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WES S01E08: Raising Capital From Investors

Justin Cooke September 2, 2015

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While you can self-fund your website purchases and online acquisitions, that’s not the ONLY way to close deals.

In this week’s episode, Justin and Ace look at several different strategies you can use to leverage investors to purchase websites and online businesses.

We dig into where to find investors, how to approach them with your plan, and look at how to both pitch them and provide them a return on their investment.

Using leverage can be risky, but might allow you to reach up and get deals that would otherwise be out of reach.

 

Are you digging the podcast? Please leave us a review on iTunes or you can leave us a message (button to the right) and we’ll play your question/comment on the show!

Listen To The Full Interview:

What You’ll Learn From This Episode:

  • Finding Investors
  • Advice Is Where The Money’s At
  • Kevin Bacon & The Six Degrees of Separation
  • Getting Organized – Bringing Home The Cash

 Featured On The Show:

 

Justin Cooke:
Ask for money and you get advice, ask for advice and you get money.

Speaker 2:
Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show, where thousands of successful entrepreneurs go to learn about buying, growing and selling online businesses. Your hosts Justin Cooke and Ace Chapman share their real life advice, examples and expert interviews to help you build and grow your own online portfolio. Now to your host, Justin, and Ace.

Justin Cooke:
Welcome to episode eight of the Web Equity Show. I’m your host, Justin Cooke. I’m here with my co host, Ace Chapman, what’s going on buddy?

Ace Chapman:
What is up big guy?

Justin Cooke:
We’re talking of raising capital from investors. If you want to put some money together and buy some online businesses and websites, this will be the episode for you. We’re going to talk about where to find investors. We’re going to talk about how to leverage your networks. We’re going to talk deal structure where even going to get into what to do when you’re told no by a particular investor. And that’s something that Ace has learned a lot about.

Ace Chapman:
Yeah, I’ve been raising money for a long time now, it’s crazy to think I did my first capital raise 16 years ago. I’m going to talk about some of the lessons that I’ve learned and some of the things I’ve learned helping clients to raise capital as well. This will be an interesting episode for anybody that’s thought about raising capital to either do bigger deals and do more deals.

Justin Cooke:
Yeah, this is really for when you have the money, you don’t want to use all of your own money, or you just don’t have enough money to really, move the needle to make an impact. And you need to raise money from other people to get these larger deals. I think you’re going to dig this show before do that, man, let’s talk Twitter. We’ve got a WP Mandover on Twitter said, “Empire Flippers, I got a question for you. Where’s your subscription URL? I can find the podcast and your website but no link for my app to auto download.” Honestly, man, I don’t know. I mean, I know that we’re in iTunes. I know that we’re in Stitcher you can get the downloads there. I’m going to look for a link where you can get it in your app, you’re gonna have to let me know what app that is opening.

We’ve also got Kevin Gruner said on Twitter, “Hey guys, are you hosting a meet up before DCBKK, DCBKK is a dynamite circle meetup is for location independent entrepreneurs and they meet up every year in October in Bangkok. Ace and I are both going to be there. That would be kind of interesting. We’re thinking about maybe put a dinner together or kind of getting some people together. If you’re in the dynamite circle and you’d like to meet up with us, definitely give us a shout and we’ll see if we can do a dinner or drinks or something and meet up with you whenever there.

Ace Chapman:
We’re going to do something, so just reach out to us as we get closer to the date and we’ll figure it out and connect with you.

Justin Cooke:
All right, buddy Craig had a question for me said “There’s a.com I’d like for a new blog. It was first registered in 2015 but somehow got died at 2000. Any tips for talking them down?” I told him negotiating a domain down you can be difficult, can’t hurt to ask but have backups ready to go in case they don’t budge. One of the problems is negotiating domains is sometimes when you let them know you’re interested. They’ll actually bump the price of the domain. So it’s kind of like they’re fishing, they throw a number out there. If you come to them showing you’re interested, all of a sudden, there’s a new potential buyer and they’re bidding the price up and it gets kind of ugly.

Justin Cooke:
I found the best thing with domains is once you let them know that you’re semi interested, one of the things is letting them know that you’ve got a lot of options. And so it’s only going to be if you can get it at a reasonable price. Another strategy is just to let them know you’re interested walk away, if you’ve got the time, and then come back later and say, “Oh, yeah, I almost forgot about this. But yeah, are you still interested in selling?” That way they know this isn’t a top priority or crucial thing that you need in your business.

Justin Cooke:
Yeah, in fact, just don’t hinder your business on it. That’s one of the things he said that his backup is in the bag. It wasn’t quite as witty as the original but he’ll see how it goes. By the way, love your guys’s new podcast. Thanks Greg. Really appreciate it. All right, man, what do you think? You’re ready to get in the episode?

Ace Chapman:
Let’s jump in.

Justin Cooke:
One of the questions we ask most often from people looking to buy a website or an online business is where do I find the money? How do I raise the money? How do I get the money to be able to purchase this website or business that may be out of the reach in terms of the cash they have put together? Today we’re talking about raising capital to make an acquisition and raising that capital from individual investors. It’s easier than ever to reach out to investors, there are a ton of angel investors out there looking to invest in business. Money is not the problem. There’s definitely plenty of money to find.

Ace Chapman:
Yeah, it’s what the sides of that is the fact that it’s easier than ever to find investors. I mean, I think back to raising money for my very first business and a lot of resources that we have access to now just didn’t exist. But also there just weren’t investors that really were publicly identifying themselves as investors and now each city has even small towns, I know in Chattanooga, we’ve got a few different angel investor networks and that kind of thing. We have people that are adding to their LinkedIn profile that they liked to invest or here’s some of the investment that they’re doing. And that’s just a whole new [inaudible 00:05:08] investors and business buyers to go out and connect with those folks.

Justin Cooke:
Yeah, when it comes to, we’re talking about raising money. This isn’t the Twitter or Facebook backs type businesses, we’re not saying that you go to Silicon Valley and make the rounds with the VCs. That’s not all we’re talking about. This is like raising money for the rest of us. Whether you’re in Chattanooga, Orlando or Sacramento, we’re going to show you some ways that you can find investors and raise money for your deals. In fact, you and I talked about this a little bit, as we talked about on the show, but my business partner and I right now are raising money. I’m using the air quotes right now, but we’re raising money. Basically, we’re looking for investors that are looking to make passive investments to buy portfolios of sites.

And it’s at first, we did all this planning and all this work behind it. And we took a really long time, months and months of trying to determine like what’s going to be exactly right when we realized is that until we started talking to the right people, they’re going to tell us what works and what doesn’t. So us trying to plan for what we thought they needed. Yeah, that was kind of silly.

Ace Chapman:
Yeah, it is. It’s neat to be able to go out and just listen. So one of the biggest mistakes people make is trying to sell an investment as opposed to listen to the market. But I mean, it’s easier. Like you said, Justin, there’s a lot of money out there. I’ve had clients complain that, just come from backgrounds where they are certainly not salespeople. I mean, literally, from accountants to programmers that have never dealt with doing sales. And we’re kind of walking them through a process and a lot of things we’re going to go through today. And a lot of those guys are going out and raising capital. And so that’s been exciting.

I know just over the last six years of working with clients, it’s definitely a lot easier now. And so sometimes it’s just the economy and packs that and people fill in like, “Oh, yeah, things are good right now.” People are a lot more likely to invest when things are good. And the news is saying that kind of is good as opposed [inaudible 00:07:05]. I had experienced and a lot of different contents, I raise money for my very first deal a couple of times one just to buy the business. And the second was to get some growth capital. And a lot of part of the reason that I went the individual investor route was because I was too young to do anything else. That was my only option. I was able to kind of start to figure those things out. And then over the last 16 years if tweak and improve some of those processes, so that’s a subject that is near and dear to my heart, because a lot of people are intimidated by going after individual investors.

And that in and of itself creates the opportunity because everybody that’s going after these guys are the people that are trying to sell the next Twitter. And so when you come in and say, “Hey, I’ve got a real business, it’s making real money. I’m looking for capital, I can give an amazing return. And I don’t have to be the next Twitter in order for you to get your money back,” that creates big opportunities. Let’s talk about just some of the things that are different today. We talked about the access to information back when I raised money for my very first deal, there weren’t these things like Angel list, or even crowdfunding lending sites like Prosper and Lending Club. And so you’ve got all of these resources where you can go out and connect to individual investors that are looking to either blend or invest cash. The really interesting thing is that those resources are nice but the other thing that you’ve got access to now is the other things that those investors have invested in.

And so there may be cases where people have invested in deals that aren’t the kind of explosion type of businesses where, from an investor standpoint, it’s either they’re going to make a ton of money or zero. And so we can get that kind of information from a place like an angel list. It makes it a lot easier to go after those folks. And then most importantly, man, it’s hard for us to kind of think back. But number one, when I first started, there wasn’t even information on the legalities of how to raise money and what to do what not to do is really, really hard to go out and just search for that info. The other side of it was once you got the info, you have to figure out, “Okay, how do I go out and find and contact and investor.” And now we’ve got here’s databases of people that we did shoot an email to in something like a LinkedIn.

Justin Cooke:
Here’s somebody Ace who’s going back to people trying to come up to investors and say there the next Facebook or Twitter, they’re going to 500 x in their company or whatever, like those people are going to get the right investors for them. If you’re not looking to do that, and you don’t need to pitch it that way, either right? There are going to be investors out there that are looking for real businesses with, more normal returns, not a ridiculous evaluation or potential valuation, when you sell the business off, they’re looking for more stable businesses to invested in and if you pitch them with your offer, it’s going to be better. Now, the other thing is you were kind of forced to raise money because you’re doing this when you’re young and didn’t have enough money to really make a big deal. So you were kind of it was like a necessity thing for you. But I think that’s great, because you were forced to kind of learn how to do it at a young age.

Justin Cooke:
I think kids today kids said, young guys and gals today, have it much easier, right? You can Google it, you can google a lot of the information that’s out there, to find out more about how to raise money, about the way deals are structured, about how to get deals done, about how to pitch your business to the investor. The other thing is that when you’re pitching these businesses, and we talked about money being easy, it is easy but it’s not you say, “Okay, hey, I have this website want to buy.” And then you got to kind of work through it, your first pitch may be horrible. And the investor is going to give you some great information about how to take it to your next investor. So you’re going to iterate on kind of your first pitch to your second pitch, and eventually you’re going to hone that and do, I think, a much better job.

Ace Chapman:
Yeah, you’ve got kind of the real aspects to this, that today, the internet just makes a lot easier. One is finding the people, you got to be able to get in touch with potential investors. And I think back to the day where a lot of that was, you had to know somebody who was wealthier was an investor and know somebody that knew somebody that kind of thing. The next is the how to, so how are you going to pitch it and getting feedback from the market. And then the last is the legal side, which is something that you want to pay attention to because there are regulations. I know as investors we love being the Renegades and kind of pushing the envelope and that kind of thing, but from the beginning I was always careful not to end up in the SEC process.

Justin Cooke:
Let’s talk about this we got four kind of main areas we want to cover, we’re talking about the first section being finding investors, the second being, talking about advice versus money. The third being, how to make connections and the fourth, basically just bringing home the cash. But to get started, let’s talk about finding investors. And as I mentioned before, it’s much easier to find investors in those before with things like angels list, you can see what people are investing in what people are interested in, and you can find that money, I think, a lot easier than you were able to before. Now, I wouldn’t recommend that as the first place to start but I would recommend that in terms of seeing what people are investing in, what kind of deals are being made, and see how you can fit your offer and match your offer to something that people are already investing in.

Justin Cooke:
It’s a lot easier to raise money for something that there’s already a need in the market than trying to raise money for something that you’re not really sure if anyone’s interested in that kind of idea.

Ace Chapman:
Yeah, I think the really neat thing is we’re [inaudible 00:13:02] play is being able to find a small business that replicates something that a larger business that they may have invested in does. Here you’ve got a SAS business and it’s right in line with something that investors have already invested in, it may be an opportunity to kind of leverage up into a much bigger business at the very became kind of the foundation. You always want to start with your network. When I go back to my very first deal, it was a buddy of mine, a friend of mine who I was just talking about the deal. I know I did, he had the cash and talking him to it about this opportunity, I had no idea how I was going to get close, and he was interested in puts money [more and more 00:13:50] into being a process once I wanted to raise the growth capital, but we’re seeing that a lot with clients were number one, a lot of the people that will invest into their business, you may not know that they have the money.

I think back to a deal we did with a mom in South Dakota. And we found the perfect business for her just [inaudible 00:14:17] and then the size that we were able to fit or financing for. And she’s kind of talking to some family members. And they said, “Hey, we want to understand the whole thing. And she actually thought that these family members who are absolutely broke, but turns out they wanted everybody to think they were broke because they had a ton of money.

Justin Cooke:
That’s funny. She probably had that question like, “Are you sure it’s okay, are you sure we have enough money to fund this entire thing?” I think your point is right as like the easiest way to raise money is from people who know, like and trust you. And often that ends up being friends and family. And like you mentioned you don’t know exactly which friends or family may have money or maybe looking for the kind of opportunity that you found that you want to work on. And this has always been the case. It’s much easier to raise money from friends and family but what I think is interesting is that today, your network mixed in much wider and deeper than close friends and family. And I think this has to do with things like social media and connections we have online.

I knew a guy his name’s Steve Espinosa, and he had a startup. It was in California, in Southern California, actually. And he was big fan of Jason Calacanis. And so we followed him on Twitter and everything. And Jason was asking about tickets to a Lakers game that was going on. And so Steve tweeted and said he’s like, “Jason some have does, he want to have tickets to the gam.”? So Steve tweets and right away he’s like, “Yes, dude have great tickets love to take if you want to meet up,” and then so they start private messaging. And Jason’s like, “Yeah, sure. Let’s meet up.” They set a time to meet up and then Steve’s like, “Holy shit, I don’t have tickets for the Lakers game and I have to get some. He didn’t have tickets at all. He looks on Craigslist, buys up some tickets meets Jason and it goes the Lakers game with them and so they get a chance to kind of talk.

Steve talks about his business a little bit. Jason says, “Hey, I think I’d be willing to invest. I think I know some other people who do want to invest, he ends up getting Jason involved. He invest in his business. He gets Eric Schmidt, CEO of Google to invest in his business he got who’s the other guy, the wine guy really popular, you know who I’m talking about.

Ace Chapman:
Yeah, it’s not coming to mind but I’m familiar with the story.

Justin Cooke:
Yeah, the guy does all the social media stuff. He gets him to invest.

Ace Chapman:
[inaudible 00:16:28]

Justin Cooke:
It’s Gary, Gary Vee. He gets up just a bunch of people to invest in this business based on this one tweet that Jason put up, “I want to go to Lakers game,” he responded to these tickets, even though he didn’t, hooked it up and then just made a ton of connections from that. I mean, I think social media is a great way to kind of work your connections and be able to respond to people that you wouldn’t normally be able to connect with. But even if you get outside social media, and you want to get a little more local, you can look at groups like meetup that have local meetups for investors looking for things to invest in talking about what they’re working on and where they’re at. And I think you can get involved in those groups as well.

Ace Chapman:
Yeah, [inaudible 00:17:10] attention to the investors in your local market, on the news, on Bloomberg, [inaudible 00:17:17] spoken about it gets all of the attention or New York City gets a ton of attention. And the truth is there are people with a lot of money everywhere who’d love to invest in opportunities. And so as kind of small business guys, a lot of times we take for granted what we were talking about earlier and the fact that we’re getting amazing returns. I mean, when you look at buying a business that it’s going to pay for itself in two years, private equity guys would kill for those kinds of returns. They’re buying assets that take on 10, 12 years to pay for themselves. The fact that you have that incredible multiple, it’s just something that a lot of people outside of our world aren’t even aware exists.

You go to these meetups and to meet people on a local level, you’re exposing them to a whole new asset class and opportunity for them to invest in. We’ve had a lot of wins just because a lot of people have no idea this opportunity exists and the fact that you’re willing to go out do the legwork to make these deals happen. I agree with you Justin going to the meetups. And other thing is going to angel networks I mean, they have business competition, business plan competition sometimes. And it’s not something where you’re going to go and necessarily into the competition but obviously there are a lot of investors that are coming and checking out the businesses and so that gives you an opportunity to build a relationship with those guys. And again introduce them to this alternative asset class that they could come in and invest in alongside of you.

Justin Cooke:
A lot of times Ace, we get caught up in this bubble of being on the internet and so we’re connected to a bunch of other people via the internet. And so everyone’s trying to raise money from other people on the internet. And so I really like what you’re saying about, kind of taking this asset class that you know about in terms of like running websites, online businesses. And then going offline, going to the places that people aren’t pitching them with just like meetup groups and be able to connect that way or conferences, that kind of thing. And then being able to connect with them in person, because like I said, before, people who know, like and trust you are more likely to get involved in the deal. Meeting them in person, there’s something about face to face meetups, that just makes it a lot better. I mean, there’s just more trust build than the Skype call it’s just not the same thing.

Yeah, I love taking these kind of like online asset classes and bringing them to kind of like an offline market of investors that would be interested in these types of deals.

Ace Chapman:
Yeah, yeah, absolutely, huge opportunity there.

Justin Cooke:
Truth is advice is where the money at, there’s that old saying, ask for money and you get advice, ask for advice and you get money. And I think the truth is a lot of times, you can take the advice you get and turn it into money. If you’re going to people and ask them about your business, you’re hoping they’ll help you figure something out or solve a problem or raise money or whatever it is, sometimes they’ll give you the money, but when they give you advice, they’re telling you how to pitch the next investor. They say, “Hey, this isn’t terribly clear to me, or I wish I knew a little bit more about this. I don’t really understand x, y and z about your business.” That’s basically saying that, “You weren’t terribly clear with this investor on what you were looking for.”

Ace Chapman:
Yeah, I learnt this by accident because like I said, there wasn’t a whole lot of information on the internet about raising capital back then. I literally just needed the advice. I went to a guy that we knew, like everybody knows, the family knows the person that has a lot of money. And I sat down with them and just kind of asked them like, “Okay, I’ve got this business. I want to raise some capital to grow it. What do I need to do?” And the really neat thing is that in the back of my head, quite honestly, just like anybody else, I was hoping that he just said, “You know what, don’t worry about figuring that out, I’m going to give you the money.” And that didn’t happen but it’s because of him that I raised the capital. And so it’s so crucial in this that you look at your network as valuable, every connection that you get, has something to provide.

And a lot of times that can be an intro to somebody else, but going to them and just asking advice, as opposed to going to them and asking for money. It just makes it a lot easier to get the deal done.

Justin Cooke:
People are a lot more likely to help you and like a mentorship role or whatever, if you come to them and are asking for advice or help. If you kind of explain your business and you know your shit, you have your stuff together but you go to them and say, “Look, I would love to sit down with you, can I buy you dinner or something?” And them you already have an established relationship. And you sit down and kind of explain the way you’re planning to go see if this is clear. That’s clear. People would much rather help you in that situation, because you’re coming to them hat in hand, and people like to help in general. Definitely the people that you want to be talking to. And I think sitting down with those types of mentors is going to build the relationships that are eventually going to lead you to capital, if you’re sitting down with them, and maybe it’s not the right investment for them, but they’ll be able to tell you, “Hey, you know what, I know some other people, I think there might be a good fit.”

And you’re not to be shy about asking, you can ask them, “Hey, do you know anyone that you think would be good fit for?” Or like what’s the type of person, what’s the type of investor I should be looking for, based on what we’ve talked about today?” And most of the time they will help you out.

Ace Chapman:
Yeah, I think one of the biggest keys to this, like I said, even if in the back of your head, you’re thinking, “Hey, maybe this person wants to invest in the business.” You’ve got to honestly seek the advice and implement it and it [inaudible 00:22:54]. Hey, you’re good at listening, and you pay attention to what other people say. I had a guy recently who was an old client. We got a deal done from a few years ago, and he came back to me try to raise capital for a different deal. And went through this process, asked for advice and that kind of thing. We’re on the phone talking. And I kinda like, “Well, one of the things you should think about is maybe doing this.” And he comes back, like, immediately without even thinking about it. “Well, no, that’s not gonna work. I can’t do that.”

Then I’m like, “Okay, so we keep going and then I mentioned something else. “Well, you may want to tweak this,” like, “No, no, I can’t do that”. Of course, I said nothing for the rest of the time. And he’s gone on and on and on. And he’s like, “What do you think?” I was like, “Well, you know,” and it’s one of those times where you start to think like, “Man, should I really be honest with this guy and tell him the truth, or just let them go on and that kind of thing?” But I decided, like, “I’ll tell her.” The bottom line is, you don’t seem like open and willing to listen, and I don’t want to have any investment even if it turns into a huge thing. I don’t want to have a partner or invest in someone that right from the beginning shows me that they’re not willing to listen to anything I say, or at least even entertain it and think about it.

Ace Chapman:
I mean, you made it clear that you weren’t even going to consider my feedback. That’s something that, when we got a very clear vision of what we want, it’s tough to listen to other people. But if you’re looking for this kind of capital, as opposed to a loan, that’s a part of it. You’re bringing these people in and you’re looking for more than capital, you also want people who are going to be able to give you some good guidance.

Justin Cooke:
What can be difficult, though, is like taking their feedback, and listening to it and the same time discounting anything that isn’t aligned with your goals because even investors may not be the particular investor for you. This guy’s great and he gives you advice he thinks is helpful, but it’s actually not helpful for the type of investor you’re looking for. I think the trick is to learn to weigh, right the different types of advice you’re getting, and toss the ones that aren’t related. And one of the ways I do that I try to look, the first thing I look at is, are they coming at this from my perspective? Are they coming at this like from either from an investor’s perspective? Or from-

Justin Cooke:
Do they see the vision of where I’m going? And if they don’t see it, or either I see like they’re kind of putting their own twists and turns on the things, they’re putting their own kind of assumptions on the things then maybe I’m not so interested in listening advice, or if it’s kind of what their plan is, is largely outside of kind of my vision for where I’m taking it. If it’s a one off, I may discount that but if I hear that from several investors, and it’s kind of a similar path, they want me to be on. Then, it makes me realize, “Well, okay, well, I had this vision for where I want to take it, but that’s not what investors are looking for, investors are looking for this other vision, then I have to make a decision or whether or not that vision matches what I want to do.

Justin Cooke:
“Yes, okay, clearly I can raise the money. If I bring on this vision that they’re looking for,” but is that what I really want for this business, this website of this company? And that’s that’s a decision you have to make.

Ace Chapman:
Yeah, absolutely. And I think the real key there is letting them know that you are going to honestly think about their advice. It may not even be that obviously, you don’t want any investor that feels like you need to do everything I tell you. But I think the important thing is “Okay, yeah, let me talk to some other people about it and kind of bounce that off the other investors.” And so do you want to be able to give those kinds of responses and avoid making the investor feel like, “Yeah, pretty much everything you say, I am going to discount immediately.”

Justin Cooke:
Yeah, not good.

Ace Chapman:
The other thing that’s crucial with these is the relationships and networking. This is one of the most powerful aspects to this process isn’t just getting the money at the end of it. It’s this opportunity to in a kind of tight timeframe have the time and energy that you’re really focused on networking and meeting people. And the investment process is a lot like that hold six degrees of separation thing. You never know when the next deal is going to come up, when you need an investor who may have passed on a previous deal. And now you can go back to them because you didn’t build that relationship.

Justin Cooke:
You’re funny Ace, I was reading your notes here, and you put Kevin Bacon and the six degrees of separation, I’m not sure that everyone will get that reference. But basically, you did this, you did this game where you sit around and you try to figure out who you know and who they know and how many points it takes you to get to the actor Kevin Bacon. I don’t know this like it, that is a game I don’t know if you’re playing it. You would try to figure out how many points or how many people you have to get through to get to Bacon. And the idea is that there are six connections, everyone in the world can be connected to Kevin Bacon. I think your point here is that by making these connections and getting introductions, you can basically get introduced to anybody. You could be nine year old kid in West Africa and get connected to Trump or something like it’s anyone can do it now maybe much more difficult for that kid than it would be for you Ace, but like, you know what I mean, like anyone can do it.

Ace Chapman:
Yeah. I mean, it’s. You’re looking for the advice and a lot of times when the way that whole thing looks is, you’re asking for the advice, “Hey, I’m thinking about this.” And you’re going down that line, and then at the end of the conversation, “Do you know anybody that might be interested in looking at the deal? Or you know anybody that might have some interesting feedback that I should talk to.” And you start to get these connections, and that’s exactly what I’ve seen in a ton of my deals going back to the very first day I talked about meeting with that the wealthy guy. “Well, he didn’t even introduce me to another investor. He said, “Hey, there’s a really amazing attorney here in town who is great at raising capital I’m going to connect you to him.”

I sit down with the attorney, this guy’s brilliant, we still do some things together he’s worked on some a lot bigger deals done but I do like IPOs and that kind of thing. He took the time to work with me actually ended up taking some equity in exchange for his work and that started that whole [relationship 00:29:25] and also was a huge connection because when I sat down with the guy who became my lead investor on that deal, it was the fact that I had this attorney on board. That basically within it’s neat once you do meet the right person it can be instant. I mean, I probably got about 45 seconds through my presentation before he said yes and wrote the check within about 15 minutes. Those kind of things are what can happen when you have the right connections and you have those introductions you’re not coming in cold and there isn’t all of this due diligence and trying to figure things out. It becomes a really easy deal to close because of that introduction.

Justin Cooke:
Ace, I know a guy named Jordan Harbinger and he runs a podcast called the Art of Charm Podcast. Good show and I met him in Vegas last year and actually we had a couple of beers and I saw give a talk on staying connected to people. Your being connected making those connections and why they’re important and he went into some depth that was actually pretty interesting. And I’d say aside from him you’re one of the other people that I think it’s just amazingly good at staying connected to people. First making those connections, you’re really friendly but you also stay in touch, you connect with people and you circle back and connect with them again. I’m pretty good at meeting people and talking to people initially I’m not so good at the reconnecting part. How do you manage that like, how do you keep connected with all these people that you’ve met previously and how do you keep those fires alive? I don’t know how put it but how do you keep those connections kind of going?

Ace Chapman:
Yeah, I think one of the things that’s made it a ton easier is social media, and just the fact that I do a lot of [inaudible 00:31:09] just, it gives me an opportunity to send things out and kind of stay in touch with folks. But probably the biggest thing is I’ve got my kind of database of people. And we’re going to talk about the importance of building that especially with these investors is the people that you know. You meet somebody and I need to stay connected to this guy. You kind of build and for me, it’s just a simple spreadsheet. And I kind of keep track of “Okay, when was the last time I talked to him, let me reach out to him.” And sometimes it can be as simple as just a tweet where you’re hitting about this, “Hey, I thought about you,” sometimes can be sharing something that they put out there.

And other times it could be a phone call, but yeah, I do think that that is really powerful. And then the other thing is establishing up front what value you have to offer. When it comes to investors, I spend a lot of time figuring out from them what they’re interested in. And we just don’t do that enough. Most of the time it’s entrepreneurs, we’ve got something at that moment that we want to pitch, you’ve always got something that you’re pitching and it’s tough to kind of step back and say, “No, just tell me what you’re interested in and then I’ll just contact you once[inaudible 00:32:25] want to post to me trying to stuff down your throat the thing that I want you to buy.”

Justin Cooke:
Yeah, that makes sense. In terms of connecting with someone trying to figure out a little bit more about them, what they’re interested in that makes sense to me I’m like I think a cold reach out like if you’ve never connect with them before be find out they’re very involved in this charity, and you get involved in this charity and through that connection, you get connected to them that kind of makes sense with a cold reach out. Maintaining a database it sounds sleazy, is that the right word? It just sounds sounds bad. Let me connect with my database and keep these connections going, but it’s true like, the more connections you make, the harder it is to kind of keep in contact, if you have some way to help you, I think that’s helpful. I used to use a thing called the Reportive.

Justin Cooke:
And it would help me keep notes on everyone. I could put like little notes next to them and kind of like who would remind me or refresh my memory on kind of where we met and what we’re up to. We now use for our business reviews, Entreport. And so I tag people which again, sounds horrible, so icky, but I tag people who’re potential investor, or based on a bunch of tags that we have on kind of where they fit in, and then I can look them back up and then getting contacts when they need to, and I have to use these tools. Otherwise I wouldn’t do it. I’m not as bad to say but I’m kind of out of sight out of mind guy like, that’s my natural state.

Justin Cooke:
And so if I don’t use these types of tools, then I don’t do it. This is how I forced myself to get it done. I think one of the ways that you can get an intro is by considering table selection. This is a poker term, you want to make sure that you’re at the right table. You want to make sure that you’re playing with the right stack. I used to kind of laugh at the people who would sign up for those like $1,000 a month mastermind so that $25,000 per year groups or mastermind this think what do they? It seems like guru worship to me. They want to be in this guy’s club. They pay all this money so they can be in this guy’s club. And I used to think it was a silly, I didn’t think it was a very good idea but I don’t know now I’m rethinking my thoughts on that.

Justin Cooke:
And I think my reasoning is that you can connect with other people that are at a higher level, simply because they have the cash to pay. If they’re paying $1,000 a month, it’s ’cause they know what’s important to them, it’s important their business. And it’s kind of a very side thing so I have $1,000 a month for this expensive side thing to them. They might be the people you want to connect with. And they’re going to have other connections that can I think, expand your network. Same thing for a $25,000 a year course. I know some of the people offer this. I know Dan Pena does that $15,000 kind of meetup over in Scotland. And for my first I was like, “That’s ridiculous. I’m not going for a week to this castle and paying 15 grand,” but I don’t know, I mean, you can make other connections with screw the guru. Screw the guy at the top like it’s other people in the class or in the mastermind that are going to have interesting connections that you’re going to connect and bond with and have a lot of opportunity to kind of expand your network.

Ace Chapman:
Yeah, I’ve had a couple people join from Dan Pena seminar, and they come to our program afterwards, because he does promote the fact that you should have a mentor, and promote connecting with each other and that kind of thing. And [inaudible 00:35:34]in a group of people, and by just self selection, you know everybody else here is paying $15,000 to come to be here. And it’s interesting, I actually just joined a group that has a $25,000 level and then it has like a lower level that I don’t even know the cost of and everybody that paid the 25,000 was initially like, “Okay, we want to make sure that we have a separate group that the people pay 25000 ’cause that just is a self selection kind of thing.” And again, it’s one of those things that just sounds bad that guy paying, but it’s just the way that the world works.

Justin Cooke:
It’s totally true but you even see this on a lower level. So like, there are free forums and free communities you can get involved with online. And the overall value for at least for me go significantly higher, even when they put on like a $40 a month price tag or $100 a month price tag get significantly better. And it’s sort of because those people I think, are paying because they care, like it’s important to them to be a part of that community. And they’re putting their money where their mouth is and paying. And so they’re probably because of that they’re making it more valuable. So if let’s say a $25,000, a year at mastermind is a bit out of your reach, or it’s not something that you’re comfortable with, try paid communities and look at the difference. I think that’s interesting.

Justin Cooke:
Another thing you can do is attend conferences. They don’t have to necessarily be conferences in the exact match. I like what you’re talking about in terms of going to like some of the investment conferences where they’re looking at different startups and that kind of thing, because there are going to be investors there and yes, they want to invest in a startup that might, 10 extra or 15 extra 20 extra in the next couple of years. But there might be some people there that would be interested in some other alternative type investments, which could be the websites or online businesses that are already up and earning. And so I think having a chance to talk to them and kind of see what they’re looking at and see if they’re a good fit is valuable. But we’ve talked about like cold reaching out to people. I actually think that’s a bit of a loser man.

And you can tell me if I’m wrong, or if you think I’m wrong here, but I think trying to just straight up cold call people are trying to pitch them, out of the blue, I think is a really expensive way to raise money. I think it’s expensive in terms of time, I think it is expensive in terms of money, and you’re much better off leveraging close relationships, friends and family, looking inside your network, expanding your network to include a larger group and then making those connections. I think you should do all of that first before you do any kind of like cold reach out.

Ace Chapman:
Absolutely. I think you one for two reasons. Number one, you got to show that you are, kind of you’ve gotten a little bit of work done. I mean, if you do a co reach out, and you’ve only raised zero dollars, then [inaudible 00:38:15] the friends and family just because they know, like and trust you like we talked about. But you also got to do it even if you plan on reaching out to other folks, because you need that done first but let’s talk about how you do that reach out because that’s the real crucial thing there. We have had some success with cold reach out. But we’re doing a couple things. Number one, we’re looking to see who’s connected to that person? Which we didn’t talk about this with LinkedIn. But then one of the most powerful things that you probably noticed is they showed you who is connected to this guy.

You’re looking to see two things. “Hey, have they invested in the deal like the one that I’m doing?” Then you’re going over and you’re looking to see who’s connected to this person that get an intro. Even better though, is to go to the businesses that that person has invested in. And so especially on a local level, it’s really powerful if you can find out, “Okay, this wealthy guy invested in this deal, let me go meet with the entrepreneurs that own that business.” You’ve already raised a little bit of capital, let’s say you’re doing a large deal you braise little capital from some family, you’ve gone out to raise some capital from some friends, maybe even a loose [inaudible 00:39:31] you can go talk to each other and other business that investor has invested in. One on one you’re kind of talking to them building that relationship, especially if it’s a similar in a similar industry.

And you may be able to build a relationship to the point with that person where you say, “Hey, I’m trying to figure out where I should go for some capital. I know you guys had such and such investor, he seems like a really great guy. Do you mind just a really light intro, tell them what we’re up to.” And obviously at the very beginning that they have to buy into what your business is doing. But that’s a couple of ways that you can get around just a cold outreach but that just doesn’t work. You never ever want to send, you gotta go these other routes. And the ideal thing is, you get a couple of different people before you even talk to that person, you do the LinkedIn thing, see who their connection is, you reach out to a couple of his portfolio companies, they mentioned you to them. And then you’re coming in on the back end.

Justin Cooke:
This is kind of like more complicated I want your money thing. I wrote a post a long time ago, I used to joke with a couple of friends and all these crazy emails and connections that I would get where people are basically just almost as asking for money. That’s a horrible way to go about it, you’re saying just straight up cold. It’s a horrible way to go about it. I want to write a post about I called it, “I want your monies.” And I was trying to introduce a better way to reach out. There’s a bunch of people that have done some interesting things there. And you can read about those will put links to them in the show notes. But I think what you’re saying was really interesting that let me get back to that. Where you’re saying you look on let’s say angels list or whatever, you find out that they’ve invested in some either local entrepreneur to some entrepreneurs that you can connect with much easier, you get connected with them, and then ask them for an introduction for that investor.

I got two questions for you Ace, I love the idea. Let’s say reach out to them, like, why do they want to connect with me? I mean, they’re easier to connect with. So I can just chat about their business a little bit and kind of maybe do a call and ask them questions about their business, see if there’s any, like, things we can work on together, do together. But then how do you introduce the idea that you find and make deals? And then how do you build enough relationship with them to make that introduction that would seem to be kind of, like, would it be difficult for them to make that intro because they don’t know you that well, and they don’t want to ruin their relationship with the investor? Is there a problem there at all?

Ace Chapman:
Most of the time, they’ve gotten their money from that investor. And if they feel like there’s a real value add, especially if you’re letting them know, a lot of what I’m looking for at this point, is advice and so we’re going back to that whole thing where we’re not going to them saying, “Hey, I want to get money from your investor.” We’re going to them saying, “Hey, man, you’ve helped me out a lot you may give me advice,” that can help them and you’re building that relationship. But the thing that you’re letting them know is, “Hey and then you’ve got the initial investor. I’m wondering if they know anybody that might be interested in that deal.” And [inaudible 00:42:23] on how you word it obviously, it helps you get in the door to that introduction a lot easier, ’cause you’re not coming at them saying, “Hey, I want to raise money from you guys.”

And then you do stand up to that, you still going back through the process that we just talked about, where you’re asking them for advice, you’re asking for network, and introductions, and you’re kind of going and it just creates this loop and it gets easier. This isn’t to say, and the reason that this is so powerful, isn’t that you get all of this money on your very first deal. The truth is for my clients and even for my deals, before i even tell anybody and this is another big thing before I tell anybody that I’m raising money, the money is pretty much raised. I’m spending a ton of time when I go to that, in that in the other business I’m not saying that I’m raising capital. So two things that I guess the other side of that that I personally would say is “I’m thinking about maybe raising some capital and I’d love to get some feedback from your investor just to see if it’s worth doing and maybe get some advice and who knows maybe he knows somebody that would be interested in doing it but I appreciate you guys.”

They’ve spent time with me they know I’m not sketchy and so you’re almost like you said I want your monies. The awesome thing about going through this approach [inaudible 00:43:50] never asked for money. I’m never asking anybody for money so by the time that basically I’m going to network, I’m telling you about the deal that kind of thing I get people to say yes. Or I get everybody says no. And it’s not worth doing. And then by the end of that process, I got enough yeses. And I go back and say, “Okay, great, I’ve decided to raise this capital. Now you can put in money.”

Justin Cooke:
It’s funny joke about starting to have those conversations after you’ve pretty much raised the money. We’re in a similar position right now for a portfolio, where we’ve pretty much got the $500 we were looking forward to start pulling it together and get the portfolio together. And now we’re thinking, we could do why don’t we just open this up to like, 800,000 to a million, and we still got a bunch of people that are asking questions and stuff. Why don’t we have those? We’ve been about this one just have those conversations on look, we’ve already got it. And when you tell people that like, “Look, we’ve already got it, it’s good.” They naturally want to get involved.” It’s a kind of a formal thing, fear of missing out. “They’re like, Oh, well, how do I get it on this?”

Justin Cooke:
It’s so funny how that works, but they’re like, “Oh, how could, is there any way?” Then you go, “No, no, no, it requires this much.” And they ask, “When can I put in more?” “No, no, no we’re going to limit it,” like that works so well. It’s amazing.

Ace Chapman:
Yes, that’s the other products.

Justin Cooke:
We did this with a guy. We said, “Look, well, it’s minimum 100,000, Ryan, who said max of 200,000.” He said, “Well, I have like you up to 300,000 to put in.” We were like, “No, we really want to cut it out ’cause we want multiple investors in this deal. We don’t want to do it anyone investor to own the larger piece of it.” And he was like, “Well, maybe I can just go and buy some other sites or whatever, with the additional money.” And we said, “Yes, or you can wait, and we can open up an additional round where people can put in money later.” That works really well, it’s interesting.

Ace Chapman:
It is, it does, I mean literally that’s what it ends up becoming. And that’s really what you want. You’re kind of saying, “Hey, I do need you to tell me how much now because we have more investors, than we have room in the deal, so I need you to go ahead and commit.” When you can tell somebody that this is the max that you can do because I’ve got these other people that’s really powerful. And for me I’ve been doing it for a while. So people pretty much know, when about a time that I say, “Hey, I’m raising money for this deal. It’s going to get raised. And if you don’t give me a commitment really quickly, you’re not going to get in on the deal.” You’ve got like that conversation to really say, “Yes, this is the amount let’s wire the money”. And after that, it’s done.

Justin Cooke:
Yeah, we have that too, it’s like, with our smaller sites, and say, sites under 15 grand or so. They go so quickly, that we have a lot of people that just can’t get them quick enough, and they’ll put a deposit down and they’ll be thinking about it, like looking through it, and then someone else will buy it out from under them. And while that’s really frustrating from their perspective, and I feel kind of bad. So like, we try to limit that a bit, so it’s not too many people. It’s also great for business, because they’re like, “I’ve lost two deals now. I’m not losing this next one, I’m going to get this done.” They have to like start driving in, it’s helpful for a brokerage perspective. I can see how it’s pretty frustrating from the buyer’s perspective and working on things that I think will help.

Justin Cooke:
Let’s kind of bring this home and talk about bringing home the cash. I think this has a lot to do with getting organized, and doing a little preparation and one things you need to think about is when you’re raising money, when you’re raising capital, are you willing to do the work and I’m not talking about the work after the fact, after raising the money, everyone likes to do that. It’s fun spending money, it’s fun growing these spreadsheets and having these predictions that aren’t based on reality yet, that’s fine. That’s nice to think about but there’s work is required just to get the money and there’s their compromises and things that you’re gonna have to make and do your current business, your current sites they are working on, you got to make that you have to give up time for because you’re raising money.

And so I think you need to consider that a lot of people don’t consider the time effort and energy that goes into bringing in the money. All they do is they consider when they actually get it and I think that’s something you need to look at. You had mentioned before that, we talked about legal a little bit. It might be a good idea to talk to an attorney, talk to an accountant at the very beginning of the process. Not have these long drawn out, agreements with them, but at least kind of run it by them and make sure that your plan seems to make sense. If you can go in with the player that has at least been, they’re not mad at you for doing it. They’re not, no one’s gonna let, no attorney or account is gonna say just a “Okay, that’s perfectly fine.” But at least they have to be pretty good with this. You at least know you feel comfortable getting started.

Ace Chapman:
Yeah, honestly, everybody wants things to be done the easy way. But doing a little bit of work on the front and organizing as well as talking to the attorney sometimes can lead like I mentioned, in my case to an investor. Some of my best deals have actually been referred to me through accountants and attorneys, because guess what? Investors usually are talking to their accountants and their attorneys. That becomes a time that you can leverage and network and again, you’re still doing this whole process [inaudible 00:49:00] “Hey, is there anybody that you think I should talk to you about this deal?” The other part of this is organizing a little bit of what we talked about before. I mean, you should have a spreadsheet, we have a spreadsheet that we use that shows, “Hey, here are the different investors, here’s the level of interest. And here’s some of their feedback.”

And it makes it really easy to go back. Talk to those folks. Make sure that we’re doing everything in an organized fashion. So that when we get down to asking for the cash, we know who’s committed to what level and we’re putting the money in and able to follow up with those folks that are most interested in all that good stuff. The other part of the getting organized, it’s funny to me that we are, I will not get investors that come and they’re like, “Okay, I’m ready to raise some money. I’m going to put together my pitch deck and I’ve got [inaudible 00:49:58]. Now I’m ready to go to investors and that is up in this done on the back end. You want to wait until pretty much you’ve got your investors organized, you got your spreadsheet, you’ve talked to the attorney, you’ve talked to the accountant, you’ve got feedback from all the investors.

Now, you actually do have the tool pretty much after people have kind of committed to go back and say, “Okay, here’s the official pitch deck, here’s what we’re putting together, are you in or out? And you can take everything through almost like a marketing [inaudible 00:50:26].

Justin Cooke:
I think it’s also important to know kind of who your investor avatar is to. And you have to know that we don’t have to know that up front at the very beginning that may change over time but it’s good to know kind of what’s best for you and best for kind of your long term vision. We recently had a situation where we were thinking that ultimately we want to do crowdfunding for like website portfolios. We thought if people would come in like a $2,000, $5,000, $10,000 level we just get a ton more investors without to be a lot more interesting and after talking to a few potential investors and getting their advice, they helped us realize that that’d be a really bad idea because generally the investor putting in $5,000 $10,000 are going to want daily or weekly updates from you.

Justin Cooke:
They’re going to want to get on the phone and if you have 100 of those guys 200 of those guys, it’s going to be miserable. It’s much more difficult like why not deal with the high net worth investors to start with and then trickle it down to the smaller investors because they’re just so much more difficult to deal with.

And that just by talking and getting this advice from other high net worth investors it made sense. Now he might have been selling us on why we should work with him instead of doing the crowdfunding route but it made sense. Another thing that was interesting to us is how much investors want to make sure that they’re able to get in again on the next deal. Or that they want first deals, the second time around and the reason for that is it’s hard to find good deals. If they find a good deal they want to make sure they can put them they can double down on their money, that they can continue on with that deal and that it’s not just all of a sudden open to anyone and everyone, and they took a risk on you early. And don’t get the payout on that by doubling, tripling, quadrupling their investment over time.

Justin Cooke:
They want that first steps. “Look, I’m taking a risk on this investment with you. I want to know that the next deal we do or the third deal that you do that you come to me first.” I thought that was pretty interesting. And I think you can use that as leverage for the new investors that you talked to or other people you’re trying to bring in, say, “Look, the first round of the first guys that come in, they’re going to get first look at any future deals I do as well.” And so that’s a good selling point.

Ace Chapman:
Yeah, it is and so we can go as so many little nuances to this, that we go on and on but I feel like for the average person, even just that thought of starting to approach their friends and family is something that just most people don’t do. And they don’t think it’s possible, but I think we’ve given the case study that you guys are doing it, we’re doing a lot of it and not just us who are known in the space. But I’ve got plenty of clients that are, they don’t buy it, but no one and they’re able to go out tell the story line of here’s what’s going on in the world of buying and selling internet businesses. Here’s the deal that I’m looking at here. So due diligence I’ve done and all of that, and be able to raise capital.

And so that’s a really exciting place to be because it’s not dependent credit. It’s not dependent on some amazing business plan or relationships with a bank or any of those things. You can as an individual, young, old, whatever, be able to go out and raise capital to do a deal.

Justin Cooke:
Or Ace, here’s the deal man, I already raised some money from my friends and family. We’re connected, I’ve got you in my database, I’m reaching out to your friends and family. That’s the next step. Your friends and family. You’re going to get me on the phone with your aunt, with your cousin. We’re going to have a conversation on they’re going to give me some money. Now man, I really appreciate your kind of walking says, “I really like your experiences here. You’ve done it for a long time.” Maybe something that we’re relatively new with and trying to figure out as we go along. It’s been great talking about this with you.

Ace Chapman:
Yeah, it’s a lot of fun and hopefully will inspire somebody to go out there [raise some capital 00:54:13].

Justin Cooke:
Yeah, if you’re listening to this and it did inspire you to go out and raise some money do let us know. Leave us comments and this is shot we’d love to hear from you.

Speaker 2:
Thanks for listening to the Web Equity Show. Now is your chance to be a part of the action go to www.webequityshow.com/gift and send us your business acquisition or exit question and have it answered on the show.

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Discussion

  • Ben says:

    Hey Guys,

    Love the show, I’m hooked. 2 questions for a future show hopefully:

    1) What are the different ways you can set up the deal for investors? Do they always take equity and hang onto it indefinitely or can you structure it as a lucrative loan such that you can assume full control of the business down the road? What are some of the common structures of those deals?

    2) At your suggestion and the suggestion of others in the industry, I’ve been forming a punch list of items I look for in a business. I was wondering if you have suggestions for how to develop this list. A couple of the items rule out most deals already so I don’t know how far to go down this path.

  • David says:

    Thanks for this! It really is great to have these as point of reference when you are starting over something as a project. It would also be great if you could feature on ways how to persuade people for them to invest in you. This would be something I would definitely love to listen to.

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