Sept. 4, 2020

Silicon Valley path - how does it work and what are the alternative routes? By Rolan Reichel.

Silicon Valley path - how does it work and what are the alternative routes? By Rolan Reichel.

Rolan Reichel, CEO and Co-Founder at Custom Social explains how he views the "Silicon Valley Path" and who should try to follow it. He also explained his own approach to fundraising and why he follows it. We touched onto a very important subject - incubators, accelerators and entrepreneurial communities and below you can find the links to the ones that Rolan mentioned.

Custom social: https://www.customsocial.io/

Creative Destruction Lab: https://www.creativedestructionlab.com/

Endless Frontier Labs: https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers/endless-frontier-labs

Make it Studio (which I mentioned) - https://makeit-studio.com/


Transcript

And today's a guest speaker, we have rolling at custom social, and in this episode, we'll talk about the standard Silicon Valley path that you see pretty much everywhere in the movies seem to show in their articles. 

And we'll discuss if it's working for everyone. And what are the major alternative paths that rolling would recommend? So, Roland, unless you called by you giving us some background on yourself and on custom social? Sure. Absolutely. 

Thanks for having me I really appreciate the opportunity to be here today and talk about startups and technology. 

It's, it's a, it's one of my favorite things, so I actually started in the beer business for a local beer distributor here in the Bay area of California, and I was managing around eighty million dollars a year in your business. 

And that's how I learned marketing. And learning really all aspects of field, marketing, field, marketing, digital, out of home network, marketing, managing a sales team, et cetera, et cetera. 

I made the transition to digital about fourteen years ago and really, never looked back. The first company I worked for we after. 

Ten months, it was a turn around I came into run sales, turned the company around and ultimately sold it to Oracle and it's just such an exciting technology and in in the Bay area, such an exciting place to start businesses because a, they can scale so quickly. 

There's incredible access to capital, and there's not many other areas or industries where businesses can scale and exit so quickly. 

Right, right I think the fact that you've switch completely to the digital and never looked back and the old school methods. I'm personally kinda missing it. I feel like trade shows are so much fun where you can actually try to sell them. 

It's just I've gotten totally, I think once I had started, where actual went to a, to that to show and it didn't work out. It was completely usable as it was so much fun. 

So, it kinda means that, but anyways, let's start by talking about fund raising for custom social. How do you raise your very first money? So great question. 

We did a Pre seed round last year, and it was with angels. 

We had one home office and one fund where we had a strong relationship where they're really betting on us as a team and they're, 

I think, 

well, 

at anytime you're raising money, 

the management team is so critical right? 

The, the, whether it's an angel investor or institutional investor, they're going to be looking closely at. Is this the right management team for this company for this product? 

Is this a management team that has the experience to scale this business? Is this a management team that has the experience, or the capability to exit and you say at the top of the of the podcast here? 
You know, talking about traditional vc's you know, that's one of the key factors to us in early fundraising is the relationship. 

We had already with some of the funds these are folks who've invested us in the past, or we know. And so. 

You know, it's, it's a different it's different in the sense that they're yes, they're betting on the idea, but they're really betting on the experience of the team and that was a key key factor for us. Early on. 

So here, I was playing a different question, but I'll ask you a full up on this team thing. So,
how exactly did you manage to construct that team that,
you know, 

kind of fit into the understanding of investors that, 

you know, 

that's a good management team where do you find your Co, 

founders or advisors or, 

you know, 

those early people who are there on the very first fundraising round. 

Yeah. Great question. So it's funny you mentioned trade shows my Co founder in this company he's a global leader in the direct to consumer space. 

He's started as an entrepreneur in his early twenties born and raised in Mexico City, and grew and massive directly consumer business. He's like, the fourth largest TV buyer in Mexico yeah. 

So billions of dollars worth of products direct to consumer across a variety of categories. Houseware categories. 

Pharma, he manages the neutral bullet brand in Mexico, and I met I met him through a trade show actually, in about four years ago. I was very interested in the direct to consumer space. 

So my background advertising technology and I, I, I felt like there was. 

Look, I just saw the trends going towards direct to consumer you can see it everywhere everything from the growth of Amazon to the growth of micro kind of big cap brands and your or big direct to consumer brands like Warby Parker and Casper right? 

And so frustration space, I went to Vegas,
I went to a conference,
I met him there, 
we had lunch the next day, 
and four months later, 
we found a custom social so amazing things can happen and we were a great fit I think, 

from a business philosophy perspective, 

but immediately recognize, 

they are two areas of expertise and then this came out of our first lunch meeting that are two areas of expertise are two lanes were very compatible. 

You know, 

I brought the ability to to the digital capabilities and the technology background, 

and he had that mass market sensibility and we thought, 

hey, 

this is a great time to take advertising technology to the mass market. 

So, that was the genesis. The idea from that first lunch, and we just just went from there. Exactly. Trade shows are the power of the star. You make a great point face to face. 

It's it's like, what we were saying, too about personal relationships, and, you know, businesses is all about personal relationships. So absolutely. 

Absolutely, so speaking of personal relationships, I'm wondering where exactly. Did you read your first round? So, did you go to the angels that you knew, or do you try to go through angel groups or where? Exactly do you try to go to race that you know, that initial round? 

Yeah, so I think, you know, people talking about friends and family and angels I'm a big fan of home offices, and, and small funds and there's quite a few small funds out there. I mean, many, many small funds out there. 

They really operate almost as angel investors. 

And there's some real benefit to getting a fund onboard early so we, we knew from the beginning that we were gonna raise multiple rounds, a custom social we knew from the beginning that we wanted to be a high growth company. 

So,
as we thought about it,
you know,
getting a fund,
in,
from the beginning,
lays the groundwork for other funds and institutions later on,
and that is so important because if you want to scale and do a multi million dollar series, 
a,
or even a bigger Series B,
and getting those institutional investors on as early as possible is is important. And I would say that, you know, it's, there's so much. 

Money available, there's so much money being invested these days that it's surprises me how many even bigger funds are going further downstream into smaller deals. So to answer your question, we had a home office. 

It's basically operates like, 

a small mini fund they came in and then we had a fund out of l a called arcadian fund that came in and them to where the, 

the, 

the two main investors and then me and my partner got a couple of bucks into the deal and we had a couple of angels as well. 

Nice nice approach. I think here is the time to talk about that Silicon Valley path. You know, let's first defined that Silicon Valley path. Can you describe what you think? That means? Sure. It's, it's it's interesting. 

I think the word unicorn, right? When I was, I was kind of writing out notes before this path, and I find it really funny that we refer to these billion dollar companies as unicorns. Because a unicorn doesn't exist. 

It's a mythical creature. So it's not rare. It doesn't exist. 

And, you know, and I think it's important, because when I think about the Silicon Valley path, the typical path you think of is quite frankly, you know, younger person, Ivy League. 

Maybe Stanford either dropped out saying, maybe they dropped out to pursue their path. 

You know, and they get a VC onboard, and they get that first term sheet and then, you know, build the business from there. And yes there are some stories in that. 

But I would put forward that that is a, that is the unicorn and that's the rare situation I think more often than not. 

Companies that are being funded, are being funded by people with a proven track record of building a business and I'm not trying to discourage anyone who wants to drop out of college and go pursue search. 

I certainly am not trying to discourage that. But what I am saying is that, you know, spending a couple of years in a bigger company, or seeing a couple of years learning your, your skill set. 

You're, you're building real professional skills and then learning how to build businesses is great. 

And that's the majority of the entrepreneurs that I know in the Bay area, it's the majority of companies that I see getting funded and certainly we fit that Bill and we were able to get funded because of our proven track record. 
So, I guess I love the the myth of Silicon Valley, but it's, you know, there's there's the reality is, is quite different. 

So, and speaking of dropping out of college, I think I wouldn't recommend that to anyone like a founder who dropped out of college and then find this company. 

And then solely successfully, and then got back to college and actually finished it and then said that I kinda wish I didn't quit at that time. So you never know. I'm not big fan of mortgage broker dropped out. 

But anyways, let's talk about people. I mean, most of my listeners or early stage entrepreneurs and half of them are first time founders. So, I assume that. Most of them don't really have much of a track record of building businesses. 

What's your advice to them? How can they build out this track record. If no one is willing to give them money to build that track record. Yeah, that's a great question. I think there's a huge benefit to building. 

Well, if you're not building a business and building your network and I'll give you an example. So, my very first job in digital, I worked for a CEO. His name is Adam Archer. I'll give him a shout out. 

Fantastic smart,
great guy engineer he had been at Apple, 

and he was part of the fifteen person engineering team that built the one for the very first iPhone so yeah, 

really great guy and he's back in Apple now, 

he was Apple for years working directly under Steve Jobs then he went entrepreneurial and then now he's back in Apple kinda part of his career anyway. 

I spent two years working for him, and we actually did that company. I had a very small, small exit, I mean, tiny, tiny piece of it, but I did get a front row seat. 

Not only learning from him and his the way he ran that business and the technology he built, but I got a front row seat on the business side seeing him,
take it all the way through to exit and will also save at that company. 

I joined when he was turning it around, he had gone from the classic story. He'd gone from, you know, huge investment, raised millions of dollars, four thousand square foot office in San Francisco. Cmo Pepsi. 

He gone all the way from that. The business. 

Totally crumbled and cratered and it was I was the third person in his rebuilt so I saw the tenacity that he brought in scaling his business having it, 

you know,
kinda crumble pivot the business model and then rebuild it to success and exit. So, 
that experience was absolutely critical and I would say,
go do that for a couple of years before you start your own,
you know,
you don't jump,
jump straight to being an entrepreneur because,
you know,
you can learn a lot.
And then when you go to do your own thing, you bring all that forward with, you. 

Absolutely, I'm all for the advice. No. Get internship get, whatever, kind of job in the startup is not like, super complicated I think, but definitely try to get some experience in another firm. You know, when you're not risking years of your life. 

So, let's go back to the current times and talk a little bit more about custom social. So your raise your initial rounds when was that? 

We raised our Pre seed round summer of last year, so, just about a year ago. So, I assume you're planning to raise another round sometime soon right? Actually, here in September, we are just finalizing. Yeah, we're going out to raise right now. 

So, it's been the last couple of days working on our investor deck and pulling the financial model together. And we're, we're gearing up my friend. That's awesome. And best of luck to you there. 

So, my questions here is then, how do you think covet is gonna affect that fund reason to expect any problem with that? 

Yeah, it's a great question. It's it's an interesting time. Right? Obviously Co, bid is well, it's affecting our workflow, our life and how we work and it'll affect the race itself. 

Obviously won't be traveling. 

We're already planning a completely virtual road show, 

and, 

you know, 

for folks who will be investing, 

I'm sure There'll be follow up calls and some extensive zoom time to get to know each other and whatnot. 

Part of this question is also, like, how Kobe affected your business right? 

And, you know, we're in a fortunate spot that covet is accelerating a lot of the trends that were already tailwinds for our business move on lines needing online tools and and E, commerce. 

So, you know, we're, we're very much going in in this in that direction. And also, right now there's just a lot of deals happening. 
I think what happened I think what happened is that when coded hit a lot of vc's in investors, kind of shut down for thirty or sixty days like everyone did. 

I mean, 

they were just dealing with personal lives and just figuring things out, 

but there were some, 

and, 

you know, 

there's been some written about this, 

that that really proud ahead, 

and, 

you know, 

generally are thinking about this time as an opportunity. 

Right in some ways right. 

Economics shift, 

economic change and opportunity for, 

for, 

for innovation and so some PCs and investors really pushed forward and quickly, 

you know, 

went virtual and continue to invest. 

And now, I think, as we get it after the summer, you know, a lot of the ABC investment community is kinda going, like, oh, wow. I think we missed an opportunity here. 

You know, we better get into gear. So, they're kicking into gear and on top of that, you know, you have a stock market it's just. 

Performing incredibly well, so people have a lot of capital and I think that's all coming together to make a pretty robust investment environment from a, from the entrepreneur perspective right now. 

Right, right? Yeah, I'm definitely on the same page with here with you here again. 

So here let's talk about who you're trying to, or you're playing to aim during this round of fundraising is it can be family offices again philosophies or is it just solely vc's? 

Yeah, good question and he will be open to family offices. I think there are a couple that will be talking to and then we're gonna be going after funds and actually we're expanding our circle a bit. 

So we'll be doing some racing here in the US, mostly from PCs, but we're also going to be racing out of Canada as well. We have a business community up there, and I saw my company the Canadian 
company three years ago. 
So, I know a bunch of folks up there in Canada is really yeah. Can't is really cool. Fundraise business community. 

I mean, Toronto is just amazing that Toronto on fire right now in a good way bandwidth. 

There tremendous amount of talent capital very technology supportive companies like Spotify coming out of Canada is really accelerated that whole community. 

So we're looking at some punching funds and some vc's there. And then. 

My business partner being from Mexico City, you know, will be tapping into some home offices there as well. So we're kind of, depending on which market we're in. 

We'll be looking at different companies, but generally prioritizing venture funds and institutions got it. 

And by the way, for people who didn't get the joke about the fire, it's funny because San Francisco is kinda literally on fire right now, because of the heat. 

So,
I just explained that to our East Coast friends, 

and so let's move on and talk a little bit more about your previous experiences with fundraising and specifically the major mistakes that you've done. 

So, you know, now that you're much more experienced than you were, like, five years ago, and looking back at what you've done there. What's the major mistake that you see yourself making. 

I think there's two things that can go wrong in fundraising. I mean, well, I should say there's a lot of things that can go wrong, but one that I'll highlight one is a lack of preparation. 

So, 

when you get to the institution institutions and funds, 

and even home offices and angels as well, 

but certainly the institution, 

home office level, 

everyone's gonna have a thesis or a perspective on their investment. 

Right? We invest in this type of company at this stage with this valuation, these types of companies, et cetera. So, if you're in preparation is so key right? 

Just be very thoughtful about okay, where to be SAS, play focused on Sundays. And there's a lot of ones that focus on the market. 

They're like, hey, we, that's the kind of technology would like to invest in. 

So, doing some preparations finding the, the funds and investors that aligned with you strategically is so important and I think, you know, there there tends to be this more spray and pray approach, which is no one's fault. That just happens. 
But you can spend a lot of time talking to folks who just their investment thesis doesn't match. So that's one is the preparation. 

And the two is make sure you really have a good handle on the business side of your business. I see a lot of young entrepreneurs who have a great insight into the product. 

Great insight into the, the market great technology skills, but investors.
We want to know the business and they want scales and they want to know it's profitable. 

So, make sure that when you go and sit with them, you can have a really good handle on the business, your margins, your even all that stuff. 

Right, right and that is very important. So I would highly recommend you making your research on both investment before joining, the call with them because sometimes what happens is you jump on a call and you have no idea. What's going on. 

I mean, that happened to me as well, so it's, it's kind of normal, but probably, that's not getting the check. So, just to extra five or ten minutes before the call. 

Anyways, here I want to touch on to he entrepreneurs a little bit more as you mentioned. 

So before that you said that your major advice is basically get a job at a startup or good company that, where you might teach where you might learn a lot that you can apply layer onto your own company. 

But for those young entrepreneurs who have already either done that, or who are, like, okay, never mind, I'm just gonna started myself. I'm gonna start a company right off the bat. Right? Right. Now what's your advice to them during this environment? Now? 

That's the most useful and back into the startup world was for advice of those founders. You know,
my advice is,
you know, 

build your community and and, 

you know, 

I, 

I think what you don't want to be in a situation is that you're only talking to folks when you're ready to raise you wanna start those conversations early and there's a lot of investors who appreciate that. 

And even if they're not gonna put in money today, they may put in money in the future. 

And so it's good to start building those networks and building those relationships just get involved in as many communities communities as you can, 

you know,
in why you Stern School of business has a great incubator program called endless frontiers Labs. There's, it's, there's no equity give up. It's purely a merit based incubator, focused on technology. 
There's another great one out of Canada called creative destruction Labs. That's excellent as well. So, yes, there's the, why? 

Combinators of the world, and those incubators have their business model, but there's a lot of other incubator type communities out there that are technology based or academic based and you can engage as well. 

And there's a live investors, look to those programs as a way to meet entrepreneurs. So that's, I think that's my advice is look beyond why commentary? Nothing bad about that. It's a fantastic program. 

Obviously tremendous amount of successful companies, but there's lots of other other community that you can get involved with as well. 

Absolutely, totally. On the same page with you again. I'm not going to elaborate on this. Why? 

I think you clear everything out, but I will make sure I get back through and after the episode, and he will send me over the links to those programs that she mentioned mentioned. 

So, that's if you're curious, go to the episode and check those links out. And here, we're moving on to last question. If today's app is a, which is a call to action. 

So, rolling was the one thing he wanted to lose her to do as soon as the episode is over. 

Great question, I'll tell you one thing that I've done in the last couple of months that it has made a tremendous impact in my life. I do not turn my phone on for the first hour that I'm awake. It's a small thing. 

It's a small thing. It may seem like a small thing, but we all use. Our phone is in alarm and so the alarm goes off. 

You reach over the phones in your hand then Twitter then Instagram in your email. You haven't even left your bed yet. 

So my new routine,
and I really encourage everyone to do this,
turn off the alarm,
leave your phone by the bed and get up and go into the kitchen make a couple of coffee, pick up a magazine,
pick up a book. 

Give your even go out on the backyard or your balcony or something and just give yourself some time to wake up for your brain to wake up to your thoughts to settle. Before you hop into your workday. I think you'll find that. 

You feel better. But more as important nations and more important, but as important. 

Your emails that you do send out are gonna be more thoughtful, more structured and more persuasive, because you've just kind of taking your time to, to, to settle yourself and think about your day. 
So, I will say, I don't do it every single day, but that's that's my goal. Right I'm this is probably the first 
time I'm going to say. I'm probably not on the same page. Really? Sure. 
I'm just, I just can't imagine myself and I was seeing with a book in the morning is just feels weird, it feels wrong working while I'm eating my breakfast anyways. My conversation will be kinda similar here. 

You know, 

first of all go to the descriptions this episodes leave the links to those incubator programs and those community programs so that people can find something helpful there, 

but to follow up on roland's advice I think,
you know,
a lot of founders try to pretty much exhaust themselves,
so,
like,
I've here,
I've heard a lot of founders bragging how they work for twelve hours a day. 

I'm like, come on that's not gonna work for over six months. You're just going to be sad in six months so just don't overwork herself. So, full either roland's advice or mine or actually, both of them and have a great day. 

Don't burnout people.