Damon DeVito is a founder, investor and mentor. He joins me in this episode to discuss what you need to know to be ready for investors in your company. Finding the right match is the key to a successful investment relationship and there are many factors that will play into the decision. Damon gives insights on these factors as well as knowledge for Founders that are looking to take the leap.
In this episode we will cover:
- Benefits of an accelerator
- What makes a company attractive to investors
- Transition from small business owner to start-up
- Angel Investors vs Venture Capital
To get in contact with Damon go to his Twitter. DM’s are open.
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Episode 214: Is Your Company Ready for Investment with Damon Devito Transcript
Andrea: [00:00:03] Welcome to the Legalpreneur Podcast. I’m your host, Andrea Sager, founder and CEO of Legalpreneur, Inc. As a serial entrepreneur and someone that works exclusively with small business owners legally protecting their business, I’m dedicated to covering common legal issues faced by business owners, providing you with the business knowledge you need to catapult your businesses growth and showing you just how some of the world’s most elite entrepreneurs have handled these legal and business issues themselves in true attorney fashion. The information in this episode is not legal advice. This is for informational purposes only, and you should always consult with your attorney before implementing any of the information in the show. In case you missed it, our flash sale for Dream Bigger is now over. That crazy good deal that you’ll never see again. It’s gone, however. Tickets are actually now 50% off. General VIP. Whatever you want. 50% off. Get them now because this event is going to sell out. I don’t know when, however, it will sell out. We are so excited for this. We have Ali Webb, Danielle Canty, Pauleanna Reid. We have Chris Harder and Lorie Harder. So many more big names that are going to be announced soon. So stay tuned. But for now, go get your ticket 50% off and get those rooms booked as well. I cannot wait to see you in Phoenix October 5th to 7th. Hello there. Welcome back to another episode of the Legalpreneur podcast. I cannot wait for today’s episode. We have Damon DeVito. He’s an entrepreneur and an investor, and he’s going to be talking with us about knowing whether your company is ready for investment, how to know if you are something that people want to invest in. How do you make your company that people want to invest in? So, Damon, thanks so much for being here. I’m super excited to dive in.
Damon: [00:02:03] Thanks for having me excited about it, too.
Andrea: [00:02:05] Yeah. So go ahead. Give us your story. Tell us how you got to where you are today, because I know you have quite the story, quite the journey, and I know that listeners are going to be really excited to hear from you.
Damon: [00:02:16] Yeah, well, I’m sure there’s a boring podcast out there somewhere where they’d love to hear everybody’s full bio, but I’ll just hit the highlights. I was a son of an entrepreneur who got there via via pharmacy school, and so it was small business. And then he kind of got it into a pretty good sized business. So have that in the family and in the blood and always was entrepreneurial as a kid bought you know went to school went into consulting after that went to business school. It was kind of a recession time. So it was a hard time to do interesting things age wise. I’m a little before software, internet and all that stuff, so coming out of school now, there’s some really cool stuff you can do. Back in the before that it was there was a little less of that. So but I did I did decide I wanted to be in business for myself soon after business school and spent those two years finding going through kind of test, case after test case after test case till I found one that might work. And then I took a job that was a test case for that. And then that gave me enough confidence and momentum to raise a little bit of money to set up a shop and do that. And that’s I’ve had that business, believe it or not, a long time, 20 plus years with a partner. But then about, I guess seven, eight years ago I got the itch to do some other stuff. So I started branching out just by helping kind of one team. At first it was actually it was a fluky story with my son seeking an internship and I was at my reunion.
Damon: [00:03:47] I didn’t realize my business school had an incubator. And basically in seeking a job for him, I found a bunch of startups that could use some help and over time helped one that worked out well. And about the time I thought, Oh, there’s certain things I can help people with here in this stage. I wonder how I find another one, because the first one had started to grow really fast and raise money. Not not all due to me, but, you know, it wasn’t not due to me either. They they pushed somebody pushed their chair over and said, hey, will you look at my deck? I’m trying to raise some money. I’m stuck. And I thought, oh, this is interesting that like these really smart people in this same room with all these other mentors are running up against this. Maybe this is where I should try to put my energy into helping people and without confining myself into anything, one thing led to another. Then I started teaching. Then I was officially a mentor, and then I was teaching. And then I became a Techstars mentor. And you know, back if I think back from time to time about how would I find a second venture that might want me to help? Now it’s like I’m surrounded and I love it. Honestly, I would, if I could not sleep and just talk to founders all day, I’d probably be every bit as healthy if I get my as if I got my 7 hours. I love it.
Andrea: [00:05:03] I love that. I love that. Okay, now can we touch on Techstars really quickly? So, yeah, I have not. Mentioned too much on the podcast about accelerators, what they are. So can you briefly touch on exactly what an accelerator is and then touch on Techstars?
Damon: [00:05:22] Yeah, sure. So real quickly. There’s a million things out there that call themself an accelerator, an incubator, and also a million variations, a spectrum on how well they execute against whatever mission they adopt. But but fundamentally, an incubator is kind of like, I got an idea or I’ve got a business that I want to grow and I kind of don’t know. I don’t know what the second question is. And so you get in there and it really sort of gives you a chance to kind of get out of the gate crawling, right? Like just get rolled. Just get forward motion a little bit. And that could be, you know, you got one coffee shop, but people have been telling you your you know, your beans are good and you should have more than one coffee shop. And there’s this cliff, right, that you feel like you have to jump off from from small, healthy business to something that’s expected to grow a lot faster and maybe be a lot bigger. All kinds of new problems. Right. And so so it’s that kind of a thing. You go in and they sort of give you a safe spot to try stuff, ask questions, get rolling. They’ve been around since the fifties in 2006ish, Paul Graham at Y Combinator and a few other people and a few people, including Brad Feld at Techstars and David Brown and some other people out in Colorado, had a different version of the same idea, both kind of like one sheet of paper ideas.
Damon: [00:06:47] So I don’t think there was a I know there was no pitch tech involved in either one of these things. And, you know, they basically said, look, if we do a if we combine a few ingredients, a little bit of guidance, a little bit of money and a little bit of a cohort, maybe we can help some people, like go faster than they would on their own and it’s go faster. It’s accelerate. Right. That’s the idea. So sometimes you get something in Y Combinator or you get something in Techstars or there’s other premiere programs. But those are probably the kind of the Harvard and Stanford by most definitions. And they’re different and they’re different in a couple of ways, but they’re similar in many, many ways. Fundamentally, your risk reducing, right? Like if you’re venture backed, you’ve got a 90% chance of failing. If you’re y c back. They cut that in half, I think, or maybe not quite Techstars, you know, 86% of their historical worldwide cohort is still standing. I mean, that’s a 14% failure rate. Like, that’s insane, right? If you if you could sort of let go of going public for a minute, which plenty of their portfolios companies do, and ask yourself, why is that? Why is why is they are they so high profile? Why do they put out less money? And yet why do they risk, reduce and see the best teams in a lot of the best teams in the world? And it’s you know, they’ve got some front end filters that they look for because they what makes a good investor, they’ve seen a million situations.
Damon: [00:08:15] They’ve seen a million data points. And so, you know, they all of a sudden instinctively know you’re a great founder, but you’re going to run into this problem and you don’t know it yet, right? It’s like three years away and they can see it and maybe it’s 80% chance you’ll run into it. But if you find good mentors or if you find people that have been through it before, their experience can help you navigate some of the landmines. Well, I mean, you know, once you’re seeing all the you know, once you’re seeing literally tens of thousands of applications a year of of really good stuff from around the world, you know, your pulse is good. You’re still wrong. Things still go wrong, but your pulse is really good. And now once you start helping those people, if those people are grateful and those people have some commonality of a philosophy, then they start helping the others. And all of a sudden you’ve got people buying from each other and investors and mentors become common. And Techstars view is, you know, Hey, we can do this in any community where there are certain ingredients. Y C says, you can do this in any community where there are certain ingredients.
Damon: [00:09:17] But like we’re in one place, we’re going to play to our the we’re going to be where the money is. And you don’t have to do it that way, but that’s just the way we’re going to do it. And that’s the ecosystem demo day is if you did well in the program and you got the demo day, you should get yourself a check, a good check if you need it. And that’s a big way they de-risk the business, your business. Techstars the demo day is real, but it’s not the same kind of a thing. But they’ve got it organized largely by industry. So I mean, if you’re in the I was out last week at Farm in Minneapolis, I live in Virginia, I was out at Minneapolis. And the farm to fork is, you know, Agtech, food, tech, all kinds of interesting stuff. I mean, there’s 12 amazing teams. It’s so energizing. And, you know, the but, you know, they’re going to see mentors who they’re going to see a few generalists, but even them are going to have some some contact. In that space. So you’re going to see investors and you’re going to see sponsors and you’re going to see people that are going to say, oh, you should talk to so-and-so over at General Mills. But it’s. But then it’s going to be like, I’ll text them tonight. Yeah.
Andrea: [00:10:24] And I’m like, Oh, you should eventually write. Like you will actually be talking to them.
Damon: [00:10:29] So think of the acceleration there. Right? So it’s like I dropped ten inches, I dropped ten introductions right afterwards. You’re going to see at Techstars, you’re going to have a one on one with 100 to 125 mentors in three weeks. They’re all going to do the same. Some of them are going to invest. Right. And so you’re going to just be you’re going to be drowning in introductions and just how much faster that helps you go. And and most of the going faster. I think people who can’t access resources are thinking, if only I had someone to give me a customer, if only I had someone who could bring me to the money. That’s part of it. But part of it is you’re going to make a lot of mistakes. You’re wrong about a lot. Like all the big companies that have gone public, like look at the early plan. They’re wrong about a bunch of stuff, just not everything. They started with a problem and there’s something there. And the quicker they can start getting in there and cracking eggs and figuring out what parts of the wrong, this is too hard. I don’t want to do that. This customer doesn’t want to be helped. The quicker you can sort through all that, the quicker you can find the right answer. And it’s not random. And that’s kind of I would say that’s the that’s that’s the benefit of an accelerator. And then there might be one in your hometown who just says, we give out checks for 20 grand and we’ve got the industry leaders in town. Well, it’s not fair to compare that against Y Combinator or Techstars, right? I mean, those are different checks. Those are different levels, different ecosystems. But if that’s the one you can access and it helps you go faster than you would have otherwise gone, as long as that 20,000 is a is a fair trade for whatever they ask, you know, then you have to look at it through that lens. Some people are better off without, but a lot of people. It’s nice to have people want you to go faster.
Andrea: [00:12:20] Yeah. No, absolutely. And I want to kind of shift gears for to talk about actual invest ability. So the audience here, it’s a lot of small business owners, a lot of service providers, e commerce business, so really small business owners and the conversation is turning more to invest ability what makes me. A company that once that makes me be somebody that wants to invest in me. So. Can you talk about what makes a company? Be attractive as to invest in. And if you can touch on making the transition from small business owner to startup because that’s the transition I’m in and I knew it would be hard, but it’s fucking hard. And I not that I underestimated it, but now that I’m in it, it’s like, Damn, this is fucking hard.
Damon: [00:13:16] Do you is your sense you’ve talked to other entrepreneurs? Is your sense that it’s harder than if you had just gone full bore start up right off the bat?
Andrea: [00:13:25] I don’t know. So I’ll say I don’t know because I we were talking beforehand. I consider myself lucky because most startups, most startup founders, they’re not bringing in revenue from day one going into startup mode, we were bringing in revenue. So and I consider myself lucky in that realm and because I can still pay myself from the law firm. So it’s essentially somebody that’s working a 9 to 5, they’re moonlighting their startup. I am full time and Legalpreneur, but I still have revenue from the law firm that’s able to pay me. So I’m very lucky in that realm. I don’t know what would be easier. I have a feeling that this is easier because I have the revenue. I, I’m not worried about putting food on the table, but I’m not worried about getting my bills paid. However, it’s hard.
Damon: [00:14:18] Yeah, well, it’s interesting question because, you know, the transition you’re making. You can sleep because you have a little bit of a net. And yet to the extent the net not wanting to neglect the money source, you know, to the extent you you, you neglect growth for it, which is easy to do, then you’ll grow less slow, you grow slower. And you know, there’s nothing wrong with slow or fast or any growth. But your questions are sort of related on the two questions about instability period versus this small business startup. Invisibility. Is about taking money from somebody else or time from yourself. And it delivering some kind of a reward. That makes the other person happy. Relative to the risk. So. I have a very good friend and he doesn’t invest in startups. And he he doesn’t understand why if you have a business that’s profitable, you would ever sell it because that’s his that’s his filter. And he’s been super successful with it. And he does still sell some of these businesses, but he’s always kind of grumpy. So it was making money. He’s like, you know, I got a wire and I’m like, Cheer up. Like, buy me a drink. Why are you so down? But it’s because he worked so hard to find that investment that he thought would be 20 years and it ends up being five and they get a crazy return. That’s not what he wanted, right? He’s laddering a portfolio of income.
Damon: [00:15:57] Well, so, you know, but there’s a certain risk associated with it. His don’t go under, right? They don’t pay off like a startup going public. They don’t they’re not going to do 100 times what he puts in, but they’re not going to go to zero very often because he knows how to filter them out. And with his filter, he almost never goes to zero. So he gets his 15 or 20% return and he’s happy. And it’s not usually more and it’s not usually less. And so the match. There’s a match, right? Other people who, like a venture capitalist, could not do those deals. Right there, real estate based there, too solid know they have to go for the big return. They’re supposed to be funding big ideas. And the reason this sounds crazy to a lot of startup founders like, well, why, why don’t you just invest in good things? And the reality is because. You know, in an investor where the source of the money is coming from is often, you know, pooled with very wealthy people or institutions that have money from a lot of people, wealthy and, you know, people who have done well but aren’t billionaires. And and those people have said, okay, I need like a little bit here, a little bit here, a little bit here, a little bit here. And that’s how I balance risk.
Damon: [00:17:20] So I don’t lose everything so that I can have college money, I can have fun money and I can have growth money. And by the way, I got investors when I had a young startup and I want to to I want to bet on those people because people bet on me, whatever they want to do. But there’s an allocation bucket. So then they don’t go to some investor and say, you know, Damon, go find me ten of these ten of these, ten of these, ten of these. Because if you get back to your Y Combinator and Techstars scenario, how can I be really smart at all those areas? Because I only get really smart and I only get really good deal flow with some focus on something. And so if somebody’s only looking for hotel deals and they’re a hustler and they’re good at meeting people, they’ll probably see all of the good ones. But if you say, Well, I’ll look at anything, well, you’ll probably see nothing. Like you’ll only see flaky deals. And so when you’re a founder, you got to go to the people that match what you’re selling in your investment. When you’re seeking investment, you’re selling your story. You’ve got to match your story to someone who’s buying that story. So lots of times people say no to you and it hurts. I mean, it hurts. You know, they say no to you.
Damon: [00:18:31] But a lot of times it was really just like like I couldn’t you know, it doesn’t really matter what you do. I can’t invest in you. This isn’t what I invest in. And and as a as a founder, the quicker you can decipher that and get to that, the the easier the fundraising process gets. And I think for most people, it never gets easy and it never gets fun. Some people are like really good at it and enjoy it. I’m probably one of those people, but I like it because it’s the matching part, which is one of my skills I love. If somebody says I want to invest in start ups, my next statement is not great. I’ll show you some. I see a lot. My next I’m like 20 questions before I get to that. And they’re all things that founders will sometimes be scared of. But I’m like, okay, well, like what? How many do you want? What kind of check do you want? What stage do you want? What any particular criteria is? Geography matter? Does industry matter? Do you want to be involved? Not involved. Right. All of these things. And then somebody might say something in there where I’m like, okay, well, those what you’ve said doesn’t you’re not going to know deals are going to filter for you, right? And then I can work with them on why that is. Or they can think I’m nuts or they could say, Look, I want to support somebody recently.
Damon: [00:19:44] They know I do a lot of work with women founders. I just I’m kind of on a little bit of a rampage because of some stuff. One of my women founders, somebody I taught, kind of opened my eyes to some stuff and I got characteristically all pissed off and wanted to do something about it. And so, you know, so then now I see now I see a lot of really good women founders. You know, it’s probably why it probably made me more inclined to kind of connect with you on Twitter when you had something interesting going on. I probably would have overlooked that before, but but at this point, you know, somebody came and said, look, I want to put money. I have this much money. I want to put it into ten women founders. I still would have a bunch of questions, but the timing of it would be kind of the thing. And then it would be like, All right, if you’re serious and realistic about that, I’ll keep you in mind as I see stuff. And bear in mind, I should say, for your audience to like, I don’t I’m not I don’t get anything out of that. I’m just helping founders and helping investors. And in the middle of that, you know, good things happen. And I’m really happy about that and plenty of good things happen for me to.
Damon: [00:20:41] So but I’m not charging them or anything. I’m no investment broker. I’m not a lawyer, none of those things. And so and so, you know, when it gets to this investable question, it’s like, all right, well, the person giving money, they want more money back. And then they. And then there’s some. Like when? How much? What form? Income. Big payday. And so sometimes on the other end, sometimes people who are reluctant founders, which are like my favorite founders, you know, and they’re like, I’m no, don’t know if I want to take their money. What if I lose it? You know, I’ll say to them, Well, it’s your job to try hard not to. It’s their job to know, Hey, if I write checks into ten startups, a bunch of them, I’m going to lose it. Right. Whereas if I write checks into a bunch of hotels, I shouldn’t lose it. Those are different buckets of money. And if you came to this pond, sometimes when you bring your line in, there’s going to be no bait and no fish. And that’s not the founders job to worry about it, but it’s the founders job to have a good match so that they don’t get some other investor who thinks 100% of the time these startup checks turn into an angel check, turns into going public. And you know who needs the lottery, right?
Andrea: [00:21:59] Right. And I think one thing that’s important for founders is to realize, like, not all money is good money, especially you have to get just like you were saying, the investor needs to be clear on what they want to invest in. The founders need to get really clear on what kind of money do you want? Like you don’t want every so hour round. Essentially it has turned into just an angel round. All angel investors and I have had a personal I mean, multiple conversations with each and some of them. It’s their first time investing in a startup, and I made sure every single one understands. I’m like, Hey, I want to return you 100 times the amount you’ve invested. But you have to understand, like, you may never see a dime from this. And if you think that would ruin our relationship, like, I don’t want your money, if you know that you will never see a dime. I do not want your money because relationship like relationship capital is the most valuable capital in the world. And so I’d rather have that capital than your money. Yeah. And knowing what type of investors you want is really crucial because I don’t want somebody that wants to come in and run my business. I want investors that have value to give, but I don’t want them to come in and run my business. Right. And I think most founders are like that because this is their baby. It’s them running the show. But you need to get very clear on that because there are some investors that think, oh, I’m giving them a check. I’m going to go in and do things my way.
Damon: [00:23:40] Right.
Andrea: [00:23:41] Yeah.
Damon: [00:23:41] And I think your first legal assignment, you probably did a very competent, hardworking job. But in half the time you could probably do a better job now because you have experience. And it’s the same with angel investing, right? I mean, my first angel investment was all the mistakes. All the mistakes, right? Like focused on the legal document that was in fact, just standard, you know, didn’t pay attention to red flags about go to market and team money with a friend total focus on the up side you know really wasn’t planning to lose the check. You know it’s a real education. And I look back and I think like almost like that was a different person who wrote that check. Right. Like that doesn’t that’s not at all how I think now. But very few people can get from point A to point Z without going through the alphabet. And I think that’s where the experience kicks in.
Andrea: [00:24:36] Yeah. Yeah. And I mean, I see it all the time. Like first time founders have a very low success rate and that’s just getting the practice in and trying to beat that success rate, by the way, when it comes to that happening.
Damon: [00:24:49] So let’s touch on this. When it comes to fundraising, you know, the hack is like rent some experience, right? I mean, these angels or mentors or accelerators, you know, they got help. People got the reason. There’s so many mentors out there who are so generous. The reason I like to help is I got help, right? And now, you know, now they can give back and participate and, you know, watching you struggle and win, both of those are equally rewarding to them. They don’t want you to struggle, but if you send them emails only when you’re winning, right? Like that’s no good. Or if you ask advice and then disappear for a year, that’s empty. But, you know, if you come to them and say, listen, I. Did you ever have a day when, like. You just didn’t want to do it anymore. And they have a real conversation with you and you touch back a week later and say, you know, I feel 83% better because of our conversation. I just want to let you know. Thank you. That I mean, they do want to return on their money.
Damon: [00:25:48] But but somebody who didn’t put money in or even if they did, they’re going to feel so great about that. Right. That’s how they help you. And if you keep growing and growing, they get to a stage where they fade into the background. Right? Like usually if somebody actually has me as an advisor, which is more of a compensated options role, I only do a little bit of it say no most of the time. But in that role, it’s really kind of understood, like there’s a two year period where I’m pretty helpful after that for life. Call me 24 seven if you need me, but you’ll stop like you won’t. You won’t. You’ll have other VCs will show up. You’ll have other people that are more specialized and you’ll start to come to rely on them. And you should. I won’t. You know, the first time it happened, I was like, They don’t love me anymore. But I came to realize it’s more like when your kids move out, it’s like, Oh yeah, at my job, like they’re doing, they’re doing what they’re meant.
Andrea: [00:26:40] Can you touch on angel investors versus VCs? I haven’t explained that here on the podcast.
Damon: [00:26:46] Simple to get my money. Other people’s money. Right. I’m making money. Managing somebody else’s money or I’m investing my money. That’s pretty much it. Checks tend to be smaller, decisions made faster. No investment committee for most founders, truthfully, Angel or AVC. Probably 10 minutes in, they made a decision. Not 100%. But if it’s a no, they made a decision five, six, 7 minutes in. So don’t talk about the weather. Don’t, don’t. If you send them the deck ahead, don’t pitch the deck like, you know, get get to it. They want to chat with you if it’s and the more experience, the faster they make the decisions. You know, there’s always some follow up. But that’s kind of the thing with a VC. They a lot of times they have to go back and talk to the other people, their other partners and stuff, but they’re investing other people’s money and they’re making some money doing that. They’re getting a management fee, and they’re also going to participate in the upside. And that’s commonly called carry, not all that important to know all the mechanics, but it is important to know the motivations of what’s behind it. Many times they’ve told. Investors, their own investors, which are called limited partners. I will invest in this. I won’t invest in this. Might be sectors, might be situational, all kinds of stuff.
Damon: [00:28:04] And so and that may affect you. And then also they may not have any money. Some of you might have like $100 Million Fund and they might be raising a $200 Million fund and you might show up on the day they don’t have any money. And you’re and you’re thinking like, I only need a couple of million, how can you not have it? But it’s because they allocate it everything out of the first fund and they haven’t taken in the first close of the second fund. And for these reasons it’s kind of like the questions I said I ask when somebody says I want to invest, you know, you talk about you implied, I think with your know who you want to invest with is also, you know, you get to ask questions, you know, even if there’s only one person that wants to invest in you, it’s a sign of respect, not disrespect, to say, where are you in your fund cycle? How do I fit with your other investments? What was your last check like? Right now, a lot of VCs are not really investing in new deals, but if you’re a VC, if you’re a venture capitalist and you say that you become irrelevant. So nobody says that.
Damon: [00:29:08] It’s not that they’re dishonest people. It’s just this structural problem in a down cycle where they have to pretend they’re business as usual, but they’re not. And so, you know, you have to think, how do I how do I diligence that? Right. And you can say, well, tell me about the last three checks you wrote. Not a disrespectful way, just they might say they were three people just like you in different businesses. I’m proud to tell you about them. And they tell you and they tell you the amounts. You can ask them how long it took. And you might fall in love with this investor and say, I want to be number four. Or they might say, Well, we haven’t done anything since December, but we’re looking at a lot of stuff and it’s just been busy. Well, they’re they’re they’re quietly telling you you’re not going to get a check and it has nothing to do with you. And that’s good due diligence on your part. Now you can put your energy elsewhere and not grind each other up. I didn’t answer your small business question. It’s growth. It’s growth and ceiling. So start up speed if you’re going to seek money from other people like Angels and venture 20% month over month minimum early. So if you’re if you’ve got a super profitable coffee shop or legal practice or whatever, you’re probably not growing 20% month over month.
Damon: [00:30:17] So you’re not going to venture capitalists or angel investors unless you unless you intend to go at that pace, because that’s how they’re wired. So it doesn’t mean you can’t go public, right? You just have to think, how fast am I comfortable growing? Am I comfortable with growing without ruining my operation and find the appropriate money? The tool that a lot of brick and mortar businesses or cash flowing businesses overlook are customers debt like from banks and things like that. And you know, a lot of times you can grow and own 100% of your business. You might grow a little slower. And one of your Silicon Valley friends or Y Combinator friends might like to talk to you less at a party, but they’re going to go public and own this much of their company, a little bit of their company. And you’re going to do whatever you want to do with your company and own 100%. And one’s no more viable than the other. They’re both. You build something cool. You have a decent mental health, good employees, proud of what you do and make some money. I mean, those are both wins in my book.
Andrea: [00:31:24] I do want to touch on the legal stuff because you’ve been on every side of this, the entrepreneur, the investor. I would love to hear from your perspective. What do entrepreneurs or founders, small business owners, what do you see them focusing on? Too early when it comes to the legal stuff, because clearly there are things that need to get taken care of, but there are things that can wait. I am very interested in your perspective.
Damon: [00:31:54] I’m guessing I’ll say things that will make me your straight man here or you’ve said before. But you know, because it’s common, right? People with a new idea, overweight the idea. So the idea tends to be not worth much and it tends to change. So if you.
Andrea: [00:32:11] If and it holds them back like they. Sorry, I just want to say this here. Come on in. I, I, I don’t want to launch because I don’t want people to steal my idea and I nicely have to tell them like nobody is concerned with you. Like in the nicest way possible right now you’re no body. Like I hope this becomes the next big thing, but right now you’re nobody. And it is better to prove that. Instead of like.
Damon: [00:32:38] Yeah. So so it’s interesting. I mean, every once in a while, I mean, first of all, there’s always bullies and you should be careful, right? So I won’t. In the old days, I don’t think they’re. Well, anyway, I won’t name names, but it’s pretty common that there are certain companies that like to do things themself and they don’t work with outsiders. And if you walk in and say, I invented this new thing and you don’t have a you don’t have intellectual property, they will steal it. And even if you do, they may steal it because they have billions of dollars and tons of lawyers. And who are you? It’s worth it to to just take the risk. And that’s just their business. Fortunately, if you ask three questions of people that should know, they know. And so I would avoid those people, the person sitting next to you, if you’re a student in a class somewhere, if you tell five of your friends your idea and you’re all going into the same prototyping or venture class, one of them’s going to steal it. They’re not going to do anything with it. I’ve never seen this. The copycat last more than three months with it, but I’ve uncomfortably had to. This class I teach, I’m an adjunct. I get. I have to turn away about half the applicants, which I don’t love, but I also am proud of. And. And I. I turn away the copycats. They’re easy for me to tell. It’s like, well, this person’s doing stuff. This person’s talking about doing stuff, but they’re talking about exactly the same thing and they give exactly the same origin story so they can fool contest judges. It can really drive you crazy, but it won’t go far.
Damon: [00:34:07] It won’t last long. So anyway, that caveat aside, yeah, people rush out and like copyright, well, I’ll use all the wrong words, but they copyright things and trademark things and trademark logos. And you know, if you’re General Mills, who cares? Another five grand trademark, everything. But if you’re little, don’t spend money on stuff like that. You know, it’s going to become worthless if it really is not worthless. You can do it in a few minutes but prove it’s not worthless. And you know. Other people, whether they’re coming, whether it’s an employee investing their time or an investor investing their money, they want to see you make good decisions with money. And if you if you burn money early on business cards that nobody wants or a ping pong table before you before, you know, if you got a free ping pong table, knock yourself out. Who cares? Ping pong is not evil. But if you have 5000 and you went and spent a grand on a ping pong table. Prepare to be judged. Right. I mean, if you run out of money and need more money from investors, they’re going to be like, what’d you do with it? And if you say, well, we we did 4000 on market testing and 1000 on a ping pong table to be like, okay, well, I don’t really want you spending 20% of my money on stuff you don’t need. Thanks know. And because they see a lot of deals. Right. And so I think that’s part of it. And I think I think what you need to do, what you do too early, that’s the kind of stuff I see them doing too early with legal.
Andrea: [00:35:37] Yeah. Yeah. Yeah, no. And I’m right there with you. I mean, I preach like, hey, if money is an issue, do not spend your money on a trademark application. Because most likely, I mean, right now it’s taking 10 to 11 months to even be officially registered. And by the time you’re registered, you you may have already pivoted. And so I do. Teach to do the search, make sure that you’re not infringing on somebody, but you don’t necessarily have to file the application. And I tell people when they have that momentum. So I tell people like when you’re testing, do the search, don’t necessarily file the application, but once you have momentum and you know, hey, this is a thing I’m not testing, that’s when you need to file the application.
Damon: [00:36:21] Don’t you think you can explore you can explore a legal not opinion, not capital opinion, but you can get a legal league, a lawyer’s pulse on things and get a sense of, do you like this lawyer to help me pretty inexpensively, but maybe free if you ask early and often and you’re honest about probably not doing this yet.
Andrea: [00:36:45] My sense is and people come to me all the time and I’ll tell them, Hey, I really don’t think your money is spent. You need to spend money on an application. If you want a very thorough search, I think the money should be spent there. But otherwise, like wait on the application.
Damon: [00:37:00] And I think most of the you know, all the time I work with entrepreneurs and say, go talk to an IP lawyer. To see if there’s IP value here in some way because you may design the product in a way that they may coach you, that there’s a better way to do it and you can protect something that doesn’t need that doesn’t mean you’re starting the clock on $20,000 of legal bills. That means the lawyer might tell you, no, that would be a waste of time. And now you can just design your product. Or they might say, yes, if you consider X, Y, Z, then you might get some valuable protection, in which case maybe you raise 24,000, right? Maybe that accelerate, maybe that becomes a priority. But I think the you can’t know the answer until you do the exploration. And the exploration, in my opinion, is almost always free because most of the lawyers with startups know it’s worth it to me to give a little time early, really cheap or free, because I just want to work with you later and I don’t want you to have screwed the whole thing up.
Andrea: [00:37:59] Yeah. Yeah. Exactly. Yeah. No, I’m right there with you. So before we wrap up, I got to hear and I know everybody here wants to hear your number one business tip. I know this is going to be good. It’s a lot coming from you. I’m putting the pressure on Damon. Don’t let us down here. You’ve been at this for a while, so please.
Damon: [00:38:21] Yeah, so I’ve been at it a while and it’s not been my number one business tip for a while, although I think I’ve instinctively it’s been in there. I just didn’t I couldn’t articulate it. It’s you’re you’re doing something hard, whether it’s a small business or a startup, you’re doing something hard. You’re doing something with a high rate of failure, doing something that’s very lonely and to most of the world, looks incredibly risky. And. There are these cartoonish and sometimes real life entrepreneurs that are the swashbucklers with the crazy risk and the fancy clothes or whatever. But for the most part, there are a lot of people, I would say the lion’s share of people that have been successful. They de-risk. They take something that’s inherently risky, that’s really hard. They want to go really fast and they de-risk it. And it’s sometimes as simple as let’s talk to the lawyer. Let’s talk to three lawyers and ask them these questions about IP. Before we start, before we even raise money that we might use for that, let’s ask the customer to buy a thing. Before we have a thing. And that’s not a dishonest conversation. That’s you know, but that’s a clever conversation. Right. I mean, if Fortune 500 companies. Can put a can put a weighted fake pizza box in a brand name national grocery store, which they routinely do, and have you show up at the front counter trying to buy this pizza you’ve never heard of. And then. And. And the rest. And the grocery store say. Oh, sorry, you. That was a test. Here’s a coupon for something. Sorry for the inconvenience. What else can we do to make you happy? You know, that’s a that’s a company with billions and billions and billions of dollars to incinerate, not taking a risk.
Damon: [00:40:20] Right. They’re de-risking something. They’re testing something for free. They literally never made the pizza. And why shouldn’t you do that? Somebody with no money, right. Shouldn’t know. You’re you’re doing it with your business, right? I mean, you’ve created a hardship for yourself and that you’re juggling two things. But you said it right. You’ve got you’ve got some stability, some referrals, some credibility and some income. And you’re trading right. You’re trading extra energy and you’ve de-risked it. Right. You can you can afford a mistake. You can afford when when the whole funding market turns down on the new business, you can take that punch better than a whole bunch of your competitors because you’ve got this, you know, you you if you went to a venture capitalist day one, they would have said, God, get rid of this other thing. I don’t know if you ever heard it, but, like, that’s going to slow you down. You need to dump that and do this. And they’re telling you what you have to do to be attractive to them. But what you did is say, that feels risky. I’m going to do it this way. And I think I can grow into that and I can always get rid of this later, but I’m going to hang on to it now. And I think I think most of the victories go to those go to the people that think like sometimes I got to take a leap, but a lot of times I can just take a step. And I think that’s the I think that’s de-risk, de-risk, de-risk, de-risk without sacrificing forward movement or quality. And that’s my that’s my tip.
Andrea: [00:41:55] I like it. Well, Damon, thank you so much for joining us today. And can you please let everybody know how they can get in contact? You get in contact. I think.
Damon: [00:42:06] You know, I often refer to founders in startups. But, you know, to me, if you’re doing something or trying to do something, small business, lemonade stand, whatever, if you’re if you’re if you’re making the effort and trying to do something cool, you never know what one turns into the other all the time. Twitter at Damon DeVito. That’s where I try to have those conversations. I keep my DMS open. If you tag me in something and ask a question, I try to, with the limits of time in my poor organizational skills, I try to chime in, but that’s where I’m at. Damon DeVito on Twitter.
Andrea: [00:42:40] Amazing. Thank you so much.
Damon: [00:42:43] Take care of things.
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