Episode Transcript
[00:00:00] Speaker A: I'm David Pselski, partner at Gerhardt Law, which is a an IP boutique as we call it in Summit, New Jersey.
But putting that aside, I'm all about education and empowerment and that's kind of why we created the ESS series, the entrepreneurial strategy series. And so every month we put on these kind of free virtual events and features, our trusted partners, people that we think can bring the entrepreneur value on a variety of topics. We have amazing sessions coming up for the year, but right now it is all about valuation. And we decided to have this because I don't think there was a topic last year that we did that didn't mention valuation.
And it's a big topic. It's an important topic. We have amazing speakers who we'll get into some of the nitty gritty and we'll share some of the thoughts based on some of the, based on some of the feedback we just got now, based on some of the, based on some of the introductions we just got now.
And so we're just gonna get jump into it. I will. I'm gonna have the speakers introduce themselves. Like better they introduce themselves than me introducing them. So we're gonna first start with Matt Moyers of peak value IP.
[00:01:26] Speaker B: Hello everyone. I am Matt Moyers. I am a 25 year professional at the intersection of finance and intellectual property.
The first years of my career were started at an investment bank and then eventually moved to PricewaterhouseCoopers where I did a lot of financial reporting and tax related intangible asset valuation.
About 2011 when I move almost exclusively in intellectual property valuation, focusing significantly on the patent on patents, I have probably valued over 50,000 patents. I've been involved with over 20,000 business or enterprise or intangible asset valuations. And so my experience has been all along the chain from the individual inventor who has a patent to you know, Fortune 5 companies. Right. I've got relationships with all the largest big tech companies and, and everything in between, including research centers, nonprofits, all that type of thing. So that's my background.
[00:02:41] Speaker A: Awesome. And Matt, can you tell everybody where you're calling from?
[00:02:44] Speaker B: I am in Denver, Colorado.
[00:02:46] Speaker A: Awesome, thank you. We will definitely come back to you. And our second speaker is Eric Corb. I also think a for sure, at least in the New Jersey entrepreneurial tech scene and probably bigger than that. I shouldn't limit it to New Jersey. Eric, please introduce yourself.
[00:03:09] Speaker C: Thank you. David, you're quite kind with that introduction. Mario has a lot to do with getting us all in New Jersey. The popularity that we deserve. Well, welcome everyone. Appreciate you all joining us around the world in this. So it's quite an honor to be able to speak with you all today. Eric I'm Eric Korb. I'm out of Warren, New Jersey. I've started running businesses starting in 1983, officially out of college in 81.
My primary focus has been in high tech. So hi to all my techies. I provide leadership in strategy and tactics and how to deliver on your promises. And so that's a big piece of what the entrepreneurial side of building a business is about. I've had six successful M and as I've raised over $250 million in capital for various entities that started back in 82 for a company I started called CAD Source, which we were at that time was at $18 million valuation. We built that into a company that was acquired eventually by ge, which is called Access out of Boulder, Colorado, which was a billion dollar company by the time we got there. I'm a holder of a patent which David helped me bring to fruition. I also have many trademarks which again, David has helped me pull that together. So we appreciate him and his services.
I guess what's most important here to understand is that there's various stages of what we're going to be getting into about valuation. And unfortunately for all of you, people are expecting to hear the magic pill. There is no magic pill. But we are going to try to ravel that onion as much as we can between Matt, Nolga and David and myself. So thank you again for everybody giving me this opportunity to share some of my experiences with you.
You're on mute, Dave.
[00:05:04] Speaker A: Sorry about that. I'm trying to find out where Olga is, but we will pause for bring.
[00:05:10] Speaker C: In, bring in Mario, I guess for sure.
[00:05:14] Speaker A: Hopefully Olga is okay, straight up and very odd. But the show must go on, so let's get into it. By the way, if you have any questions, please put them in the chat. We will be monitoring it. There will be a time at the end of the session where you can ask it live, even if you chatted it or you don't want to chat it and you want to ask it live later. So please do that. We do share the chat also with the recording and so, you know, please, please interact there if you can.
Let's talk. So. So Eric, that's a good point about the magic pill comment. I love that. But for some of the beginners out there, there's plenty of people who introduce themselves that know nothing about valuation. Matt, maybe you can just Break it down a little bit as to what we're talking about. Eric, you have a chance also to weigh in. But Matt. Yeah. Maybe break this down for us a little bit.
[00:06:10] Speaker B: Sure. So when I think about valuation, I think about it in terms of it being a human developed algorithm that needs to be on the onus of the person who's getting the valuation done, whether it's for their business or their intellectual property. And you know, as a business valuator, as appraiser, my job is really to hold up a mirror to you and reflect back the value that you've gotten. And so if you kind of think of valuation as kind of a, as a metaphor, it's kind of like being graded. Your business is being graded and the value you get is based on how well you have done at putting everything together.
And there are three basic classic approaches to valuation. There's an income approach, which is how much money are you going to make? It's the most important and usually the lead valuation methodology there. If you're pre seed and you don't have revenues, then you fall back to a cost approach, which is how much money you've spent to develop what you have in terms of either of business or intellectual property. The cost approach is usually good for not going concerns or companies that don't think that they're going to be making business in the future. Future, right. Bankrupt companies often need a cost approach. Free revenue companies will use a cost approach, but if they can have forecast revenues and have a view of when income is going to come in, it will supersede a cost approach. And then the final approach is your market approach, which is what are people actually paying?
And for early stage companies, the market approach is almost usually not used directly, but more used as a reconciliation method to your income approach.
So if you're putting together forecast projections for your startup company, early stage company, and it's a hockey stick and it makes it so that the income approach value is very high. But then you go to look at similar transactions, similar investments to your company or your ip. If there's a disconnect between what's happening in the marketplace, actual real transactions, and your hockey stick projections, which give you a really high value, there needs to be kind of a process to reconcile what's happening in the market to what you're suggesting is happening to your business. So those are the three approaches to valuation and it all intermixes between what you're doing and what's actually happening in the marketplace, Eric.
[00:09:01] Speaker A: And you want to, did you want to Maybe add anything.
[00:09:04] Speaker C: Yeah, I'd love to touch on that. Saying that Matt, we had spoken better actually. Last time we got together was this human development algorithm. I really, for those people who are in that middle one where you're, that precede market based.
A lot of the valuation that I've always tried to do is look at that human capital as well. Who are the people that you're bringing to the table to show in front of these investors and the team that you've assembled. So it's more than just the idea, it's more than just the technology or service that you're offering. It's the team that you're bringing to the table and that's going to be a big piece of showing the credibility of your valuation. So if I'm coming in there and saying I think I'm worth 5 million and it's just me sitting in my garage and it's only me and I've got my spreadsheet, it's a lot different than if I have assembled a team of advisors already. I've already have my accountant selected, I already have my patent attorney, I already have my business attorney. In addition I have a partner or a person who is my developer or a co co founder and that team is really I think a big piece of what gets evaluated in that, in that first stage. I think we're going to talk a little bit about this more later David, and the best practices. But I wanted to really hang on that word human capital because that's something that I really, I really runs home with me in those early stages.
[00:10:38] Speaker A: Actually. Can we, can we get into that a little bit? Because I think it's important because usually when, and this is, this is for both of you. Eric, you can start usually when clients are, are thinking about valuation, you do hear these like overblown numbers sometimes like oh my God, the market's like you know, 50 billion and so my company has to be worth 5 million. And so my, so, so, so, so my question is there and it kind of, I hope complements what you both were saying. There needs to be this reasonableness to this story of based on the human algorithm that we're talking about.
[00:11:19] Speaker D: Right.
[00:11:20] Speaker A: And so I thought maybe you can comment on that a little bit. Like the justifications for your valuation, even if they're a little bit off, mean something, you know, and you have to back it up. So I just want your thoughts on that.
[00:11:35] Speaker C: Sure. I love the saying, you know, it's almost very famous scene like snap out of it.
Right.
Sometimes I See these numbers and you know, it's a billion dollar marketplace. We're going to a billion in two years.
You know, I just, sometimes I don't see how you get to 2 billion in two years in anything. It's just really hard to get there unless you're acquiring something and then you're in a whole different situation. Right. But yeah, I think that it's very important, David, that you get real with your numbers. And, you know, everybody says, well, these are conservative. You know, I'm taking a very conservative approach. I mean, you better, you know, that's also something that I also use quite a bit in evaluating. Well, you better. If you always ask that question, you know, like we're going to offer the best service. Well, you better, you know, or ours is the best. Well, I don't know. How do you. What are you comparing yourself to? So I think again, having that advisory board or having. If you don't have a partner and this is something you're doing, get a mentor, get someone who can help you shape that message and have put credibility behind it, especially in these early stages. Because we're going to get into a little bit more about different stages. Matt's going to really and Olga are going to dive more into that. But I'm focusing really on that early, you know, angel round, that first round, maybe the A round. You've really got to come in with numbers that make sense.
You know, I'm talking with a startup right now, and our goal is just to get the first hundred customers. All right, and what's it going to get to get to that first hundred? Okay, and that's a lot in a, in a big. In a small, you know, startup, or just in the beginning. So, you know, sometimes just 10. But again, what's the multiple of that number? And that's something where it gets into your forecast. So is it 10 customers at a million each? Well, that's a $10 million revenue stream. That's awesome. Right? Or is it 100, you know, and 100 each, you know, a small number, but you're showing adoption. So these are things that are. That I do the double check. Yeah. So how are you going to get to that first million in revenue? How are you going to get that first hundred customers? When do you become significant?
When is this real? So get real, Matt.
[00:13:55] Speaker A: Matt.
[00:13:56] Speaker B: Yeah, yeah. I mean, your point is spot on, Eric. In terms of valuation, you know, the. Of intellectual property and early stage companies is the most valuable intangible asset you will get make is your customer base. And Bringing users on to the platform that you are developing and I know it becomes a chicken and the egg. Oh, they won't come if I don't have all the right ip.
But investors want to see traction in your user base and, and then followed by your revenues and you know, and in some, in some cases you build the IP and the valuation alongside it and in some, some cases you, you build on IP as you go through, through different means. But the most important thing is, is really building your, your, your customer base.
[00:14:54] Speaker A: So let's, so let's talk about intellectual property a little bit because I do think it, customer base and intellectual property are definitely intertwined for sure. Um, let's talk about patents and trademarks.
Hopefully Olga will be joining us. We'll talk about copyrights. How does, and by the way, I don't want to, I also, I also think we need to talk about trade secrets also, which is, you know, a very respectable, you know, fourth form of intellectual property that also has value but they're all intangible as you said. Matt, maybe you can break that. How does that work? Everybody's always asking me how much my patent word, how much is my trademark worth? Like that's like the number one question I get.
So how would you answer that?
[00:15:40] Speaker B: So that's a loaded question.
[00:15:42] Speaker A: It is a loaded question.
[00:15:44] Speaker B: My view, you gotta pay a lot.
[00:15:46] Speaker C: Of money to find out that number.
[00:15:47] Speaker B: Yeah.
My view of the patent systems one need to be broken up to US based patents versus rest of the world patents. And the US patent system right now is in my personal opinion, in absolute dire straits.
It is not doing what it's supposed to do in terms of protecting early stage companies from predatory infringement from large incumbents.
When you do have your patent and you find out that someone is infringing it actually can be adverse to your ability to stop them.
Raising money using patented technology is extraordinarily hard. In fact, it's more important for you to build your intellectual property forms with other forms of legally protected IP such as trade secrets, trademarks and copyrights. I mean those are much more of a priority if you are going to be building a patent portfolio. You can't just do a one or two off. My recommendation is you're going to need to build a very large patent portfolio. We're talking multiple families, probably a core function of your business. And if you can't afford to make that investment into patents, it's not worth it. And actually patents are something that are really for large companies.
And you, because there are so many patents that are floating around in the space right now. It is an add on asset that you can buy in the open market at very, very low prices right now. So, you know, be very cynical of the patent system and focus on your other intellectual property. And so that's kind of my high level takeaway on, on patents which is kind of, you know, obviously very cynical.
[00:17:50] Speaker A: Yes. And so I knew, so as a patent attorney, I knew, I know of Matt's opinion and I wanted him to share it. It is, it is, it is one way to look at it.
You know, there still is that prevailing, you know, kind of investor, you know, demand sometimes for having patents. But I agree with Matt. You cannot rely on a single patent. That's just not. If you're building a fence. Eric, I'll let you comment in a second. If you're building a fence, it, you know, you need multiple gates that, so people can't get out. And so yes, that could be a very costly undertaking. Eric, your thoughts on it. And by the way, Olga has joined us.
[00:18:30] Speaker C: That's what I was going to tell you.
[00:18:31] Speaker A: Olga's y. I know but Eric, did you have comments on this?
[00:18:34] Speaker C: Yeah, I wanted to, I think Matt addressed the patent side.
I want to interject one piece of that. We talked about it when we did some prep for. This is open source. A lot of you guys are using tech with open source, so be careful. This might be something later we'll talk about best practices or things lessons learned. Be careful about the use of open source technology and incorporating it into your patent because there are. And that's rarely where David shines. Right. He can really guide you on what goes on there. And so be careful with that stuff because owners sometimes, or investors sometimes don't know to ask that question and they find out what you really own, you don't own. And be careful with that and be honest about it. But what I wanted to talk about was another angle which is trademarks. So, and this gets actually to the idea of credibility. Be very careful about the marks that you come up with. For me, whenever I've built a company, I've always started with the image that I want to portray out there. So the logo, the name, the company name and then can I, can I register that name? Can I hold on to that name? Is that name marketable in the marketplace? I'm trying to get.
[00:19:57] Speaker A: Eric, you froze.
He froze.
But I will continue Eric's point. And it kind of jumps off of what Matt was saying. The other forms of intellectual property are just as important. Right? You will live and die by your brand. It is the first thing that people will see. And so it is almost negligible not to get your trademark, which would, that is val, that is value for sure. And so you must do that. And then also to Matt's point, Matt, let you comment in a second. Also to Matt's point, the trade secret route, right, that's, that's an amazing type of protection as well. But it's not so simple, right? If so many clients have said to me, oh, I'm just going to keep it a secret. And then when you really dig under the hood, you realize that not everybody was locked down by an NDA, not everybody was kept. And that one break in the chain, that one person that you didn't get an NDA for, again, in this hypothetical where you're keeping something a secret, that's enough to blow the whole thing, period. And so, so, so, so trade secrets, great protection. Also, there's no registration process, but it's not so simple as like, oh, I'm just not going to tell anyone. That's not how it works. But Matt, any, any thoughts on trademarks and, and trade secrets?
[00:21:22] Speaker B: Yeah, I mean trade secrets are really important. And like you said there, you know, there has to be an internally formalized process to, to kind of create your trade secrets and, and to be able to show later down the road if someone uses your trade secret that you had it formalized.
And, and the one thing I would say is a trade secret is not the opposite of a patent. It, it seems like it could be, but it's not. And you know, people can revers near your trade secret and if they do like that's, you know, that's too bad.
And so there's a, there is some cons there, you know, there is a need for the patent system. And as cynical as I am about patents, there are industries that are, it's absolutely vital. Biotech, pharma, medical devices. You want to make sure you get a patent. That system is still important for that but for software, electronics, right. Like you either need to be all in or you know, just be very strategic about how you're going about doing your, your patenting.
[00:22:29] Speaker A: Amazing. Thank you, Matt. Appreciate that. Eric, I think is back with us. But we'll take the opportunity to introduce our last speaker, Olga. How are you?
Are you with first?
[00:22:45] Speaker D: My apologies because they just link did not work. Anyway, I'll make it very.
[00:22:50] Speaker A: We were worried. Please introduce yourself to everybody.
[00:22:53] Speaker D: No, I'm fine. I'll just make it brief. I, I Represent programs valuation and forensic department. So we value businesses and intellectual property and there's a list of what we value.
Now we do assist and buy sell agreements. We do forensic investigation. Sometimes it becomes a part of IP valuation. Sometimes, sometimes it's a separate, it's a separate project and we, we defend our, our reports and our opinions. If it gets challenged in courts or by, by tax authorities such as irs, that's like a very brief introductions and I guess.
[00:23:36] Speaker A: Okay, let's. We want to catch you up a little bit. Can you tell us your just thoughts on general kind of valuation methods?
[00:23:43] Speaker D: General, yes.
Just, just to kind of, I mean emphasize or re emphasize that all methodologies has pros and cons and then they have a very substantial subjective components. So two different appraisers may, may arrive at different values just because the professional judgment differs on major, major variables. Now again that's why it's important to tailor your methodology to the interest and circumstances.
It's not an easy thing to do.
It's preferable to use more than one methodology and if you have different results, I guess it's a question for you as an appraiser why.
But that's like a major. Just always keeping in mind how subjective this thing is that like if, if, if you're getting evaluation report and the conclusion of value kind of always remembering that some of it, that this value resulted from, from, from. From inputs and many of those inputs are subjective.
It's kind of, that's the comment I have. I don't know.
[00:25:03] Speaker A: We, we, we appreciate that and that kind of echoes some of what Eric and Matt were talking about. We, we did get into intellectual property already. We heard a little bit about patents, trademarks and trade secrets. You specifically deal in copyrights. Can you talk a little bit about that right?
[00:25:20] Speaker D: Copyright is one of our niches, our specialties, music and literary copyrights, but mostly music copyrights and investment in, in music copyrights now is like part of, part of a landscape.
Private equity firms and other investors are considering music catalogs as one of investment. Some of the, as an investment alternative which is. Which is which. Which was not the case many years ago.
Now there are types of music copyrights. It's obviously it's a publishing copyrights rights and music composition and recording copyrights known as master recording which is a right in a particular recording.
Now the music royalties are generated by streaming mostly nowadays like Spotify, Apple. I'm just being very brief. Performance rights, ad driven services such as YouTube synchronization royalties which is music used in commercials. TV, video games, etc. These copyrights are valued for various purposes. Obviously trust in the state. But for investment opportunities, buy sell situations when a buyer or seller wants to get some level of comfort as to what they're buying.
The multiple factors that are driving value those copyrights such as music genre for instance, let's say pop and rock which. Which appeals to mass audience are usually more valuable then let's say jazz and classic. I may have a different opinion on the issue, but it's irrelevant now. Now the. The time, the terms of the copyright contract, how much is left on the contract, the type of a contract, the level of control, how. I mean what, what flexibility you have in exploiting those copyrights and deriving the cash flow.
Valuation methodologies are similar to valuing the business businesses trade trade names and patents. Really it's still based on the market market multiples and based on cash flow projections which is a discounted cash flow. Again, lots of subjectivities in it. The most. The. The greatest challenge is coming up with realistic projections especially for newer catalogs where there's no history trying life cycle on a certain song.
So again if you. It's very difficult for. To rely upon like an average multiple on the market. The average may be like a high multiple of 20 for instance. But that multiple could be heavily influenced by one transaction like for an. And. And for instance just to give you an idea of a range like some publicly announced deals. Most of those transactions are private so nobody know the multiples are. But let's say the Concord acquired Round Hill Music at least part of that business at a multiple of 17. And Bruce Springsteen sold his catalog for a multiple of over 30. And the recent trans transaction of hypnosis. Hypnosis sold some songs not all of their holdings obviously for multiple of around 10. So that shows the spread and, and the difficulty in relying upon the market approach, especially relying upon averages because it's. It's. It's kind of hard to see where your particular catalog falls on in that spectrum. Like are you how close you are to an average usually? Nobody close. Nobody's close to an average. It's. It's very, very custom based thing. So that's basically like in a nutshell regarding copyrights.
[00:29:24] Speaker A: Okay, well you, you. You are. You're up to. You are officially up to speed with everybody. So I thank you for that. Eric, you had a comment and you were froze up. You were talking about brands and the importance of it. Did you want to finish that up?
[00:29:37] Speaker C: I just. I'll finish with saying is that make sure that it's also part of your intellectual property and also part of your, you know, your, your validation of your idea. It's also part of, is your image and what you're trying to portray. So for example, I see people buy domain names that don't have vowels in it and things like that. And you know, I would just shy away from doing that kind of stuff. I would also look at trying to make sure that you have a business name that is relevant to what you're trying to portray and then try to also trademark that or you have a logo that goes with it that would portray what that business is about. That's all part of that early stage credibility when you're starting to launch a company. And to me, it always starts with the name. For me, I have the idea. But how is the name when people or potential investors or potential customers, which is more important, recognize it and see it, believe it and have the credibility in it. And I think that's an important aspect of getting valuation. Although it's not exactly tangible in the beginning, but it adds to that credibility. That human factor that Matt talks about, this is, hey, yeah, I can associate with that.
To me it makes sense what they're trying to do.
He may be on the call today. I'm working with a young emerging entrepreneur and he has a.org domain. I'm like, you're not an org, so be careful with that. Why are you using a.org when you really should use something that's more commercially driven?
Gives off the wrong impression, especially to investor. If they're thinking you're a dot org, well, you're a nonprofit. So.
[00:31:21] Speaker A: Yeah. Matt, did you want to comment?
[00:31:23] Speaker B: Yeah. Going back and fixing, you know, bad trade trademarks and trade names that like, you didn't do a good enough search and there's somebody else who has a very similar name. Right. Like going back and having to fix that after the fact, after you've got traction and customers is always so much harder than getting it right the first time.
[00:31:45] Speaker A: I agree, Matt. Let's stick with. Yeah, I cannot. I pound that home every day. I take. Just teach that lesson. Let's talk about some of the stages we've been talking about. We, we've been, we've been kind of dancing around it a little bit. Early stage, late stage venture angels, valuation for all those different levels. Maybe just a. Have a general conversation about that.
[00:32:08] Speaker B: Yeah. So there, you know, going back to the, the human arc, there's, there's a business arc. Right. And when you are pre Revenue, you fall into the category of being a seed company or a pre seed company or angel investor or friends and family, right? Those are your four main types of investors when you are pre revenue.
And there are a lot of financial databases out there that are providing what the valuation is for those types of companies.
PitchBook, FactSet, Capital IQ are all working with angel investor groups to get an understanding of what the pricing is for pre revenue companies. And it's, you know, it's kind of like Shark Tank. You know, the, the pricing that you see on Shark Tank actually translates into what you see with an angel investor investors at like the Karitsu forum, which I've been a member of, or other angel investor groups. But once you pass your seed level and you move into series A funding, that's when you're moving into venture capital, private equity, family offices, corporate venture capital and valuation pops. The moment that you start getting meaningful reoccurring revenue. Right. Like the, the amount of money that, that, that VC companies will put into you once you have tractable revenue goes up significantly. And when you go from series A to series B to series C and so on, the values will continue to rise at a very significant pace depending on how quickly you are able to con, continue to grow your customer base.
And so that's where you see the pop. Now the thing that you have to remember is that if you are a seed company, 9 out of 10 seed companies never actually make it to a series A funding round. Right. And that means, you know, I don't know where they all go, but I'm assuming most of them are failing or they're lucky enough to be able to become self funded and they don't need to go down the traditional VC route.
So you know, there's a lot of risk between that point where you're a seed to a series A funding round and being aware of what's happening in the marketplace is really important because that will give you an idea what you're, you know, you'll be able to kind of figure out where you sit on your own just based on how you're progressing with the ability to bring in customers. Right. And if you're starting to bring in customers, you know your value is going to pop top. So that's my kind of 2 cents on the different levels of growth.
[00:35:01] Speaker A: And Eric, thank you, Matt. Kind of practically speaking, you've been through these levels. How does it play out for you as an entrepreneur?
[00:35:12] Speaker C: So great question. So again, I think there are those different stages, especially in the early stage, which is really where the focus is. I think one of the things you need to think about is is your business really a fundable business from a perspective of is this a lifestyle business or is this something that's actually going to be run by other people? I think I saw one of the people were attending on his LinkedIn page. He talked about, you know, selling your business and making sure that that business will run without you as a driver. And I think that's a great point that he makes. It's very important that you understand that this business should run on autopilot. Once you start to get to that mezzanine and start to get into that VC side now, it's still critical to have that management team in place. You're not going to just cash out at the, at the A level. And why would you. You're looking to try to make that bigger exit down the road. But I think it's really important that you understand that in the beginning you need to understand is your business, you have to get again that. Get real. Wake up.
[00:36:16] Speaker E: Up.
[00:36:17] Speaker C: Are you, are you really talking about a business that is investable or is this just a lifestyle business? Which by the way, there's nothing wrong with a lifestyle business. But if you're really thinking about bringing other people's money besides friends and family, you really have to have a business that's going to be investable because it's going to run on its own. And it's as, as a, as a going concern. And that's where the investors are going to get excited. When you get into that level, I'll just go quickly because I'll let go and get in here. But the, in the middle stages, it's now all about delivering. You're going to have meetings with your investors. You've got to make your numbers. It all becomes very mechanical, okay? Because you've got to reach those things and you're going to avoid that capital call as best as you can. Because if you got to do that capital call, it's very expensive at that level. All right? And now when you get into the actual exit stage, a lot of that is very formatic. You know, you have so many assets, you have so much cash on hand, you have so many customers. It gets very, very, you know, mathematical to a certain extent. And obviously is the market, you know, being driven by the long term concern for that kind of a company.
For example, look at Kodak and Phil film, right? There's nobody buying Kodak now for film, so. And that they were the mainstay in in the photography industry. So there's, there's a good history there. Right. So I'll hand it off. I hope I addressed your question.
[00:37:52] Speaker A: Yeah, no, that was great. Olga, what do you think? Hang on, I'll ask you to unmute. Olga, what do you think is you, you. You deal with mostly late stage companies.
So what's your take on this?
[00:38:05] Speaker D: Well yeah, we do, we do sometimes come in when an investment opportunity is, is out there. From a buyer or seller standpoint I would say the obviously the greatest challenge is pre revenue company. The companies that have no history. The same applies to intellectual property which is like a newly created intellectual property which might have a legal protection but has no history of earnings. And the same applies to companies on pre revenue like a seed level. How do you, how do you value something like this? So projections become, become the key and now how do you, how do you even approach those? Like you're getting it, you're getting the projections from the client. The client has an interest in attracting investors. Now how do you, how do you, how do you even decide whether those projections are credible, reliable? I mean from our perspective we, we would like to see some description of not just the SWOT analysis but description of how the client is planning to capture the market share, the, the contracts maybe in, in, in, in negotiate even in the negotiation stage and the terms of those contracts. But that's, that's very challenging and it's, it's exposure for both the client who may overvalue their company and, and for us because like and, and the purchaser can come back to us and saying look, you value the, you value the company. We kind of not exactly relied upon the value but we made our investment decisions. So I would just say it's, it's, it's a challenge and I really don't see how to make it less challengeable and less risky. I don't see a solution here. It's. Nobody has a crystal ball.
So maybe I don't sound very like optimistic or promising. We try to protect ourselves when we do that. We try to protect the client and we try to put as much justification to those projections as we can in the report just at least to if the challenge comes our way just to show that it was not just the numbers are not taking out of the blue. The be they're based on analysis of competition, the market, the potential, the potential, the potential clients etc and in the other instrument to deal with that is a risk. So when you, you apply a discounted cash flow methodology and that's the only methodology you can value a startup business really you, you have to protect yourself with a risk. Like there are venture capital risks available in different databases, in different publications. The risk is high. It goes like, like up to 40, 50% sometimes for, for a company at a very, very, very early stage.
And again, it depends on the situation. When the company, when the founders of the company had history with other entities with other intellectual properties, other patents in a similar area and they have experience in kind of getting this company to the market, that could be a risk reduction fact. But the companies with no history are risky. So that's, that's the bottom line.
[00:41:32] Speaker A: Well, first of all, I don't think you were sounding, I think you were sounding realistic. So thank you for that. I think that's important. But there are a lot of companies that, that introduce themselves that are at that early, early stage. So let's talk to them for a little bit. It, what's, what's a person to do? Like you know, do they hire someone like you or Matt? Do they consult with someone like Eric? Do they make up, you know, do they, I mean don't make up numbers, but do they try to do this themselves? Like how, how, how can they try to mitigate some of this?
[00:42:08] Speaker D: Yeah, I think they should do all of this. All of it and all of it. Yes, they, they really need the illegal advice. They need to consult with an appraiser at least to get an idea of what the valuation estimate could be under accepted methodology. Just at least to have a range in, in this particular industry, in this particular area. So whatever advice they can get, I think they should get it at least to have obviously information is the greatest weapon and just to see what's, what's in the future and what are the risks, what, what exactly they are facing at this stage. And yes, and get in, get it, get evaluation estimate that in every, every round that's of financing. But the first one is like obviously the most difficult and the most is, and it represents the most challenge and they, so bottom line, yes, they need a legal advice, they need an advice from evaluation professional and maybe other people that could, could help them, you know, navigate those dangerous wars.
[00:43:16] Speaker A: I agree. Matt, your thoughts?
[00:43:19] Speaker B: So, you know, I think as a, as an early stage entrepreneur who is, you know, looking to get to revenue or is just in the early stages of receiving revenue, understanding your revenue model and being able to as the CEO of your company, put your revenue model into an Excel form on your own, not with a third party's assistance, is really very critical. As setting the foundation for all of the valuation work you're going to be doing going forward. Understand? I mean, I can't tell you how many times I've been hired by a pre seed CEO who doesn't have a good handle on their own revenue model. Whether it's a SaaS model with a subscription basis or whether it's outright sales of products. They just don't, they just don't know exactly how they're going to make sustainable revenues. And, and when you really press them on it, right. It's a lot of high level things. And then me as the appraiser has to try to kind of deduce what it is that you're trying to say. So the better you can as an entrepreneur be able to express how you're going to make revenue, the easier it is for an appraiser to provide you evaluation and then the more simple it becomes to do at a regular cadence. Because you want, as an early stage company, as you're moving through these stages, you want to have an idea of what the value of your company is. You want to know within a 15 to 20% range, kind of where you're sitting on a, on the value of your company, you know, every year and whether that's you doing it on your own or whether or not that's you getting help from a third party. Like it's important so that you know where you sit.
[00:45:24] Speaker A: Yeah. Eric, what'd you do?
[00:45:26] Speaker C: So I think sort of going with what Matt just talked about is understanding I, I have again back to, you know, is it real? Right. And I think that in the tech and which is most have been my startups, I think the general number that people try to come out with, let's just say after friends and family just trying to get some seed money, you want to at least see something that's around 1.5 million to 2 million in valuation. Right. And so when you're saying that, you know, you say, well, you got no revenue or just starting to get started. How do you justify that? Well, the story, and that gets back to what Matt's saying. You have to have a story that justifies that investment. So if these people are coming in with 50,000 or 25,000 or 100,000 into that first little seed round, it should be a no brainer. Okay. They should see that there's a 10x or you know, kind of multiplier based on the numbers and that your story is believable. Can you get to those numbers? I mean we could have a whole Session, you know, David, about how to convince investors to invest in you. You know, but, you know, in the end of the day, it comes down to that story in that early stages. And it should be.
It's like they should be at the end saying, I want to give you more money. All right? I don't want to just give you. But then again, you don't want to take too much money because that early money is very expensive, Right? So you really should be saying, be telling that story, understanding your revenue model inside and out. And then there's a whole section about, like, being able to tell the story about what you're going to do with that money. All right? And I think it's very important. And maybe some people may take this the wrong way. Most investors, sorry, guys, don't really care about your business. They care about their investment, okay? And their investment. Your business is their investment. Yes, they care about your business, but in the end of the day, they want to see a return, right? Because they have all these other things that they can invest their money in. So if they're looking at investing in bonds or investing in stock or investing in the market, whatever it is, versus you, you've got to have that compelling story to say, I'm going to give you this amount of return on that early money. And if you don't have that story and it's not believable, getting back to what Matt's saying, you got to be able to talk about it in verse. You have to have that elevator speech. You got to be able to deliver and have all that confidence that you're going to be able to get there with ease. This money is being used not to basically pay you a salary. It's to actually deliver the numbers that you have put into your spreadsheet that says, hey, if we do X, this company is going to be worth Y. And that's the early stage formula for me. And so I'm always trying to tell that story to make it believable at a one and a half million, maybe 2 million for that angel round and say, because, look, I don't want to give up more than 20% of the company at that point. So, you know, that number's about where it's got to be. Otherwise, just put your own money in or get friends and family and don't have to make that converse. Have to have that conversation because they do care about you as opposed to the typical investor who's more interested in the investment.
[00:48:45] Speaker A: I want to switch gears a little bit if I can.
You Know, there's a lot, there are some, I know for a fact there are some people on the call that are, you know, considering like as part of their journey or their intellectual property journey, they're, you know, considering, you know, partnering with a company that may or may not be infringing them.
You know, there, there's that way of monetization of, of intellectual property they're looking to possibly be acquired and stuff like that. And so, so, you know, they're looking at like how the competitive landscape kind of plays out and stuff like that. So I kind of want to get into that a little bit like using valuation for determining like damages in an infringement suit or using valuation. I know these are two top, top.
Each of you can maybe speak on them using valuation to understand how much your business is worth in order to be acquired, which takes into consideration the competition around you and what's going on.
So I thought maybe we can just kind of switch gears there a little bit again, that, that could be maybe early stage problems, but maybe not. But you know, Matt, what do you think about that, like in terms of like, like, you know, damages valuations and stuff like that.
[00:50:13] Speaker B: So I mean, damages valuations are very specific to, you know, unauthorized use of your intellectual property. And it's a very, it's a very difficult dance if, if you are, say in your, you know, you've graduated to being like a series B or C company, you've got a high valuation, your growth is good, and there are interested investors in either helping you grow further or acquiring you outright.
And so the valuation is really dependent on who's coming to the table and talking to you.
In my experience, be a little bit leery of corporate value.
Corporate venture capital, they do have a tendency to come in, show you around the building, take, figure out some of your trade secrets when you're talking to them, give you, you know, promises of investment and then go away and just take all of your IP and you are literally fubar after. So I mean, I've ex, I've watched this happen on numerous different occasions to companies that, that talk with cvc. So be, so be leery, be careful when you go talk to them and just make sure you keep your eyes on the market in terms of your valuation relative to your peers. Right? Like, I think that's probably one of the most important things you can do is just kind of make sure once you get to a certain size and the growth is happening, that you are paying attention to your competitors. Maybe not so much in the early precede stages or the Series A. But certainly as you, as you move up the, the value chain.
[00:52:01] Speaker A: Yeah.
[00:52:02] Speaker B: So I don't know if that exactly answered your question, but that was what.
[00:52:05] Speaker A: Came to my mind kind of. Olga, what do you think in terms of like the competition that's out there? How much, how much of that is kind of factored into.
[00:52:16] Speaker D: Well, but the, for the first, the first comment, if you, if you really want to join forces with somebody, if you getting into partnership, I think it's for Eric to comment further on that, but I think you have to take care of your intellectual properties protected legally when you decide to partner with somebody else just to make sure if this partnership doesn't work, you keep your intellectual property rights and they're not infringed upon. That's the comment number one. In terms of competition, everybody's protecting the, I mean the rights. And we've been involved in infringement cases like Matt described. Exactly. Unauthorized use of intellectual property in trade names and copyrights mostly. I don't think that's really the topic because that's usually, it's a part of legal action and we are guided by a legal team in this, in this particular engagement in the case law matters as to how you actually do it and how you quantify the damage from that. But from investment perspective, yes, you, you have to, you have to decide to what extent you're going to open your card cards and, and what you should. What requires legal protection. That's, that's really my comment. I don't, I'm not even sure if it's responsive.
[00:53:37] Speaker A: No, I think it all is responsive. I think I, I think, I think it all is responsive. I think, I think, I think the lesson here is that yeah of course you need to understand who your competition is. I think you understand potential infringement and what you're going to do about that. It is one way to monetize your intellectual property. And so that comes with certain values and certain risks and that that game may not be for everyone.
Eric, just, just kind of thought, just kind of final thoughts on that.
[00:54:09] Speaker C: Absolutely. Have observed what Matt has talked about where people have acquired a company for the IP and buried it it.
And so for whatever reason but so be, do be careful. But it's also a double edged sword and this is one of those lessons learned is that you know, if you're trying to get that capital they may have you sign a document says you're signing over all your assets which includes that intellectual property and you may try to then maybe do a licensing deal so maybe Sometimes it's important and, and this is more up your alley, David, is to put that intellectual property into another entity and be able to lease it or rent it or royalty it back to your company and keep it as a separate entity. That's, you know, that's more your advice, David, than I can give.
I would also get back to like that what I was talking about branding and things like that. When I'm starting to look at, at intellectual property that I'm trying to hold, I typically always look at companies that I want to acquire me. Okay. So if I'm thinking I want to be acquired by X company, I'm looking at all their, all their property I can find on, you know, you can do lookup so you can obviously pay for surveys to be done. You know, David and I were recently looking at a word, right. You know, that is pretty popular by another company and so can we defend it if we hold it it or will they come after us if we, if we try to use a word that's so commonly used like Xerox? Right.
So those are things that I think that in the early stages you got to do your homework and as best you can. I think it becomes more critical in the more the middle stages where you've really now have got that product in the market and now you could becoming attacked. But I think you can only do so much right in that early stage because your resources are strained, you don't have a lot of money. Right. So that's.
[00:56:10] Speaker A: Yeah, no, that's a really good point. There are definitely, there are definitely valuation strategies that, that just can't be afforded by some companies at certain stages. So let's talk about costs and timing and the practicalities, let's say, of working with someone like you, Matt. Olga will come to you after. How does that work? A little bit there.
[00:56:30] Speaker B: Yeah. So usually, you know, valuations for early stage companies, at least in my practice, is based on an hours and rates type of situation.
And it, it depends on where you're at. But you know, typically you're looking at depending on the size of your company that a valuation project can take anywhere from 40 to 100 hours, depending on the size and scope of what is included in the valuation and how well prepared you are for the valuation. Right. A valuation of a business or intellectual property actually requires a significant amount of work on behalf of the business or IP owner to prepare for that valuation.
And so you need to be ready to provide a significant amount of documents, including those forecasts that need to be put into you know, an Excel spreadsheet analyze with the market, a lot of third party data pulls in. And so if you're between 40 and 100 hours and accessing those, those databases, you'll get back a report that will you know, kind of give you a strategy for how you're going to be running your business and kind of ultimately gives you here's how my, how's my business works and it basically becomes to a certain extent a calling card for investors when you are looking to raise capital. That's good point. That's how a lot of, a lot of the, my clients in there in the pre seed and, and series A funding rounds use my valuations.
[00:58:10] Speaker A: I love that. Calling hard, that's, that's important. Olga, how do you, how does it work on your end?
[00:58:17] Speaker D: I actually agree with Matt and a lot of homework needs to be done by the client because when this valuation report is finally generated and investor, the investor is looking at it, they're not just looking at the value conclusion, the investor is looking at projections. Because most investors understand that the value is predicated on the projections becoming reality. So a lot of weight is put on those projections. Projections, they're like very important part of that report. So it's basically because for early stage companies the report becomes kind of a team project between the appraiser and the client.
And, and the quality of the report, it depends on the quality of the input obviously and the major input is projections. There are two inputs really. The projections and the risk. The risk is a professional judgment of the appraiser, the projections, mostly responsibility of the client, the understanding of a business model and how they are able to articulate and explain this business model to the appraiser. So this explanation is going to become part of the report. It's like valuation becomes part of a business plan, like a part of a promotional deck. So every, every, every, every part of it is equally important. And as to the hours, yeah, 4200 hours sounds familiar. But we've been in the situations when the client wants, once an appraisal wants value and, and we're provided with very cursory projections like several lines like oh, we're going to generate, we're going to generate a million dollars the first year, $3 million the second year. Those are our margin. So please give us the valuation that it's not like we can't put it in a model. We can put anything in the model and calculate the value value but it may not bring give the client the results they're looking for because Those projections are not going to look good for the investor and the projections again is going to become the major, major part of the valuation report.
So that's my comment.
[01:00:20] Speaker A: Awesome. I want to give some people a chance to ask questions live. If you have a question, please raise your hand. They're definitely, you know, on, on your zoom thing.
There definitely are some questions in the chat.
There is one here. I don't. You let me know who wants to take it one. I'll get to you in a second.
How would I do evaluation of a growth company, mezzanine level VC and about $150 million in funding so far. What parameters are use? Is there a formula?
So he's looking, he's looking to do evaluation of a company that he knows for a fact has gotten, you know, VC money, 150 million.
I imagine he has his own reasons why he wants to do that. Valuation, maybe something related to intellectual property. But what do you think?
[01:01:15] Speaker B: I mean it, it all goes to the projections that would, that would be used to pay back the 150 million in funding. Assuming it's, you know, convertible debt funding or, or an equity funding. Like how is that going to get paid back? You need your projections, your projections give you a discounted cash flow based on the risk that Olga suggested is an appraiser's judgment, but that judgment is based on market feedback. You know, who, who else is investing in similar things? So it is a, it's a. Valuation is a triangulation, right? It is value really needs to be looked at in terms of the price that will be paid as well. And so if you have 150 million in funding, there's a whole bunch of other companies that are receiving 150 million in funding. Are your projections and are your outputs going to be similar to those companies and can we compare them and make heads or tails of it? That's, that's how we go about it.
[01:02:20] Speaker A: Awesome. Let's get to Juan, Then we'll do Mario, then we'll do Amit. Juan, go for it. Just take yourself off mute.
[01:02:28] Speaker F: Hi, we just, we, we, we've, we've just finished our beta to for this.
Until this time we've self funded everything. So we've gone through about 300k of self funding but we're now looking to partner with developers because I don't know if anyone who's worked with a software startup before has tried to like fund software without really knowing software. So we're now, we're now in the place where we're first of all capacitating ourselves in software. But we're looking for partners and we don't, we don't really, we don't really know how to go about valuation if all we have to show for is our, our minimum viable product and then the 300,000 that were into the product.
[01:03:21] Speaker A: What do you, Matt, what do you think? I mean, this is a, this is exactly kind of what we were talking about, right? Here's an early stage company that has an mvp. They have no revenue. I don't think you have users yet.
[01:03:34] Speaker C: Right.
[01:03:35] Speaker A: And so they got. So like, what do you do there? Again, please appreciate that you probably should be probably reaching out to these folks separately. But, but what's the general answer you can give?
[01:03:50] Speaker F: Accidental answer is no.
[01:03:53] Speaker A: I'm talking to Matt. I was just, I was just rephrasing your question for Matt.
[01:03:58] Speaker B: You know, you know, the classic model for a software system in, in this point in time is almost the giveaway, right? Just, just to build user base, right? We live in a, a business climate where most people want to try stuff for free before they buy it. And software is particularly like that. You look at chat, GPT and open AI. I mean, they gave it away and that they built the users. So SaaS software is very similar. You, you kind of have to get the, the users on board, get them using and excited about it. And then once you have a user base, you can, you can show that, that and show that that can convert into revenue. That's, that's how you get investment in that space.
[01:04:53] Speaker A: Okay, awesome. Juan, we're gonna, we're gonna go to the next question. I hope that's okay.
Mario, hold on, let me add. You take yourself off mute.
[01:05:04] Speaker G: Yeah. Great, thank you. By the way, I love the feedback and the comments from the presenters, so thank you. I, I really have just a comment.
So the, the issue that I realized that I've seen is that in the friends and family portion of the fundraising, in other words, you go to your family, your friends, you raise 10, 25, $50,000. And what those entrepreneurs, what they end up doing is putting a very high valuation.
They want to go back to their family and say, oh, this thing is going to, is, is worth $10 million. Okay. And they barely have an MVP. They barely have, they have no traction. So now you, you get your friends and family, you know, your 10, 25, $50,000. And then when you go to the angel round, you, you, the angels are going to look at you and say, okay, what's your valuation? You say, well, 10 million. And they're going to look at you and say it's really only 2 to 3 million and then you're forced to go back to your friends and family and tell them that it was really only worth 2 or 3 million. So my point is please be careful on when you go to raise friends and family that you make it a realistic valuation. And then the question is how do you get a valuation?
Well, a startup that has 50, that has $0, 25, 50,000 probably at the most and spending 50, 100 hours, I'm not sure that's compatible.
There are a few models out there and they may be a little bit, I'll call it antiquated, but not really. Two of them are the Marcus Marcus Purkus P E R K U S valuation method and the other one is Scorecard valuation by Bill Payne.
And when I value a startup at the seeds precede I look at those two models and try to figure out what the valuation is. And a lot of it has to do with some data that Pitchbook has. So every industry has different seed stage valuations.
So just. Sorry, I took up too much time.
[01:07:35] Speaker A: No, that was perfect. Mario, I think you said some, some good nuggets there, Matt. Eric, any comments?
[01:07:41] Speaker C: Old go no, it's very true. You can't overvaluate those people and the fact is that what those people are doing is really just giving you a loan and you need to sort of maybe treat it that way because if you start to get yourself into that reverse valuation conversation, you're already starting upside down with a potential investor that you're talking, talking to from the beginning and it doesn't go well. So I, I think it goes back to your credibility.
[01:08:16] Speaker D: It also goes back to kind of a being conservative, especially on a very early stage company. You can get more aggressive later on when the, the business and the customer base picks up. But at the beginning it's safer to start like with lower expectations. I mean it doesn't again, it doesn't sound nice but it's safer.
[01:08:39] Speaker A: It's safer. I agree. And it won't come back to haunt you. To Mario's yes, later 100 I've seen that mistake also. Thank you. Mario. Meet. Let me just, let me put you in.
Go for it. What's up?
[01:08:55] Speaker E: Hi everyone. Thank you so much for the informative information session.
My question is more towards the data.
They were thrown a name of the Pitchbook to collect data from early stage companies and data.
Is there any other sources? Do I need to go into Pitchbook and start pulling similar companies and figure out the stages of those companies and how do you really tailor it into your evaluation and models for evaluating precede, seed and precede companies.
[01:09:37] Speaker B: So the cheaper database and the somewhat free one is called crunchbase and that one is the one you can sign up and you can get, you know, depend. You'll have to pay eventually but you know, at least you can get something. PitchBook is a very expensive platform. It's like, like $18,000 a year and they have, you know, they have relationships and associations with angel investor groups as well as VCs. And you know, the private, the private pricing data that occurs at the precede and seed round is given to PitchBook and PitchBook will provide it almost on an anonymous basis or sometimes it'll be kind of, of, you know, you'll get the, this is what the investment value was and this was what the percentage of ownership was. But that'll be the extent of it. But, and so you know, that's out there. Crunchbase is the one to do to do it by yourself. PitchBook is one where you'll need to find a valuation appraiser that will help you get that information on a regular basis.
[01:10:49] Speaker E: But how can you work with that kind of information if it's know the, the numbers from.
[01:10:55] Speaker B: Because you get, I mean you benchmark it eventually, you know, you, when you do a search inside of something like a Pitchbook or a capital iq, you put the information requirements in and it, it will literally come back with hundreds or sometimes thousands of companies and you narrow it down to the right benchmark of, of you know, 5 to 15 to 20 companies depending on the industry that you're in. So I mean it's a, it's a, it's a non trivial task.
[01:11:24] Speaker E: Sounds like it. Thank you so much.
[01:11:26] Speaker A: Thank you Amit. Thank you so much.
Kobe. Hang on one second. At rooted.
Go for it.
[01:11:35] Speaker C: Hey everybody. I have already company that's making money. I know exactly how the revenue but I don't know how to evaluate. I have dispensary cannabis dispensary in New Jersey. We're doing 200k a month. It's 2.5 million a year. We want to sell everything.
How, how I calculate the value of the company.
[01:12:02] Speaker B: There's a whole world, yeah, there's a whole world of transactions happening in the cannabis space and there are very specialized cannabis valuation professionals who also do cannabis related transactions and that's, you need to find that specialized person who, who carries that database of transactions and, and you know, based on what you just Told me you can just, you know, there'll be a multi, there'll be a range of multiples. It'll be you know, some one, you know, half x to 2x your revenue or maybe it'll be 5x to 7x your operating profit. It right. Like but you'd have to get those similar transactions from, from a third party.
[01:12:48] Speaker A: Okay.
Yeah. Def Kobe. We'll, we'll take this more offline.
Final thoughts. So let's, let's because we're in the interest of time. So best practices mistakes, you've seen lessons learned. Give me some, each of you give me, give us some wisdom you can impart to folks. I think you've already, we talked about a lot of it but maybe your final thoughts on this topic. We'll start with Olga.
[01:13:20] Speaker D: Well, so the best, I will start with best practices from evaluation standpoint. Obviously following standards, there are valuation standards, there's some level of creativity that can go in there but you have to make sure you are in compliance and it's, it's gonna, it's, it's, it's, it's gonna benefit the client because if, if you're using, if you, if you go, if, if you, if you, if you travel on an established route in compliance with the standards, your, your value range is going to be similar to, more similar closer to what the other appraisals are going to get. Now you've got to keep the communication line with legal team and accounting team with a client constantly just to make sure you talk all the time.
Again, you have to tailor your methodology to circumstances because there's no such a thing as like one formula that fits all. You've got to really be flexible here and you have to be prepared to be challenged by, by anybody, by the buyer, by the seller, by the legal team.
So that's as to best practices and lessons learned. Basically see the above. You have to, you have to outline the responsibility of each party in the project. What the client, the client and the appraiser in the engagement letter.
That's basically my, my view.
[01:14:48] Speaker A: Awesome. Thank you for that. I appreciate that. Olga. Thanks so much. Matt, what do you think?
[01:14:54] Speaker B: Yeah, I, I think that's you know, spot on advice. You know the, when you're an early stage company, you know, my advice is to, to be more internal in terms of looking at your business and focus on the things that you can really control.
And then as you get bigger, looking at external factors and what your competitors becomes more, more important.
But always kind of keep, keep what you can control. In your sites, particularly as it relates to your projections. Your projections for revenues and expenses are going to drive your valuation. And you've got to have a good handle on that if you want to be able to keep a good understanding of your value over time.
[01:15:44] Speaker A: And Eric, final thoughts?
[01:15:46] Speaker C: Sure. So just a couple of thoughts here on expectations upon the, the person who's looking for money. All right. This gets into just what it takes. Not necessarily about valuation.
It's a full time job. Okay. Is that's something that you'll have to understand that when you start to seek out money as the CEO, that you are the number one salesman, that's the largest sale you're going to make is to an investor. Okay. Especially your early stages. Right. I mean if you've got a million dollars in sales and you're selling the company, you know, investment on a valuation of 5 million, you just made a 5 million dollar sale. Okay. So understand as the CEO, you are the number one salesperson. You're selling the assets or the, you know, the units or shares in your company. So that's something that you need to keep in mind and that it can be very distractive. Okay. Now talking about distracting, I will get into best, you know, lessons learned. Make sure that you're pitching to people who understand your world. Right. I wouldn't necessarily go to Olga and talk to her about a software application and pitching when she's really, you know, to all due respect about music rights and copyright rights, although she probably could really help me on copyrights. But you know, as an individual investor, she's probably not all that interested in, you know, a text tech company. So really try to find like minds. Okay. I spent a lot of time going around the country raising, trying to raise capital, pitching to the wrong people. The people who you will, who you will pitch to will see it right away. They'll get it. You know, I, I remember in one deal I walked in and in the after, before I walked out the door, they made me delay my flight and they wrote me an mou. Okay right then and there that they got it it right then and there. And so that's a very important lesson learned is that don't. But and I would say one more thing on that is keep practicing. It's okay to fail. Fail a lot with pitching. Pitch your friends, pitch your family, keep pitching it. Keep going down that road because practice makes it perfect. And it's okay to have a couple of investors say no know, because now you're getting the questions that they're asking and you'll know how to sharpen your pencil better. And it's okay to have what I call the throwaways. There are some people I don't necessarily want to invest in me, but I'll still pitch them because I want to hear the questions they're going to ask me. This is very early stage stuff. As you start to get down into the mezzanine and the VC world, it becomes much more empirical and much more, you know, what's your due diligence list and all that good stuff. So it's very different. So that's my. Those are my lesson, lessons learned and some advice.
[01:18:40] Speaker A: Well, awesome.
Thank you. Olga and Eric and Matt really, really appreciate your time, your expertise, your knowledge. I encourage everyone to reach out. We think there was one or two questions we didn't get to, so please reach out.
Speaking of storytelling, we talked a lot about that, that and our next ESS, which is again the last Thursday of the month, February 27th, 12:00pm Eastern. It is all about storytelling. And we have some great people, a PR person who's going to be a speaker, somebody who kind of helps entrepreneurs with their kind of, like, media presence. We've never done a topic like that, so we're really excited about that. So look out for that. Look out for the video of this, which we will post with some recaps and stuff like that. So happy New Year to everyone. Thank you, Olga, Matt and Eric, and we'll see you all next time.
