Starting raising funds early on - how to get ahead of the curve and improve your chances of raising money by Ryan Morris.

This is Fundraising Radio and today as a guest speaker we have Ryan Morris president at Mason capital, founder of Belichka and executive chairman at Software Motor Company that raised about 80 million dollars.

In this episode we’ll mostly focus on being persistent in your fundraising process and how should very early stage companies start their fundraising very early on from the beginning of the company. Of course we're going touch onto Software Motor Company - specifically how did they manage to raise so much money.

Ryan let’s kickoff by, by you giving us some background on yourself and on Mason capital partners and on Software Motor Company and on Belichka.

Sure.

Yeah.

Well thanks.

I'm happy to be here and hopefully share some battle scars and some things I've learned over time with your listeners.

yeah, so I have obviously a few different companies, and the number that I've been involved with over time.

just kind of my personal quick background, I grew up in Toronto, went to Cornell and then now I've been in the Bay area for about eight years.

I kind of finally realized this is where all the nerds doing cool stuff are. it's like, found my people in the Bay area.

I, just at a personal level, I, some kind of important events through my early life that just briefly to tie up to where I'm doing now.

I learned about nuclear fusion when I was 11.

this was this pretty, amazing idea that you could use technology to solve all the world's energy problems and basically end pollution.

I got really deep into kind of the physics and science and everything.

I had a very good lesson early on from my father that, look, even if you're the best scientist in the world, you got to have resources to put behind big problems to solve them.

that's really what business is ultimately about capital.

I got really into investing and I read all of Warren Buffett's letters, which I highly recommend, anybody in business in general to read.

so that was probably 13.
I've had a few different heroes that have been really helpful guiding through life.
I would say Warren buffet and Ray Kurzweil, the futurist.
kind of this goal of fusion have been threads throughout my whole career.
I had, while I was an engineer in college, I took a couple years off of college to be, to focus on his lead ex.

I was a national champion rower in high school and then I switched to road cycling and got third in Canada and the time trial back when I was doing that many years ago, like 14, 15 years ago.

that whole, I was the guy who like never had even a summer internship or anything.

I had nothing useful on my resume when I graduated college cause it was like, Oh, I was racing, bikes.

I, fortunately or unfortunately was never able to get hired out of college.

I say it's because I'm Canadian and they needed to do all these extra paperwork for the work visa and stuff.

it was 2008 after my master's, so not a great time to graduate.

it forced me to be self sufficient, I guess.

I started a software company after college called video notes and don't need to go into that, but, with like no money and living on whatever, 300 bucks a month rent and Ithaca New York for a year or two after I finished.

that was, that was kind of the beginning.

ma and Meson capital's started at the beginning of 2009, which has kind of been like a investment vehicle for me to build companies, basically, that you frankly couldn't start from scratch even if you wanted to, because they're like very high reliability industries are very deep science.

That takes 10 years to make a product.
what does Mason capital do right now? What do you invest in?

we really, the last, six or seven years especially, we've focused on basically, where does exponential technology, so anything that's follows a Moore's law, kind of exponential price, performance curve.

now that's things like, IOT machine learning.

anything that's computing or communication driven, where is that basically, invading the, traditional industrial world.

you think about it like the company we did previous to suffer a motor company that I was our biggest investment and I was exec chairman of was a company that did the drive trains forklift trucks.

that sounds kind of boring except for trucks. Forklift trucks are the original electric vehicles.

the problems we had to solve there were, 80% similar to solving it for an on-road, high tech, sports car or something.

it's, there's basically, these step functions that are happening.

it's like Silicon Valley is propagating outwards and once the technologies that are developed in Silicon Valley begin to be relevant in an industry like electric motors or vehicles that fundamentally haven't changed in many decades, there's like an inflection point.

it's a very disruptive change that's possible in a very good way.
for the end users, not necessarily good for the incumbents that don't adapt, but that's really what I focus on. it's kind of a mix of like the old world and the new world.
I describe it sometimes as grafting Silicon Valley into the Midwest.

Right.

right.

the forklift stuff does sound foreign, so we're going to shift away from that before our retention rates chop.

let's talk about this early stage investing.

What do you, when will you recommend to early stage startup founders? And most of my listeners are early stage startup founders where you recommend them to do in the very beginning of their fundraising process.

should they start doing fundraising and what should they do when they decide that, it's time to start doing something in this field?

Yeah, I mean this, there's a lot of different ways you could go with this, but I would say the first most important thing is you have to have a problem that you care about because, it's really hard.

Like there was no company ever that was created where it was just like easy, everything happened the way you thought.

it was, smooth sailing, kind of, there's always disruption, there's always things that are unpredictable and challenges, not necessarily setbacks, but just challenges that are, really hard.

if something wasn't really hard then it's kinda wouldn't be worth doing because there'd be a thousand other people doing it and then there'd be no competitive advantage.

by nature you need a competitive or comparative advantage as a business to have a reason to exist. that, you see this kind of thing happening in sorta like the app market.
There's like literally millions of apps.
it's very hard to differentiate yourself if you don't have something special.

I think, the first thing is, you, if you as an entrepreneur, you need to have a problem that you can really relate to, that you're willing to like kind of go fight a war for a sense and put yourself out there and put your reputation out there and extend, your identity to in a sense.

Yeah.

the main problem here for me started founders through debating being if they should start fundraising now, should they wait until they have traction? Should they wait until they are mentioned in some big media restores like tech crunch? I mean, yeah, that crush, sorry.

I think the way, the best way that I, so I had this, I remember I was an entrepreneurship class back at Cornell and like freshman year I think, and there was a guy who had started a few companies and he came in like bespoken.

I think the best way that he framed it is, do you have a problem that money would solve? And if it's like just coming up with an initial product idea or getting your first customers, those are not money problems like that.

That's not something that, having money is going to actually drive success.
Like you can certainly take other people's money to like, pay for your rent and stuff. that's like, that investors don't want to hear that.

Like I'm not nobody, people want to know that they're investing in something that's being built to solve a problem.

They don't want to just like, Oh well I'll take all the risk as the investor and then you just go see if this thing will work that, if it works, great, if not, it's all my costs.

I think, you really, I think that framing of like, Hey, do we have a problem that like, it's actually a money, is the bottleneck here or is there something else that's the bottleneck that we could go do instead? Like, lots of great stories of, rapid prototyping or if it's obviously if it's something like medical device or biotech or something like in the industrial hard tech stuff that I'm doing.

Like there's hard science that you do need money to like build a research team and have lab space and that stuff.

what can you do along the way to validate your thesis? Your thesis is, in a sense, building a company is a thesis on the future,

right? Absolutely.

I was wondering what's, so I know for sure that's most investors like to invest in people they know we're in people that their friends know.

So warm introductions.

I was wondering does it make sense for someone in a startup world to start, not fundraising necessarily, but building that relationship with the investors really early on.

as soon as I came up with an idea, let's say I validated it just , I felt that something is coming. I got tiny bit of traction.

Should I start reaching out to angel investors and asking like, Hey, I'm building this, we're not in the fundraising process yet, but do you want to keep in touch, that wants them in the right phase for you.

I'll I'll reach out to you.

Does that make sense?

Yeah, I think that's really critical actually.

I, I mean I guess I never proactively did that and I guess I have some regrets around that.

It took me 11 years or so to kind of build up to what we're doing now.

it probably could have happened faster if I was better at reaching out to people.

ultimately people invest in other people that they trust.

there's a certain thing, and it's very busy.

Like everybody who's an investor out there, like always often has, a thousand options of where to put their money.

at the end of the day, money is also a commodity in a sense, cause it's kind of the same from all sources.

if you think of, okay, go reach out to people to build trust, like if you frame it from a building trust perspective, then it's like, okay, I'm going to go tell people, here's what I think and here's what I'm going to go do.

I'll come back and I'll show you that I've done it.

there's a, it's kind of the, in my view, like some people you hear about this like fake it till you make it stuff.

I just think that's such BS, like almost every single person that I know who has followed that as a mantra.

It's like, Oh, you gotta fake it till you make it.

That's that's how all of the disaster stories start, look at like Theranose or there's like a very long list.

I'm kind of, I'm kind of a connoisseur of like failures.

I like to learn from all the failures that happened, so I can avoid them as much as possible.

yeah, so I think, putting yourself out there is a really great way to build trust.

Like if go say, Hey, like, here's what we're going to do over the next two years.

Like maybe it won't work, but like, here's, here's a risk I'm going to go take and I'm going to like eat my own cooking and spend my time and resources on it instead of just getting a job somewhere.

Or maybe I'll do it along side having a job.

If your employer allows that, then I think that anything that you can do to build trust and follow through on what you say and be transparent when you have mistakes you learn from, that's all really valuable.

Right? Absolutely.

if someone who is listening to this right now wants to follow, fake it till you make it rule police, check out this movie called fire festival.

It's the story.

I mean, yeah, Ryan, I can feel that you saw that movie so what I'm talking about.

But seriously, the movies advocate's fun.

It's a relatable sometimes, especially if you work in the startup world long enough.

if you haven't seen it yet, check it out for sure.

I'll probably leave a link to that to at least teach you video on that movie.

I got off the track but let's get back on it and discuss your specific preferences.

I felt that's you mostly invest in larger companies so that I have a rebuild something.

do you invest in earlier stage company? So do you act as angel investor as well as long as parallel to Mason capital?

I know so not really.
I mean I'm really more of an entrepreneur business builder.
We'll invest in other things that are strategically related to what we're doing.

I would say we're super focused on things that are, bringing intelligence, into kind of the build world and the industrial world.

like kind of, things that relate to software, motor company in some sense or some of these like older, industries where there's new technology.

I'm certainly interested in talking to people, but I wouldn't consider us like a typical kind of venture fund. Like we don't invest in very many things.
Definitely not a regular venture fund for sure.

you, I believe as a person who I think has a, something in the LinkedIn saying like a venture fund or investing, I don't remember exactly what was that, but that was something that made me reach out to you, invite you to the podcast.

how many such invitations to it yet? I mean, not specifically with your podcast, but requests from founders to check their beach deck to give them some feedback on the pitch deck or maybe even, Coldwell Greece just to invest and they're just saying you their pitch deck without you even asking them for that, how often does it have to you?

Yeah, I mean not a lot.
I mean, I'm really not out there as like a shingle angel investor.

I mean, we're more in industry commercially and so we'll more reach out to other companies that we think are really, interesting and strategically aligned with what we're working on.

yeah, I'm pretty focused on like software, motor company.

And things in its orbit, let's say.

Absolutely.

you said, you mentioned a lot strategically, feasible for your software, more of a company, and that you reached out to the other companies that are, fit for a sulfur moral company.

what exactly do you do with them? Do you try to acquire them to you try to just try to build a partnership there or how does this work?

Yeah, it really depends.

I mean, we've made a number of strategic investments in early stage companies that we think there's, there's a mutual benefit that we could help them get to market faster and that we could, help give them a competitive advantage.

So so that's kind of the focus.
Like where is there a mutual benefit, beyond just money.
I mean, if we just bring money, that's not interesting.
that's, that's just not our game.
I mean, there's other people and if other people that do that. Right.

Absolutely.

I've seen a lot of startup founders who are trying to aim for know such a strategic acquisition or strategic partnership.

Like you're talking about from basically day one that I've seen on a beach decks, like a super early stage founders saying like, Hey, so Jada is developing that and we believe that we can develop this and then we'll get acquired in five years.

I'm like, do you think that in five years to Jada will not find someone for that role already? So what do you think about this part of a playing? Do you think it does make sense to aim for an exit so early on?

I actually think that's like pretty crazy.
I thinking about the exit when you're just getting started, it's just a terrible idea.

I think you want to be focused on like what is the problem? And ultimately if you can solve a hard problem and build a viable business, then you're going to have many options to exit.

Whether that's, IPO, secondary market acquisition to financial or strategic, there's lots of money looking for good businesses to buy.

Like that's not a problem.

there's a, there's a number of businesses that you hear about and actually like just recently there was this one as a cautionary tale with Harry.

we've all heard dollar shave club and Harry's was the competitor quite similar and the FTC just block their acquisition.

if your business requires an acquisition because you're playing the like evil Knievel game where it's like, Hey, we're just going to, we're going to be super unprofitable, but once we get to the other side of this, ramp, then there's a some big company that's gonna require us.

You're just taking, you're just taking a lot more risk, I think then you need to, just like anything, if you're creating a future that's dependent on other people to, make a decision, in your benefit.

Like you're just exposing yourself to big risk there. Absolutely.

before we move on to a discussion of a self remora company fundraising process, because I'm really curious about that part, I was also curious about your experience at Cornell.

Cornell is probably one of the best universities in the U S and in the world.

I'm wondering what resources were you leveraging when you were backing a Coronel in terms of a Starbucks? intrepreneur it was back in the days.

Were there any resources and how do you think that's changed? So how home lodge re how many resources do those top universities provide to its, potential future entrepreneurs?

Yeah, it's a good quote.
Yeah.
Cornell is certainly on the, I was engineer, so the engineering side is certainly one of the best in the world.

there's lots of great other colleges within Cornell.

honestly, I, I really didn't take advantage of it the way that I should have.

I mean, this is maybe a bit of a regret for history.

I mean, like I said, first I was totally focused on cycling and racing and everything more than kind of the, kind of business world until I went into my master's, I guess.

I dunno, I always had like a bit of a chip on my shoulder, honestly through university where I had this like, networking is like icky and I need to do, this is probably very typical engineering physics and science guy mindset where it's like, Oh, I need to just prove everything objectively and I need to just stand on the merits and like go make the best, objective product and then everybody will beat down my door.

I, I don't think I got very good at really leveraging any of those resources until, a lot later when I kind of, became, I, I say I got like a lot of, hair on my chest or something, a lot of experience like building my first company, which Cornell was actually our first big customer.

video note, we would record and index the lectures so people could study, the perks of the topics that they had trouble with.

Cornell was, it was great to be able to stay there after I graduated my masters and build a company again for a problem that I was really passionate about cause I to miss class all the time for sports stuff.

by capturing the lectures and indexing it, we could, make it, we had many hundreds of students emailing us saying like, Oh, this saved my life and I would have failed the course without it.

it was pretty cool, but I didn't kind of get smarter until later, I think to really, try to build those connections with people.

I was too kind of heads down on just, building, on kind of the science side of things and yeah. I didn't do it the way that you should do it.
I would say it's a lot better to focus on building those connections earlier.
Absolutely.

speaking of building those connections early on, I am, I'm a pretty big believer in a good network.

Not that like should go to all those networking events because I hate people who go too many networking events.

sometimes I hear like, Oh, I have 25,000 connections on LinkedIn, like no one cares. Literally no one cares about your 25,000 connections.

question is how do you build the good relationship? Where do you find those people? Especially if you're early stage startup founder, you don't really have much value to give to those people who have money or well connection, good connections.

How should you build that relationship with them if you can't really provide them any email? I guess I would dispute that you can't provide people value.
if you really can't provide anybody value then they're not going to give you very much time.

that's kind of the key is like if you're going to build connections with people there, you have to figure out how can you project value and that could just be information or insight about something that, you're pretty sure, and I'm not the world's best networker or something by any means.

I'm sure you have other guests that can answer this a whole lot better.

yeah, I mean, just being really genuine and like trying to contribute value.

I think the thing, like you go to any event, I just remember from college, like there's just one event I went to that had networking and the title and it's just like everybody's looking for a job and it's like, okay, well that's, like go to, a dance and it's like all guys or something, it just, like super interesting.

that, but it's, anyway, that's a, so you got to figure out how can you project value and contribute in some way I think is, don't be just asking for stuff.

Right. Yeah.

I, the comparison, I really enjoyed that because I, couple of times I went to the networking events, I've never done that same mistake again.

basically I went there and every single person was looking for a damn job.

I met with a guy, I'm like, Hey, so what'd you do? And he's like, Hey, I'm a word for venture cup capital.

I'm like, Oh, so you're not looking for a jump? And he's like, Oh, you're not looking for a job to know that.

Then we became best friends.

The point stays the same.

be aware of those events.

make sure that you provide value.

That was a good advice.

let's move on to the part where we discuss of fundraising process for software, Mar company.

are you actually involved in that process work? Not really.

Yeah, sure.

I mean, that's part of what I do.

So that's great.

That's great.

great to know.

how do you manage to raise so much money? So how does this work? Most of my speakers are either early stage founders or, founders.

I think the most capital that someone raised among my founders speakers, it was three 30, something new in and you were at a so huggy and managed to raise so much.

well, I mean it's not all at once, right? So it's like incrementally like you, this model of tell people what you're going to do and then do it and re rinse and repeat that.

it sort of builds trust over time.

a few years ago we raised like 15 million and our most recent one that we announced for November was about 25 million.

we brought in some new great strategic investors to like BMW and JLL, the big property manager.

they wouldn't, those, a lot of the people that invested more recently, the new people at least like, they wouldn't have invested that kind of money in the early days.

It took us time to build that credibility and to, solve these problems internally, both building the product and then proving that we could, build the product and then validate it.

we, the product for electric motors is a very high reliability.

It's a medical device in that sense where you need, even once it works, in principle you need to get a whole lots of certifications from third parties before you can really get people to buy it at scale.

going through these different milestones, but laying out that future pathway like, Hey, here's what we're going to accomplish over the next two years.

like, here's the customers that we're going to bring in and like the proof points we're going to get. just, keep communicating that and delivering that.

people, again, like how do you raise a lot, like you have a really big important problem that you are solving and it's very hard to solve and other people aren't doing it.

I mean that's what creates value for a company ultimately.

yeah, that building trust by executing well is so it's really important.

Yeah, you're absolutely right here and here.

I was actually curious how you raise my interrupts of where you get the mind from.

for example, I really like to speak about alternative sources of capital.

just showing entrepreneurs that there is something else out there besides angel money and VC money.

do you raise mostly through VCs or do you also take alternative sources of capital? And I are that you mentioned that you raised some money from a BMW.

So those were strategic investors.
But yes, so.
we're, we're in like, definitely not the standard VC world. we're a, a software enabled hardware.

the kind of the VC world, the typical VC world really is very software focused and a lot of them have been burned on hardware in the past because hardware is hard as they say.

there really is a fundamental shift happening now that hardware is beginning to become defined by software.

this SIM things like simulation based design and IOT are really changing what it means to be a hardware company and to much more like a software like software motor company has a balance sheet that looks like a software company.

I mean, we have very minimal capex.

We don't, we're not like Tesla where you have to build a huge factory, which is I think one of the things people are kind of scared of, but, which obviously they've been successful.

even with Tesla, the amount of dilution the original investors had is pretty staggering. because of that huge capital requirement there for the factory.

in terms of, sources of capital, yeah, we don't, we definitely don't have like the typical kind of sand Hill road capital and the most valuable investors for us are really like these strategic companies like BMW, like JLL that can also serve as customers to break us into these markets because the products we have are very, demanding in terms of like reliability and proof points.

to have that first customer who is willing to drive adoption, it's the single hardest customer to get as your first customer.

Once you get your first one, then you can have reference and you can point, have other people point to it. There's other people want to not be the first Guinea pig.
so those have been really valuable.
the rest are, we have a lot of really smart entrepreneurs.

I would say actually we have a number of investors that are the individuals that has made a lot of money running venture firms or private equity firms over time and they just kind of personally, appreciate what we're doing.

yeah, I would say it's kind of more like the high net worth and family office.

typically quite sophisticated people who've, been entrepreneurs, been operators or been investors, professional investors themselves.

That's really interesting.

I'm actually trying to discover this topic of family offices more and more as this as family offices actually joined the venture.

I mean the startup community more and more, especially here in the United States and specifically in California, but will not shift it to that topic for now.

Instead we will have last question then we'll wrap it up.
I, I'm trying to do this, cultivation theme for my listeners right now, correlation to this episode.

As soon as this episode is over, what one thing do you want them to do? So you mentioned for example, doing network, you mentioned gained his first customer.

what's that one thing that you want them to do as soon as the episode is over? The one thing you should do, I don't know why wash your hands.

It's covert.

That's easy.

it just, it depends what your goals are.

I mean, I would say figure out what you have that's really valuable and interesting to other people.

I mean, if you're trying to fundraise, like what is it that,

why are you passionate about solving the problem that you're solving and how are you going to see it through all the obstacles over the next five plus years of building? Right.

Yeah.

I mean, in terms of like what stands out? I mean, just especially the single most important question for me, especially if it's anything to do with technology that I think people don't answer enough, is why didn't this happen before? Cause if you're proposing, Hey, I'm going to go do something, whether, for me it was this, the one like fun thing I did.

You mentioned Belka, so B, E, L, I, C, H, K a, it's dot com is the website.
It's I KIDO like no car.
it's very hard or it's impossible to find anything on the market that's like actually healthy and natural. They'll put all these additives and like sugar alcohols and stuff in it.
I just made this thing with my wife as like kind of a fun project.
So we actually just launched it.
in that case, why did nobody make like a keto bar made out of like all natural cow butter, like healthy stuff. it's like, well it's like way easier to make it out of a much lower cost, easy to manufacture type ingredients. we actually had to invent like a whole bunch of processes to make this stuff.

it's not like a normal granola bar that there's like standard machines at contract manufacturers to make them, we actually had to like solve a number of hard problems and it's, more expensive to make this, but just really wanted it to exist.

So, so that's an example like, Hey, why didn't something happened before in the case of like software motor company, which has a much harder technology problem.

Obviously you just simply didn't have enough computing power before.

people had tried everybody, anybody who says just nobody thought of this before, that's like the worst possible answer because everybody has thought of everything.

Like there's no, this whole, I, there's no new, nothing new under the sun.

It's it's kind of true and it's not that there's no value in having new ideas, but having an idea is like 0.001% of the way there.

anybody who's like really secretive about some idea they're working on, I just think that's really silly.

I think it's, if there's an action I would recommend then is like, whatever your idea is, just put it out there for the world.

the odds of somebody stealing it are like zero cause it's all in the execution and you're gonna get so much value in the feedback and like getting different perspectives and information to beat it up.

It's I think that being transparent is really valuable and I get kind of irked when people are, kg or secretive.

Yeah.

I feel you.

I really feel, and it's funny that you mentioned it because literally two days before this interview I released the episode called self mode equals self money and the founder there, he actually sold his company as well.

Pretty reasonably.
He was talking about the exact same thing.
No one cares about your ideas.
Basically nothing.
It's all about education.
So you're absolutely right here.
on this fun note, we'll wrap it up.
Thanks a lot of grinds for coming up and for sharing your experience.
I really liked learning a lot about software company and how you dealt with that. also it was really nice for me to learn that you're raising a lot through family office. how am I happy to hear those news? So we'll wrap it up here.
Thanks a lot.
Right.
And stay safe out there.
It's called, as you said, thanks and eat low carb, bye.
Belichick bars.
I will leave the weight to that.
By the way, I will leave link to in the description of this episode.
There's a yeah, there's a coupon code, a keto 20 for anybody who's listening here. Perfect.
I will leave the link to that to village.

Go add to fire festival in case if someone forgot.
Definitely take a look at that episode description and you'll find tons of fun stuff there.