome to the show.

Todd: Thanks Dan and thanks for having me today.

Background

Dan: Todd, can you tell us a little bit about your background and how did you get into what you do today?

Todd: Sure Dan. You know, I grew up in the Big Sky State of Montana. In my early 20s, I moved to Seattle, Washington and this is right quite frankly when Microsoft was just starting to go. I was in a life insurance industry for about 10 years, sold life insurance, and did very well at that. I went through divorce in 1999. During that divorce process, I just realized that even though I am successful at life insurance, I was never truly passionate about it.

A friend of a friend of mine said “Hey, I’d like to invest in this company? It’s called Node Logic Networks. So, I invested, brought some friends in, and quite frankly didn’t know anything about what I was doing, other than quite frankly I was trusting the CEO, believing on what he was saying. I ended up working for the company. As I work for the company, my friends invested and we put around $900,000 in the company. This is in the year 2001, so I don’t know if you recall correctly or not, but that wasn’t necessarily the best time to be raising capital or investing both.

After being with the company for about a year and a half, the team kept coming to me you know saying, you know you need to talk to Greg, who is the CEO at that time and saying that he needs to listen to us and change some things. I would talk to Greg and he would say yes but he wouldn’t follow through with the words. So, after a year and a half, quite frankly the team quit, I left and the company is out of business. It was one of my experiences is that it was a wonderful technology, we had an outstanding team, but the wrong leadership. That life lesson 15 plus years later, I always invest in management.

Lesson Learned

Dan: From that experience, what was the most important lesson you’ve learned from that first failure of investing?

Todd: Again, I can’t emphasize this enough. I get about two to ten deals a day that want me to help them or invest in them. I don’t have the ability to look at that many deals per day, but I invest in people. How people get to me and how I invest in my friends and investors is through relationship and has this podcast. I mean, you know, I met you through Fabricio and otherwise we wouldn’t be having this phone call. At the end of the day, I invest in people, not ideas, or technology, or spaces. So you know clean-techs, sustainability, green; great, but I invested in a CEO and a team any day over a hot market space.

Dan: I think a lot of listeners, who are listening to this podcast, a lot of them are business owners, a lot of them are entrepreneurs. We have entrepreneurs who know a lot about that venture capital world, into investing, raising money. We have another group of entrepreneurs that what I notice is they don’t know anything about; “I don’t know how do I get funding, how do I raise money, where do I find investors?” It seems there are a lot of myths when it comes to raising money, or the whole busy world, may be you talk it because you know a lot, that you are the expert on that. Can you tell us a little bit about, maybe dispel some of the myths when it comes to raising money or how the whole venture capital world works?

Academics vs Real World

Todd: How much time do we have Dan? Do we have like a day to talk?

Dan: Maybe the Reader’s Digest version.

Todd: I’ll give you the cliff notes. So here’s the deal, you know I do a little teaching at the University of Washington on the Bothell Campus, and I teach entrepreneurial management sales marketing. How I teach my students is a very untraditional way of how to build and fund companies. So I think a lot of times, the books and the blogs and the internet, I think it’s just misleading to reality. I think how you fund specifically and get investments from investors is not how we’re taught. It’s very different from the real world versus the academic. How we think, how we’re taught if that make sense.

Dan: So what is the real world like?

Todd: The real world and I will speak specifically speak to the US or western culture of investing. It’s that investors today, they want a high return with a low risk investment and that doesn’t exist with start-ups. A start-up is inherently going to be high risk investment. So entrepreneurs that are going to investors wanted to invest in their ideas, their vision, and their passion. The reality is myself and investors that are investing in start-ups, we don’t want risk. It is a cultural change. I will say there are some exceptions with that and I would say the Bay area is probably an exception to that rule, where the bay area understands investing in start-ups because of the culture of that community.

Seattle on the other hand is lot more risk adverse, it is not to say we don’t have money in Seattle or Northwest. It is just to say the investors are going to be a lot more cautious about what they invest in. Because of that, entrepreneurs think “put me in front of investors and they will write checks.” That’s not just reality. It doesn’t work like that. I have a client right now that I work with who is in the mining space and they needed some capital, and one of my friends said, I’ve got a friend of mine that is in that industry, so more likely this particular individual whom I’ve never met is going to end up funding this company. Someone that knows someone that happens to be in the industry that knows the space that writes the check. They don’t teach you that in school. It’s never who you think it is ends up investing that check.

Dan: So this is not about like MBA, having a nice proposal, anything like that? You’re talking about good old face to face relationship.

Todd: People invest in people. How you get to those people that are a whole different deal. I run an angel group for years and years. We did fund a lot of deals. But as the markets turn, my investors weren’t investing a deal, and that’s a big reason why I got out of that specific area. You know the angel groups and venture capital, if you look at the number of deals that they receive based on the percentages that they  invest in; it’s a very low percentage and crowd funding is the same way. Your odds are so low to get capital, but yet in society, if you look at crowd funding, the buzz, and you look at the numbers of the companies that get funded of which, you’re not looking at the number of companies that are on their website, or the number of companies that apply. That’s what people don’t see.

Dan: So they hear that one story–these companies that got X millions of dollars and what they don’t know is the other 9,999 companies got turned down, right?

Todd: That’s exactly—or didn’t even get looked at. That’s what I’m saying. I get two to 10 companies a day that approach me, I don’t have the time to invest and to look at them. I wish I did. The companies I end up working with and investing in are companies that come to me from someone I know. They call me up and say “Todd, you know what, I want you to meet with this company” and I will.

Dan: So basically Todd you don’t want to invest to “ideas.” If someone comes to you and say “Hey Todd I have a great idea,” you’re not interested. You’re looking for something that’s more, that has kind of a proven track record, and that has kind of a proven product, maybe some proven sales. Maybe it’s a good idea, a great idea, but they want to go to the next level, and they need money to scale up. Is that correct?

Todd: Not necessarily. I may be quite frank I prefer a deal that has revenue, traction, and customers, intellectual property, and patents. The reality is I’ve got a deal that I’m looking at right now, I’m in due diligence with and I’ll probably get involved with. It’s a very hot technology but the CEO, who’s an engineer, again don’t take this as my opinion, engineers typically do not make great CEOs, they don’t.

Companies have to start and engineers are awesome in getting these ideas and really kind of these breakthrough cutting edge ideas, but to get it to market is a whole different deal. So with this particular company, I’m right now looking at whether or not I’m going to get involved with them or not. It’s a linchpin decision whether this person is willing to allow a different CEO to come into the company. Not necessarily now. But I know that if this guy runs the company, even as great a technology as this is, he’ll end up imploding it, because of his control and his concern over wanting to be so cautious about how to build a company and it doesn’t work. You have to let go of the control and you have to take risk in order for a company to scale. It’s an art. There’s no black and white about it.

Advice to Entrepreneurs

Dan: Well Todd do you sometimes you find people, entrepreneurs feel so emotionally attached to their baby, the business, the ideas, and sometimes when you tell them “Well, you know to a point when you grow at some point, we can’t have you running the company because you don’t have the skills, you don’t the capabilities.” Why entrepreneurs are so emotionally attached to the baby and also what’s your advice to those entrepreneurs?

Todd: Well, I’m going to answer that two folds, one from the investors’ side and one from the entrepreneurs’ side because it’s the same answer. On the entrepreneur side, on the start up side, the founder, what happens is a lot of times they will–I just had a meeting with a company earlier today and I volunteered to a group called SCORE. This is where I can contribute some time to help these early stage companies which is free for entrepreneurs to go which is great. So this company came and I said listen, you need a new CEO and the guy was really reluctant because they just brought a guy and had him for six months. The guy burned through about some bunch of money. He didn’t have the best decisions, so now this guy can be extremely gun shy for bringing in another CEO, but quite frankly he’s not the right guy.

It’s two fold where they’re afraid that people will take advantage of them in their company, or make bad decisions, but conversely they’re not going to get to where they need to go unless they take that risk. It’s a two-fold thing where like I said it’s a balancing act and it’s a dating process, but the key is you can bring in proper management with the right structure. Another company I’m working with, in fact just today, I had a busy day, we struck up an agreement to bring this guy and he’s a director/CEO. He’s going to get 15% ownership of the company and it’s an earn out, so he gets 5% up front. That’s the risk of the company, so you’re risking 5% of the company which could potentially be a huge amount as far as equity and capital bow, equity and return bow. The other 10% is earned over the course of 18 months, so on 12 months he gets another 5% based on performance and another six months after that he gets the other 5%.

The reason why I do this is because it protects the company and the investors, so that if the person is not working out, they get the equity, so they don’t lose the equity. But conversely, it’s 5% risk that you’re taking betting on this person. So, it’s a give and take on both sides on the entrepreneur and  CEO both and you don’t know until the person gets into the role. You just don’t. On the investors’ side of things, it’s the same thing. Investors want to invest in companies where they’re going to get the return and you don’t know.

As an investor, I write the check or people you work with, write the checks and you just gotta let it ride. You can’t micromanage the company and you can’t get in there try and force things one way or another, because the entrepreneurs’ job is to give you a return or give me a return on the investment. That’s their job. That’s their fiduciary responsibility. Now, if they don’t meet their fiduciary responsibilities, there are repercussions for that. That’s where lawsuits, takeovers and stuff come in.

For the listeners out there, I think one of the best case studies ever that I’ve seen happen in real life is Yahoo. If you look at the battle between Jerry Yang and Carl Icahn, it’s a classic example of what happens between control and the balance of control between the board of directors and the founder. That story is still playing out. There is no black and white answer. It’s an art; it’s a dance and it’s risk.

Dan: What you had just mentioned is a great way to structure, so we bring somebody in as a new CEO and they’re risking 5%. The worst case scenario is 5%?

Todd: Exactly, which could be good, but the thing is and again looking from the investor’s side, I’m looking at them and going “okay. They brought this new guy in as CEO. I don’t know anything about this guy. He looks like he’s good buy.” But as an investor, if it’s an early round of the company where I come in for 20%, 25%, or 30% of the company, so 5% is not going to be a significant amount towards my investment. Quite frankly, it’s not enough control to sway the company one way or another. I tell you right now, a good CEO, if you got a seasoned veteran, you’re probably looking 30% to 40% equity of the company. So it’s going to vary depending on the experience of the individual as well. But still at the end of the day, it has been boiled down to risk and reward.

Dan: As an entrepreneur, do you see sometimes like you said engineers, the great inventors, or the creative people, or whatever it might be, whoever invented the technology, chances are that is not the right guy to run the company?

Todd: That’s correct. I think Steve Jobs is a great example. He got humbled the older he got. When he was younger, extremely bright from the engineering analytical standpoint, and very hard to work with. Some friends of mine worked with him. They said, I need to use this language, he was an asshole. He got fired and a lot of people forget this. He got fired from his own company. He got brought back in because they brought in a CEO that was not executing. But I think what it did for Steve Jobs is that it humbled him and it helped educate him on the areas that he didn’t see when he was the CEO before he got fired and then coming back in because again, we learn from our mistakes and quite frankly I think he learned from this.

Investors 101

Dan: Well, Todd then if I’m an entrepreneur of an idea, of a business, because it’s sounds very difficult to get funding, in a way maybe it’s not. If someone was getting started, they’ve running business for a few years and they say “Hey, you know, I need some capital to grow.” What should they do first? What should they do second? How do they prepare themselves before they go approach investors?

Todd: Good question. I have a rolodex of about 3,000 or 4,000 investors, give or take. These are people I have met that I have relationships with. Some of them have started companies, you know the names of. Most of my investors you would have never heard of. People are always go, “how did you find or meet these investors?” Well, the reality is I’m standing in line at Starbucks in the morning. I go to Starbucks every day. Standing in line, talk to the person in front or behind me. Person happens to own some real estate. They’re a little bit older. They invest in startups, they lost some money, but they want to diversify their portfolios so we end up chitchatting, or golfing, or having a coffee or whatever, and then they end up investing at some opportunities that I’m involved in.

I’m in an investor group which I was privilege to get to know a lot of investors whenever I’m in the investor group. Now that’s an exception, but the point is I meet investors everywhere, and investors do not wear a name badge at an event. Most of them don’t go to events. They don’t have a light bulb that’s says, come talk to me about your investment. Investors are everywhere. At the end of the day it’s relationship. I’m fortunate and very blessed to work with a lot of investors and they trust me because quite frankly of returns. But at the end of the day, I just connect with people. The majority of the people I connect with are not investors.

Dan: It’s almost I’m having an open mind and being open and then talking to people and you don’t know who’s going to invest in your deal. The money might come from very unexpected places.

Todd: Very unexpected. Someone that knows someone that knows someone who ends up writing the check.

Dan: I see. As an entrepreneur, when should we approach investors? We approach investors when we hit his benchmark or when we reach some type of revenue? When is the good time?

Todd: So here’s the beauty of being an entrepreneur and I had opportunities a couple of months ago. In fact, the founder says, “Todd, you come in as CEO” and I said “I love your company” and I said “I love your technology. I can’t be the CEO, because there’s no way that I can replicate your passion, and your charisma, and your heart in what you’re doing like you’re doing to sell to investors.” So getting back to engineers, again this is not about engineers.

Dan: I’ll be getting some hate emails from engineers after this.

Todd: You know engineers they like to talk too much, but conversely they know how to share their passion like nobody. So, if an engineer could keep their mouth shut and can condense it down to one sentence instead of two pages, they might have a chance of really raising some capital. The reality is as an entrepreneur it’s your passion which is what’s going to sell the company. It’s not the idea. It’s how that person shares their story. So, the answer is they have it to everybody, their family, their grandmother, their neighbor, the newspaper boy, their college professor. They have to talk to everybody to get the capital that they need into that company.

Dan: It doesn’t matter if it’s family, money, it doesn’t matter, because if you can’t even sell to your family and friends chances are when you’re talking it professionally to an investor, it’s going to be tough. It’s just practice that’s what you are saying.

Todd: I have to put a disclaimer there. You have to take accredited investors only. You can’t take money from your mother if she’s not accredited as much as she may want to.

Dan: Why is that in case people don’t know?

Todd: The NCC is the governing regulations for taking a private place when you’re offering for a company in the United States, and that’s a reg defiling from 1933. It’s a legal legislation act and so if you don’t take from accredited investors, it opens you up for a lot more scrutiny and regulation which you just don’t want. I’ll tell a quick story. It’s a true story. There was an event and I’m talking to this woman and she had this nametag and it said Bezos and I’m thinking “Is this Jeff’s wife?” and I thought interesting and so I am chatting with her. Her name is Jackie and her husband’s name is Mike. It wasn’t Jeff’s wife, it was his mother who is actually quite frankly young and attractive which is neither here nor there.

I’m talking to Jackie and her husband Mike and so they put the first money into Jeff’s company which is of course Amazon. They put it in because he literally was working in their garage, no joke, and they pulled some money out their 401k which they were accredited. So, they pulled money out their 401k. They invested it in a small company called Amazon before Tom Robert invested. Of course now they have the Bezos Family Foundation, so they did okay. They can’t resist investing in their son because they loved him. They didn’t even know they’ll end up being wildly successful.

Dan: It’s interesting because I was thinking Todd you would give me a lot of the step one, you’re going to do this, step two you’re going to do this. I like it, for our listeners it might sound a little bit abstract, but I want you to pay attention to what Todd is saying. He’s saying that as an entrepreneur, you’re pitching the idea, you’ve got to have passion, you have to be passionate about what you do, you have to know what you’re doing, and you’ve got to talk to everybody. It’s not such as cut and dry, you do this and this. He has five steps of doing that. It’s all relationship. It’s all dynamic. That’s what you’re saying right?

Todd: Yes and no. There are certain fundamental building blocks that every company has to have. That’s the structure, your capital, how much money you raise, your team, your intellectual property, and how you go by your intellectual property. There are certain fundamentals that all companies have to go through, so there are certain building blocks that an entrepreneur has to do. The abstract is more of the capital, the vision, the sales, and the revenue.

Dan: What are some of those building blocks?

Todd: If an entrepreneur calls me, I’m going to ask him five questions, and this can be no more than 10 to 15 minutes probably at most. At the end of the 15 minutes, I’m going to know whether I want to be looking at this company further or not.

The five questions are number one is – is the company in revenue. It doesn’t matter whether their company is in revenue or not, but what it tells me as an investor is what stage is that company is at the growth cycle. If it’s the idea stage, that’s a pretty tough sell for me because quite frankly I’m just not in the ultra-risk investments, but I may still take a look. But if he comes and says “Yeah, you’re going to ready to sign, the Best Buy as a customer, we’re in talks with them, and I think we have an LOI signed here in the next six months” then yeah I’m interested. They got big brand name store and I’m interested. Stuff like that just tells me where they’re at their growth cycle.

Number two is the valuation of the company. This is a very key one. If the entrepreneur is a pre-revenue and gives me valuation of 10 million, I can tell you right now, I don’t care what the idea is, discussion is done. I’m going to finish my Starbucks coffee and move on to the next thing I’m working on. But what it tells me is whether the entrepreneur knows what they’re doing or not. If the guy says “Yeah, I need half a million dollars. I’m not sure of the valuation.” That’s telling me the guy is being really genuine and needs some help. He doesn’t understand the structure on what to do or how to structure it, whether price round or convertible round. Or the guy might say “Yeah, I’m raising 1.5 million dollars on a four-million-dollar valuation.” That’s reasonable. There is a reasonable valuation that has good terms, so certainly I’ll take a look.

The third question is ‘are there any intellectual property?’ Again, it doesn’t matter whether they have it or not. It just tells me where the company is at and if they know what they’re doing. There’s one company I work with right now. A very exciting technology and they’re not filing for patents because it’s a trade secret place. They don’t want people to know about their patents, or the idea or the process. There’s another company I work with that has seven patents filed. They’re not issued, they’re filed and there’s a difference. It just tells me where that company is at.

The next question is ‘Do they have competitors?’ This is a key one. If the entrepreneur says no competitors, again it is a huge red flag. I can’t tell you how many times companies have said there are no competitors. I’ve looked at 10 companies doing almost the same thing in the last two years. It tells me whether they know the market space, they know what they’re up against or not. A lot of times companies say “You know what; we haven’t found competitors in our space.” That’s the right answer. I tell you right now for anybody who’s listening don’t say there’s no competitor just say “To our knowledge we haven’t seen anything.” But again the competitive landscape, or they’re going to extremely competitive market space or it’s just something that is earth-shattering, ground-breaking type of technology, or something other than that.

The last question is ‘Do they have the money in the company and who their investors are?’ This is a key one because again entrepreneurs get really funny about this. They’ll say “You know I only have 20,000 in the company.” Well, it might have been only 20,000 they had, so that’s a lot of money.

This is a true story. A client of mine, husband and wife, married to a billionaire, and the husband only put in half a million dollars. He wouldn’t put in a dime more. The problem was the wife can’t raise more capital because the husband is too stingy and won’t allow himself to put more risk in the wife’s company. So she’s not getting more investments because of her husband. The investors are going to look at this and put in half a million which was true. It’s relative. It’s all relative. It doesn’t matter the amounts, it matters the kind of ratio. So I’m going to look at that and find out who are the investors. Are they friends and family. He arrives and say “Hey, let’s get have some weight.” You know Peter Thiel. Peter Thiel invested a deal, you probably won’t get to it. It does make a difference who’s in the deal.

Dan: Very powerful questions. We’re going to take a short break and when we come back, we’ll continue this conversation with Todd Dean.

As an Investor

Dan: Welcome back and we are talking with Todd Dean here. Now Todd you just shared with us the five powerful questions. I want to ask you this question, so after you get involve with the company, let’s say invest in the company as an investor and also with your partners, with your clients, what’s next? Do you provide any help to the entrepreneurs or do you just kind of leave them alone? What’s your plan? What kind of time frame are you looking for as an investor? Are you looking for five-year exit or 10-year exit?

Todd: Dan, that is such as great question. I’ll start with the end first. As an investor I’ll say “What’s your exit strategy?” The entrepreneurs answer is three to five years. The reality is seven to 10 years, if you get lucky its five to seven years. The entrepreneurs are going to tell me they’re going to try to sell of the company going up to three to five years. It always takes more money and it takes longer than you expect. But to get back to your question, forgive me Dan the question was?

Dan: What’s the time frame when you get involved with the company? Do you provide your help?

Todd: The answer is when entrepreneurs are raising money from smart professional investors like myself and others, it’s never about the money. What I mean by that is I live in Seattle, we have plenty of money in Seattle. There’s a lot of money that should be put to more start-ups in my opinion. It’s not about finding money, but when you do find the money, from my standpoint, it’s one thing to write to check, but it’s another thing that is about—what’s your go to market strategy? What is the salaries of the top three executives in the company—CEO, CFO, and COO? How much money have you allocated to sales and marketing?

There are a lot things that I look for as far as what that company needs. Do they need an introduction into a Starbucks with Adam who runs digital media? Do they need into the certain area of Microsoft that they can’t get into? One thing that myself and others provide is access to these resources that they have to have. Here’s the statistics for you is that if you look at the returns of venture capitals returns in the US over the last 12 plus years, 80% of the venture capital funds that did not give a return to their investor.

Here’s the catch, the top 5% or quartile of the venture capital from the US made up over 80% of the returns. Here’s the catch, if you get into a sequoia or foundation, or client at Perkins, or DFJ, it’s not about the money. They got plenty of money, but there’s not a door that they can’t open for you. So they’re providing board members, introductions, revenue, and money, not only money, but enough money that you’re fully capitalized. So you tell me, you can get into a sequoia and get their money, you’re done. It doesn’t matter whether you’re CEO, they will replace you if you’re not good enough. You don’t get a return on that investor.

Dan: That’s actually a great point, because some entrepreneurs who are inexperienced, they might think negatively towards these CEOs and angel investors. All you know is these people are greedy and these people just want or might take away what I have and things like that. From my experience, the people that I know who are CEOs who are investors, it’s not like that, because chances are they have been through what the entrepreneurs experienced. Maybe they were entrepreneurs themselves, that’s how they make their money in the first place.

Todd: I’m going to disagree with you Dan. I’m not a big venture capital fan and the reason why is because you got a lot of ivy league guys that think they know everything, they do have to have control, they do want a big percentage of the company.

I watch Shark Tank. I love watching Shark Tank, but the terms that they show in Shark Tank are so unrealistic from what I think is fair and right. They don’t call the show Shark Tank for no reason. It’s the same thing as venture capital. It’s their job to get a return for their investors. They don’t care about you. Angel investors, professional angel investors, institutions, they have a lot more heart. I actually should exclude institutions because they don’t care. But an angel investor, they’re going to care about their investment and they’re going to care about you. Ventures capitalists have a place in society. I’m fully onboard with that there is a need for them, but for the majority of entrepreneurs they’re not going to go to a VC, and I don’t recommend it.

Dan: So go to an angel investors first if they need a capital. But also from an entrepreneur’s perspective, if I’m an entrepreneur I’m not just looking for money but I’m looking for access, I’m looking for resources, I’m looking for contacts as well.

Todd: Exactly.

Dan: Is this almost like at the same time the angel investor selecting the right entrepreneur, the right company to invest in. It’s also the entrepreneur’s job to select the right investor to invest in their company.

Todd: Exactly. What I haven’t told you is I ran Keiretsu Forum for five plus years and we funded over a hundred deals when I ran it. I had some of the smartest, most successful, wealthiest people you can imagine. We would do anywhere from two months to six months of due diligence. What I can tell you is you can do all that and it only mitigates your risk a little bit. We had two of our large investments, both of the companies were crooks, and we did a tremendous amount of due diligents on these companies.

At the end of the day what’s going to assure us a lot of this is luck. All you can do as an entrepreneur is just work your ass off. Do what you think is right and ethical. Hope and pray, and I recommend a lot of praying, and even go to church maybe, to help mitigate your risk. Because luck has a lot of part of it and this is the part you don’t read in a book. You don’t read it in the book that says 60% to 70% is luck. I’ve seen some really terrible companies being extremely successful and funded by people. I’ve seen some other really great people fail. You tell me what’s the right answer there?

Shark Tank: The Real Deal

Dan: Todd, speaking of the show you talked about like Shark Tank, in Canada we have Dragons’ Den and UK has Dragons’ Den as well. What do you think of the show? How much of that is TV? Is that what it’s like actually in the angel investment world?

Todd: Yeah, good question. Most people don’t know this but before the company is actually going the show, they have to go back and forth for about three or four times and actually physically go to these locations for example Shark Tank in LA. They have to pay for the air fare. They have to pay for all other stuff to get the products. By the time they’ve been on the show, they’re probably investing around from 30,000 to 50,000 up front, so they’re not telling you that.

That’s a lot of money for a startup company. What I love about the show is as an investor I give you 10 to 15 minutes for you tell me your story. I don’t need anything more than 15 minutes. I don’t need to know how the product works. I’ll find it out if I’m interested. I don’t need to know a lot of these things entrepreneurs want to do. I don’t need to know yet. If I want to know, I’ll ask you the question.

Entrepreneurs so often times think that more is better and it’s not, less is better. What Shark Tank does which I love is when they get on that show, they’ve got their three to 10 minutes to give their pitch and that’s it, and either they’re going to like it or not. So from a standpoint of polishing your PowerPoint, your story, the product, elevator pitch. I love that aspect. As far as the terms they give, I think they’re unrealistic. But I get them, because you know Shark Tank is a marketing firm. You get on Shark Tank, you get an exposure, and you have many millions of eyeballs.

Dan: Correct. If any of the Shark Tank invest in a deal, it’s almost free advertising. They might endorse it. They might promote it, who knows, right? So, from the Shark Tank’s point of view, it’s definitely limiting the risk. It’s very low risk.

Todd: Exactly. It’s a marketing tool. It’s a marketing platform is what it is.

Skills of an Entrepreneur

Dan: Interesting. Sometimes they even showcase maybe on purpose terrible presentations, bad deals, bad entrepreneurs—that’s just good TV. Well Todd, what would you share with our listeners? What do you think are the two or three most important skills that an entrepreneur must develop?

Todd: Number one, it kind of go back to our earlier conversation and it’s that an entrepreneur is not made. Either you’re an entrepreneur or you’re not. Number one an entrepreneur can’t work at Boeing. An entrepreneur can’t work in 8-to-5 job. An entrepreneur has a hard time holding relationships down because they’re so passionate about their ideas and their companies. It’s an inherent quality and it’s not normal. It’s not normal to be an entrepreneur. If you’re ADD, OCD, ADHD and unemployable, you’re on the right space. The reality is, I just heard this yesterday and I don’t know if it’s true, that 98% of companies fail, start-ups fail. My gauge was there for about 90% to 95%. The reality is you’re in an industry where 90% to 95% of the odds are that you’re going to fail starting your company.

So number one is your passion, your charisma, your vision. That’s a gift. It’s what made the world so wonderful. We just got some photos from a satellite from Pluto. That’s because some entrepreneurs, some engineers came up with the technology and the idea to make all of that stuff happen. That’s a gift to us.

Number two is you have to have the best, the smartest, the brightest the best people you can get to surround yourself by. At the end of the day, everybody has their own selfish interest. So if you’re bringing in someone on board as a CFO or COO or CEO or board member, can they get their own agenda. But hopefully those agendas are somewhat aligned to build an incredible company. When you have access to these people to your point earlier, it’s not about the money, it’s about the doors, the resources, and the wisdom that they can bring to your company.

Number three is it always takes longer and it takes more money. Always. So if you’re looking for a 300,000, you need to raise a half million minimum. If you think it’s going to take six months to get your product through beta and get the testing and get the bucks work out, it’s going to take time as to a year. It just always takes more than what you expect.

Niched Industry

Dan: Makes a lot of sense. Todd, what kind of business are you keen to investing? Do you like high-tech? Do you like product or invention? I think you mention gold mine.

Todd: It’s in the mining industry. I love the CEO, older gentleman, got 5.8 million of his money into the company. He’s done a great job bringing the company to where it is at. It’s a hot space and it’s a niche industry. That’s the thing I didn’t talk about this in this call. I love a niche industry.

Dan: What do you mean by that?

Todd: What I mean is that he’s in a mining space where there is not a lot of technology in mining today which might surprise a lot of people. This particular type of technology could change the mining industry similar to how fracking changed the oil industry. It’s in a good old boys, traditional, not a lot of technology industry and you bring this new type of method and it could potentially change the whole industry. It’s a very niche industry. There are not a lot of competitors. It’s kind of playing white vanilla stuff, but you’re bringing something that’s making it newer and better.

Dan: Does it make the mining process more efficient?

Todd: You know I’m not going to talk about the technology because of this.

Dan: I get it. I understand.

Todd: But what I can tell you is it would change the gold industry specifically.

Dan: I got it. I understand it. I respect that. So basically you’re looking for a niche industry something that it’s unique and that of you know, not nobody is doing it, but a unique spin. That’s what you’re saying, right?

Todd: One of my favorite pieces that we invested is called CMC Creative Motion Control. It’s a screw. It’s a ball-bearing screw.

Dan: Very sexy, when you think about it it’s just a screw, right?

Todd: Exactly. It’s a screw literally. Tell me there are some jokes on that one. The CEO, I love CEO Steven Gomes, PhD, smart guy, but I didn’t realize that ball-bearing screw are used in everything. This screw is a different design because they got into the oil industry, they got into the army, the military, and they sold a ton of these and they still do. I just go there is nothing sexy about a screw. Nobody probably never heard of this company prior to this podcast. I love companies like that.

Dan: I guess if you don’t get, get up and look at them in the morning and say “You know what, I’m going to start a screw business today.” So if people don’t do a bear of entry or whatever don’t think about that type of things.

Todd: If you come to me as application, I probably won’t able to look at it. Applications are tough. There are just so many of them, so crowded.

Dan: The screw is more evergreen. One my heroes of course is Warren Buffett. I studied Warren Buffett. I studied his philosophy and what companies he looks at. He likes mundane, boring stuff, a high-profit margin, and a leader in the industry. You sound like you kind of share the same philosophy. Yeah, mundane, boring and that’s okay.

Todd: Yeah, it’s okay on my book as long as you get a return.

Strategies to Having Good Talent

Dan: I don’t have to be sexy at all. You don’t have to be brand-new at all actually. It makes a lot of sense. It’s interesting. Well Todd, for our entrepreneurs you talked about the three skills surrounding yourself with good people. Now, what if someone is just getting started and they don’t have a lot of money, they can’t “afford,” good people are expensive, what would be that good way to attract the talents and how would you structure the company so you can attract talent?

Todd: The last downturn in 2008 and 2010 was one of the best things that happened to entrepreneurs. The reason why is because capital was scarce that you really couldn’t capital into a lot of start-ups. So, entrepreneurs came very creative. So then there was crowd sourcing and crowdfunding would jump. My jury is still out it’s first high, I don’t know how I felt about that, but I think it’s up and coming opportunity for entrepreneurs which I think is a good thing.

But my point is that entrepreneurs realize that they had to build these companies on little to no money and get the resources whether it’s marketing or CFOs or advice, or board members, and they did. Because they were seeing some incredible companies today that really germinated during the downturn of the market. Today, companies can and do have access to senior level executives and individuals that will help part-time or full-time, maybe not for a paycheck, maybe for equity, or they barter. It’s a very different timeframe today than it was 15 plus years ago. Entrepreneurs are again creative, because of that they’ve done a great job to build companies today on little to no money. A lot of times they keep their day jobs.

Dan: It forces entrepreneurs to be smarter.

Todd: Yeah. It’s just been incredible to watch.

Dan: Like you said maybe it’s equity and also forces them to be better salesman. They have to sell their vision. They have to sell their passion. They have to sell the ideas. Get these talents on board. There’s no excuse “Hey, you know what I don’t have enough money to pay for these people, to hire these people.” It’s not like that at all.

Todd: A lot of times I tell you the people I work with including myself, I cant tell you how many times to come in and donate some time and it help the company grow and build. It’s kind of my way paying it forward. Sometimes, all investors others invest. It’s a great story. One of my clients, this investor was looking at the companies, so he went to the company everyday for 30 days. He just came in. He just watch what was going on. On the 30th day, he wrote a half a million check. The CEO didn’t see that one coming. It was just beautiful. It’s a great story where the guy just wanted to make sure. He believed in what the guy was saying, and he did.

How to Develop and Keep Relationships

Dan: Todd, it sounds to me that you are a great not just a deal maker but a connector of people. I do want to ask you a couple of questions we got in like how do you develop relationships? Like you said it’s a skill, it’s a science, it’s an art. When you meet with someone, how do you develop relationships? How do you keep those relationships?

Todd: I have a box and storage unit. I don’t know why I keep it, but I keep business cards. I started collecting phone numbers in high school, so I still have these pieces of papers of people’s names and phone numbers. I’m sure they’re non-existent. I just collected people’s name and phone numbers and when I was younger I used to go a lot of social events, similar to you Dan. I was out eight nights a week socially – fundraisers, networking events, entrepreneur events, meet up groups. I just developed so many relationships and at that time I wasn’t smart because I just met everybody.

Today, I don’t do that. I rarely go to networking events. I don’t need to meet anybody these days, so the relationships that I had are either personal or business, or both. My time is more valuable today, so I spend time with people that can move the ball forward in my own life, getting back in my own agendas. If I’m working with a company, I bring in the right people. The older I get, I’m not into meeting all the great people anymore. I’m meeting with many great people that I can bring value to them and vice versa.

Dan: That’s the key distinction. You are more selective versus trying to meet everybody. You’re just being selective of who you can add value to. When you meet someone new do you ask them what they need, what they’re looking for, how you can add value to what they do? Is that the kind of the mentality?

Todd: No. I think it’s more. I’ll give you an example. When I was volunteering at SCORE today. In this company, I went through the company. I went through the fundamental questions that I talked about in this phone call. Then I asked the guy “What’s your personal life? Are you married, single, and kids?” He was married. He had two kids and a step-kid. I asked “What’s your passion outside of work?” he said “my granddaughter.” I said “How old is she?” she’s eight. “What does she like to do?” and he says “everything.” It’s just really about connecting with people. I work with a lot of very wealthy people, billionaires, or millionaires. At the end of the day, they’re just people.

Dan: Yeah, that’s a good point. Like for some entrepreneurs maybe intimidated. “Oh my god. This guy is worth a lot of money. He is a billionaire. He is worth a hundred million dollars. I’m afraid to talk to him.” They kind of put them on the pedestal. What’s your advice to those entrepreneurs or whoever is thinking about approaching those people?

Todd: They’re hard to get to because everybody wants a piece of them. Rightfully so they have their guard up because everybody wants to use them for their money or their contacts, or experience, but mostly money. There are more guarded but if you get to know him on a personal note, it’s a different deal. I don’t know how to answer that question quite frankly. I think it has been like I said I met so many people when I was younger. I think as I’ve grown older, those relationships have matured. People there open doors when you needed to get to someone normally it’s a phone call away or email away.

Dan: I agree.

Todd: It took years to build that foundation.

Dan: It’s interesting you brought that up because as I was younger age and when I was building my internet companies, I was hiding behind the computer and working behind my computer. I kind of isolated. I’m just working my thing in making money. I always tell people if there’s one thing I wish I had done differently to go back, I would have done a lot more networking and meet a lot more people. I’ve done a lot more of this in the last three or four years, but I wish I had done that like day one of my career.

Todd: Exactly. I’m going to put a plug in for my buddy in Bryan Marsenick. Bryan when he came up from Wall Street, he’s this young, 21-year-old kid and just hitting the phones and hitting the pavement and cold calling. Literally in the boiler room, actually he is the wolf of Wall Street. In the boiler room, type of mentality where he just busted his ass and then he moved to Seattle and he continued to develop those relationships. He was wealth manager at JP Morgan in Seattle. He’s got the who’s who clientele. This is because he worked his ass off for 15 and 20 years and people don’t recognize how hard he worked to get to the point where he is at today. He deserved in my opinion all the accolades and Brian, I don’t know how much he makes but I know he makes tons of money because he deserves it. He is a friend. He is a good example where the work does pay off.

Dan: Devoting the time, spending the time, investing the time to expand those relationships. Do you follow up with your contacts like once a year, once every few years, or what do you do?

Todd: That’s a great question Dan. Do you mind if I put a plug in for my own company?

Dan: Go for it please.

Todd: I am getting ready to launch my own company in about two weeks called Todd Dean and Company and the reason why is because I’ve worked for Blackhawk which I love working with the ads. I’ve worked with Angel Marketing Consulting which is my own consulting company but one of my buddies said, “Todd, everybody knows you, but they’re not branding you” so he says “you really need a brand you.” Trust me, I used to have a big ego. I tried not to have a big ego today because I get humbled all the time. But I’m launching todddeanandcompany.com or todddean.com in about two weeks. We just got all the stuff behind it, but the point is that I want to bring people, resources, and capital together. If I can help a company in any way, if you’re out there, if you want to give me a call, send me an email. I’ll try to respond to you. Don’t take it personally if I don’t, but if you call Dan Lok and get Dan Lok to call me, then that’ll probably make it work.

Dan: My phone would bring it off the hook, thank you Todd.

Todd: What’s your home number?

Dan: You know the first one that did this to me.

Todd: I don’t know. I think I’m rambling again, so I’ll shut up.

Dan: So Todd, if they want to get in touch with you it’s at todddean.com that you’ll be launching in a couple of weeks.

Todd: Yeah. I’ll probably go live next week. My email is todddean@gmail.com if you wish me an email, but feel free and check out my website, I’m happy to help you.

Business Model

Dan: Todd, I do have a question, I hope you don’t mind me asking, what is your business model? You basically make introduction, you’re a deal maker, and you help them grow.

Todd: I used to use the terms network and then connector a lot. I was at dinner with some friends down in Santa Monica one night. We’re just talking and they go, “Todd, you’re not a networker” and I go “What do you mean?” “You’re a deal maker” and I said “well, please expand this” he said “you connect people and resources together.”

There is a book I read when I was really young called Service America just a quick read. Basically, this guy connected all these dots with a refinery company with a cattle ranch and oil. He took all these completely different companies and brought them together to make basically a jigsaw puzzles and put them together. So that’s what I do. I’ve got a charter jet company I’m working on right now. We’re doing acquisition as well as we’re buying a bunch of jets. I put that together. I just brought in a CEO, director of operations today that we’re working through, then I’ll put the board of directors together and we’ll need some money, 3 million dollars, and I hope to put that up together, its structure and resources, both. Every company is different, but every company needs help it’s just to what extent and where.

Dan: So you’re going, you put all the resources, contacts, whatever they need, capital together, and then your model. How do you get paid as you get a piece of that? I assume that’s correct?

Todd: I don’t. Anybody from the SCC or the FEI, I don’t get every– I never take a finder’s fee. I strictly work in consulting right now. Sometimes I come in as an active role. I come in as CEO in a couple companies. As a CEO, I’ve come in and restructure that deal. One day, I had to shut the company down, to close all the assets, and sell the assets and protect the board from getting their rear end suit off which worked. It’s just that every deal is a little bit different, but I get paid per transaction.

Speed Round

Dan: Todd, let’s have some fun. We’re going to do what we call the speed round. I’m going to ask you 10 quick questions and I’m just looking for very quick answers.

Todd: You got it.

Dan: Windows or Mac?

Todd: Mac.

Dan: IPhone or android?

Todd: IPhone.

Dan: What’s your favorite success quote?

Todd: Don’t ever give up.

Dan: Are you a dog or a cat person?

Todd: Dog.

Dan: Dream car?

Todd: Probably a Bentley GT.

Dan: The number one thing a new entrepreneur should be doing.

Todd: Talking to everybody.

Dan: Your favorite success book?

Todd: That’s a good one. One I just bought is Success by 10 by George–he’s got a market named after him. Go ahead next question.

Dan: What’s the tool that you use every day that you would hate to have lived without?

Todd: My iPhone.

Dan: What do you do for fun?

Todd: Lots of yoga. I do yoga five to six days a week.

Dan: Wow. What’s the most rewarding thing that you have been able to do for someone because of your success?

Todd: I paid a woman’s tab one day at a restaurant and she sent me a letter a month later, tracked me down through the manager and her husband had just died. She said one impact that made when things are kind of down and dreary, you’ll never know the impact you have on people for paying it forward.

Dan: Wow, beautiful. One last question before you go, so Todd if you could travel back to many years ago, and have a five-minute conversation with your former self to communicate any lesson you’ve acquired with the intentions of saving yourself mistakes and headache, what would you tell yourself or a younger Todd?

Todd: I think the thing when I was young in my 20s is I think I just didn’t listen to people. I think I had my own agenda, didn’t listen and I just made a lot of mistakes. I made far more mistakes than right decisions in my life fortunately when I was younger, but I think I just kind of slowing down and just kind of trusting older people especially.

Dan: Being a good listener. Any final thoughts and we can also share your contact information one more time to our listeners who wanted to get in touch with you, not my phone number please.

Todd: I think the last final thought is to be an entrepreneur is not normal. If it was normal, you wouldn’t be an entrepreneur. I know the risks. I know the amount of effort, and the heart ache, and the work that it takes to build a company. You can’t put that into words, but it’s what makes our universe and our world a better place today, makes it cleaner, healthier, better, more efficient. I just have my hats off to anybody who starts a company.

More Information

Dan: If they want to get in touch with you, the best way to get in touch with you is through your website at todddean.com?

Todd: Best way is to shoot me an email at todddean@gmail.com and then I’ll certainly take a look.

Dan: Todd, thank you so much for inspiring us today with your personal story and I think it feels so much. I know you’re very busy for your generosity in sharing your thoughts and ideas. I really appreciate it.

Todd: Thank you Dan, I appreciate it.