Ryan Rutan: Welcome back to the episode of the start up therapy podcast. This is Ryan Ratan from start ups.com joined as always by Will Schroder, my friend, the founder and CEO of start-ups.com. Will. There's a lot of failure in the start up space and, and oftentimes we think of that as like abject failure, right? We were $20 million a year ago. We zero day, which I think you and I take a pretty different view on that and, and think about that in, in a different way and, and see those as, as having some value, right? We don't see a start up graveyard. We see a pirates beach littered with treasure. How much of that treasure have we found over the years?
Wil Schroter: An unbelievable amount, like tens of millions of dollars of revenue in what would otherwise have been discarded?
Ryan Rutan: Yeah, it would have been
Wil Schroter: shuttered. We've recovered 0.00001% of venture funded treasure. And so, so our findings are by far on the, the miniscule end of how much value there actually is. And I think it's gonna be interesting today because for a lot of folks, there's two sides to this, you run a start up and maybe it's funded and you're wondering right now, hey, what if we don't raise more money? Like, what actually happens to this asset? And we're gonna talk about that today? And two, you're like, hey, whatever happened to that one company, like this seemed like a great idea. Maybe it was and we'll talk about how we don't want to associate the business failing, or more specifically people bailing. Right. Right. Right. The product doesn't work because think of all your friends, think of all your boneheaded friends and think of them trying to operate your business and think of how well that would have gone. Right. Sometimes it's not the car, it's the driver, it happens. There's a whole bunch of reasons, these things happen and often it's not just the product of the opportunity, you
Ryan Rutan: know, the scale that starts to be implied based on venture funding, all of a sudden completely changes. Right. Like you build this giant machine, you, you build it, you buy a giant pickup, the biggest pickup you can find and you gotta, you now we need to be the haul, massive loads with this thing. Turns out there weren't massive loads to haul, there's still value in that thing. Right. Like there's still, we can still haul something, but it's not gonna hit $100 million. But if it hits 10, that's valuable to someone, just not the people that piled the money into it to begin with. And I, I think it'd be interesting to talk about that. But how much more of a problem is this when we talk about a venture funded company versus a bootstrapped company so differently? Is this ever really the same problem for a bootstrap
Wil Schroter: company? It's a great question. Rarely. Usually, by the time a bootstrap founder is looking to exit it, it's just a life change. Right. It's just you and me are running this on the side. We just had kids. We can't afford to do this for eight K of MRR a month. And you know, we just, we put it up on a, on a choir.com and hopefully somebody buys it right now. It's different though when you've got, you know, hundreds of thousands and in many cases, millions of dollars that have been invested in this because that has an entirely different tact to it. So let me lay the groundwork for this for so folks either that have been funded or haven't been funded, understand what's actually at play here and I've been through this multiple times firsthand. So I'm well aware of this situation. In fact, you know what, I'll tell this story, my own story. I'll explain it in terms of how did I see it firsthand? Ok, rewind back the year is 2007. We raised a very small amount of money in today's terms for afford it.com, which is our first amount of cash in, I think we raised a million too. It was back then was called a party round, which was new where you raised from its what more than one investor party's over. It really was. And I think, you know, I think we had like nine investors at the time. Uh but great investors, I founders fund was in there. Uh Dave mcclure before he started 500 start ups was leading that Mark Suster before he ever became, you know, the VC that he is today. Uh put money in personally who was the ceo of myspace and started a whole bunch of other stuff after that. Oh Did Dollar Shave Club? That one worked well. Yeah. Yeah, it went well. So we start the business and the business was buy stuff for weekly payments. And so we get into this, we take this million dollars and we spend it wisely. If I'm being honest, we spend it wisely, but we knew that wasn't gonna get us anywhere because in that business, you actually have to fund the products. You basically have to buy the products, whatever we're, we're running it as just basically a, a trial. We spend all the money, essentially, we make some money. We essentially prove that it works right. But we go out for more cash and it's the middle of the financial crisis. No one will give us a dollar. But, and this is, this is important, right? We didn't do anything wrong. I'm not saying, like, you know, we weren't responsible. I'm saying we literally could not have had worse timing on this. Right. In the fact that affirms a public company clar is public or whatever kind of indicates we were 10 years earlier, but on the right path, the concept
Ryan Rutan: was correct.
Wil Schroter: Yeah. Yeah. Yeah. The, yeah, that, that was working. So anyway, we run out of money. We essentially wind down the company because we can't raise any more money. Just again, the environment was terrible. But I'm sitting there and this is the first time I had, had a venture funded company that I had to wind down, it would not be the last. And I thought to myself, ok, well, like it was worth, let's call it $20 million yesterday. And now it's just magically worth zero. How's that possible? Yeah. How is that possible? And I thought to myself like, ok, well, what happens to the acid again? I'd never been through this before and it turns out no one gives a shit. No one cares what happens to the asset. I mean, generally. Right. I mean, ideally they'd love to get some back. But essentially what happens is that asset because the founder can't afford to, in most cases, the founder can't afford to maintain it and doesn't own it anymore, by the way. Right? The investors can't make it a return on it. So it's useless to them. Everyone just walks and this happens every single of it's happening at an epic level. It's happening to we work right now right at that level, right. You know, having raised $50 billion at a $50 billion valuation. So this is where it starts. The asset kind of hits a stopping point and has to walk away. Let's inventory. What's sitting on the shelf right now? Oh, man, millions of dollars of R and D, millions
Ryan Rutan: of dollars of R and D uh specific expertise, customer list, social profiles, traffic, maybe some revenue but not enough. It's funny, it, it always occur. It always feels to me it's like it's so contextual, right? It depends so much on the situation and who you're talking to at that point. Right? As to whether this has value or not, the problem is you're having the conversation with the people who had this different aspiration, this different trajectory that they saw. You know, it was as if like you were, you went to the investors with a glass of water in the desert right now. We're two years later, the water is gone and they go, the glass is useless. It's not right. The glass still has a value, not to somebody standing in a desert who's thirsty, right? Unless they want cute little sandcastles, but for somebody else, right, who's got all the water in the world, nothing tainted in it is worth something. And so I there, there are so many little assets. The team is an asset in a lot of cases, right? This is where we'll see things like aqui hires the customer list, the the social media problems, all that stuff. There, there, there are real, real value to those things. But again, the value may be so different from the expectation that it's easier to call it zero, then then to value it because there isn't enough value to make it worth doing anything in that context. But that's one context out of lots of other potential context, right?
Wil Schroter: Absolutely. And, and so first imagine that you have to understand that everyone is going to, to walk away. It sounds insane. You're like, wait, isn't this thing like worth something? And let me give you some examples of places where this has happened? Actually, you know, I, I, I'll give real world examples on some companies we've done deals with, we signed NDAS on all these. So there's certain things I just can't say I'll give you an example of one of the companies that, that we did a deal with uh was called clarity. The FM saying you, you obviously know this, but this was like 10 years ago and I'm gonna be incredibly complimentary as to where that business was when we bought it. OK. The founder Dan Martel had done a great job like Dan had done everything, right? He had raised from great partners. Like, you know, I, I remember like back then it was a big, big deal to get Mark Cuban was in the deal and a whole bunch of other people, it it just had incredible backers and, and people love Dan and he was a great entrepreneur. He had great traction. He absolutely proved that this model of being able to allow experts to be able to sell their time.
Ryan Rutan: And it was a marketplace, right? Tough, it was tough to build, he managed to bring people in on both sides, experts and information seekers, both sides of the marketplace did it.
Wil Schroter: Yeah, he raised millions of dollars. He used it very accurately, you know, like he used on the stuff you were supposed to use it on. He kept his burn low. Like Dan did everything, right? OK. I this is why like a lot of people saying, oh, this start up that like famously screwed everything up, you can do everything right? And still run out of money. There's a whole bunch of ways. And so Dan and I've known each other for a very long time and we sat down and he said, hey, man, I've got this business it's doing. I, I think it was like 60 $70,000 a month at the time. And he said it's, it's a good business. There's nothing wrong with it. And I love this business, but I can't raise more money on this business. And I have to, and again, for folks at home that, that aren't familiar with this once you start raising money, it never ends. Once you start raising money, you have to just keep raising money. Because the idea is those investors who put that initial money in are expecting a big outcome. That's kind of how this whole thing works. Using money, you essentially turn off the spigot of that opportunity. So Dan and I sit down and I said, hey, this actually syncs up well, because a lot of the advisor you have are exactly what start ups.com needs and we do a deal, you know, Dan moves on to do another company. Dan has been brushing it ever since. Like he's just unbelievable. I talked to him the other day and I can't believe how well he's doing, which is awesome to see. But my point is here is an asset that had tons of value, but because it wasn't going to be the venture funded outcome, Dan couldn't do anything with it and to his credit, he was smart enough to call it what it
Ryan Rutan: was. Yeah, he figured out and did the right thing again, right. Did the the most accurate thing he could do in the moment. I, I think we just have to simply draw like a, a really hard line here and say that there are two distinct kinds of value. There's more types of value than that, but there's two distinct kinds of value here. One is venture value and one is just business value, right? And in some cases, the venture value can go to zero, but the business value doesn't go to zero. Right. And I think we have to draw a really hard line there and, and, and appreciate that and say, like, look, there are times where this is gonna happen and that, that's ok. Right. That's ok. But it means a strong course correction to be able to get us back to a point where we can do something with it. Right.
Wil Schroter: For folks on the outside, we assume that maybe if a start up is it has failed or is up for sale or whatever that means it's broken in some way, in some ways. That's true. You know, in a lot of cases, like we had an idea of what a business could be and the idea just never panned out. Right. Fair enough. Ok.
Ryan Rutan: Important because I think we're also not saying that everything that's ever been done has some value. There's been plenty of things that have done. I've done many of them myself that had absolutely no value that could have been passed on and those just get shuttered, waded up and tossed in the round file.
Wil Schroter: Right. That's it. Absolutely. Now, let's stick with clarity for a second because I, you know, we both love that business and it's just an awesome business as a stand alone. Let's say it didn't go to us. I'm taking outside of the equation now. Right. Let's say it was just the two of us as just two founders that were looking to get into something. Yep. Sure. 60 to $70,000 of revenue to a company, you know, it's a bigger company just doesn't move the meter, right? Like if you were saying, hey, we're gonna go sell it to some massive company. Like what? That's a rounding error for their expense reports for a single apartment. Right. No one cares. And so it, it, it per perceptively doesn't have value.
Ryan Rutan: Yeah. Yeah. Or the VC level, right. Imagine going to like the limited partners and, and talking about, you know, we, we have this company that has a $40,000 MRR, you're never going to hear them say that they're never gonna introduce them.
Wil Schroter: Who cares? But to you and I coming into this, right, dude, we could fund our salaries for the rest of our lives, we could fund a small team of contractors, et cetera, you know, to kind of fill in gaps, et cetera. It is a gold mine for
Ryan Rutan: us again, business value versus venture value. There's plenty of business value there.
Wil Schroter: And so a couple of ways that, that we look at things, you know, as start up.com, all that really matters to us is how does it fit in the, the, the overall product roadmap for us and kind of helping our community. So, you know, we talked about this before, but we looked at over 100 companies before we did deals with sex. So, I mean, we've been through this more so than almost anybody.
Ryan Rutan: We have taken years off of our lives doing diligence.
Wil Schroter: Yes. Absolutely. Absolutely. So, we've gotten into the weeds with all these, the motivations are almost always the same. I want to point this out too. When I say that number one, the motivation is top motivation of all time of why they want to get out of it. Can't raise more money. V CS won't participate, you know, current investors, what have you won't participate? And great. Now I own 14% of this company. Like I'm not gonna keep running it right. Keep operating it, even if I'm getting a little bit of a salary for basically everybody else's benefit, right? So it's considered to be a broken cap table. Another situation is it made some money, but it never profitably made some money with the expenses. We have super important because when we raise money, we hire a bunch of people and we try to hire them at competitive salaries where we can. Now, we've just cranked up the Opex line, you know, usually salaries super high. So maybe at clarity, this isn't true. I'm making this up. But maybe at clarity, we hired all these people because we were trying to prep for VC growth and we've got 100 and $80,000 a month of operating expenses, which isn't unreal at
Ryan Rutan: all. No, no, no.
Wil Schroter: But if we have $60,000 for the re revenue. It's not enough. Right.
Ryan Rutan: Doesn't work, doesn't work for very long at that
Wil Schroter: rate. So, Ryan, in a lot of the cases, like what we're talking about here is it's a good business, just not with that opex.
Ryan Rutan: Exactly. Right. But that opex again, we gotta go back to the fact that Opex isn't tied necessarily directly to generating that level of revenue or to maintain that level of revenue. I think this is where it gets, where it gets confused a lot. It's like, ok, well, why would I buy that? How could I make that work? You wouldn't make it work in that way. But remember that was a venture funded company that had set this, you know, they took a couple early data points and said, ok, let's draw a line. Ok? We can get to $100 million. So now we're gonna do everything predicated on the fact that we're headed towards $100 million. At some point. You can, you can agree that like it's not $100 million company, maybe it's a $2 million company. Ok, let's point opex towards a $2 million outcome and get that right size, generate that revenue and move on and be fine, right. But it's, you know, there's so much blow, we talked about this in 100 other episodes, but there's so much that changes the minute we take on venture funding and the trajectory that we have to achieve to get those outcomes that everything else just starts to look unrealistic. Right? Well, if you take that away, strip away the need to create a venture outcome and just look at it from a business value perspective, all of a sudden, all kinds of avenues open back up again. And I think
Wil Schroter: what, what ends up happening is that from the outside, we look at the company and we make a cardinal mistake on the value we say, oh, that company raised at a $20 million valuation. So if, if I were to buy it, either as the founder of themselves or as somebody, a third party coming in that, you know, I'm gonna have to come up with $20 million or something like that. Is, that is so far from the truth, it's not even funny. But when the company hits the point at which it's run out of money, the value goes from 20 million to 0, 20 million to zero. Now everyone's gonna negotiate differently. That's their job, right? When I would sit down with founders, you know, those 100 plus and talk about the value of their company. I always had the same conversation. I said, look, founder, the founder, I'm not gonna try to like bullshit you. I don't really don't care if you do a deal with me or not, but here's what you need to know as a founder. And so we figure we only made six offers and we got six deals. But I definitely had that conversation with 94 other founders. And it's a tough conversation because I'm like, I get it five seconds ago, you were worth $20 million or, you know, some version of a variant of that, but now it's zero. And again, I don't care if you sell it to me or not. But understand that moving forward that 20 million is the valuation is gone. It's like it never happened in the moment you specifically the founders, the value is actually zero. I
Ryan Rutan: I think we have to remember like how evaluation works and what it really is, it's generally a projected value. It's not really the value of the company in that moment. It's the value of opportunity to your point, right? It was 20 million. Now it's not, it kind of never was right. You basically said we're going to make this worth that, but then we didn't. So now it's worth something else. And in most cases at that point, because you can't raise more funds, you don't have enough money to keep operating at the current burn rate and level. So now it's worth zero. Again, from a venture perspective, it's worth zero,
Wil Schroter: right? And so so with that said, we look at this and we say, OK, there's almost a negative value to it as well because these things tend to shut down, quickly, wind down costs. Yeah, wind down costs, et
Ryan Rutan: cetera, unpaid salaries, all kinds of stuff. Huge
Wil Schroter: part, people don't understand. Right. Exactly. Yeah. Yeah. There's a ton of liability with no one to pay. Yeah. Right. Part
Ryan Rutan: of the reason everybody runs for
Wil Schroter: the hills. Yeah. Yeah. Usually the founding team gets stuck with all of this. Right. It's, it's bullshit but whatever. So at some point there's an incentive just to get rid of it for anything. Right. Important point. And folks that are thinking about either, you know, acquiring a start up that they've started or, you know, from the investors or looking at, you know, doing a deal, like, like we did understand that from the investor standpoint, the cash they'll get out of a sale is a huge net loss. And a lot of people don't understand this. They don't understand that most investors particularly V CS can't do anything with selling something for hundreds of thousands of dollars. That actually it's a nuisance for them at best, what they would like was for them to get some stock in your company, basically whoever the acquiring entity is. So they don't have to write down the investment and they can show their LP S that there's some, some future value there, right? So there's a whole bunch of venture funds somewhere out in the world, some miniscule stake of, of the upside of start up dot dot com if and when we ever sell, but the benefit to them was they didn't have to write off the whole investment, which is incredibly important. And uh you know, hey, if we go and sell for a billion dollars, you know, be happy to stroke that check back to them. But point is most of the investors aren't trying to get cash out of it. Individual investors angels different because that actually goes directly back to them. But for most V CS, they're just like, look man, I'd rather have some sort of future lottery ticket upside. Then the paltry amount of cash that we're gonna pull out of this. You know, something that's really funny about everything we talk about here is that none of it is new. Everything you're dealing with right now has been done 1000 times before you, which means the answer already exists. You may just not know it, but that's ok. That's kind of what we're here to do. We talk about this stuff on the show, but we actually solve these problems all day long at groups dot Start ups.com. So if of this sounds familiar, stop guessing about what to do. Let us just give you the answers to the test and be done with it.
Ryan Rutan: Like you said, it's a nuisance for them. There's no way for them to distribute that. It doesn't benefit them in any real way. It's not like, oh, well, it reduces the loss, but now it doesn't, doesn't change things. Absolutely.
Wil Schroter: Now, once the asset is in that state, you know, once it's a state where it kind of has negative value, it's actually nuisance value. You know what? I equate it to think of stuff at your house. That's hard to throw away. Right where you have to pay someone to actually throw it away. Like it has value. Think of like an old refrigerator. Like, technically it still works, but now it's just stuck there. You bought a new one. Like, what do I do with this thing? Right? And you have to pay someone to take it away. That's essentially what the V CS think of their portfolio companies at which point they'd hit that threshold anyway. So we then look at it and say, OK, cool. So what happens next? Like, oh can I buy this thing? Like if I do buy this thing, who do I owe? How does it work? It's fascinating because realistically once it hits a negative value, you can kind of write your own ticket. Now, the deals that we did and again, we're under nd A. So I, I can't be too specific, but the deals we did, we were incredibly fair. They were a combination of here's some cash, you know, to cover expenses, whatever and here's some future upset, right? And they, they worked out, you know, well, that said we looked at them as here's a massive amount of value that we're acquiring overnight. And Ryan, you and I talked about this before. How many customers did we get? Right? Like that. Yeah,
Ryan Rutan: all of a sudden, right? I mean, we, we did it, we did one acquisition just to get content, in fact, right? We knew that there wasn't great business value there and that was why it was available. But the content value for us represented something very, very different and and this is often how these deals happen, right? Like you what again, what was useless or valueless in a venture context, maybe not even as business value, but as additive business value. If you have an audience that immediately benefits from something that other company has, you can just simply deploy to your existing customer list or if you have something that you can deploy to their existing customer list, this works out great. Ideally, it's both, right? But there's always like the there, there's so often and I think this is why you and I both care about this so much, there's so much value is just allowed to rot on the vine, right? Because venture value went to zero. So much of this value just turns into nothing, right? It just sits out there decays and and disappears.
Wil Schroter: Here's where it gets a little bit tricky though for the founder to be the one making this acquisition, right? This happens a lot and I and I coach a lot of my founder friends through this process because it's wonky. So you and I start something and we get it to say, let's say we started clarity. Great example, right? We get it to say 6070 kmrr, but we're not gonna be able to raise more money. The investors are getting anxious. And let's say you and I, at that point, we probably own f and each at best of the company. And we're like, oh, and that's going to decline as we raise more money. But let's say we don't, we go back to the, the investors and we say, hey, this thing, this asset that, you know, you backed us on with this, these big dreams isn't going to happen, that dream isn't going to happen. Number one, we feel like crap. Right. It's hard to go back to the people that bet on you and say just kidding because it's your fault. Really? Right. Yeah,
Ryan Rutan: it's tough because at that point, you know, the, the most jaded view or even just a very pragmatic view of that is ok. So it's not gonna do what you told me it was and now you wanna buy it back because it will benefit you, but it won't benefit me. But the buyback also won't benefit me. Go screw. Exactly. It's sort of how that conversation goes.
Wil Schroter: Here's, it's hilarious if you and I go back as the founders to clarity, we were the Dan Martel. If you will, uh if we go back to the, as the founders to our investors and have that conversation, we get a giant middle finger for, for all those reasons we just described. But if you and I show up at start ups.com and say we want to do the exact same deal. People are like, well, damn, dude, it's, you know, it's better than alternatives right now. This you gotta listen to what these guys have to say, right? Same deal. So, you know, folks that are listening and say, OK, well, well, how does that help me if I'm a founder? One of the ways you could do this is bring in a third party, a partner essentially, right? Almost like an angel investor. But somebody to help kind of, you know, lead the discussion and serve as a proxy for that discussion, uh very effective.
Ryan Rutan: Yeah, we've seen this happen plenty of times, you
Wil Schroter: bet. And so because the founders justifiably, so I went through the same thing with that afforded deal. Like I was like, I kind of want this asset, but I don't know how to ask for it. Honestly,
Ryan Rutan: I want, but I don't want to be, I don't want to get my hands slapped when I go and try and take
Wil Schroter: it. Yeah. Yeah. And the reality is in retrospect, you know, knowing all those folks that were involved, they sold and probably been fine with it. But the truth be told, I was, I was too afraid to ask at the time. But anyway, you know, when we look at this and we think to ourselves. Ok. This is a great asset. You know, how do we get involved? A couple of things, you know, that I, I think are, are relatively important here. One is that whatever, like we said before, whatever was worth before is not what you're competing against, you know, they raised $20 million. Right. Ironically, right now we mentioned, but Adam Newman, the founder of we were currently, as we speak, he's working on a bid to buy back. We work. And the irony is the only reason he has all the money, that's because he got it from their fundraisers, which is amazing. Yeah, just the plot twist there is great. But my point is for the founder to go back and kind of make that offer. They have to completely ignore everything that happened up until now, right?
Ryan Rutan: Which by the way, that's part of the crux of that challenge is that as the founder, it's a lot harder to ignore that number because you know that number, you know that number real well because you asked for it and you fought for it. You got it. This is where like that third party or the proxy coming in. It's a lot easier because you're like, well, I don't know how much you raised like, ok, cool. You raised 20 million. I wasn't involved in that. That's not my fault. I am just here to do what's gonna happen next as the founder. It's a lot harder, right? You can't just pop on some Groucho Marx glasses and walk in and be like, hey, you want a cigar and I would like to buy your company. Yeah, I know.
Wil Schroter: And so a lot of times, you know, I was the a hole voice of reason initially for the founder because all I, you know, our whole thing is all we really care about the founders. We don't really like the deal gets done great. But at the end of the day, we want to make sure the founder is ok. But then really to the investors and really what we're talking about, their attorneys, be able to say, look, dude, I get it, I get it. It was worth $20 million number you made up. But you know, you think it's worth $20 million it's worth $20,000. Now also
Ryan Rutan: that right? Like a number you made up, right? Yeah, we agreed on this number. We agreed to ignore the fact that none of us had any idea if that was the right number or
Wil Schroter: not. To be honest, there isn't that much, much push back on that fact. I mean, fairly well understood most of it has to do with the amount of money put in. So if somebody puts a 3 million into the business, it has less to do with it. Oh, we did a million pre it's more to do with how do I get my $3 million? Back and again, part of that discussion is, dude, you didn't, you're not right. It doesn't work like that. Think of everybody in crypto. How do you get your money back? You do not? It's gone, right? And, and so be it so be it. Some investors have a harder time understanding that than others, frankly, less professional investors,
Ryan Rutan: dude. I'm so good that you brought this up. I just wanted to go there. So, yeah, I've, we've seen this time and time again where people who write less checks don't have the same understanding is right? So I've actually seen like some of the biggest a holes that I've seen, sadly like just blow up deals over ego, over spite weren't on the venture side. They were the one time angel in some cases, these were people's family members, right? This was like the uncle who was the hell you're gonna get a salary. I gave you $25,000 that I didn't have like, well, shame on
Wil Schroter: you. Well, it sucks all around, right? But if we look past that for a second, a pragmatic view would be if you were an investor and again, more experienced investors have the be having gone through this enough times of understanding, you know, how to do right by the deal, how to do right by the founders in some cases, or pragmatic investor is going to look man, I already know the value zero. If I can get a number better than zero. They're not literally saying this, that'd be the worst negotiating tactic ever, but it's kind of well understood that that's the way they see it founder in a different spot. They're everything, right. So the idea that that it's now worth zero is just absolute soul crushing. Right. Again, a fact that, that we were very kind to when we had these discussions with folks. I was like, dude, I, I know you've lost everything, you know, as far as your equity value in this not overlooking that we have to figure out what V two looks like. You know, if we just sit around and cry about V one, it sucks. It's awful. I'm not being, you know, inconsiderate, but if, if you want to find a way forward, you have to kind of reset the chains and say, OK, now what is important to us? Right. Yeah,
Ryan Rutan: exactly. Yeah, we gotta, you gotta start to think recycle, re, accelerate, reuse, upcycle. Like how do we turn this? Because we know there was value created, right? I mean, again, not always, but in 95% of the cases, there's going to be some intrinsic value to the business. It will have done something whether that's just brand value, you know, get customer list, all that stuff we talked about or there's something there in most cases. And so, you know, the idea that because it just didn't do exactly what we thought we should ignore it completely and just let it rot. Pretty dumb. Right. That there needs to be a better, a better model for this and it clearly, like it does happen. Right. These conversations do happen. But if you just had to make a rough guess and I, I know I'm, I'm asking for a gut reaction here, what percentage of start ups that get into this state actually do find a meaningful path
Wil Schroter: forward. I'd be shocked if it's over 10%. Ok.
Ryan Rutan: Yeah. Iii I would, I wouldn't have been surprised if you'd say I, I was shocked if it was over 2%.
Wil Schroter: Yeah, I was gonna say, you know, I don't think I'm being generous here also. There are a lot of kind of weird deals that get done, you know, like the equivalent of your Aqua hires, things like that. But it's a very small percentage because company hard to sell, right? Especially ones that have just failed because once the ones that have just failed, there's really nowhere to take them. Right. You know, so my buddy, uh Andrew Gaz Decky runs acquire.com and it's a marketplace where people can put, you know, deals that they have in companies that they want to sell. Uh, and it's awesome. They have a great buyer base, but it's limited. I mean, just the nature of it. There, there are far more people that want to unload something than people who like, have an interest in buying your shit and hoping it turns out now that said having been through this process extensively over what's essentially a 10 year cohort. So good times, bad times Ryan, I ran the math the other day, we've had a 50 X return on our investment in acquiring start ups. Unbelievable. Right. I mean, like almost no way we could have replicated that doing anything.
Ryan Rutan: So does that mean we're beating VC on a percentage basis at this point?
Wil Schroter: We need top quartile. But yeah, man, a lot of it has to make sure you're not overpay. That's kind of like the private equity route. But, but that wasn't even that just because we were able to extract and create more value than you know what we were handed over a long enough period of time. If you look at it in a short period of time, that's why I said the cohort and you said, well, you know, what was the rate return to the Roy like in 18 months negative? But once you get that thing cranking in over a long enough period of time, you know, it's a bit of an ATM by comparison if you're doing it right, if, if you're doing it right and those assets have been phenomenal for us.
Ryan Rutan: Yeah. And I think that, you know, let's stick on the assets concept for a minute because I think part of the challenge is that in, in a lot of these cases, like if you use a choir.com as a, as a, as a proxy for this discussion, they're still trying to sell the entire thing. Right. So we go from, so let, let's, let's break it down a step further. There's, there's venture value that's going to zero. There's business value in some cases, there isn't enough business value. It's not obvious enough that we wanna move forward with that, that may go to zero and then there's the asset value, not that I want to create like a scrap yard for, for start up companies, but a big like I, how often have you seen somebody trying to raise funding to go and software develop something that's clearly been done 1000 other times and then died on the vine for some one reason or another, some component of it, maybe not the business itself. I'm not saying they're building the same thing, but they're gonna go through the same damn process of building a component of it, then somebody else has to go by, right? And this is where things like imagine if we were all still, you know, hand coding websites like you and I used to do back in the nineties, right? Thank you wordpress. Thank you, Wix. Thank you. All these other places that have made this easier to get something basic off the ground, right? Similar concept here, there are all of these micro assets within the larger asset. And I think part of the challenge is when we try to consider them as a package. Sometimes we don't want the package deal, but if we could walk up and down the line and buffet shop from the start ups and say like, you know what the only thing of value to us is your customer list and it has a fairly significant value to us and so we can pay you for that. I think part of the challenge becomes, it's like you gotta take it hook line and sync as opposed to just being able to pay off the pieces that matter most to you. We'd probably see a far higher take rate, at least in, in terms of the number of start ups who were positively impacted in this negative situation of losing venture and maybe even business
Wil Schroter: value. I agree. Here's what I would say. I think for a lot of founders, again, both the folks that have started these companies or maybe some founders that are just kind of thinking, hey, interesting asset that that one person bill could be a friend of yours, right? That I still think there's some life in there is a ton of life. There, most people just aren't willing to be creative how to look at those assets. Again, they look at the word failure and they just assume it's, it's completely absolute that didn't work for that company. So it can't work bullshit, right? I've got some publicly traded symbols called an affirming that would tell you a very different story about my path versus theirs in the right hands. It's a different company and there's plenty of, you know, of history there. Well, I think, I think
Ryan Rutan: we have to consider too, like the life in the business versus the life and the founder of the founding team. Sometimes it's just like we just don't have the energy to do this anymore at the rate that it's going. Right. We're just burnt out, we're just done. That's kind of where I was right. When I sold the first agency, I wasn't in a position where from a business standpoint, I needed to sell it. Right. And, and interestingly enough, it was one of the assets. It was actually my customer list that got me acquired because they looked at and they went cute that you're doing like, you know, 5 $10 million with these folks, we could do 50 million each of them per year, but we can't get in. So that was part of what made me attractive. The reason that I wanted to sell at that point was I was just burnt out from running. That business is no longer the fun thing that I started in my college dorm room. It was now this thing that was, you know, eating me up and, and tearing me in a lot of different directions. And I was doing all the parts of the business that I never imagined would exist and hated by the way. So it's like I was getting to the point where I, I probably would have decided to shutter it and just gone on to do something else. Like, for the amount of money that I was making at the time and the amount of enjoyment I was taking away from it, which had gone to near zero. Like the enjoyment value had gone to zero for me. I would have been looking to do something different. And, and so, you know, it, at that point, some of those assets were were there. But again, like at that point, there was still business value, there was still life in the business, there was no life left in me. I was tired, I was worn out and therefore something had to give at that point.
Wil Schroter: And I think a lot of the value is in bringing that new life back into the business, right? What I've seen in some cases were the founders themselves now that they realize they can actually extract upside. That's all I needed. You know, it was a $1.2 million a RR business, not setting the world on fire, but as soon as you and I said, but hey, now it's our money and if this thing makes an extra 50,000 or $100,000 in net this year, which would have been meaningless u under the previous regime, we take that home, you know, we're making down payments on life changing. Decisions. That's a big deal. That's a massive change and frankly like part of that, that second wind. So I think for a lot of folks, you know, that are listening and they're saying, you know, hey, can I buy my asset back? Can I find other assets? The answer is, yes, you absolutely can. You gotta be a little bit aggressive, aggressive, just meaning you can't give up at the first sign of, of somebody pushing back. I think you gotta be a little bit creative. So you don't have a million dollars to buy the business rev share. You're gonna pay them a percentage of what you make over a period of time. You're gonna offer some stock in the company so they can get some, some upside that way. You need to be aggressive, you need to be creative, you need to be willing to take a chance over a long period of time. You're gonna ingest this thing, realize that it's got a bunch of somebody else's crap and you're gonna have to deal with that something we did nonstop, but we were actually fairly good at it. But to be honest, if you can make it through those three gates, if you can do those three things, there's a ton of treasure out there. And the only thing stopping you from getting is digging. So in addition to all the stuff related to founder groups, you've also got full access to everything on start ups.com that includes all of our education tracks which will be funding customer acquisition, even how to manage your monthly financers. There's so, so much stuff in there. All of our software including BIZ plan for putting together detailed business plans and financials launch rock for attracting early customers and of course, fundable for attracting investment capital. When you log into the start ups.com site, you'll find all of these resources available.