Adrian Sedlin, serial entrepreneur with 5 successful exits and currently the CEO at CANNDESCENT, talks about - what do you need to have to raise the pre-seed round? What is FFF round (friends family and fools) and how those are being raised.
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And today is a guest speaker, we have Adrian saddling who sold 5 of his startups and this episode will focus heavily on what you need to raise your early round. So, what do you need to have to raise friend's family and fools?
What do you need to raise preceed and so forth? So, Adrian a, let's kickoff by giving us some background on yourself and on your current star.
Can just send well 1st, Constantine, thank you so much for hosting us. Uh. Well,
my background is,
I started my 1st company when,
when I was in college,
I ran it 4 or 5 years after college sold it did my MBA after that and then I spent about the next.
15 years of my career building, early stage companies, and turning them around. I was sort of a CEO for hire and did a lot our early stage turnarounds and restructuring and pivots for a venture capital companies.
And basically, if there was something that wasn't quite scaling the way.
Uh, ownership wanted, that's when my phone tended to ring I've been in everything from a consumer marketing businesses, direct response, marketing to business to government.
Sas plays a, and I, after I sold my last company in 2010, I took about 4 years off. And came out of my early retirement in 2015 to start, which is, uh.
The number 1 provider of branded flower to the California cannabis market, and, you know, our flagship brand.
Can desomond, or our namesake brand is sort of known for.
Being the 1st, ultra premium brand in the space, and also introducing what's called effects based marketing to the conversation.
Nice and 1st of all Congrats on kenneson, even though I'm not the biggest fan of these fields still gray achievements there. So, let's start by discussing the major topic of today's episode. You know, what do you need to have to raise friends?
Family unfolds round and by the way, do you know why it's called friends family and fools now? So whereas they.
fool's part team in, because it used to be just friends and family I think.
Well, I never heard the fools till just now, you know, I would yes, I understand why that was added on because.
There's nothing more true than the 1st, money in a company.
Without a doubt, it's the riskiest kids Pre revenue. There may not be in business model but aside from all those things that, you know, most people understand.
What they don't understand is. Even if things end up going well.
Or reasonably well, the mistakes made along the way, sometimes can blow out the early stage investors in what's called a recap or a crammed down.
And so, even though the company or the brand, or the entity ends up going on to survive and do well, and thrive.
Uh, the people who put money in that 1st stage, um.
May end up not making any money when they see later stage investors end up cashing real checks. So, maybe that's why they added the fools.
Right, right I think that's that's an accurate explanation. And.
Well, let's pretend that you've already raised the friend's family and falls round the 3 apps round and moved on to the precision. What should you ideally have at that stage to raise a successful round.
Well, I think generally there you need to have a.
Fully develop business and 1st of all, I don't think there's any hard and fast rules about your at this phase and therefore this needs to exactly happen but generally speaking, uh, you certainly need a proof of concept.
Against whatever you're doing, if it's a tech play, you probably need some kind of beta or prototype or working installation. You may not have chosen, chosen to take it out to market. You certainly would need the.
In a slightly larger team, but, you know, it shouldn't be at the point. If you're going.
Your post friends, the family and fools going into sort of that.
Pre revenue model, you know, you should have a prototype or something pretty well developed.
Business plan and idea of what's about that happen.
That you can model out and put to show to investors that where you've gotten some level of attraction now and certain things that's part of the new. So, for example.
In my business, I personally wrote the checks in the into the f. F. an. F round. So I self funded it, but then I had to go to market.
And raise about 5M dollars in my what? Some people are true 1st round in our series A.
I didn't have a working canvas facility at that point, but I was well, on my way, I had applied for our licenses. We had already bought a piece of land.
I had signed a lease for the building so the the train was already moving. You have to show that.
You've gotten something, I think, to get that next round after our friends and family that there's actual work that's gone on that's created value that is and that you're very likely going to get the opportunity
to get the product in market in.
Then, you know, once the data comes in, we'll find out if it's successful.
Right. That's a pretty accurate description of what you have to have on the presale stage. You know, you have to show that the train is moving yours laces started to move. So Pre seed stage is past. What's next? What do you need to have on the seed stage?
Well, again, to me, I tend to think about it.
Each business is going to be different, so I need to say there's everything is going to have friends and family then priests, you know, then precis then C, then a series A, I mean, that feels like a lot of.
Different steps prior to doing your 1st, formal 8 round and very. It is not likely that someone will go through all those steps. Um. But,
perfect example is I went straight from what would have been the equivalent from friends and family around the initial capital and to sort of bird dog and develop the opportunity straight into my series.
And it tends to be more defined by the amount of money you raise in my opinion, than.
Not necessarily going through each and every 1 of these steps. So I think the important thing for an entrepreneur to think about.
Is what are the important milestones that I need to hit.
And that the money I'm racing.
Will allow me to hit so that when I go back to market to raise more.
My valuation is potentially.
Or higher, because and then I would say whatever number an entrepreneur convinces themselves.
That they need, I'd say, double it.
At whatever stage in those early stages, because everything's going to take.
You know, cost twice as much in take 3 times as long and so.
You know what I would say, think about the milestones thinking about how much money you need to get to the next milestone what that next logical step is and then from there.
And then how much time it will take you to raise the next round, based on the milestones and data.
That data set that you've been able to put together to show performance and then that's the amount of money you need times to.
Right that's pretty accurate calculation. I like it, but we'll do a little bit more specific here. So, whenever I've seen founders raising money enough, that should last them for, like, I know a year and a half of
What do you think is the ideal timeframe there should be here and a half should be a little bit more. She'd be a little bit less.
Again, I think, you know, those are game time decisions, but I'd say, generally, speaking, if you're not cash flow, positive in your burning capital.
You know, years worth a year to year and a half worth a runway is a good amount to have on hand. That said, imagine, you have a prototype.
For a tech play, you've come up with the and.
You know, it's not going to be that hard to move from.
You know, whatever the beta or prototype you develop to, maybe actually putting the code together and hiring the developers to get you through actually an out alive, alpha, and start test marketing.
Well, depending on how long the depth timeline is for that, you can produce some really important data pretty quickly. Once you go hot in an alpha and beta.
So, potentially, then you might raise a little bit less because, you know, you're close to a meaningful milestone. That won't take too long to get to that. If the project works.
You have a very big step up in your evaluation. That said, I would always be conservative and.
You know, I'll make sure you have enough money in the bank because, you know, you always want to avoid the hard choices of this is going on my personal credit cards because we don't.
Right. That's a really good point. Never recommending people to get. They need to ask their personal credit cards, you know, for their company, but those decisions have to be made sometimes.
Unfortunately so, by the way here, I would like to actually go a few steps back and.
Check back with our preceded requirements. So recently I've been seeing more and more founders saying that, you know, I'm on my preceded, but seems like most investors, even angel investors who claim to be very early on investors even they require some kind of traction.
Do you think that's accurate or not? Not really.
I think that it depends on.
This situation, and specifically, let me give you a framework.
That I like to think about and I've written a lot of checks into some early stage companies over the years.
And I look at 4 things, or I look at 4 lenses on something when it's super early. People opportunity deal in context.
So, who are the people involved? What's the team and specifically.
Does that does that team know.
Their industry called what they're proposing to do. And are they known throughout that industry?
So, for example, I'm making something up.
If the founders of.
My space back in the day, you know, had come to me and said, pitch pitch me a new social media company.
I'd say, well, those people probably know quite a bit about what they're doing and they're probably known in the right communities.
That's critical to me because the rest of it.
The deal the opportunity in the context.
The opportunity and the context will always change.
Uh, and we'll learn about that as the business goes on, but that's the team that's going to.
Really make all the difference and there's an expression where.
You know, a C team's going to take an ID and turn it into a C idea and an 18 we can take a C. C ID and make an idea.
So most importantly, the earlier it is the more important the people are and I always look for people who know what they're talking about in are known throughout the industry they're talking about in contrast.
If someone said.
Hey, I want to start a restaurant and they have a great restaurant concept, but they've never.
Run a commercial kitchen, or had no food industry experience it could be a great idea. They're just not the right people to execute against it. If they don't have teammates that they've put together that then speak to that experience.
So, I like people who know what they're talking about in our known in that industry, the known pieces, similar views, that hypothetical my space example, you've got to recruit a team.
You know, so it's going to be your credibility, your track record in your network that's going to attract, not just the investors to the table, but also the, the key hires that are going to move the project forward. So.
You know, the opportunity in the basic business, you know, when someone shows me numbers, you know, I can pretty much take any early stage Pre revenue, business plan and throw it out the window.
Uh, but I do, but I judge that business plan and revenue model by the quality of thought, and the assumptions and the depth of those assumptions, but really, it just comes down to.
The opportunity do I like it is the context for that opportunity is good.
And then given that, it's the friends and families and fools round or pretty close to that or pretty early stage. I got to understand the deal, which is, is there enough return to justify the fact that.
I'm going to look at 20 of these deals at this stage, and only 2 or 3 are going to work out.
So, I'm going to lose, you know, maybe I'll get a double on the other 2 and I'll get a single on 1 and then the other 70, and then sit and then 3 quarters or we'll be zeros.
So mm, yeah, I want to make sure there's a decent enough deal at each stage. I want to make sure the context and the opportunities. Right? The number 1 thing early is the people, Scott, it's all about those people.
Absolutely, absolutely that's 100%. I think that's the thing that founders really overlook these time.
I mean, especially early stage founders, they put the team slides, like, on slide 12 or 13 and I don't quite see, why why? And I've seen a lot of templates to do the same exact thing.
And I don't get honestly, like my put a number for it.
But, anyways, that's that's the insight in mind, so let's move on to the more comparison of current situation, versus the starting point of your career.
So, you start your 1st company, it's mentioned in college and comparing to your current company, which is, can descent. What are the major differences you see there in terms of approaching the company itself.
Well, 1st, you can see a guy who doesn't who, who learn things the hard way because when I started the company, when I was 20, I clearly knew very little.
And I was known even less so, um.
That was a paradigm difference now I hadn't.
Versus you go 30 years later in my career.
Or 25 years later and career, where I have a deep and, you know, personal network of people I've worked with who know, you know that I've, I've been in lots of different industries.
I happen to have a decent I had a family member who was quite connected into the cannabis industry. So we're able to put a a really good team together early. I mean, so it was sort of night and day.
And then the only thing I'd say is that 1st company. For me starting at early.
It was it set the table for everything else I did in my career while it was not the most financially successful. The things I I ended up doing in my career. I'd say the education and gave me.
At such a young age in my career was selling valuable because excuse the expression but if there was dog s*** on the street.
I found a way to drag my flip through it the 1st rodeo and, you know, I really can't emphasize this enough to any entrepreneur.
Or would be entrepreneurs like the dream.
Is you know, the Elon Musk and those are the stories that everyone talks about it's sort of like fishing. You know, everyone caught fish that were huge.
There's some great books written by startup founders and, like, uh, I think the guy from Andreessen Horowitz a.
Talks about the hard things he wrote a book called the hard things about hard things. Basically what? The dirty little secret when everything goes wrong and you're starting and how to manage through it.
I mean, it's, you know, this is a huge personal decision for people.
Sailing slowly in life, especially if you have a family or kids, a wife or husband, whatever your situation is, you know, when I was 20.
The great news was, I was able back in 1992 to pay myself 600 dollars a month and live off.
And, yeah, there were many nights I was digging through the couch cushions, looking for quarters and I'll never forget the, every month, my business partner and I, because we made the same amount.
Or once a month, treat to ourselves, as we went to the all, you can eat buffet and Bangkok or lunch for 6 dollars and 99 cents. That was pretty much everything else was potatoes and pasta a home cooked. But anyway.
The point is, I could afford that risk profile when I was 20.
I could never take on that type of risk profile with 3, teenage kids and a wife now. So.
And that was a primary difference. Uh, I knew a lot more.
I know a lot more now, but then, uh.
And some things never changed, you know, I'm in certain ways, I'm the same entrepreneur. I was. 30 years ago, uh, when I set my mind to something, you know, it's I understand it's a 90 hour a week. And there was no difference between that at 20 and and now at 50.
Got it yeah, that's love. Plugged those stories to be honest. So, let's talk a little more about those stories and, I mean, roughly 10% of my listeners, our early graduates from versus or actual current students.
So they're where you were 30 years ago. What's your advice to those people? Right now? What will you recommend them doing?
Uh, go for it.
Your you have Max flexibility in your life.
The worst thing you're going to worst thing that happens is you fail.
And failure if you're just a recent college graduate, or maybe even go to school so you're 18 to 22 or 23. so you spend 2 years.
Working on something, and it doesn't work out. You can still fully rebuild without too much set pack at 20.
5, or however long you invest in it.
So I say, yeah, you should jump in because you're going to get a world class, real life MBA all the stuff. They don't teach you and in business school, you're gonna learn how to read contracts for a living.
You're going to learn how to develop a sales plan.
You're going to learn how to get real world practical marketing. And if you're 1 of those people who wants to be an entrepreneur and knows, you know, it's just in their DNA.
You'll start building that cross functional experience.
Early in your career, I mean, I can tell you honestly, I was scared of financial statements in my 1st startup. I didn't I didn't even really use them.
I was the CEO, you can say, well, that's sort of suicidal and the answer sort of was, you know, I had my partner was my CFO, but I just wasn't comfortable numbers at that point.
But the point is, I learned so much about every other aspect I learned I had to do a little bit of coding, and I had to learn how to build out a database. I had to build the marketing plan. I learned about sales. I went door, there was a lot of door to door sales.
I mean, I learned so much that then, let me see across an organization that could be redeployed later in my career and still informs me today. And so I looked at it as it was a win either way.
If it works and it hits big. Well, right now you're.
Light years ahead in your career and you have financial freedom at a young stage in your life to go on to do bigger and better things. If it doesn't work, you got a world class education to work with. Right? Of hard knocks.
Right, right. Speaking of education life lessons are great, but I still highly encourage my listeners to get their diplomas for actual universities as just, you know.
Additional safety net is just safer and constantly and I.
let me speak to the first second you know i've been an entrepreneur my entire career and i've gone in to .
Various situations I also have a double major magnet from Georgetown. I'm an MBA from Harvard.
The point that the reason for me to bring that up is.
I always had a safety net from that education that allowed me to take on that risk.
Because if I needed to recruit at 40, it would have been hard to recruit back into the mainstream work role because.
I just didn't have the type of 1520 years in 1 industry, but that said having the quality educational background.
Will always ground and anchor any of your experiences in a way that people read them as serious and meaningful.
So, whether or not your 1st company, or 2nd company works out having that diploma and, you know, it'll just be read a different way.
By people in both success and failure scenarios.
As well, and there's nothing like learning how to think critically. Which education can provide, right?
That's exactly what I'm talking about. I thought you're gonna try to argue with me here, but I'm happy. We're in the same page here. So now, let's talk a little bit more about, you know, we've touched on to the mistakes that you've done the best.
The things you would like to recommend other founders to do, but let's talk about more of, you know, positive side looking back at all your previous companies. What do you think was the best move that you've done in.
All that experience, you know, looking back a little that was the 1 thing that comes into your mind when you think, like.
Perfect awesome success greatness.
For me, it's all the decisions I've made to sort of follow my passion.
And instincts are the ones that tend to work out pretty well.
Are the ones where.
I'm not sure and I'm conflicted or I'm trying to do necessarily.
Something that feels more practical, but just doesn't feel right to me.
I've learned over time that I just got to lean into the things that feel right and better and I'd say it may seem a little self serving.
But I've never been happier professionally.
Um, starting can doesn't decision to go into the cannabis industry was sort of a.
I never would have imagined it 25 years ago or 30 years ago. It's sort of the logical conclusion to my career. And so.
Having an opportunity to do 1 last startup I probably won't want to start from scratch again in something. I'm super passionate about.
You know, no matter what happens with it, it's a win because when you're passionate about the mission and the product and the thing you're trying to bring to market.
The rest tends to take care of itself, right? That's actually perfect. I love it. So, here, we're moving on to the more current situation once you.
As an exit founder, do you do mentorship or angel investment since you already mentioned that? I will kind of modify the question a little bit and ask you where do you get most of your deals from? So do get them.
Just from your LinkedIn, we're founders can find you and ask to review their pitch decks or to give them some advice or how do you get most of your deals so that you invest in.
Well, interestingly, I go through phases in my career where.
Uh, right now, no, 1, if someone asked me to write a check as an angel, there's.
No chance I ever would and now I'll miss out on the next Facebook or whatever it is,
because I always think about my own personal investible cash as how much of my allocate how
much of my assets do I want allocated towards early stage capital.
Like, an early stuff in my case, I wrote a big check against this company right now and so it tends to be for me personally, when I monetize something.
Then, I'll probably look at a bunch of deals while I'm not focused on running my own thing in terms of where does my deal flow come from personally, it's always going to be through personal networks.
And this is probably going to make me look unpopular to the millennial crowd and below, but. You know, I probably get 40 or 50 requests a day.
My LinkedIn account, it's just not practical for me to look at pitch decks from people. I don't know. So when I'm interested.
And looking at things, I have a personal networks, I reach out to it and, you know, the deal flow will start.
Right and that's completely understandable. I think it took me some time to get in touch with you through LinkedIn. So it was definitely a tough, tough tool to reach out to people who are pretty popular. Let's let's put it this way.
So, now let's talk about current situation in terms of those millennials that you've touched down to, and basically early stage entrepreneurs specifically from the fundraising point of view. So, what's your recommendation to them?
How would you recommend them raising money right now? In this world? Well, you know, in coven, I, I don't think cove in.
Should affect things much 1 way or another uh, if you're sitting there.
You know, the 1st thing, I did put it in.
For example, and canvas, and when I decided I was going to raise money. I went into my office and I wrote.
I spent about a day and a half thinking about every person.
I knew from literally elementary school.
And not that I kept in touch with every 1 of them.
And I thought about 2 things.
1, do I think they have the means to invest in something. To do I think they know me well enough.
That they would trust me to write a check to me.
In my enterprise, so my advice is.
Write a really long. Let's get that list together. If you're. In a situation where you sit down.
And there's no 1 on that list. Well, now now you need to revisit your assumptions and say, am I known well enough?
To go out and actually do this.
And, you know, because again, there's nothing worse than failing slowly. And if you're really set on.
If you're an entrepreneur, there's always going to be night, you know, there's, you're, you're going to have hundreds and hundreds of ideas across your lifetime.
So, you know, my attitude is.
If you're if you can't develop that list, because that list is then.
Pretty easy. You start emailing them individually, not some spam mail.
You don't send out, you know, you try to get individual calls with some of those people who would be in your friends or family, or some of your network, and you start talking through.
And, you know what you're, you're trying to do and and then, you know, at a conceptual level and then you.
Maybe schedule a pitch call.
For them, if they're interested, and if I were to give another piece of advice to people, here's the most important thing.
When it comes to raising money, right? I think.
Get your head around the fact that 8 0T to 10 people are going to say no. Mm. And the reason I say that, and it has nothing to do with.
Again, when I say, you not you constantly and, I mean, you as the.
The example I gave is, you know, earlier, which is a pitched mean.
I'm the fool, but if someone pitched the next Facebook right now, I probably wouldn't write a check. I definitely wouldn't because I wouldn't even take the pitch meeting and you could say, well, Adrian, you're so close to life.
And this, that the other thing, no, I am not deploying a*** risk capital acids right now when I was pitching Kanban.
To most of my my network.
I knew right away a lot of them weren't going to be able to write a check.
Simply because they work with, they work on Wall Street and heavy compliance backgrounds, and they can't invest in the cannabis industry. So.
There's a hundreds of some, maybe someone's going through a divorce. Maybe someone just had their kids. It has nothing to do with you when they say no more often than not.
And so my advice is get thick skin, keep your chin up and but be honest about.
You know, if you're not getting any positive responses, you gotta figure out where is it going wrong? And why.
And maybe you're not ready as an entrepreneur, maybe your plans not strong enough. And that's when every time you get off the.
A call with someone, and they're not in the position.
To invest and they choose not to, you should always say, hey.
There's hundreds of reasons not to invest. I'm really curious about.
Why you chose that this opportunities.
Not for you and assure them you will not hurt my feelings.
And it would be a great service to me. If you gave me really tough feedback.
That's when you learn and take that, and then you can use that information to get better.
Right, right definitely. My recommendation is growth. Thanks can before going out to fund raising to sales, because you'll see a lot of not pleasant things coming your way.
So, on this not very positive, but still, you know, really useful.
Advice we're moving on to a last question of today's episode. People just got our if you've never been a salesman.
You know, being an entrepreneur and having to raise money, you are in sales and sales a number of games.
Numbers game, and it's about how many people you put in the top of the sales funnel.
To get to the number that come out the end. For example, when I wrote my list, I referred to earlier. I probably and I'm going from memory. I must have had 400 people on that list that led to 20 investors.
The other thing I'd say is the 2nd, you get someone who's actually willing to invest. Always remember birds of a feather flock together.
You should ask that person quickly do you know anyone else?
Who might be interested in investing and here's I'm going to give people.
Adrian unsettling, the theory of ice cream.
Relates to raising money.
The human condition is inherently in secure and so if someone just decided.
To buy your flavor of ice cream, your business plan, they're inherently going to feel the need to get that validated and share it with other people. If you've try a new flavor of ice cream and it's amazing. It's like, what do you do?
Oh, dude, you got to try this same exact thing with investing. If someone's writing a check, ask them say, hey, you're part of the team now.
Can you think of 2 or 3 people that I might want to talk to that you'd be willing to help.
You know, help your investment along and make that introduction, not an endorsement just position as, you know, this is something I'm doing. And you may be interested.
Because you'll find half year round is filled out by those types.
The referrals, right? I actually love the Adrian theory of ice cream. I love it.
So, here on this more positive note, we're moving on to a last question of today's episode, which is a call to action. So, Adrian, what's the 1 thing you want to do? As soon as the episode is over?
I'm sorry, could you repeat the question? Sure. So as a call to action, what is the 1 thing you want to listen to do? Like, as soon as the episode is over.
What should what should your listeners do to for, for raising money? It can be anything raising money. Okay. I will, I will tell you.
It may not have to do with raising money, but if you don't make habit of it every day, and as a big part of your life, I'd say, get in the exercise and practice of gratitude.
And I'll spend a moment on that.
Expectation if someone doesn't write me a check and I get frustrated by.
A 100 people not writing me checks. That's because I have an expectation.
That they should write me a check that leads to frustration and continued frustration, breeds anger.
Everyone should practice gratitude daily to get their head in the right space. All.
Instead of counting all the things that are wrong force yourself to make lists and think about all the things that are right.
Um, in your life and it's, you know.
I can see whether you're a ridiculously fantastic successful entrepreneur or your 1st startup is failing and you're going down or slams if you're not cold,
didn't grow up and warn torn Somalia or God forbid, you know,
there's so many horrific conditions that you could be living in on this planet so if you're listening to this podcast right now,
I assure you,
And an extraordinary amount to be grateful.
For in your life, and I would just say that's what's going to keep you up.
You know, as you go see your entrepreneurial career, and you meet the universities in both personal and professional adversity.
The practice of gratitude is the fuel That'll keep you even and happy and when you spend time thinking about all the things that are.
Wonderful and great,
not sort of in a Disney animated movie,
kind of a way,
but genuinely focus on the things that are right you know,
if you're married and you fight with your spouse,
you can spend 2 hours thinking about how.
How mad you are at your spouse,
but if you actually invest a little bit of energy thinking about all the wonderful things that your spouse is,
and you force yourself to count those things you're going to be in a much better mood and see life so much better lens and be at much more productive personnel.
So, my advice practice, gratitude.
That's that's actually a really good point. I generally do not support those. No self analyzing.
Mythologies, but sometimes it does help, so, like, I personally recommend you writing a list of things you've done during the day, you know, even if small things, like, for me, I usually bulk them together into things that take about an hour.
So, I know if I have 8 calls today, I'm going to put.
Tasks of 2 calls per paper and once I'm done with 2 calls, you know, I put them on a desk and by the end of the day, you can see how much you've done and you're like, oh, there's a lot. So, I'm going to put myself in the back, so definitely try doing adrian's advice.
Of course, follow mind advice and, of course, take a look at the description of this episode. I'll leave a few links there to the resources mentioned during this episode,
specific weight treasures,
linked in and to Kansas and if you're curious to see how it works and also I'll leave a link to the application where you can just put your idea.
And if I like it, I'll connect you to the proper mentors and actively invest investors. So definitely do that. And have a good day.