Nov. 3, 2020

Raising pre-seed and seed rounds and surviving golden rush. By Scott Schwab

Raising pre-seed and seed rounds and surviving golden rush. By Scott Schwab

Scott Schwab, Co-Founder at Bottega, Managing Partner at Aethos Ventures and Partner at Mett Corp talks about his first fundraising experience and how his approach to fundraising changed since then. We also discuss how startups can survive and prosper in heavily saturated markets.

Scott's LinkedIn: https://www.linkedin.com/in/scott-schwab-8306713/

Mett Corp: https://mett.com/

Non-Profit that Scott runs - Success in Education: https://sieutah.org/


Transcript

And today is a guest speaker, hold on a 2nd, and today's a guest speaker will have scotch Schwab.

Co, founder, advertiser, currently partner at met Corp and also a director at a nonprofit called success in education and today we'll talk about Scott's.

1st fundraise for protective because currently believe up to date. They've raised 4.2M dollars. We'll talk about how they raise their very 1st round.

How they're doing now, how did they adapt to the and what does Scotty through the Matt Corp so, Scott, let's kick it off by giving us some background on yourself and on, but.

Yeah, thank you so much constanty and I appreciate you having me on really started 10 years ago.

And what I mean by that is the previous entities that were formulated previous to both is today really started with an idea of trying to solve a basic

problem.

And the basic problem was delivering education and doing so, in a mindset where a person a student could be able to progress towards something tangible and something that was driven by the industry.

And so that's really where it all began. And fundraising has been a part of really what our culture is, or who we are as a company.

And we believe in the bootstrapping principle, we've also always had good friends and family and people whom supported our initiative.

And we're willing to put in money at times to get us to the next level. And so not a lot of people know this.

But my mom was my 1st investor,

and she put in 14000 dollars and that allowed me to with my life savings or my savings that I had put away a build out a learning management system,

which ultimately gave us our 1st start.

So, it's been part of who we are from the beginning.

Now,

what people know of as bodega is a development school specifically focused on training software engineers,

and particularly in the disciplines of mobile development and full stack development.

Um, most recently, we just purchased a university that when that was finalized and it has now gone public.

So we'll take a university also has a traditional approach wherein we train and teach and provide degrees for criminal justice communication or business,

and ultimately play the role of being able to provide traditional education and non traditional education,

which really has been the dream for the last 10 years.

Hold up a 2nd, he said you bought universities so there's an actual University called a university and that's.

Like, a real, like, building where you can go and learn.

Great it's, it's an online university, but yes got it.

That's really cool. That's really cool.

Very interesting. So, in the past, you've also created a company or a company focused on education specifically on nutrition and now this market is super century. So, how would you?

And I've seen, I still see a lot of new founders going into that field am personally, like, extremely tired of seeing those pictures but I know that those founders still exist. I know that probably some of those founders will listen to fundraising radio.

So, how would you recommend those founders gain through this saturated field gain through those and they're showing your fundraising? What's what's your recommendation?

Yeah, it's always start with product market fit. Don't start a business.

If you don't have an idea of what your niches,

or how you differentiate yourself from everybody else similar to what you said,

I've seen plenty of people jump into the fitness world and try to become a new player a new company within that space.

But, ultimately, the space is so large, and there's so many people willing to pay somebody to solve their problem.

Because ultimately, fitness is a industry where people are looking for somebody else to be there guide and help them get to a healthier state.

And so they'll always be room for people to be able to provide something different, something new, because I don't wanna discourage anybody from following their passion.

My passion was health and fitness for a long time. And when we launched our business, we night easily that we were going to compete with bodybuilding dot com.

And ultimately, we found our niche and really became very good at creating a personalized experience within a gym.

So, the little smoothie shop that you'll find in gems.

Is where we found our niche and giving more information more detail customized mill plans was really where we started to dig in into what we could do differently than anybody else.

And I'm happy to say that was a business that was very profitable for me. It was very much a cash cow.

Um, and, uh, but we also raised early on about 20000 dollars to get us off of the ground by our refrigerator to buy our ice machine. There's always a need for capital infusion. And sometimes that's gonna come.

Personally. Sometimes that's gonna come from family.

Sometimes,
it's gonna come from friends or even fools, but ultimately,

we need to be able to pitch our business in such a way to where we have a clear idea of what the product market fit is and what niche we're going to function within and with an idea of what our clear understanding of differentiation

is.
So that's what I would say on that subject.

Right. So now, in particular you're focused on teaching computer science students and developers so that's that's another extremely saturated market.

It feels like you're really going to those extra saturated markets. So how is it going? How did you manage to get off the ground but targets specifically?

Was not so popular back in the days when you started, or what do you think, gave you that vantage that it allowed you to go through that competition?

Yeah, I a great question. Thank you. I, I believe that education is a lifelong learning process and so it doesn't necessarily matter that it's saturated that they're.

Many many players with large amounts of money to be able to throw at the market. I would still go back to the thesis that I have on any business,

which is find your product market fit 10 years ago learning management systems were very new and you had a lot of new systems or massive open online content or curriculum providers.

And those MOOCs provided a lot of badging and certificates and so that really was kind of the start.

And, uh, though there were emerging firms like Khan Academy you had canvas, or in structure Degreed, just to name a couple edX Udacity.

These platforms had a very different way of going into the market then I personally did and I was working with schools and working with colleges and it led me to the idea that they weren't going to buy from me.

And that was a hard reality because you put in so much money and you think everybody's just going to buy your product or your service.

And my reality was actually they're not going to buy those things, unless you give them a reason to do.

So, and so I had to change and pivot from who I thought my customer was, which initially, I thought it was going to be schools and universities and I changed that approach to focus on the consumer.

And so, rather than going down the road of competing with the publishers, like McGraw Hill and Schuster, and some of these providers of books and resources.

I really chose to focus on the individual person whom is looking to upskill. Or retool their life,

and initially that started in entrepreneurship and so the 1st company that I started in education was called business format,

um,

with a product called business plan University,

we would train people on how to build business plans and effectively pitch them raise the money.

That they needed to and ultimately that's where all of this started, but the pivot was going from being a publisher, a provider of, to becoming a school that was accredited.

And so,

that was then the next challenge for me,

which was learning how to become a school learning how to do an external review,

learning how to structure your operations in such a way where an accreditation body could come in and say oh,

yeah you guys are a great school,

you're taking care of your students and a,

we'll put our 3rd,

a 3rd party.

Stamp of approval on your operations and your education. So really, that's kind of where.

From an education perspective where we had to make pivots and changes along the way.

Mm, hmm right so.

Before we move on back to I was going to ask you, how do you raise that initial 2020000 dollars for that company that was focused on nutrition?

So, you know how that's basically the major question that I get from the founders how do I raise raise that? Initial couple of checks that will let me test things get things off the ground and see if it's actually working.

So, where do you find those 20000 dollars? Yeah, great question.

So 5 of those 6000 of those dollars came from me and I just I had money that I was setting aside and I,

I invested everything and sometimes in a entrepreneurs will say, hey,
you know,
you should keep some aside have a plan.

B, for me, I've never believed that I've always felt like, if I'm gonna do something I'm gonna do it all in and, uh, you know, sometimes it's cause some a painful learning experiences. Other times it's been extremely rewarding.

So I believe in the equation of high risk brings high reward and the other 15000 I went to a friend and what the friend expected from me was,

okay, well,

what is my investment going to help you accomplish and so you have to have a use of funds that you're going to detail or communicate to the investor.

Once the use of funds is both communicated and accepted.

Generally the investor's going to want to know. Well, when do I get my money back? Or what is my.

Quote, unquote return, whether that be an equity type of a scenario, whether that be in profit sharing.

Really entrepreneurs founders need to understand that they're going to use the money and be very disciplined for these items,

or this is the layout of cash and even the time for the layout of cash and then after that here is the reward that you're going to expect.

And I'm gonna hold myself accountable because. Investors they invest into people,

and that's where I think that sometimes entrepreneurs get a little bit off in the way that they think they think that they're pitching their business in such a way that,

um,
they're gonna invest totally in the idea.

Well, ideas are great, but they're a dime a dozen and if you don't have a strong leadership or a strong presence of you're the 1 that's going to accomplish that.

It doesn't matter how good your idea is, uh, investors don't invest into people who can't get it done. So you need to procure yourself as the very person who can get that done.

And my recommendation is that, you know, your market, you do the research, you give a realistic comparable, and you give realistic projections of what you can do and what you can accomplish.

And then it opens up investors to say. Well, I believe in this person and I'm going to invest in her, or I'm going invest into him.

Right, right that's exactly how things are done. So, um.
Let's go back to project so you mentioned that there was no not.

Actually, that was a pretty big pivot. So, how do you decide that your initial focus was not very right? Was it after you spend some money, or was it after you've researched or was it after you've conducted a.

10 or 20 entries with potential customers, or when was the moment when you were lucky that that initial plan that initial target is not really working. I need to change my targets.

Yeah, a great question. I think it's a continual process.

Uh, so what I thought in 2010, uh, was mistaken, and I had to pivot in 2011 in 2013 or accreditation a company that was giving us the accreditation, and they were purchased by a larger group.

Well, that larger group came back and said, you don't know.
You're not, um, adequate.
For accreditation in our new body and so we had to make changes and, uh, with changes, come cost.

And so, over the years, we've spent, you know, like you mentioned a 4.2M growing, which doesn't always have to be a, a, an official round, which is probably the thing that I would tell you most about is.

Incrementally we've raised as we've needed to raise and we've done so, because new opportunities come up changes have to be made.

And ultimately, you're wanting to protect cash flows while still growing the company in a strategic way.

And so those changes that had to occur early were mainly around structure were mainly around bringing in leadership, or mainly around getting the school. And it's the entity piece of it.

Up to par where an accreditation body would get their stamp of approval on it.

Those were the early days then it turned into. Well, how do we distribute that? How do we market? How do we bring in students? How do we appeal to the person?

Who's wanting to change their life because though we have a product to, which is educational based, and which is changing the skills.

The thing that we distribute is hope because the person whom is sitting in a dead end job, or is underpaid in a job that they don't love or,
you know,
enjoys their job but knows that they could do something else.

Those are our customers that is who bodega looks for, because it's an individual who knows that there's more out there and that are process.

Can take them to that point, because we believe that our customers are, our students are the heroes in their own story, and we're simply their guide and we provide that guidance for.

Here's how everything can look if in the event that you follow this process.

Because what we're trying to help them to connect to is what industry is paying for software developers what companies are actually looking for, in the talent that they're hiring.

And so for us, it was really just connecting people's mindset into. I am going to be in a different career.

And I want new skills, and I know that these skills are in high demand.

And once you figure out again, that product market fit.

You work backwards to find who your customer truly is.

Yeah, great question. So, uh, the 1st thing that I would tell anybody is be stubborn, not that you won't listen, but that you won't quit.

And, uh, the main, uh, I think.

I think the main trait that a person needs to have his an interpineal entrepreneur is thick skin. They need to be able to not quit and push themselves further than they think is what is necessary.

So, similar to what you said, we jumped into the CBD space because of the legalization of hemp and the removal of him from substance illegal substances.

I, because that was what interested me about it was, okay, this is now legalized. It's different than what marijuana is. And here are the reasons why, and can we make a business out of that?

And what we did is, we just really did our research. We went out to the market, and we shopped the market from a perspective of what are you providing?

And we found that it was very disjointed, I'm very fragmented people were trying to provide 1 aspect of a value chain, which we felt needed to be completely integrated.

You know, some people use the word vertical it vertically integrated.

Personally, we use the mindset of a value chain and so, at every point where there's going to be a transaction happening, we felt like we needed to be in that space.

So, 1st, and foremost, you have to have a farm.

Uh, and a farmer who's adequate to grow the product.

Secondly, you need to find the right seed Gemini seed.

That's not going to be garbage that you're putting into the field and you're ultimately setting your pass on, on something that, you know, you're, you're really betting on the, uh, the seed and it's quality.

And so we made sure that we had that the very 1st year. So, in 2019, we made sure that we had the right farm. We made sure that we had the right soil. No herbicides fungus sites pesticides in the soil. No.

Heavy metals and we grid organically.
And made sure that we grew it very similar to other crops that we had grown in the area,

but we did our research and we hired experts to come in to teach and to tell us what we were doing wrong because you can have an assumption and that's great,

but if in the event that you don't compare that against what other experts in the sale, they're saying.
Then,

you're misguided and so ultimately,

year 1 was about growing a successful crop,

and putting a value together on the front side of what we know is the hemp crop,

and then a year or 2 has been about extracting that plants and making sure that the stored material is still integrate conditions so everything to us is about quality,

but it's also connecting the quality that a consumer would expect in the form of a lotion or a tincture or a gummy,

whatever they're consuming.

What does that value chain look like for them? And for us, it's a clear connection to the field. It's a clear connection to the soil clear connection for the farmer.

Who's saying this is what I've labored on and for every night, and every day over the past 3, 4 months.

And I'm getting this to you as a clean verified product and that's that's where we felt like we could be different.

Because I haven't seen anybody else telling that story.

Um, oftentimes people will dig down into the area that they're really focused on, but they don't always get the best product or the best feed or the best, whatever you feel in the blanks.

So, for us to compete in this space, being that it's so saturated, we had to be a part of every value chain and make sure that quality was our guide.

Right. And it seems like it worked out because it's still active. It has gone through that CPG rush and is still working. So congrats on that.

So now you've, you've got basically through 3 fields that were extremely popular and that have gone through ups and downs.

And you've raised money in those fields so now I have a question for you for the current, most saturated fields or field that has most receives most attention,

which is the health care or health related starts in general how would you recommend founders and that Field's raised money,

how would you recommend them send out from the crowd of other founders doing the same thing. A great question.
So again,
back to where you fit,

where you're differentiating from everybody else and then I,

I always recommend heavily that there's a strong business plan to any endeavor and it doesn't have to be a 30 to 40 page business plan.

It essentially has to say, okay, this is the market. This is how I'm going to compete and this is how I'm

going to project what income we're going to make. It's always best to have a.

Test or a white paper, or some type of proof right? Cause when we go to an investor, what we're saying is invest in to us, invest into our business model and here's the outcome.

So think in terms of outcomes, and how you want to be able to make money, because you're getting into business to make money.

But is that money, or the way that you're projecting it going to be enough to both payback and investor and also help you to grow a business?

And those just come down to really vetting out the projections are and what the market where will yield. So, from a, hey, how do we tell an entrepreneur to get into business?

I would make some decisions that are very essential right out of the gate. Are you going to be an online business? Okay, that is very crowded.

And so, how do you stand out from the rest of the messages that are happening all day long every day on every social media platform via email.

In any way that you can be reached, people are reaching you again, is your message different and why is it different and what are people going to pay for? Are they gonna pay for advice? Maybe you're a health coach.

Um, maybe you put things in such a way where it makes sense to people and they really like the information.

You give them, but then take it to the next step and say, okay, people like what I tell them, and they are happy to talk to me or will they pay for it?

And then you just start doing your market research, what will a person pay for my services how frequent can I charge them?

You know, is it a subscription model where people are going to pay me, you know, 100 dollars a month to be able to consult them?

Okay, well now you need to just find people whom, so that value is consistent, and that they're going to make that payment to you on a monthly basis based on the engagement that you're giving them.

So, I know plenty of coaches online who are coaching people to help and they have a very clear engagement model, which is, hey, on a weekly basis. We're going to do a.

Um, face time, uh, type of a coaching session, and I'm going to lay out your week for you.

Um, I'm going to send you your meal plans and then, uh, once in a month, we're going to get together and my studio and I'm going to do a workout with you.

I, it really kind of just depends on what resources you have available to you, but, um, I, I would tell any entrepreneur. If you want it bad enough, you're gonna make it happen.

Great I don't. Yeah, I kind of agree with that as well. It's just you have to be flexible invoice your height and flexible in ways you want to get to the place where you want. So, I think your Scott's advice to, you.

Basically figure out what's what's the thing that you're selling? How are you special? What's your major value proposition? What people rate before that is just great.

That's give me my personal competition for these episodes, but before we get to the question off call to action 1 more thing what's what's your major?

Not major interest, but what do you do now? Do you do angel investments to advise for other startups or are you solely focused on your own companies?

Um, I do it all and so I feel like there have been many people who have given back to me and so I, uh, feel like it's my responsibility to give back to others.

And so, uh, I started a company that, uh, is not so known yet.

Um, but it's called the give academy and we train entrepreneurs and I do coaching and mentoring sessions on a weekly basis.

And, um, there really isn't a financial model that's built in a structured way where we're trying to grow it. It's our.

My partners and I and my approach to giving back, and though there is a financial engagement model. Initially people can get access to curriculum support, um, at no cost.

And so, from my perspective, again, I, I'm responsible to give back to others and so I do that where I can and we all have a limited amount of time in a day.

And, um, but we also make time for our priorities. And my priority is to get back, I speak in a different schools to different groups like Decca.

Um, so, uh, we get back into the high schools, junior highs and middle schools and that ties me a lot with my foundation work that I do success in education.

But ultimately, I feel like life is too short to only focus on 1 thing and I know that therapy people who disagree with that. But for me and where I'm at, I'm finding the most joy outta life.

By being involved in many things and by creating value, wherever I can.

Great. That's actually a great love people who take their time to to participate on some different school events and teach younger people how this stuff works. So great work there.

Now, on this positive note, I would like to go to the last question of today's episode, which is going to be called to action. So, Scott, what's the 1 thing you want to do? As soon as the episode is over?

Get started.

Immediately get to work I mean, a lot of people have been thinking about ideas for so long, and they're really going over it in their head.

Well, if that's the case, put it on paper, start writing it down start putting together a business plan.

If you want to start something that you don't quite yet have the ideas we'll put aside time each day or each week,

to be able to think about the things that bring you joy,

because you've gotta be passionate about whatever business you're going into making money is great but if you don't have value or add value to whatever it is that you're trying to accomplish,

money will really never have the same.

A sense of accomplishment, I mean, money's.

Pretty empty from a perspective of what it can do. Yes, it can transact and yes it can bring in, you know, things.

But if you don't have that sense of I'm creating value, then money alone is not gonna solve the issues that come and go in our lives.

So, I would just say, get started today and whatever that looks like for you, if it's to go out and do 10 pitches and among hold yourself accountable to that.

I'm a big big believer in accountability, particularly around how we think, because we're responsible for the thoughts that we hold in our mind.

And those thoughts generally will become our words that we speak or actions that we have. And then,
eventually,
that becomes our habits and habits become character and so,

in my opinion,

if you're really going to make a difference in this world,

you've got to start at the root level,

which is your thoughts think positively do what's right you know,

help other people.

And if you're an entrepreneur, and you've identified yourself, is that get to work because it's a lot of work and there's gonna be a lot of disappointment along the way.

And don't be surprised when that disappointment comes in the form of a no, I'm not interested or no, I'm not going to invest into your company because you'll have way more knows than you will have.

Yes, but, um, the way in which I've always looked at. Know, the word is, I think, in my mind, when I hear know K. N. O. W.

So also at no, they just don't know enough to make a decision to say. Yes.

And so it's my job to be able to learn from that interaction and to be able to change that to a yes,

and it's just simply based on doing your research,

and making sure that you have the right understanding of what business you're starting and how you're going to contribute within that space or industry.

Ultimately, I would just tell every entrepreneur listening to get to work.
Great great. I think that's a good call to action. Uh, my going to be get to work, but.

Probably further than just writing down your thoughts on paper. Try to go out, talk to someone, you know, who might be your potential customer and figure out if your potential customers actually, like,

what you're doing and then go on with that.

And my 2nd call to action. Is going to go to the description of this episode as usually I'll leave the links mentioned by Scott and.

Yes, probably I'll leave another link to.
Never mind, I'll just leave links that Scott mentioned.

So, if you're curious to hear about, I mean, to to learn more about Scott's companies about a nonprofit that's who runs definitely take a look in the description of this episode and have a good date.