Oct. 30, 2020

Founder of one of the largest LA accelerators talks about early stage fundraising. By Brian Mac Mahon.

Founder of one of the largest LA accelerators talks about early stage fundraising. By Brian Mac Mahon.

Brian Mac Mahon, Founder at Expert DOJO - one of the largest and most active accelerators in Los Angeles talks about fundraising for early stage startups, investment thesis of Expert DOJO and funding availability during the pandemic.

Brian's LinkedIn: https://www.linkedin.com/in/brianmacmahon2/

Apply to Expert DOJO: https://expertdojo.com/register/international-accelerator/

Miki Reynolds talking about accelerators in Los Angeles and SoCal: https://www.fundraisingradio.com/Miki-Reynolds/


Transcript

And today is a guest speaker, we have prime of man. 
Founder and CEO at expert Dojo, 1 of the largest accelerators in Los Angeles and today we'll talk about accelerators. How do they invest? How does expert invest specifically? 

Where do they find their deals and who should go through an accelerator program? So, Brian, let's kick it off by you giving us some background on yourself an expert Dojo for those who don't know it yet. 

Great to great to be here. 1st of all. Yeah, so expert Dojo are a pure international accelerator based here in Santa Monica. We consider ourselves ready to be the gateway to the United States for everybody else in the world. 

Are our programs normally are like 12 or 13 people in each program so we keep them very small and curated because we're so focused on growth hacking and brand and all those wonderful things that lead to outreach and the folks we get from all over the world. 

We'll bring in companies, I think our last et cetera. We had companies from Egypt from India, 

from Africa to companies from Africa company from Argentina company from Finland company from Spain company from the UK and a bunch of other folks as well, 

Portugal,
crikey and others. 

So, that's expert though Joe, we positioned ourselves as pretty much the most prolific investor anywhere maybe in the southern half of America. We're investing in about 1 deal per week right now. 

So extremely prolific in our investing just a regular guy. 

Who's lived in lots and lots and lots and lots of countries about a couple of different companies, everything from property developments over to tech platforms have spent the last 30 years or so really? 

In the school of early stage startup and learning about what are the specific indicators that give a better probability of success. 

Nice and yes, expert is really active. It has been active, but it's becoming more and more active every single month. Honestly. Sorry for that. 

To ensure that all right. Uh, okay, so. 

I got the part that you invest in early stage startups and those have to be, you know, from other countries. What specifically do you invest in? Are there any particular fields that you're looking for? 

And what's generally the stage that you invest in? Is it like, preceded or Pre? preceed? What should the star base would have to be accepted into expert program? 

So, number 1, we will probably invest 70% of each cohort program into international companies. And then, 30% are into either immigrant vendors that are based here in the United States are just exceptional founders. 
Like, there's sometimes we just find someone who was just exceptional that execution. They're not an 
immigrant they're not international. 
They're born here, lived here their entire lives, but we just love them because our entire thesis is to be inclusive. We want to make sure that we're inclusive of the entire world. 

And, however, where our strongest I would say advance just to start ups are, is this active positioning us as a launch pad. 

So, most of the United States, so, most accelerators focus on taking very early stage companies, lot of, which would be preceed, lot of, which would be Pre product. Maybe some will have products, but maybe not have traction. 

And because we are an international accelerator, the majority companies that we say, do already have a product. Are they have a service? We're pretty agnostic as to the type of service. 

We worked in as long as our principles and our lp's and our gp's having knowledge of that particular sector. We're fine with it. So we're taking companies in and medtech. We've taken companies in an impact. 

We've taken companies in artificial intelligence machine learning, and we've taken companies in automation at the same time. We've taken just basic marketplaces, which are connecting the right parties to each other as well. 

And so a lot of the companies, 

because we are so focused, 

not so much on raising subsequent investment for companies, 

but we're so focused on building an American brand, 

making sure that brands speaks to the American consumer, 

making sure that we then focus all of our efforts on growth, 

hacking that product with every single tactic that we can use then we tend to get later stage companies so where they are at the seed stage. 

But they'll say, huh? Okay, our evaluation is slightly higher than that of an accelerator, but we're prepared to take a little bit of money in from expert Joe, because we believe that expert Dojo are going to help us scale and reach that unicorn status. 

Quicker than we could have gone to ourselves. Mm. Hmm. 

Nice got it. So now let's talk about a really, really important question that every founder should ask themselves. Where should I go? 1st so, in the beginning, there are multiple options. There are incubators accelerators. 

Going on your own voice, trapping angel investors and sometimes even PCs too. How should what factors should founder consider prior to choosing the right path? 

So, everything, so an incubator, I'm going to put slightly aside because an incubator. 

Normally people cross mingle these products, these services all the time, which is just really confusing for vendors, but an incubator is supposed to be a place. 
We're an idea of a product is taken and then they will take the majority but maybe it's their idea and 
they will actually incubate that idea in their, in their location and take the majority of the shares of the ownership of that company. 

And then sometimes they hire a vendor, and then sometimes a standard would actually have that. 

So, if you look at science, our dollar shave club, or are many other places around the US, they activities incubation centers where it's all their own all their own products. Now. 

So, let's leave that aside for the minute, because that's what a founder has decided that they do not want to really grow their own products. They want to outsource that to someone else. But if a vendor wants to grow their own product, there's only 1 rule. 

And that is that unless you're incredibly lucky, you cannot get there on your own. Especially if it's the 1st time, 

there's just too many things that you have to know and those things that you have to know go across the board from your to the basic stuff, 

like your cash flow and making sure that you're fiscally responsible to hiring the right team to signing the right terms with the right venture capital investors to making sure that you build the right board. 

Right? Like all of these things are incredibly difficult decisions. So should somebody use an accelerator or not? Uh, totally depends on the team that they have, and the team that they're building to go forward and think of it like this. 

If you want to be a world class, ice skating champion. I don't know what ice skating's in my head, but let's say you want to be a world class, ice skating champion, you know, that you have certain skills to get you to be the number 1. 

World class, ice skating champion in the world, but you also know there are other things that you will need to know when you move past your existing level to the next level, and the following level and the following level right? Up to world class level. 

Now, the more of those attributes and talents and skills that you have in place, and people that you have in place to make that happen, the quicker you can make it to the top in some. In some ways. 

You may never make it to the top. Because you didn't have that coach to teach you guys. 

You how you should eat and how often you should sleep like, forget about. 

Being a great champion, actually, making sure you have the body to be able to be a great champion. So accelerator is 1 of those things where it's good for some people. It's bad for other people. Some people needed. Some people don't but what everybody needs is to make sure that they are surrounded with the right people in the team. 

And I always say this to people that we interview for extra Joe and say, let's say the folks. We love. We want to put investment into if you don't see value and how we can help you grow and get to that next stage quicker than you should choose somebody else to get the money. 

The money's not worth anything. 50 k100. K, who cares? It's about how quickly can you get to the goal line and how many other people are going to be running to the goal line I'm playing interference against you. 

Great. Great. That's 100%. Correct. So, speaking of intriguing founders, specifically you interview I mean, you invest in 1, start per week, which is just insane rate. So I assume you get a lot of deals coming your way. 
And what are the major things that you'll look in in that deal specifically? So when you open the pitch deck, when you look at 1 picture, what are the major 3 things that you'll look at? 1st. 

Proof of execution and ability to scale. 

Are the 2 main things for me so, proof of execution does not mean that a fender has to have done it before, but there are clues in people's lives as to what they've achieved and what they have achieved. So I had a founder. 

We just invested in and she had she does not even have a website for the company that she's creating. 

But she's a neuroscientist, she's gone through John Hodgkins. She has been a, a, an actress on a show, which is extremely difficult to get into and she. 

Built pretty much everything herself and and I know that based on those things that she's already achieved in her life, the chances of her not being able to achieve this are very small. 

Because she's already achieved much more and then I look at ability to scan and I say, okay. 

There are certain very important factors for a company to be able to scale number 1, the future product that they're building has to be a product that can scale. We call it island topic. 

So, that's when we say, the 1st, time is, let's say, 10000 dollars a month revenue let's pretend that they're all revenue companies and then the next time into the 100000 a month revenue in the next time, there's a 1B a month and next time to terminate. 

So they don't say, okay, has the entrepreneur demonstrated that they can build bridges quickly to go from 1 island to the next island? With those bridges being as believable as possible. 

Okay,
so that's the 1st thing 2nd, thing is, 

do they have the team that even if they have hypothetically built those bridges and told us what those bridges are going to look like to they have the team in place to actually be able to scan and make this happen and that means going through the different stages of entrepreneurship. 

We call the 1st stage, the biking stage, which is very much the outreach and the branding stage. And the 2nd stage is the structure stage, which is very much about it processes and procedures and structures. 

And the team, and the next stages, the Knights of the roundtable stage, you have to have 7 or 8 or 9 people around this roundtable who are all. 

Better than you doing their specific task and then final stage, you know, you get the Sensei stage. 

So, we want to make sure do they have the future team building capacity to be able to make sure that's board advisors everybody to be able to make it through the scaling that they're going to be able to go through and then when we say, okay, cool. 

We're happy that the product is being able to go through on and copy. We're hoping we're happy that the team is able to actually skill gap all the way to make it through, to the end where they get to that Sensei stage. 
And then we're going to say, let's look at the market and let's look at all the forces in the market that can possibly knock us off are thrown either. Before we get to that throne after we get to that strong. What are those forces? 

How challenging are they what type of risk does it represent? And how do we mitigate against that risk? And normally, with those factors, there's a stock more stuff that goes in there as well. There's girls, there's previous companies we've locked down. 

There's a bunch more stuff, but really, after we look at those factors, we have a very, very good field if we like someone I, to calls with 2 vendors this morning already and both sides. I know based on those factors that we would probably do term sheets. 

Just for those who don't know which time zone we're in we're in a late and 9 0T am here. So, Brian, you start working early respect. Now let's talk about Jane knocked out of the throat. 

So 1 of the kind of, uh.
Not serious, I think questions, but 1 of the questions that people make fun of is, you know, what, if. 

Facebook makes the same solution and that is viewed as 1 of the risk factors of being knocked out of that. Through. What do you think are the actual real major factors of, of that where major factors of gain kicked out of that? Threaten? 

So, look, we can look at this from 2 sides from 1 side of it. Let's look at it from hoover's side. 

Which is a great example. Right? So, Hoover is pretty terrible product. And the only thing they do is they get venture subsidized, right? That's it. Venture capitals pays the next ride that you've taken a mover. 

A venture capitalist is paying for 50% of the cost of that, right? 

Simple as that that's how survive and they pay you for 50% of the cost of the right in the knowledge that they will push every single competitor out of the market. 

So that when we get to wherever that time, period, is, is it autonomy cars? Is it that there's just no competitors isn't that the taxis have got decimated and they're they're a mirror shadow of their former self, whatever that time period looks like in the future. 

Then we can then come up and they can increase their prices by 50%. The market economics would mean that they can now offer more economic product and they can possibly be a profitable company. 

But in the meantime, they have billions and billions and billions of dollars to destroy you. 

And start ups need to know that that will happen. Now, on the other side of the coin, let's look at the example that you and I talked about this morning, which is webx versus zoom and Webex. Cisco. 

I've been around for a 1M years, but it is truly them was terrible user experience and the entire world, because it's made by a bunch of old man. That's it. 

And you can't say to a bunch of moments, and I want to say, oh, I mean, old in their mind, not only in their bodies. Like, I'm 51 year old guy. And I'm I'm 22 years old when it comes to how my mind thinks for innovation. 

But the problem is, once you work for a large company, you become a CRE.
Middle managements old, man, because that's what companies turn you into and I'm sure there's 
some women working on as well. But I guarantee you that. Most of that was put together by 90% and 95% folks who have no ability to innovate at all. 

So the only chance, and then look at what zoom did. 

Like, did Webex compete with them? Yeah, even Google, which, by the way is no longer a startup. It's now an established boring company with those same middle management men and women better in Cisco. Right? 

So, what happens like, zoom comes there and even with the unbelievably unfair competitive practices of Google. 

So I E, everybody's got Gmail and what happens is when you invite anybody to a meeting on Gmail, they will immediately. 

Send that a Google Hangouts to the extent that they know they're confusing people even if you have in your location and zoom. 

Hang out and zoom a video conferencing number. They will still have Google hanging in there, but how far of zoom go on and have bodily have have Google Hangouts on Yeah. Duplicate. They have their lunch. 

Webex have had their lunch sheet and I'm sure people are in boardroom saying they're doing really well, right now. They're not. They're doing they're just screwing. They should've own the market. This was their opportunity to decimate zoom a small. 

Non existent tiny little company zipped straight past everybody for 1 reason and 1 reason only and that is because they have innovation, they have youth of mind, and they have user experience directly in their mind. 

That's what they lead with. So, yeah, you just have so number 1. yes. 

Unfair competitive practices are out there and they will try and destroy you the same way that Amazon and all their friends to every single day of the week number 2. they have a disadvantage and that they are old. 

And decaying, and you are not so as an early stage startup, if you're aware of the threats that right there, if you mitigate towards those threats, and you make sure that you're not gonna run out of money and you aggressively growth hack, you can win. 

That's the way the world works. 

Right, right, absolutely. And ironically we are using Webex right now and yes, it is pretty horrible from the point of view. So, Brian, you're completely right but now let's talk about more current situation. So. 

Pre cobit, world's slash cobit world. You have a roughly 70 companies in your portfolio right now how did they go through cobit? What was the major trend that you've seen? And what's recommendations for early stage founders in terms of. 

Shifting their company to adapt to the new realities.
So, we had 3 companies that had a really tough time, and they just had products that were. 

Tying in the middle of the world that is open in a shop, because there's no way for them to pivot. Right? We probably had another 15 or 20 companies. 
That could have been negatively affected by covert, but they shifted like incredibly well. So, 1 of our 
companies meet caregivers. 
They had carriers who would go to the homes of older people, and then make sure that those older people were taken care of in their own homes. Right? 

Which is a huge market right now, 

but obviously that's stopped happening with covert because people couldn't go to older people's homes, 

especially if they'd been to other places to immediately pivot and started sending services to those same elder residents, 

that they would need everything from ventilators to masks to having food delivered to their homes to everything that was really smart so really showed the ability. 

And when I talk about execution, that's exactly what I mean. 

Unbelievably unfair and terrible things will happen to all of us during our lifetime in our business. So we have a business for 30 years. It's gonna happen. It's just a question of when right? 

And the question be prepared, or we should ask some people have enough money in their bank account to last night 2, 3, 4 years that it will take some people are able to pivot really strongly. Some people are able to reinvent themselves. 

Like, we had 1 of our companies that reinvest themselves from a cruise to experiential company to an online Cruz experiential company, which look like, now it could be 10 times more important because of what they've done. 

So, it's not a bad like Mike Tyson said everybody's got a plan until they get punched in the face. 

So, covert was a punch in the face for probably 30% of most venture capitalist portfolios question is how did people react to that afterwards? The great entrepreneurs will come through stronger and stronger. 

And then we probably had about 60% of our portfolio that have just laughing all the way to the bank. They're in a fantastic shape. And they see, this is the greatest of all times. They see the larger competitors quaking in their boots. 

They've reduced their Facebook and their marketing, spend they reduce the staff, spend they fired people, which means the morale is low. Like, if ever there was a time to attack the castle. This is the time when the gates are open. 

Attacking the castle, I love your matters loved them. So let's let's talk about the creativity that we have senior and cobit. 

So you mentioned that 1 of your portfolio companies has changed from, you know, just a curse experience to online cruise experience. How. 

Is that the most creative adaptation that you've seen in your portfolio? Or is there something else, uh, there that you were? Like? Okay, that was really great. Wonderful move. It was smart. It was very, very creative. What was that? 

I've just seen a lot, you know, 
through,
throughout all of the different companies we've had, I've just seen a lot,
like,
even going back to the new caregivers,
they were doing 100000 dollars a month,
Pre,
covert and then after covert, 

even though they should have decimated their business it should have taken their revenue from 100000 a month and 0T and what happened was increase their revenue from 100000 a month 200000 dollars a month. 

So, it was really impressive. And it put us into a place where investors started looking hard to make sure that they started looking at or to invest as opposed to before returns. 

Uh, which was a company that did training in universities so they did sales training and universities of which much of it was online. But of course, the universities stopped teaching. So they triple down on their sales and they. 

Got 300%, increase on sales. It just subscribed on around for, like, 1.25M, which came through 3 angel funds in the area. So there again laughing all the way to the bank and we've got a number of and then they stage the cruise ship. 

Cruising company is fantastic, because previously, yeah, they were just a provider of other providers, providing these incredible cruising experiences, but the cruising companies already had lots of cruising experiences already. So these people were not special. 

They now have the ability saves the crews and companies, like, think about how important that is, they can say, in the same way that Disney have gone from having a park with amazing attractions that makes little boys and girls eyes light up. 

They now have an online experience, which they're. 

So now the ability for this cruise experiential company to be able to do that, it means that they can then go to the, to the cruise shipping companies and say, hey, look, we can save you. 

You all a 1B dollars. Great. We're going to talk about how you galvanize and excise and ignite your audience in a way that you could never have done before. And previously you would have just left them and we're going to find you a new demographic of people. 

And that new demographic people are going to be the burning, man, people they're going to be folks who would never have looked at cruises before, like, this is your time to reinvent yourself. And that's how we have to look at times like this. 

There are people who look at cobit situations and say what was me what was terrible. And some of those people are very real reasons to do. 

So they may have mean if I haven't right find a bar today, I would be crying because especially, you know, I speak Irish originally, and I speak to a lot of my friends back and and and bars are, are I mean, 
that's why everybody goes. 
There's no tourism, there's no bars bar open and 9 or 12 months. So you would think like, how can we possibly survive from this? 

But you can, as long as your mindset is we need to create the new tomorrow. Like, if we accept that, yesterday will never, ever come back again in the form. That it was in. Is there an opportunity? 

What everybody else is so miserable and so rightfully upset. And not knowing what to do, is there a way that during that may have and panic that we can come out with something? So incredibly brilliant. 

That we can get an entire population of people excited by this. 

Right, right? That's. 

That's a really positive outlook on life love it. So here. 

Let's touch on to something we've quickly touched on in the past, which is you have to have money in your bank account to be able to fight no bigger competitors. So. 

What's your advice to founders trying to raise my right now during this? But when no one's really sure what's going to happen. 

Post cobit world, how should the reason why.
So, number 1, there are many investors like us, we're investing at twice the rate that we did. 

And there are many other investors like us that are more aggressively, because we know the money for investors has made always during recessions. Like, you can get lucky during a good period. 

But in general, the prices of companies become too expensive. And it becomes almost impossible to make the right back to find the right company during which sessions and during covert times like this, we have panic. We have Mohammed, nobody knows what to do. This is the time to, for John. 

Much harder, and there are many, many other folks who are thinking like me. So that kind of the bad news for venture capitalist is very, very hard time for them to raise funds. 

Very hard time and but the good news is, 

if you already have funds, 

like us like the vc's out there, 

then there's plenty of dry powder and we want to deploy that dry powder and we want to put it back to the market as much as we can, 

and not just the initial 100000 that we put into companies, but we'll do follow on checks and 1B dollars into companies. If we really like. 

How those companies are growing, so it's a very, very, very powerful time. Now, what's happened is the angels, the amateurs have left the market. So the people who were torn between oh, should I invest in company? Should I invest in a house? 
Should I invest in some alternative stocks? Maybe I'll look at some penny stocks. So pink slip 
companies? No. Those types of people have pulled back. 
And rightfully because they said, hold on a 2nd, I'm not interested in the 10 year return. I want to make sure I get my 1 rear return and I want to make sure that, that 1 year return is off the charts. So, and those people have gone. But there are so many good investors out there, which are fine. Here's. 

What's really important the most important thing is that great companies will always get funded. 

Mediocre companies will always struggle to get funded poor companies that cannot demonstrate that huge vision and all of the things that I said, at the beginning of this talk, they will not get funded and they will, but in good times they might have got funded. 

Right? Because there's some money around people would give it. I'll take it. So. 

If you are a company that's struggling to get funding, you got to ask yourself why I mean, is this is this not a no brainer decision? 

Is this a decision where if you gave it to yourself, or you take it. 

And most of the time, the answer is no so we can tell, I can tell very quickly if a company has an incredible opportunity to scale. I can tell really quickly if the company is perfect for us. And if we're perfect for them. 

And if you're a startup, I would say, the number 1 piece of advice, I would give you is focus on your growth focus on making sure that people find you. So, I always, I always talk about. 

Whenever anybody looks like their desperate. 

In life, I don't care who it is. I don't care if it's the boyfriend looking for a girlfriend or somebody looking for a job or a girlfriend or boyfriend. I don't care if somebody looking for venture capital the moment. 

But that desperation does that need you're seeing on your face unless you are incredibly lucky. You are going to push that other person away. We all want. 

We all want the attributes in another person, which which represent the strength that we want to be alongside, going forward. 

So, if I'm going to invest in a house, unless I know housing, like the back of my hand, I want that house to look like it's going to last. 

Not going to buy a house. That's right on top of the ocean. That looks like it's been built on cardboard. That could fall into the ocean in 2 weeks time. I want to house. That. 

Every builder in Santa Monica is looking to try and build on to because it's the greater architect, greatest architectural design and separately adults and I want a house that's actually making a really difficult for me to buy the house. 

Because so many other people want to buy the house, so make yourself scarce. So, you do 2 things number 1, you focus on your growth and you under promise and you over deliver number 2. you don't make it. Look like, you're looking for investors. 

But you quietly pick up names of investors who are within your local market outside your market. Who is invested in spaces like yours and you start to keep those people updated and you're not saying, please, can I have their most money? What you're saying, the middle of building an epic business. 
We're going to be a unicorn. This is going to be a unicorn. You should watch. 
And people will come to you right? That's the perfect strategy. And never say, please in your page. Like, if you say, please in your page that's literally killer. 100%. So on these were really positive. No, Brian. We're going to move on to last question after these episode. 

Which is going to be call to action, so. 

Once the episode is over, what is the 1 thing you want to lease her to do? As soon. 

As it's over, so what what would I like standards to do just in general. 

Probably more from the fundraising point of view, because it's fundraising radio, so it makes more sense. Okay. So look number 1. 

I don't particularly and I don't want this to send wrong. I don't. 

We find companies we love that's how we work it right? So, it's very seldom somebody will listen to us on a podcast and say, oh, I heard you on a podcast. I want to apply for the accelerator and if it does happen, great, you know, put your application. So, expert Dojo we're always happy to look for you. 

I think there's a much more general point here where, which I always want to make to finders and if we're part of that journey, we're part of that journey. And if we're not equally happy. And that point is that. 

Early stage startup is 1 of the greatest endeavors that you can do in your life. Because you get to ignite something,
which most people in the world,
like, 

95% of people will never, 

ever, 

ever get to experience this and you get to ignite this creativity, 

which you've been given to bring something to the world that has never, 

ever, 

ever existed before. 

And you get to be the 1 to build you get to be the 1 to create the legacy. You get to be the 1 who's the Elon Musk who stands there and says. 

I don't really care what other people think anymore. I have creators therefore, I am. And if you focus your mind on that,
and you focus your mind on scaling it to the maximum,
and you make sure that you're building it with a budget, 
that allows you to do that, 
based on what you need to do, for at least 2,
6,
month period, 

then you just go for that, 

and you surround yourself with investors. 

You make sure the investor group. So you're doing you make sure that vc's know what you were to make sure you're extremely aware of what investors doing what, at what stage and make sure your team is really well placed to be able to scale it up. 

And then you just put your foot on the manual you go for these next 2 years would be the greatest opportunity that you ever had in your entire life. So, go for it. 

Give it everything you have forget your work life balance and all those wonderful things that people with jobs have and focus every single entry of energy you have on building a monster startup and the investment will come to you the money will come to you and the growth will come to you. 

Right. That's a very positive note to finish that episode on. So here we'll wrap it up. My call to action is going to go to the description of this episode. I'll leave a link to expert delete your applications. 

So, if you think you're the right fit for expert, those you make sure to apply. I'll also leave a link to brian's LinkedIn and. 

I leave a link to something else at this point. I don't know what is going to be, but something else is going to be there. So definitely make sure to look at the description of this episode and as usually have a good day.