Transcript of The $50M Exit Playbook Most Founders Don't Know - Chris Van Dusen

Welcome to the Proven podcast, where it doesn't matter what you think, only what you can prove. On this episode, Chris shares he helps founders navigate venture capital, understand what investors actually want, and turn million-dollar ideas into multimillion-dollar exits. This one's unforgiving, unrelenting, and it's just trying to help. The show starts now. All right, everybody. Welcome back to the show. I'm excited to have Chris with you. Thank you so much for joining.

Thank you so much for having me. I'm really excited to be here. Absolutely.

There's a bunch of people who don't know who you are. If you could get everybody caught up, that would be amazing.

Absolutely. Chris Van Duzen, Senior Partner, Slico Capital. We're an early-stage, growth-stage venture firm. Home office is out of Rochester, Michigan. We have offices in Dallas, Louisville, Miami, as well as I'm out here in California.

We're here at Skull County. Here at Skull County. Thank you guys for doing that. Can you tell people a little bit about your history of what you've done that's allowed you to get to this point?

Absolutely. I grew up in the Northeast. Wasn't always from this nice sunshine-laden place here in California. I grew up in Connecticut, went to school at the College of William Mary in Virginia, graduate degree in economics. I actually played baseball at a fairly high level. Thought that's what I was going to do. I know the feeling. Yeah, unfortunately, Tommy John is what was the destiny of my future.

I just couldn't find a strike zone. I was my problem. I didn't an hour in fastball, and I kept hitting the guy. I don't know where it was.

So graduate degree in economics, started in sales, ended up in finance, moved out to California at the end of '09. Problem is, there was this little thing called a real estate recession that was happening. I don't know what you're talking about. A whole much bigger thing That's right. When I got here, a company I came out for went BK, went bankrupt. I'm now this marooned person in beautiful Southern California. A little cost of living difference between Williamsburg, Virginia. A little bit. Just a smidge. Just a smidge. Just a smidge. Just a smidge. Just a smidge. It was this accidental entrepreneur. It wasn't something I set out to do. I ended up starting a marketing firm, met my wife shortly after she started a firm. We ended up merging those back in 2018, which was fun. Part of the reason we did is I had the opportunity to start what ended up being the second largest CPD brand in the world with a few other people. We sold that in '21. Co-found a liquor distillery, sold that in '21. A beauty care brand in '19. It was just this crazy five-year period of my life. But in 2017, I also met this guy, John Garcia, who founded Psycho Capital.

I loved what they were doing. It was totally different than traditional venture. The opportunity to join beginning of '22 in January as a senior partner. That's what I do now. I absolutely love it.

What What you guys do there a lot is you help people exit, you help people in that whole process. There's a lot of stuff you and I are going to go over in this that's going to leave people in the dust. Sure. Let's get everybody caught up on some terms when we go into this. We're talking about exits, and we're talking about EBITDA, we're talking I think that's going to get everyone caught up on some basic ones just so they can understand what we're doing as we go into this. Absolutely.

Let's actually just look at it as the life cycle of a company. Let's say me and you had a great idea. Maybe we have our own cash. We're going to work there. Hopefully, we're going to produce something that we say, Okay, that's interesting. It could be the MVP, minimum viable product for a tech company, for a SaaS business. It could be a new widget or a new apparel, whatever it is. We're going to use our own capital traditionally, and we're going to try to get something going. Or we're going to do what we call a friends and family round. Yes, that's where we go out, professional panhandlers, and we go to our friends and family. But what's funny is it's actually a really important time because these are the people that love you, trust you, want to see you succeed. I always say, if you can't get that, then you should probably question whether or not that was the best idea. Friends and family round, it's also where you start talking about the angel investing. Usually at that point, you now have some seed capital. You're going out and you're trying to do a little bit more, maybe try and get it on some shelf space, or you're finishing R&D, or you're making your first order.

Then you're going to move into what they call pre-seed or seed rounds. And that's where you're going out traditionally now, to more institutional type capital. And what I mean by that is venture firms or family office, people outside of your network, and you're now going to bring in capital to grow to that next phase. Then there's what I call Alphabetsoup. So there's A, B, C, A, extension, B, extension, A, E, two. Everyone has their own names. But the reason why I say this is this is all the different funding mechanisms that go along till eventually you get to size where you're profitable. You use the word EBITDA, right? You have EBITDA, which is earnings before interest, depreciation, taxes, and amortization. It really means-In your profit dollars. As you're on your growth trajectory towards that, as you get up to that level, maybe you're a target for a rollup, and that would be a private equity term, meaning someone is sitting out there going, If I took 10 of these businesses, five of these businesses, and put them together, and then shored up all of the back office or allowed for selling contracts to be against all 10, I'm going to make the business more valuable from an EBITDA perspective, from a product perspective.

As things grow, so do their values on an enterprise level. Maybe you're a target for that. Maybe you're a target to go public because you're that large. But you just looked at a company that was an idea through funding mechanisms, through growth, to get to where they're either sold or they go public, or they just continue to be amazing cash flow generating machines.

There's a lot of things you went over there. There's a lot of different things that we have to pull back on. What is the difference if someone says, I'm an angel investor versus VC? What is the difference in that dynamic for most people?

Traditionally, it's whether or not you have a firm and you're raising outside capital. That's the biggest thing. Right now, if you have a company, and I had money in my bank account, and I said, I believe in what you're and wrote you a check, that's an angel investment. Now, it also is what stage? When you look at it from a venture perspective, I'm a, let's call it syndicator or I'm a sponsor. What ends up happening is I go, Hey, I really like this company. We're going to put together a deal, a fund, some we'll call it vehicle that we can go out and go to others, receive their capital as a money manager. Now we're going to invest that money into this company. But we're the ones that hold the keys to being able to make that investment. All right. So one is, I call it binary. One is saying, I have my own money and I'd like to invest a small amount in these emerging companies. And the other might be a venture that likes the same type of deals, but is using a vehicle, meaning using a fund or some structure, some product, that they're going to raise a bunch of money, and then that might be one investment amongst many others.

It's interesting to talk about one investment amongst many others because a lot of people say, Hey, I'm going to come in, I'm going to buy this one company. They say, I'm selling my company. My first company ever sold was an IT company. Like, Hey, I'm going to sell this one company. For me, it was a one-to-one ratio, which was like, It was sold, it was sold. It was gone. It was very rare. It happened. It was great. As I've gotten bigger, and as I've learned this, you will purchase five or six of them because I think it's called rolling them up. You roll them up into one, and this way, they're worth more. The problem is most people, when they're sitting here, what is the proven path? What is the way that I go from, Hey, I have this fun idea. I want to get funded. I want to do all these things. What are the proven things you can do inside your org? If you walk through and you go in and say, Hey, I want to do this. I want to get to the point of either getting someone to invest in me or getting to the point where I can even say, Okay, I've got this.

I want to sell it. I'm burnt out, which, of course, never happens to entrepreneurs. Never at all. Never at all. Hey, our weeks are nice vacations. Going into the situation when you go into a company and say, Okay, you're struggling. This is where you are. If you want to be more attractive to investors, no matter how they are, there's very specific things you need to do, be it culture, be it systems, be it whatever it is. When you've walked in, because you've had a lot of exposure to this, what are some of the things that when you walk in, like, Okay, these are the core five or six things that you need to do this before we can even talk about getting the next round of funding.

Yeah, it's really stage dependent. If you're an early stage company, so let's say that angel investing or pre-seed or seed, you might be in revenue, you might not be. You might hopefully have your R&D done enough to have that thing that we're looking at going, Oh, I see what you're doing. What's hard is now putting a valuation on that. There's a bunch of mechanisms you can do, which I'll save everyone from, to be able to say, Okay, you don't have a value today, but we believe in what you're doing, so we still want to invest.

What gives you... Sorry to interrupt. Why do you sit there and say it doesn't have a value? If someone comes in and is like, Hey, I want to sell this. I want to do this. This is who I am as an organization. You don't have value. Because a lot of these people, they don't understand, and this is a problem with most business owners, they understand that their business is not their identity. That's two completely different conversations. So they'll take it personally. When you go to someone and say, You do not have value, what does that mean to an owner?

Yeah. So let's look at it as two different stages on that on that trajectory we talked about earlier. If you're an early stage company, you have no sales, you have no EBITDA, you have an amazing new product that you put some money into, I can't value you because I'm valuing assumption. I'm not valuing guarantees. Now, let's say you have $3 million in sales, but you're not profitable. Got you. Okay, you have sales, not profitable. So now I'm looking and going, Okay, what are your sales contracts? We have this very long in-depth due diligence process, but it's still hard to put a true value on you at this point. Now, let's go to the far other side and say you're a business doing $50 million in revenue, $5 million in EBITDA. Okay, I can put an enterprise value against you. Because it's tangible. Because it's tangible. And so when you look at this continuum, The earlier you are, the harder it is to peg value. What will end up happening, and I'll explain, one vehicle is what's called a capped safe. What that means is I'm going to invest in you at no valuation, but I'm going to give you $100,000.

Usually that safe will have a value in the future. Let's call it $10 million. Then traditionally, because I'm doing it now and taking a lot of execution risk, you haven't sold anything yet. We don't know if you have product market fit. We don't know if you have anything. Then I'm going to get a 20% discount on that round. So 10 minus 20%, $8 million valuation for my $100,000.

I think most people don't know that there's multiple rounds. When you're doing- Multiple rounds. There's always multiple rounds. How you negotiate those rounds are important because most people think, Hey, I'm going I'm just going to sell the business. I'm done with it, I'm just going to sell it. Not understanding that there's probably going to be more rounds coming. And if you're the business owner, there's ways to get residual from this for a very long time if you've done this effectively.

Well, what's interesting, just to rip off that, is let's assume we do peg a on that company that has no sales and no EBITDA and just a product. Well, you're worth a million dollars, and you need $500,000 to do your next thing. So you're going to give me 50 % of your company? Probably not. So instead, you're saying, I still need the half million, and you have individuals who invest at that level, meaning at that time frame, and would say, Okay, I believe you can get there. So 10 million is the cap like I used before, and I want the discount. When you're all the way to the other side, Trade. Now I can say, Okay, in your industry, SaaS, advanced manufacturing, name the industry vertical, you trade, meaning your value is based on 3, 5, 10 times your EBITDA. So that $5 million in EBITDA times, call it 10, your business is worth $50 million. They're like, Wait, but I'm doing $50 million in sales. You're making $5 million.

People don't understand that. There's There's a difference between gross and net. There's a huge difference. When you talk about verticals, because everyone goes as an entrepreneur because they have this great idea. They sat down and they said, Hey, I've got grandma's cookies and grandma's cookies recipe, which is great, but no one but you and grandma want to eat them. Go do something else that's going to create because know what your real goal is. If your goal is to create freedom, it's a very different conversation than I want to create grandma's cookies.

Well, let's brief on that. Okay. Because this idea of I want to create freedom, and I talk about the entrepreneurial journey. I've had the few exits that I've had, but I've been around entrepreneurs and inside of Our company, we have 40 different portfolio companies. I'm around CEOs, entrepreneurs, people with big dreams all the time. If you start your entrepreneurial journey thinking, I'm going to have work-life balance, you are thinking of it wrong.

A hundred %.

I agree. You are saying you are signing up for a 24/7, 365 slog, and only luckiest are successful. Yes.

I think the best example I've heard of this was, you're going to work this much in your life. That's how much You can either do it in three years or 30 years. It's not going to change the amount that you have to work, though. So you've got this much. You've got to pay that piper. So it's the conversation of, I don't want to have a 9: 00 to 5: 00. Okay, so then you just work 5: 00 to 5: 00, just all the time.

So congratulations, if you don't have a 9: 00 to 5: 00 anymore.

You just have it all the time. Just all the time. Just all the time.

What's interesting, we romanticize this idea of being an entrepreneur. And by the way, I love it. I loved it. I love it still.

Yes, but I don't think people should be that. Because there's some people who have entrepreneurial traits, and they're adorable. And I like them because I watch our tank and I'm like, You're very cute. Please go away. Yes. And then there's the people. The easiest way I get people to figure this out is you do a word association game. If I say cat, you say dog, if I say house, you say whatever it is. If I say employee and you spit out check. Congratulations. You're an employee. Yes. If I say employee or job and you get angry at me uncontrollably and you want to stab me in the face, you might just be an entrepreneur.

You might just be an entrepreneur.

Because it's a different narrative, and people don't get that. People go in, they because our society, just like now it's cool to look at Marvel, because when I was in high school, it was not cool to read comic books. It was so much cooler. It was never been cool. And now it's all of a sudden cool to be an entrepreneur. I became an entrepreneur because it's who I was. I'm hireable, I'm not employable. If you're employable, you might not be an entrepreneur. And I think it's a big differentiation.

I think you're spot on. I think also just, again, to build on it, one of the things I see inside of a lot of early growth stage companies is they've either now gotten their glide path or they're about ready to get it, and they've been working so hard. Traditionally, it is founder or cofounders-led or those first couple of employees who really bought into the vision. As you scale, what sometimes gets lost is the fact that while you are the entrepreneur, you are the 100% arbiter of the vision and the culture, but your employees sometimes are employees. Putting your values down stream on people who don't share that is sometimes really tough. It's really understanding at one point, do you get managers who truly understand how to manage the people who are there for work? Now, great culture means they're going to over index the amount of effort they're going to put in. But an employee is an employee even at startup companies, and sometimes that is lost. I think it's important as we talk about culture. Yes. To understand you can't push down to your 300th higher. Look at them in the same way as you did higher number one.

I think you can brute force your first seven figures, maybe beginning of eight, you can brute forth this as an entrepreneur. You can just put your head down and go through walls. At some point, when you get past that $10 million mark, all of a sudden, it's like, okay, now I need to start to look at things different. I need to look at systems. I need to look at culture. I need to look at decentralized I need to change the way I operate. For most entrepreneurs, they're burnt out at that point. They're absolutely fried. That's from my experience, that's when they go hunting for people like you. They go, Okay, give me money. My stuff is great. We're like, That's adorable. What do your numbers look like? You're like, No, but it's great. It's really special and it's shiny. You're like, Shut up. Give me your numbers. I think as they go through that, there's a couple of things where when you talk about verticals earlier, what are the verticals that you've seen that not only have succeeded the most, but are the easiest to get funding for? Please don't say crypto. I might hit you with a mic.

I will not say crypto. No. No crypto projects. We actually are investing that. Today, right now, anything in AI is really hot. But if you take a step back, Really solidly thought out businesses. There's a great GP at Benchmark Capital. I've drawn a blank on his name, and I really apologize. If he hears this, I apologize for not calling you out. Truly understanding what you're trying to do. There's an old Another thing we talked about in marketing, I used to have a marketing firm, which was everyone wanted to sell speeds and feeds back in marketing. So think the old-school computers. Think this RAM, this hard drive, this Whatever it was, but we call it speed and feeds, all your product benefits. But Apple comes out and just tells you how you feel when you use it.

Identity.

That change is fundamentally very interesting. And there's a piece where I think every founder, every co founder needs to have a little PT Barnum, not the good part of it, the showman, not the bad part, but be able to weave a yarn, be able to tell a story, and be able to say this is what's in it for you, because at the end of the day, the speeds and feeds will only get you so far. It doesn't mean that they're not important, but it's truly being able to tell that story.

I think it's the idea that people don't buy product and services. They never have. They buy stories, identities, and ways out of pain. You understood this, you're in a marketing company. You and them still have marketing companies, agencies. As you're going through those and those verticals, I I still think it's the idea that if it works and it's simple and it's needed, I've always seen funding to those happen fast. If it's something that's fluff, it's your grandma's recipe, you might have a bad day.

You go through and really where that GP benchmark told the story is, sell me the wind, don't sell me the sail. Don't sell me the beam if you're selling me a sailboat. Because even crappy boats catch flight if the wind's good enough. What are you doing in a certain market that you either have an unfair knowledge set in or experience, or are you innovating in a current market or are you building a new one? Then if it's a new one, why is that one going to exist meaningfully? What consumer data have you actually mined to know this is going to work? Do you have commitments already from big companies? Do you understand the incumbents? Because one mistake that entrepreneurs make a lot is they say, I have designed something that works for everyone, everywhere, anytime, always. And you're going, Well, maybe, but probably not. We talk about it again in the little stories of I'd rather you an inch wide and a mile deep-inch wide and a mile deep. The other way. That's exactly what I was going to say. An inch wide and a mile deep. And an inch deep. Really what it is, is you could have the greatest, and I'll just use CRM software that starts in health care, and you're killing it.

You're like, I'm going to insurance. You're like, Yeah, but do you know that well enough? And maybe you do. But then I'm also going to mortgage, and I'm also going over here. You just keep saying, I can tackle it. And what you don't know is, what are the incumbents? How long are the contracts? Is this a long sales cycle? Who owns it and why? And that education chasm, you can't be an expert at everything all at once. Or maybe you can, if we were back in the old school days where you just get a couple of hundred million dollars dropped on you, pre-revenue, kidding. Wasn't that a good idea. Yeah. Then you're throwing FTEs at problems. As we go back a little bit in one of your questions, the biggest thing I see is a use of funds strategy that makes sense. When you're saying, I want to raise a million dollars, what are you doing with it? If it's a ton of what we call OpEx, operating expenses, meaning hiring people, then I'm going, Have you thought through your systems well enough? Especially with the, I don't want to say the advent of AI, it's been around for quite a while, but consumer available AI.

Sometimes it's not, I need more bodies, sometimes it's, I have bad systems. If you think about that from just a cash flow management perspective, reworking your system traditionally is to be less expensive than hiring two new people. A lot of it is, what are you doing with the use of funds? Is this funding R&D? Is this funding a new market? You're now presenting why that market is going to be a game changer. Really, during that process, I'm evaluating, what are you doing with the money if I do give it to you?

When we talk about systems, which is our use, my favorite word in business, I wrote something called system set you free. It's a simplest way to do it. If you can't fire yourself out, we talk about this all the time. Going to a room, here's a black marker. Walk me through acquisition to fulfillment. Now, here's a red marker. Circle where you're involved. The minute that marker touches, you fail because you haven't built a prison, you haven't built a business. It is what it is. People hear about systems all the time. You go in and you're professional at evaluating systems so you can go back to your investors and say, Hey, this is a good fish. This is not a good fish. When you look at that, what are some of the systems that you see that say, Okay, yeah, I want that. What are some of the ones that you see the ROI on?

When we When you look at, say, consumer-based businesses, I'm looking at, have you created a flywheel? Walk me through that. What ends up happening in businesses is when you're acquiring a customer, there's a fixed cost traditionally. You acquire them once, they're now in your system. What now? If you even thought that through, I think that's a big liability. It's a big red flag. I don't care whether or not you're running ads or you're doing direct mail or whatever your marketing de jour is to acquire your customer. The best, most efficient way of acquiring new customers is through that existing customer. Most people look at acquisition, they don't look at retention and organic referral-based acquisition. I think understanding that, that's a big red flag for me. But if you have that dialed and you can show me how the flywheel is working and you can show me, going back to old growth hacking back in the 2015 to '19 range, Wait, it's not 2015 right now?

I'm very confused.

I know.

Very confused.

If you went back there and said, What is that one or two things that people can't live without with your product, service, whatever it is? Honing in on those and making that the core UVP or unique value proposition, and then figuring out how to get other people to pair it out what that UVP is, if you can do that well, that's a great business.

Can you give me a couple of examples or even one or two of ones that you've seen like, Hey, wow, these were really Yeah.

I'll call it the most famous one as people in growth talk about, and this is what my agency did back in the day. That's why I talk about it often. Dropbox. A guy named Sean Ellis here actually lives in town. What they figured out was people wanted storage, and back in the 2010 range, digital storage, what was that? My files go there on the line? Where?

People don't understand cloud anymore. No.

And so they just float there? They're above me right now? Anyway, sorry.

It's okay. I used to own an MSP, so there's a lot of it. I was like, Okay, no, no. Don't feed it water. It's not thirsty. What are you doing?

But once they got a taste of their, I think it was two gigs at the time, right, or whatever it was?

I think they got to five at some point.

Yeah, but you could get 100 gigabytes by just referring someone. And what ended up happening is once you had all your photos in there now, You needed more. You needed more. And you were like, Well, I could buy it. Who wants to do that? And I think actually at the time, you couldn't even buy it. I don't think they had the model yet where you could actually- No, in the beginning, they didn't.

It was Dropbox. You dropped it and it went away. I don't think they opened up the- The paid version.

Yeah, they didn't have the online one yet. And so the only way to get more storage is to get more people. So I remember just firing off emails because I was like, This is the best thing ever. Well, everyone did that. And if you think about, all they I said was, and I figured their marketing line was, your stuff anywhere. If it wasn't, that's a pretty good one. But the idea was that's what it was. At the end of the day, people were like, Yeah, my stuff anywhere, but I have more stuff than you're allowing me to store in here. How am I getting more? Oh, wait, I got to tell more people. I'll tell more people because I'm going to get more storage. That flywheel just kept going and they exploded because they weren't trying to say, We can have your documents. We can have you. We don't care what you house in there. That's you. This is your stuff.

Do you have one that's nontech-related? Because I think there's a lot of people when they look at this and they're trying to build flywheels in their environments, tech's relatively easy. Again, I'm spoiled by this. I have a bias because I have a tight background. For me, tech is one of the easiest things to scale. It's not hard. I don't have to go out and buy warehouses for most of what I have to do. The costs going in, the hard costs are not that bad for me. When you're going in these and you're evaluating them, what are some of the ones that you have seen that are easier to or do or have worked? Do you have another example?

Yes. We've got a company now in the CBG space. I've sold a CBG company. It is very tough to acquire customers because traditionally, they're very much a commodity. Why I'm saying that is I don't care if it's toothpaste or a protein drink, or for me, it was CPD back in the day, right? There were a ton of competitors.

How are you different? How would you create the loyalty? Yeah, because they want to try the latest and greatest thing. How would you create that loyalty?

What we did was twofold. One, we made it a movement, not just a product. We were, at the time, less expensive. We were democratizing the ability to have this amazing product where others were not. That was one. Two, we started to truly understand who our consumer was, and everyone was chasing the younger millennial cool hip demographic. Not that who our demographic wasn't hip and cool, just that millennial demographic was what everyone wanted on the Coast, because that's where the majority of the sales were. We What we realized was the actual people who have a use case for this, typically 45 plus, and they may live on the Coast, but if you live on the Coast, you also have access to a ton of education around, I'll call it full strength cannabis. We were hemp-derived CPD, so we could ship all 50 states to all that. What we ended up finding was our most loyal and best customer who would subscribe and save and tell people. We're in the middle of America. I know they listened to or this This isn't a political comment, but Sean Hannity and Rush Limbaugh and those influencers of the day.

As we had them read more, more people would get comfortable with it. That was their influencer. It wasn't the people on Instagram saying, You should try this. What we found was that flywheel started because we would invest in that acquisition and they would stay with us longer, be more loyal than the millennials who, if you look at that cohort as an actual consumer, they are not loyal, traditionally, unless there's a movement behind it. We had that unless there's a movement. So think Tom's shoes, for example. Absolutely. But outside of that, it became very much trial. They wanted to try local, they wanted to try regional, they wanted to try the hip new brand, they wanted to try this.

And that's a very hard flywheel.

It breaks it automatically. And so that was a really good way of understanding, okay, who is our customer? Where are they? And how do we get them? How do we keep them not only loyal, but enjoying the product?

I think it goes back to the idea of where's a water in the hole and what language are they using? If I was going to If I was going to create a dating website for 25-year-old women, it would have very specific conversations about spontaneity and adventurous and travel. If I was going to create one for 35-year-old women, it would talk about stability and family and all of that. It's a totally different thing. If you don't know your audience's language, you don't know the water in hole that they're going to, in your case, it was those two gentlemen, you really have to know that. When you're going in and you're analyzing these deals and you're looking at their systems and you're looking at their fly wheels, what are the other things that you're looking at?

Well, we took really marketing lens. Now it's a distribution lens. Is this something that can be sold online? How is it going to be sold online? I realize that's still back in marketing, but that's really a distribution channel. It's a sales channel. Then I'm looking and going, Okay, who's selling competitive products today? What are your inroads there? Or do you not have any? Because I call it the old biggest secret in a lot of products is traditionally, there are things already baked. The success stories of new up and comers are there 100%, but like in CPG, a lot of times you see this brand comes out of nowhere. It's because they're seeded by one of the larger companies already, and traditionally, we'll get an unfair share of shelf time and other things because of it. How are you going to compete against the accumbents? Back when I had my distillery, you'd start doing successful in a market, and then the big guys would be like, Oh, no. No, thank you. We're going to run a sale on everything and just drown you out.

Happens than you would know.

Correct. How are you what I'll call swath proof at that point? Because it absolutely happens.

To anything. I would say any industry I've ever been in, that swath comes in. I don't know if there's a way, and maybe you know of one, I don't know the way to avoid that. When it comes in on that high of a level, like when I sold my IT company, we were crushing it. And then we were $5 to $8 million. We were doing okay. We were doing okay. And then someone else came in there $150 million. I'm like, Guess what you own now? I'm like, Shit.

I'm not going to purport that I have all this data that shows this specifically, but I would contend that a lot of companies that are uber-successful, if you were to look at their cap table, they have industry players involved to help. Yes. I'll leave it there. Number two- Very politically correct. Well done. Yes. Number two, we used to call it in the liquor industry, you just need to get to triple A. You need to climb your way up the minor league ranks enough where you are getting swotted enough that you're starting to become a nuisance. As a nuisance is when you get bogged.

Yes. That was the strategy that I used to get exit out. I just need to annoy them long enough, and they're either going to destroy me, which is a little hard to do, or they're just going to buy me out because it's easier. The second company I sold, literally was that. They walked in like, You're annoying. I'm like, Okay. They're like, We're just going to buy you. I'm like, Okay. That's how the deal completely happened. I think it's a question I wanted to bring to you. There's a lot of people who are like, Okay, I might not be an entrepreneur, but I have this experience. I want to go buy something. I want to go into it. Please don't tell me to go business by sell. Do you ever recommend that path? A straight buy? A straight buy. Or if you don't have an experience as an entrepreneur, or do you just say, Hey, I'm going to invest in a fund. I'm going to find someone like what you guys do. I'm just going to give you guys a bunch of money, and then I'm going to go study shore erosion on a beach because we want to go in and out, versus actually going in and doing it?

Because it's a very different skill set being an employee versus an entrepreneur, as we said earlier.

Yeah, I think it's a yes and. What I mean by that is you can take, and I'm not a financial planner, but you can say, Oh, I like these deals. If I'm a You're an investor, I want to invest in them. But let's say you're the COO or CEO of an established company, lifestyle business that's going great, and you're like, I've worked here for five years. I've helped make the owners a ton of money. I know everything that happens in this business. You have a non-competit that expires or you don't have one, hopefully for you, you don't, or it's not enforceable in your state, and you go, Look, there's three of our competitors who alone aren't very good. But if I could roll them up, to use that term before, I can now compete against this company. I'd say that might be unfair baseball, the fact that you have all this in embedded trade secrets. But the idea would be at that point, you've already shown you can run the company. Now you're just balancing the debt that you took to buy the company, and you're running it the same way and rolling it up and building teams and doing everything you did.

But you actually are at that level of proven an operator. I'd say that's a safer way to go. If you wanted to go from a career CEO to saying, Now I want to be an entrepreneur, you're still a CEO, and now you have a baked business. I think where individuals get in trouble is they go, I'm a whatever level in the business, and I know more.

When you said that earlier, I was like, I'm going to go start.

I think the problem is you don't know what you don't know. Correct. I look at my own trajectory and career, and if I were to go back in time, a couple of the businesses that I started, if I had the knowledge set I have right now, I would have never started.

Banking The account will look a lot different. Yeah.

And so there's this level of like, okay, I'm glad I did. It brings in this amazing experience in what I'll call battle scars to as I'm helping other entrepreneurs today and what I'm evaluating when I'm looking at investing. But it's hard, and I don't think that's fully appreciated as we were talking about earlier. You say, Oh, I can do that better, or I have an idea for optimizing it. Well, that's great. Optimizing when you don't have any customers is really easy. Now you've got to sit with a blank piece of paper, and I'm not even saying I'm ready a business plan, say, How am I going to start this? How am I going to build it? What do I need to do? I think that the best engineers, whether or not it's coding and tech or actually building a physical product, can do those really well. But as a founder, now it's your responsibility to do every single thing else, from filing your LLLCs to doing your taxes to Remember, we don't have all the money yet, right? Doing the marketing.

Yeah, marketing, acquisition, fulfillment, customer service. I think there's a conversation I heard we're on. Sushi chefs are great, but don't make your sushi chef be your plumber. Yes. It's totally different things. You might have built a wonderful restaurant, don't go try and be a plumber. Stay in your lane, inch a mile deep.

What's interesting is now you go, Okay, well, we need cofounders. Well, how many cofounders are going to have? Five, six in every discipline?.

Then what are you going to do? Yeah.

Then does everyone share in the vision? Yes. Because I would contend that a lot of companies don't hit their maximum success or just, quite frankly, fail because of dissent between the cofounders.

Also, this then lower down the chain. If you're in a situation where, again, you can't go to anyone in your office and say, what is your vision? If they don't spit out within reason, it's the same thing, you've got problems. 100 %. And that's where the culture comes in. And that's where the next thing I was going to talk about, where there are companies that come to organizations like yours, and they come in and say, Okay, I want to do this. I want to sell. I'm done. I'm exhausted. And because of your guys' expertise, you'll come in and say, Okay, great. That's nice. But if you can hold your breath a little bit longer, we can do this, this, and this. Instead of walking away with 5 million, you're going to walk away with 50. When And that happens, because that's a different ball game than most people are used to. Most people are like, Okay, I'm going to systematize this. I'm going to get to a certain level, and then I'm going to exit. And a lot of the ones that you've seen, and I'm blessed enough to see, we're like, No, you just did the advertiser.

Just hold on. We can help you get to this next one and then have a massive multiplier. What are the things that you've gone through as you go through it? Someone comes to you in that situation. Like, hey, I got this from my father, I got it from my grandfather, I got it from my grandmother, I got it from my mother, whatever it is. I built this org, and I think I can get—goofy numbers— $5 million for it, which is adorable. You guys come and say, That's cute. I'm pretty sure we can get you 50 in two years. When someone comes into that, first off, for most people, they don't understand that. When you come into that situation, What are the things that you do and you look at and you help them step by step to elevate into that environment?

Yeah, so there's certainly a few things. One is, and I like saying this just from the get, right? Pigs get fat, hogs get slaughtered. If you have an operator that in your example is saying, white flag, I need out, what I'm doing first, right? Which is, all right, we're going to figure out how you take a little break and we're going to get some proof and operators in there to pressure test whether or not We can get it there over the next two years. Because you've already told me you can't. That's really important. That's not a bad person.

No. You've got your here, we'll get you there. It's not that... It's the Tarzan theory. If I go from vine to vine, I have to let go of one of them to keep the momentum. But if I hold on to it, it's over. There's a lot of time with founders, and I've run into that situation where I was like, I'm out. I'm empty. My sponge is full. I'm out. Having the ability to step away and have that go off and do something else is important.

So But the next thing we look at is to go, Okay, how realistic is it? Why I say that is, if we just wanted to sell that $5 million business today, I don't care who you are. That is six plus months. By the way, that's not shoring up anything yet. That's just the process takes that long. It does. That's with a buyer at the table, to do diligence, to do everything. You're going, Okay, I have all the regular investment banking things I have to do. I have to build a virtual data room. I have to get everything optimized in the company if I have already. But that optimization could change that $5 million in EBITDA company. Say, Hey, well, all ready now. We've done it. Now, what does that mean? This is where you hear all of the bad terms for people in venture and private equity because A couple of minutes ago, we talked about throwing FTEs at problems, and traditionally, most businesses have done that. Therefore, if I'm looking and saying, We want to maximize the amount of money you get for this business, then we are scrutinizing everything within the business today, which also means human capital.

If that's the biggest line on your PnL, is the amount of people, my question would always be, Is Is that needed or not? I don't know the answer. It could be.

I understand the culture because when I sold mine, I paid more per tech than anyone else in the industry because I knew my clients would be exceptionally happy, and the LTV just skyrocket. We never had a client leave. So when someone came in like, I want to buy your org, your salary is too high. I'm like, No, you're done. You get to go away now. It's over. So you go through there and you figure out those things. When you have an owner who is completely fried and they're exhausted, which I love that people think that they're not going to get there. You guys are cute. When that person gets there, is there a way to continue to scale and have them involved, or do you just say, Hey, guys, go to Tahiti. I'll talk to you in six months?

It is fully dependent on the human. They can be a great asset and knowledge transfer partner. Sometimes they can be an absolute cancer within the organization because they're not in control. That is human dependent, just to be transparent about it. You'd love to have them there. They have this unbelievable knowledge set from being there from the beginning or being second generation. Was there there as a kid, they've watched how their dad do it. There's certain parts of the culture that- The connections they have.

All of it.

Absolutely. That is also a thing that a lot of people in private equity don't think about is we buy this thing, but what you didn't realize is every deal inside of that company for the past 70 years was done in a handshake from family to family. The kid, the new CEO is the second generation, and oh, yeah, same with the client side. They've known each other since diapers. The minute you remove that, you remove all of the...

How do you prevent that? When you're walking in and looking at deals, because I authentically don't know this answer, when you go to deals and you have Billy grew up with Bubba their entire lives and Bubba senior grew up with Billy senior, and you had all that. How do you vet that out?

Ask a lot of questions.

God bless your job, dude. I'm just not doing that.

Well, no. If you're looking at a standard process, whether or not it's through an investment bank, and we typically bring it. We do some investment banking, but we'll bring in investment bankers as well. Because we're generalists, as I mentioned. We invest in all different industries. But that also means we're not sitting there as a specialized investment bank. If you're selling a consumer product, you're going to bring in the best investment bankers, by the way, of all the connections on the other side to help you sell that business or rollups or do whatever you're doing. But that's where you're going to go and Okay, I'm going to look at what liabilities there could be inside of the business. You're going to get a list of their top customers, your list of all their customers, really. Then you look at, Is there customer concentration issues? Meaning you have 20 large customers that make up 80%, but really two of them are the majority of that 80%, you go, Okay, that's interesting. That's the problem. Because if it's Baba and the other guy and they leave, you've just totally destroyed the company. That's the first one, customer concentration risk, then you're going to actually call them.

What questions do you ask them?

Again, depends on, but a lot of it is, what does the relationship look like? How long have you guys been in business? What are your Intentions moving forward. A lot of it's based on before we ever ask those questions, how are the contracts written? Is this a multi-year? Is this expiring in six months? Then I'm probably going to negate it from value. You're looking at a whole bunch different things. This is also what your investment bank is going to do for you as well.

Well, I think this is why people, and not to step on anybody's toes, I think they choose investment banks incorrectly. They choose them by geographic location versus the talent that's in them. Because I authentically don't care if it's the investment bank down the street. I want the people that are in there are going to vet it out, that they're going to have the experience. I would prefer, and this is just me, someone who isn't local to me. I want to have someone who's coming in and has experience and are battle-hardened. This is conversations I had for a long time. You could have a Harvard-taught doctor, or you could have a corpsman that served downrange. That individual in downrange is going to give me a much better result than the Harvard-taught doctor who just hasn't done it. Just because they were in the club, I want someone with fresh eyes to be able to detach.

Yeah. You know, I think I'm going to talk in two ways with investment bankers. They're either going to be happy with what I say or they're going to- They'll get over. I'm going to get some nice phone calls. Either way, you get what you pay for. Yes. I think that entrepreneurs sometimes don't understand how to integrate the correct service providers to your point into what they're doing. Whether that's an M&A attorney, an investment banker, whatever it is, you get what you pay for. If you're saying, Look, this investment banker is only charging me X to sell my company, versus Y, but you get the one that's very deep incumbent in the space, knows all the players, you're probably going to have a better shot there, but they might be twice as expensive. Now, I'd also say if you stand to make a large gain on this transaction, make the transaction happen over here, don't go cheap, because there's certain things that you can run a foul on.

I think it goes back to what you said earlier. When you're an entrepreneur, you have to do everything. And as entrepreneurs, even as a successful one, I had no idea about how to sell. I had no idea about investment bankers. So when I had an investment come to me, I was like, I just walk out the room because I was just overwhelmed because I didn't know what I didn't know. So being able to sit down and find someone you trust, where, again, I think that trust factor is more important than a location factor and making sure they have their experience.

Well, and that's where, going back to someone like us, if we're going to invest earlier, it's called seed through that B round, CAB, even the C, a lot of seed, C of courses in that round. Part of my role on your board is to introduce you to the best investment bankers. Because it's my job, if I'm ready to look at it, to understand where deal flow is coming from, who else is in the space, why we're choosing you, who could actually buy you downstream? What's your exit strategy and when? Therefore, before I made that investment, I've started to contemplate this. Where you fit today, where you could go, who would eventually be your acquirer. I mean, Unless you're going to build something that you're endeavoring to take public because you can get to that size and scale. But if you're building something that maybe is a couple of hundred million dollars in revenue and profitable, you're probably not taking that public, especially in today's market. But then who's your strategic? Is it going to be a roll Is there going to be some strategic that just comes in and acquires you as a bolt on?

Where do you end up? Then it's my job to, as we're helping you fundraise, and why I say that helping you is we make the lead or do the lead, but there's going to be other investors. Now I'm going, Okay, who else is strategic who has other investments in the space and other investment bank? You're starting to weave this web of where you want to guide them to where they need to go to eventually get bought. Because at the end of the day, my Our job is to return money in the form of a return to our investors and do the best for our founders. That is not a seesaw. That is everyone is aligned. I'm starting to make introductions to investment banks and great M&A attorneys, good corporate attorneys, great CPAs who are entrepreneurial and have great connections today. When you're worth $5 million- Right.

And you're going to sell it at 50 to 100.

I want to make sure that they're there guiding you along the way with the best.

When you guide them, what are the questions you start them out? If they're starting into this and they're like, Crap, there's a ton I don't know about this, which at this point, however long we've been going at this, I'm sure a bunch of them are like, Oh, crap. There's a whole different world here. I'm like, Mm-hmm. What are some of the questions that right off the bat, you ask them? You're like, Hey, make sure you have this stuff answered before you call me, which you call me as much as you want. It's adorable. We'll just put yourself one up. What are some of the questions that you wish that they were like, Hey, just get this locked in. Get this so it's sitting down How do you know it to your core.

So, again, I'm ripping off someone else. Culture, vision, capital raising are the three main focuses of a founder. It doesn't mean that you aren't in there, right? Doing the wrenches and doing the coding. But ultimately, this is your company. You need to own that, which means you should be out telling the world about what you are doing. In the process, you're going to meet a ton, and a ton of people are going to promise you the world and underdeliver. I'm there to help you sift through what's possible and what's good and what's bad if I'm on your board. If it becomes more pragmatic about fundraising, early stage, actually have put together why you exist, why I should care, what the opportunity is. Don't just sit there with a 48-page deck showing me every speed and feed. I come back to that because I have sat through so many of those. I'm so sorry. It's okay. And so there's this level of if you truly understand what your company is doing, that can be a very short deck. If you see some of the best decks for the most amount of money ever raised for Silicon Valley, traditional startups, they're like 9, 10 pages long.

The Sequoia decks.

Exactly. You look at those and you go, But that answered everything I needed.

It should be there. So when someone goes, Okay, I get that. I get where I'm going here. I know what I have to do. Me, the business owner, because that's my job on this side. It was me, the business owner. I know what I have to do. What should I be looking for on your side of the table? What are the questions I should be at? Let's say for some reason, you guys got eaten by a Purple Dragon. Yeah. You disappear. What are the questions they should be asking firms like yours?

There is money and there is smart money, and they are very different. Yes. Let's say I only invested in health tech. If you're coming to me with your apparel company, why am I smart money? I'm just money. Right. One of the biggest pieces of advice, I would say, actually just opinion, because advice you have to actually own. This is the thing I in EO years ago. You don't give advice because you have to own that advice. No, thank you. My opinion would be truly understand when you're sitting across the table, what I invest in. You can find this, it's really available. You can see what boards I'm on, you can see which deals I originated at the firm. I like, last one was AI. I've done CPG. I have a PropTech. There's certain things I like. There are certain things in biotech. I have no idea. I have other partners.

That's their job.

That's their job. Understand how to If we get introed, say, I know you don't, but I would love for you to see, and maybe if it sounds interesting, bring a joy in, because now that means you've actually learned enough about my firm to say- Done the homework. Done the homework. If not, then I'm just a piece of meat with a wallet. That's a little different. It is.

I think knowing the person's character is vitally important. One of the things we were talking about before we recorded, it's the type of character you have and what you do and the people you connect with. I'm going to be selfish here because it's my podcast and I can do whatever I want. Going in, and one of the reasons I came out to Skull Candy and did this with you is because some of the stuff you do behind. One of the things is you mentioned you just did this event, and you get a bunch of CEOs that come together, and you're helping out a very specific group of the population to reintegrate back in. I think that conversation, I'd love to share what that is, because that for me tells the type of person you are, which is why I got on a plane this morning at zero. Com. To do this was because of that. That was the reason I came here. I think when you're researching, not only are you researching businesses on your job, on our side, where we're business owners, researching the other way as well. So if you could tell a little bit of what I'm trying to be as vague as possible with, because I don't want to steal any of your thunder.

Yeah, no worries. How I met John Garcia back in 2017. I said earlier in the podcast, I'd met him. I met him in this group called Alder, ALD, like the tree. It's all around generational leadership, living your legacy today. It's this great book by David Brooks, the Political Commentator. It's called A Road to Character.

I know the book. I don't know the author.

The simple question is, which is more important to you? Your professional CV or what people say about you when you die? Everyone goes, Well, what people say about how I die? I go, Well, what are you doing about that today? I go, Shit. That's literally, I can give you 30 conversations like that. What this group does is it puts about 200 of us across the country in major markets, LA, Orange County, San Diego, Dallas, Miami, DC, Nashville. We get together and we have those conversations. One part of it is what I call brain candy, listening to amazing humans tell stories. The other part of it is impact. One of our initiatives is to work with tier one Special Forces. You go, what does that mean? On the military, there's a thing called a skill bridge. Traditionally, for the last four, six months of their time in the military, they will go off and they will work in the civilian sector in a company. That's what I call one-to-one, meaning maybe they come here to Skull Candy, and they're an unpaid intern for four to six months, learning what it means to be out. They've been in for 15 years or in for 20 years.

It's a totally different world. They're trying to figure out if they want to work here. Skull Candy, sorry, I'm not calling you out Skull Candy, just saying, wants to figure out, well, is there a job for them? Do they have a skillset? It's a skill Bridge program. When When you look at these tier one individuals, they already have amazing skills, or they wouldn't be doing what they're doing. They're some of the most cerebral and thoughtful and certainly have leadership and team building and soft skills galore. Everything we want to hire But on a resume, it might say, Peer One imports JASOC or Apple Bs, seal Team 6. How is that running through an HR portal? It's not. A lot of them have these amazing skills that we'd all want to hire in our company, but no way to actually access that. What we built was this really interesting skill bridge that they skill bridge inside of the group called Alder. Now they have access to 200 CEOs because it's really interesting. I've had so many conversations with these operators, these individuals, and they say, I'll go do the mission I'm tasked to do, and I'm not scared, I'm not worried, I know what I need to do.

But you asked me to sit down in front of you, Chris, I'm scared to death. Absolutely. That is an interesting reframing of, oh, wait, they want to get reps.

Yes.

Reps means just like if they were going to do mission and go to rehearsal. That's how they train.

They've learned it.

Reps, they get to meet 200 CEOs, ask questions about what we do, and start saying, Oh, that's interesting. Instead of going to one company and the company doesn't hire them and they're back to square one, there's no obligation to hire out of this skill bridge. You get to meet 200 and learn what's possible. If we really think about I don't know about you, but my entire career has been based on something my dad told me when I was a kid, which was your network is your networth.

Yes, it's your leverage.

These individuals may have great networks, but probably not in the things that they're going to be doing now.

We talked about before, when you're looking for that banker, when you're looking for the firm that does this, Hey, you're great in medical, but you know diddly poop about plumbing or whatever it is.

Now they have 200 new CEOs in their network. Their chances, statistically, of finding something they want to do as they transition out is much higher. Also, we've had the opportunity for the 200 of us who don't hang out with these individuals all the time to learn how they could be a valuable asset in our companies, and whether or not it's our 40 portfolio companies at Soliko, our company itself, or my network outside of the Aldrich community, where I can go, You know, Joe, you'd be great meeting Stan over there, and helping make those connections happen. And so we just got back from Montana. We launched the program. Absolute success. Raised some great capital. We have four individuals who will come sequentially in line next, and the program is kicking off. We're going to be more excited. We'll celebrate July having our first fellow go through the program.

For me, the reason I asked that was very tactical, because what you're doing and the way you approach things are tactical. So that example of going through and saying, Hey, we're going to go through this. This is why we do it. This is the result we're going to get, is everything I've known about you since I've known you is this is how you approach things, and this is how your firm approaches things, and this is how you deliver the information. There's a ton of stuff we went over, and there's a ton more that people are going to want to get a hold of it because there's a bunch of people who sat down and said, I don't know what that word means, but that was FTE. So there's a A lot of people just lost, and they're just overwhelmed at this point. If someone wants to track you down and they want to find out more information, how do they do that?

Easiest way, LinkedIn, Chris M, as in Michael Van Duzen, not the producer of Scandal, not the children's illustrator, the other one. That's me. My email, quite simple. C, as in Chris Van Duzen, @seleikocapital. Com. Then also Instagram, which I'm fairly active, is Chris M. Van Duzen, same as LinkedIn. Make it easy.

Perfect. I really appreciate you. Thanks so much.

Thank you very much.

While many entrepreneurs are still chasing funding with flashy pitch decks or building products nobody asked for, the Proven operators demonstrated that understanding your flywheel, knowing your numbers, and building strategic relationships is the true path to exit. Throwing bodies at problems and start optimizing systems that drive real EBITDA and unlock multimillion dollar acquisitions.