Raising during covid Winter, by Adam Jackson.

And today is a guest speaker, we have Adam Jackson, founder, and CEO at braintrust and in this episode will talk about his most recent fundraising reading, the seed round off 6M dollars.

How this fundraising compare with his previous fund reasons and surviving the covert winter. So, Adam, unless you get off by, you're giving us some background on yourself and on brain trust.

Yeah, sure happy to and thanks for having me on appreciate it.

Yes, so I'm I have a computer science background. I've been, I was into computer hardware as a kid, and then went to Vanderbilt University for computer science moved out to California, the San Francisco Bay area right?

Out of school that was back almost 18 years ago and I sort of an engineer turned entrepreneur. Brain trust is my 4th venture backed company.

I've started all marketplace businesses all in different categories. So my 1st business was an E, commerce, local shopping marketplace that was acquired by into it.

Spent a year there is a product manager then left in 2007 to start. My 2nd company called driver side driver side was a national marketplace that connected car owners with car mechanics that had excess capacity and their service base for them.

We agree that into a national marketplace and were acquired by advance auto parts, which is a big retailer on the East Coast.

In 2012, I went on to start my 3rd company called doctor on demand, which is a large live video telemedicine service. I started that with 2 other guys.

Phil McGraw and his son Jamie felt better known as doctor Phil from daytime TV and.

So, we started that company together, and I served as for the 1st, 4 years. We grew into a giant enterprise healthcare company, and about 4 years into the journey.

We put in what I like to call a real manager to kind of keep things growing and as an important enterprise company in the space and so my friend help focusing took over and is our CEO to this day and that company will hopefully go public

next year when I stepped out a day to day operations at Dr automatic, give me a chance to kind of go back to my 1st,
love and passion,
which is deep technology.

And that's when I got into blockchain tech in 2017, I started to help start a investment fund called cambria asset management, which is a digital asset management company.

That is now quite a large and quickly growing from my role.

There was to do early stage investing and I kind of came up with this thesis around user owned and controlled marketplaces as a marketplace builder. I realize like.

You know, 1 of the problems that that happens as you grow up 2 sided web enabled marketplace is that they're very expensive to grow. Right? They're very capital intensive to build the quality she end up raising on the money.

If you're lucky enough to get big, the investors end up owning the network and they rightfully so need a return on their investment. And that's when the fees start to go up and the value extraction really starts.

And that, that ends up creating diversion incentives between the users who make their living on the network, and the folks who own it, the investors. And so we're seeing that play out in the gig economy today. Right?

Where Hoover dordash goes public, the founders become billionaires investors become billionaires and the folks making, they're living on a service are just barely getting by and so.

I, you know, we thought, look, there's got to be a better way. There's got to be a way to kind of give some of that value that the middleman extracts give it back.

To the users who make their living on the network and and. That's what we call the user owned economy.

Kind of a progression from the gig economy and so this is a new business model enabled by a new technology, which is blockchain and so we spun braintrust out of cambria.

And and I've been running that now for the last 2 and a half years brain trust as a global town network that connects technical talent design talent with large companies that need them and can't hire enough of them.

Nice there is a lot of successful stories they heard in this background. So actually before moving on and talk a little bit more about this success, you know, how you got there my 1st, question is going to be about failure.

So, looking back in the past, what do you think was your major mistake specifically focusing on fundraising?

Well, um.

Boy, there's so many things I may do differently if I had them to. I mean, look, the good news is every 1 of our investors has made money or.

You know, will likely make money, you know, in doctrine demands case um.

Some of them quite a lot of money and so and the same looks like it will be true for for the other projects. But.

You know, I think, um.

I think so. I'm not, I'm not sure there's anything specifically I would do differently. I think some, some lessons.

I wish I had known when I, you know, this last round, we just raised, we raised a strategic growth round for brain trust. We just announced in October of 18M dollars, and that was on top of the 6M seed round from earlier.

You know, it really matters who you let into these rounds.

Because they're going to be there with you for a while and so really pick your investors carefully and due diligence on them. Like they do diligence on you.

I think that's 1 big takeaway and then be smart about not over capitalizing the company. I think. I think those are 2 things. I wish I understood better when I was younger.

Right that's Super. We're actually speaking of that's a really important subject to discuss. And that's the question that many founders have. And that's the question that many founders think is not sorry not really important.

So, how, how do you usually personally estimate how much money you should raise for the company for this specific round? Yeah, so great question. And I appreciate you saying, like, for the specific round.

Here with companies, it's like.

I forget there's some person's name law that this is, I can't remember the name, but the Lagos, the longer you're around, the more likely, you are to be around in the future so the longer you survive.

That's very true. And tech tech startups. You are most likely to die in your 1st, 2 years?

And so that's your seed round and look, I mean, as an, I'm also I'm an operator, my CEO, but I'm also an inactive investor. I invest in technology companies out of 2 separate funds.

A joint find in a family office fund and and so look, I mean, I don't look at deals all day like a real VC does, but I certainly see enough of them and it's still active.

Most companies who die in the 1st, year, 2 years should die. I mean, that's kind of how the ecosystem works. Not every startup that is started.

Can't can or should succeed, but what I will say for if it's your startup, you certainly think it should succeed right? And then it's on you to give it the best chance of success.

And so what I always tell my portfolio companies or friends that our founding is raised to X, the amount of money you think you need to get to your next big milestone and your next in the seed round.

And the next big milestone is 1 of when your seed company, there's 2 potential milestones for you. And if you have a 3rd 1, it probably doesn't matter because only 1 of these 2 matters.

Cash flow break even or.

A series A, that's in the bag, right? Those are the 2 milestones. So so, if you think, and how do you so, capital break even is very straightforward. What's a series A, in the bag?

Proof product market, fit show, just show sustainable.

And hopefully, organic growth, or after your granted, but show good month over month growth, like, 25, plus percent month over month growth that you're not turning negative gross margins on right? That's an important 1. and so that's the only way to have a series A, in the bag.

And so, and so figure out what it would likely you're going to most most innovative companies have to take bigger risks. So they don't have to get to casual even they they choose the. 2nd path, which is fine. I've done it both ways.

Brain trust, God's cash flow. Even on the seed round. My other companies did not.

You know, they all eventually do, but, you know, sometimes longer than others and so so say, okay, look if I think I'm going to need.

2M dollars to get to have the metrics that the series is in the bag then raise 4.

Because it's never going to be it's always going to be much more expensive than do you think that's what I even with falling prices on hosting and blah, blah, blah it just takes longer, right? Like, there's no way to estimate that. So raise 2 X. what you think you need on the seed.

That's actually very fair because if you have to raise breeze rounds, that's just not that's not great. Reason is not fun at all. So great advice here.

Speaking of fundraising, let's talk about your previous fund reasons, and your current fundraising. So you had multiple different companies. You've raised for all of them and, you know, looking back at the very 1st, race that you had and looking at your most recent raise of 80M dollars.

What are the major differences that you see there?

Well, I've been doing it, so I've raised this last round. We just did was the 10th round of venture capital that I've been.

You know, a founder of I've only been, I've been to twice and a had a product to but prior, but so, 10th, 1, where I've been on the founding team and.

That's over 15 years.

From 2005 to 2020 so so the world has changed the industry. Everything has changed a lot in those 15 years.

And so, you know what made sense then makes no sense now. Right? And so. So, like, every like, I can't even that everything has changed. So, like, it used to be.

Seed rounds were like friends, friends and family, 500 grand and, you know, you got the website up, or you hired a team and then you go to Series A, and now it's.

You know, if you're not if you haven't basically totally de, risk your company by series, a, you don't get the Series a done.

Right series days I like what series sees used to be.
And Series B or C or sees that we do today was like, 2000 two's.
Right. So right. I mean, you have to like, you have to be as big as.
You know, not air BNB, but you have to be doing nothing shy of 12130M to go public. Now. Um.

Which is stupid, right? I mean, that's Sarbanes. Actually, that's a bunch of garbage that got layered on. And that's why the secondaries are so crazy. And the market will figure about. So the world is just is so different now than it was before.

Other other macro factors, right? So capital's free.
Which means, right interest rates are 0T or negative for the foreseeable future, which means. Venture as an asset class gets over allocated to.
Right and it's an easy right it's it looks like an easy business.
It's actually a really hard business people I know are are vc's but but but their lives are they, they live

on the, they live nicely on those fees and all I have to do is keep raising more funds. Eventually.

Eventually the cows come home there, but it could be a decade. They have to show returns eventually, but even 1 lucky back can do that.

So, so, capsule capitals more more accessible, which makes it much harder to be an investor.

And the, the barrier to entry starting a company is 0T right? You can go get some Amazon credits and find some developers and you're off to the races. So so everything, it's more competitive for everyone.

Right but but that's but what's great about that is the, the gates have come down. Right? Sand Hill used to be this ultimate gape, gatekeeper for early stage, risk capital and it's just not that way anymore.

The rules for Reg CF.

The crowdfunding rules just went from 1M to 5M. So you can now raise 5M dollars.

I'm not registered with the under under exemption. Reg.

To build a crowd for a startup. It's amazing what a time to be an entrepreneur. So it's extremely different.

100% speaking of changes let's talk about raising money during the covert so if you've raised 1 of your rounds during the so called cobit winter, how did you make it happen? You know, I assume you've never raised that way before just like any other entrepreneur.

So, how do you take care of that? Yeah, I don't think anybody's raised and cobin winter before this. I'll tell you. So, pluses and minuses. So we raised the seed round in November of 2018. so there's a normal round.

That was a hard round to get done because we are a blockchain network or you're not even a real company. We're a network. A theory. We're selling tokens not shares of stock.

And that was a tough thing to do right that early 2018 was very early. A lot of investors weren't into this stuff yet.

Some of their won't even allow it. I mean, right? I mean, they couldn't physically couldn't even make the investment even if they wanted to. Most of them didn't want to though. So that wasn't a big deal. And so, you know, that suck.

That was like a month of going up and down from between South Park and sand hill and telling the story and we got it done because.

My partner gave and I have could track records and I think those early senior masters really had conviction around our passion and our on our track records. And so we got the round done.

The coping round we started, and we opened it up kind of late August.

Closed it up in October, so yeah, roughly 6 week process for the bulk of the money I'll tell you.

It was, there were there are pros and cons, so.

That was a relatively easy round to get done because of the momentum of the project. The business is so strong. We're, we're growing when we open that round, we're growing.

2530% month over month when we closed it, we're grown and 55% month over month.

And so, and it was all organic no cack. I mean, it's just the brain trust model of placing distributed teams into large.

Fortune 1000 companies, it got that model got accelerated by a decade because of.

So it was a good timing. Good story, right? Team product market, fit traction. We still have the blockchain thing around our next people. Investors hate blockchain.

They f*** hate it mostly because they're too f*** lazy to do the work and figure it out. That's honestly the main reason is these f***, they think it's a fad, right?

So many vc's their job is to put money into new things that will most likely change the world. And most of them are just too lazy to get out of bed on these things.

So, now, look, the investors we have are I have to hand it to them. They really did the work. Some of them even amended their ticket to get the deal done and they're very high conviction investors. So.

Rounded it ended up being over subscribed to which felt good, but on the cobit part in particular. So, pros.

I didn't leave my house. That was awesome. Like really? F*** hate park. I really hate Sand Hill road.

I hate the 280 and I hate the 1 on 1, and I didn't have to get my car and waste my f*** day driving down there and sitting at the rows would between those f*** time wasting meetings. That was great on the downside.

The passion an entrepreneur has for his or her project.
Really can only come through in person. Um, I remember spending countless evenings, you know.

With with Brian, from benrock, he let our series a doctor on a man, and he's such a great investor and a visionary and healthcare and.

You know, he, and I would share a meal or whatever, and, you know, and and talk about how big that.

Company was going to be, and I really found my partners over over time that way in my nbc's. And that's it's impossible to do over zoom. It's very hard.

And so we really miss that in person connection. I mean, we have, I have 2. great Co leads in this. This round. We just decoded round. We raised.

Scott Stanford at at Acme Ventures.
And can see from blockchange Ventures, change capital.
ken's in New York Scott's down in L. A. I've actually known Scott for a long time.

He's a doctor and I'm an investor, but and can I just Matt for this deal and, you know, we got we got to create that bond the 3 of us and they, they really leaned and they stepped up big and led the round together.

We did get it done on zoom, but it's like.

Man, it would have been a lot easier and probably a lot more efficient if we had been able to do that in person. So, you know, it's a, it's a double edged sword.

Right that's true. But at least no traffic on 1 on 1. that's that's a very true point, which I personally love as well you don't have to leave your house and that's just perfect.

Speaking of the investors you're invest for yourself and so when you talk to a lot of investors on continuous basis,

what's the major change that you've seen in the investors in the beginning of the cobit and now wants to kobe's only 1 year old?

I think more deals are getting done because of the after mentioned.

No need for physical meetings, right? That's true. I think we'll see we'll see what the numbers that out on 2020. I'll bet you more money is deployed in 2020 and 2019. I'm not 100% sure about that.

But I think I just saw statistics from, and the number off the pitch decks floating around is actually higher than 2019. so maybe maybe you're right, but we'll see we'll see the numbers soon. All right.

Moving on to the next question, it's going to be about your own investment. So you mentioned that. You are doing some investments through the family office and through the funds not super actively, but still you do those.

So what do you invest in what type of companies? What industry and what's the average check size? Sure. So I've learned the hard way in life to just stay in my lane as an investor.

So I understand very few things, but I understand them quite well. And so for me, that is anything.

So, traditional SAS still less so, because it's so cut throat competitive, I think is a race to 0T and a consolidation game. But for compelling founders, I'll do the SAS deals.

The rest is almost a 100% blockchain based networks.

Tokenized networks, and there's so many use cases, you know, software 8, the world and block chain is eating the middleman. And so anywhere I can see.

Um, founders who understand that there's still a massive, a symmetry of information in this world between the technologists and economists and entrepreneurs who understand the potential for blockchain.

Base networks, you know, this intermediating.
Highest high rent seeking tech tech, enabled middlemen.
There are so few investors who understand this and so.
I like to be out there and participating as much as I can there. And that's basically it, you know.

Unless it's a friend who I know is a great operator. I'll bet on whatever she or he is doing, but I stay out of all other categories, including real estate and all that. I completely stay out of it. I'm all tech. Nice respect for not investing real estate somehow.

Pretty much everyone who is successful in tech. They invest in real estate decent amount of money. So that's really cool. Alright. Moving on to the next question.

Raising money during the kind of post winter.

So, who do you think should actually wait until the covers, or which might be pretty soon since the vaccine is pretty much out and who should take this opportunity when everything is still online and try

to raise money right now over zoom.

Yeah, look, I think I'm a little biased here, but.

I'll just throw this out to your audience as a data point.

I feel like any business that is experiencing a tailwind because of.

Should be out there in getting it done.

Um, anyone who's been.

Sort of neutrally affected or negatively affected by it. It should not be in market.

And I'm just this from having raised our big round now and and then my previous company doctor on a man, did a big 75M dollar round with General Atlantic that happened in June.

And so those are both brand trust and doctor in a manner both Pro, pro cove it helped from businesses, like, zoom like Atlassian, like Slack, et cetera.

And so, yeah, I would say if kobe's helping you get out and raise. Now if it's hurting you wait. Mm, right that's good advice.

So, I think, yeah, right you mentioned in the beginning of the episode, he mentioned that you should really watch out to who you invite into around who your investors are because yes, they do stick with you for a really long time and you are.

What are the major qualifications in the investors that you were looking at? Once you're writing that so called due diligence process on that? Yeah. You know, it's.

I think it's a mixture of integrity and conviction.
Because money's money, right? Money's easy to raise or easy to access. You want conviction.

You want someone who believes this almost as much as you do or as much it's rare but but who gets the vision? Right? Who's really compelled by the vision?

I can say that a lot all our major investors right now they, they text me in the middle of the night when they have ideas. They're they're into it. Right? I love that. I love how I love that. They're into it, because they're going to.

They're going to help me see things I may not see right because that's where the conviction helps and then integrity.

You know, life's too short to deal with dirt bags and there's a ton of dirt bags in the venture industry. Dirt bags. I'm sure in every industry. But soon to integrity is something we look hard for.

Great good advice and hopefully other founders do have the luxury of actually choosing their investors. So, on this Pre positive note.

Wondering if I should ask you another question or not. Yeah, I'll ask that question it should be should be fine. So,

question is,

you've heard plenty of stories,

you've seen a lot of other startups,

trends,

raise money,

or just knowing the huge network of San Francisco what is the craziest idea that you've seen floating around in San Francisco or pretty much anywhere in the world?

Like, ever or or recently, or I would say, ever.

The best of the best doesn't matter if it's 5 years old or 1 month old.

You know, it's a funny question, because crazy is such a relative term, right?

I see. So, is there a time? Can I give you 2 answers to this?

100% so so everyone has their anti portfolio, right? So, I'm going to get to that. But like, crazy things. The craziest thing I see. And it's not just 1 thing it's a pattern of ideas are.

Our ideas for companies that incrementally improve something.

Right. So it's like, hey, we made a that's like, 5% better than hub spot and it's like, what the f*** are you doing? Right? Go home and go get a job at hub spot, right? I'm not sure they even hire you like this. Incremental bullshit is not fundable.

Don't if you're going to do it fine if you're gonna do it bootstrap it. Right? You can make you can build plenty incrementally better businesses.

With raising a small amount of money, a cash flow on the thing it don't, you don't need venture, right? I mean, most businesses have no business raising venture capital and so that's number 1 number 2. I just have to like.

You know, my biggest miss as an investor I was at this thing called Summit series. And I think it was 2010 and.

There was a startup competition, and I wasn't part of it. I was just in the audience and chest key presented air BNB.

And I think he was raising the seed round and I would just remember thinking to myself.

I don't want talking people on my couch and it's 10. I don't want to sleep. This is f***. Crazy. It's crazy. Right? It has everything. And, like.

And Christy what's like, what, you know, and just like, man, if I put 50 grand into that round, I'd be like, deciding which airplane to take today very stupid, miss on my part.

And, and he seemed crazy. Right? And there's a lot of smart people who back to him, and I'm very happy for those people this week that have cashed out on that guys that crazy guy's idea.

And Brian brian's 1 of my heroes, I think he's invented design forward product right? And user centric product design, he's, he's a, he's a hero.

That's very true. And that's that's very sad to see missing those opportunities to well, actually, my career too early on to miss any of those.

So I still don't have any regrets in my backpack, but I'm pretty sure I'll get a bunch of those present time. Yeah, I'm looking forward to that. Right? So on this positive notes, let's move on to the last question up today's episode we choose a call to action.

So, Adam, what is the 1 thing you want to lose her to do? As soon as the episode is over.

Well, I talk about a lot of this stuff on LinkedIn and Twitter. I've been pretty active around sort of, sharing my.

My my learnings and failures and successes and all that stuff. So, follow me on Twitter and shoot me questions there. I'm at Adam Jackson. S. F. and then on LinkedIn. I'm just Adam Jackson.

You'll find me there and yeah shoot me. Notes. Let's have a public chat. I love I love doing shows like yours. I love talking about all the stupid mistakes I've made so we can help younger people get there faster.

Perfect, I'll make sure to leave a links to your LinkedIn and to your Twitter and the description of this episode. So if you want to talk to Adam a little bit more, or just follow his journey, see what else he has to share. Definitely check out the description.

If this episodes, the links will be there and as usually have engage and take.