December 29

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How to Raise Money From A Venture Capitalist, Jesse Draper

By Mimi MacLean

December 29, 2020


Jesse Draper, the founding partner of Halogen Ventures, gives us an inside perspective on what a venture capitalist looks for when investing in a company. There will be times when you have to raise money to grow and will need to present the perfect pitch to investors. This episode is full of advice from a successful early-stage venture capitalist that you won’t want to miss.

Table of Contents

Introducing Jesse Draper

Venture Capitalist Jesse Draper
Venture Capitalist Jesse Draper

Mimi: Welcome back to the Badass CEO podcast. I’m so excited to have Jesse Draper. Jesse Draper, venture capitalist who is a founding partner of Halogen Ventures as well as the creator and host of the Emmy nominated television series, The Valley Girl Show.

Growing up Jesse didn’t see any women in technology or many female CEOs. So she created Halogen Ventures to change that. Halogen Ventures is located in Los Angeles, California, and is a venture capital fund focused on investing in early-stage consumer technology startups with a female in the founding team.

Jesse’s a fourth-generation venture capitalist among her 55 portfolio companies are Skimm, Glamsquad, Carbon 38, Hop Skip Drive, The Flex Company, Eloquii, And This is L which sold to PNG. Jesse was listed by Marie Claire Magazine as one of the 50 most connected women in America. Jesse, thank you so much for coming on today.

The first question I would love to ask you is just to tell us a little bit about your background before you went into VC work. And then like how that kind of played into what you’re doing today?

Jesse: Well, first of all, thank you so much for having me. This podcast is like everything I live in breathe, as I was telling you before. I just am so happy that you’re promoting incredible women. It’s just more people need to do that.

A Fourth-Generation Venture Capitalist

venture capitalist, Jesse Draper
Jesse Draper, found of Halogen

I’m Jesse Draper. I run Halogen Ventures. It’s a venture capital fund. We invest in early stage female founded consumer technologies. You know, I didn’t like jump into VC right away. I actually grew up in Silicon Valley around a lot of venture capitalists and entrepreneurs. I’m a fourth generation venture capitalist, which I share because I’m the first female and I didn’t think I could go into this business (even though that’s truly all I knew) because I was a woman. I thought, oh, there’s all these men doing this around me. And I learned from them. But I’m not able to do that. Because there’s no women I see. You know, they say you can be what you can see.

Growing up, I was really close with my aunt. Her name is Polly Draper. She was a very successful actress in the 80s. So I thought, Oh, well, my mom’s working incredibly hard, raising four children. This is what a traditional job for a woman looks like. So I went into entertainment, because I thought, oh, like, that’s what Aunt Polly does, you know. And so I became an actress. I had some success. I went to UCLA School of theater, film and TV. And I was still always kind of like doing these business classes and taking some classes at Andersen. My dad was always saying things like, “Hey, you know, how are you going to make this a business?”

How are you going to make this business? I had some success in acting. But I quickly realized that my heart was really in technology. And in 2008, I decided that I was on a Nickelodeon television show at the time. And I decided, instead of taking the six months, that we would have off from filming to audition and do all these cattle calls, I thought, you know what, I can be a little more productive. I feel like I go to these cattle calls, and I respect this profession so much. But I would go into a room, everyone looked just like me and was much more talented, I assure you. And then you know, they talk to you for 15 seconds. And then they’re like, okay, thank you goodbye. And so I decided, Okay, let’s see what I can do on my own. I think I could create something.

Just Create Something

Jesse Draper, venture capital fund investing for women entrepreneurs
Jesse Draper, venture capital fund investing for women entrepreneurs

So I created the first technology business talk show, in 2008. It was really silly and fun called the Valley Girl Show. But what you have to realize is I’ve grown up around entrepreneurs and I was always like, why aren’t they on the covers of magazines? These are people I celebrate every day.

I think that they’re doing amazing things and they’re changing the world. I don’t understand why we’re only seeing all of these celebrities on the covers of magazines. I want to give these people more exposure and so created this talk show it was really silly and fun at first it evolved over time. Ultimately, we were nominated for an Emmy and kind of took off on TV.

But in the early days, I was just figuring out kind of digital distribution. It was my own entrepreneurial journey. I was just trying to find eyeballs. No one had quite figured out that digital distribution model, it’s still a little broken. But I think people are figuring it out a little more now. And so I was one of the first shows to partner with like Forbes video online and Mashable and any tech blog news site, and then ultimately got to all those TV screens wherever I could find eyeballs. It was like those TV screens in hotels and airports and, and then took it to television.

Changing the ratio to include 50% women in tech

We did five seasons of the show. After two seasons, I realized I’m only interviewing men in technology. And like this problem, this is exactly why I felt like I couldn’t be a venture capitalist. So I made this initiative to interview 50% women in tech. It wasn’t that I wasn’t reaching out to women in tech.

At that time. You know, the generations above me, there were a handful of female technology CEOs, or powerful women in positions at these companies. They fought so hard to get to where they were. They did not want to like go on some girls talk show, they did not want to open up. They were like, not willing to. I was sort of screaming for advisors, mentors and women, and we just didn’t have those women in my life or in technology then.

I just share that because I think it’s changed so much. And I’m so grateful. So I made this initiative to interview 50% women in tech. And they came and I call it like the female. It’s like the bat woman signal. I just like where are the women in tech. I’m forever grateful to the women of fashion technology like Jen Hyman from Rent the Runway and the Guilt Girls and Rebecca Minkoff, because they came on my show early on, because in fashion, you’re supposed to put yourself out there. They made it okay for then, Sheryl Sandberg to come on my show before she’d even written Lehman.

Then all of a sudden, it was like Jessica Alba and Mark Cuban and, you know. It just took off. I just continued to see all of these incredible female CEOs at early stages. Sometimes I’d say, hey, you’re a little early for my show. I love what you’re doing. And I’d love to help you. So at first, I was sending these early stage deals that were pitching our show to be on the show to venture capitalists. I knew in the community from like the Sequoias to like my dad, who was at DFJ all of these venture capital firms. They were investing. These were deals like Paperless Post, like Facebook, like crazy, crazy things. Why am I sending these away, but I didn’t have any money.

Choice point

I was running my show, barely breaking even on the show. Sometimes these companies would pitch us and I’d say, You’re too early. I don’t have a lot of money. But can I like negotiate some sweat equity or write you like a pennies check. I have like $1,000 in my bank account, and I’ll get you media exposure, and we’ll be a strategic investor. I was writing, then, you know, on a good day, $5,000 checks. On a bad day, I was negotiating sweat equity, and no cash was going in, essentially.

I created this nice little track record, one of those deals, I sold for 25 times what I had invested in less than 18 months. Then I had this little track record. The show got to a point where either I would go and raise a whole bunch of capital and turn it into a technology company on its own. Or I had to do something else. And my husband was like, I had just gotten married, I was pregnant with my first kid, I was staying up 24 seven turning the show’s around because there’s no money in television. When you’re going into syndication, you have to like keep pitching all new sponsors. It’s just like such a broken system. I’m telling you way too many details. And I’m like, Where am I like I really went on it.

Mimi: How long ago? Was this? like four years ago?

Jesse: No, this was 10 years ago. 2008. I started the show. I had it for five years. Through that show, started writing these checks, created a nice little track record. And then I my husband just was like, I don’t want to be Captain Obvious, but your investments are going really well for us. So what have you continued to do that full time? So I kind of finished the season of the show. And I took my track record and I raised a fund. And the coolest thing about that was I the first people I pitched for the fund. By the way, I had to pitch 500 people.

When you go out and fund you should just plan on pitching at least 100 people. And I think a lot of people will come to me and say everyone said no, I’m like, how many people did you talk to? They’re like, eight, I’m like, okay, you need to talk to 100. I pitched 500 people for my first fund closed maybe 50 of them. So went out raise to this fund, and it worked. And now we’re still you know, now I run Halogen Ventures kind of like put the show aside no longer in media. We have 62 companies. We invest in female founders. There has to be a woman in the founding team of five and we’re working hard and continuing to do what kind of started with this weird show.

Flipping My Mindset

Jesse Draper learns fundraising is fun!
Jesse Draper learns fundraising is fun!

Mimi: No, that’s an amazing story. It really is. It’s just fascinating. But what have you thought has been the hardest part was it the raising of money was the hardest part about starting your fund?

Jesse: I think there’s so many hard parts because you learn so much along the way in any entrepreneurial journey, you know, and I talked to my friend, Leah Busque. When I was like, early on in our first fund, she started TaskRabbit. She sold it to IKEA. So very successful founder. And she said,

What do you mean fundraising is exhausting? I love fundraising. And I was like, What do you mean it’s exhausting. She’s like, you get to talk to all of these cool, amazing people. You know, it’s such a privilege. It’s such a cool thing. And she really flipped my mindset.

And then the following week I had this meeting with Diane Von Furstenberg. And I was like, she is so right. I don’t care if Diane invests or not. I’m sitting down one on one with Diane Von Furstenberg. And this is so awesome. Like, this is, you know, you, if you look at it that way, you meet a whole bunch of very interesting people. And those people, even the ones who said no, some of them came in later. Some of them were helpful in other ways, and you create these incredible relationships.

Funding raising is a humbling experience

I’d say fundraising is hard. I mean, every once in a while, you kind of hit a wall, and you just get discouraged. And it’s usually not like the fundraising itself. For me. It’s like, every once in a while, someone just says something so negative in one of these meetings. I used to take it very personally, where they’ll they’ll say things like – it’s terrible – they’ll be like, “why would you only invest in women? There’s not enough women starting companies.” I’m like, “” Oh, well, actually, we saw 5000 deals last year, like how many deals did you see? You know, and they’re like, “oh, a couple hundred?” I’m like, “Yes. So like they’re starting companies, you know.” They’ll say something that’s just so discouraging.

Then you’ll realize, and they’ll say things much worse than actually. That was just like a quick example, I could come up with but like, I think that they have to kind of think about where they’re coming from. I realized those people have never fundraised, they have no idea how hard it is. Because if you’ve ever been on the road fundraising, he would never be so discouraging to someone who is fundraising because it’s like, a very humbling experience. And I encourage everyone if you ever have to, I mean, it’s just it’s a really great experience to I think all the mistakes I’ve made have been the tough moments. Like I’ve made so many mistakes.

The Learning Journey

Words from venture capitalist, Jesse Draper
Words from venture capitalist, Jesse Draper

Mimi: Well, my next question was, did you know everything when you launch? Like, as far as like the details of how to run a VC? I know, obviously, you had your family to ask questions. But is that where you pretty much learned the information from was there a learning curve, you kind of learned as you go, or?

Jesse Draper: I think it was such a different thing than what I learned from my family in some ways, I definitely, you know, have great advisors around me because my dad’s a great venture capitalist. And I could call him but it was just such a different thing. Because I’m investing in women, it was just such a different thing, like raising a fund for women. So I would call them I have a whole bunch of advisors, I would call when I had questions, sort of like what to do. But even today, I’m discovering new things. And I’d say like, the biggest lesson I’ve learned over time is just investing is a risk. And if you’re not taking risk with your money, you’re not going to have the big reward at the end.

I’m constantly readjusting our strategy, our investment strategy, women are known to write much smaller checks. And so we actually bet really big at the beginning, and take those risks, because those risks I’ve now seen pay off. And so I just wish I was writing bigger checks in the beginning, but I had raised this fund, and I was like, Oh, I have to be so careful. And so we were just writing so many small checks. And now I know what a good deal looks like and when to take the bets. And we’ll invest in like 20 to 30 deals per portfolio. And we account for the deals that will go under these are early stage deals. We don’t want any to go under but you have to account for that. So we just say like 10% are going on your let’s just make the best bets we possibly can. And so I think taking those risks, I just wish I had really not been worried about taking those risks in the in the first one and now we’re taking great risks.

Portfolio of Innovations

venture capitalist- inbound strategy
Photographer: Edu Lauton | Source: Unsplash

Mimi: So out of the 30 that you invest in per portfolio, would you say how many of them are unicorns or kind of like hit the ball out of the park and then breakeven like what what kind of percentage breakout?

Jesse: I hope that they all hit it out of the park. Well, you know, a lot of them are still getting going. We did sell Eloquii to Walmart for 100 million dollars in just a handful of years. So that was pretty great, typically at a 10 year lifespan of a fund. So you typically don’t see anything back For seven to 10 years, and that’s just you know how you should look at it in terms of investing into a fund. But we’ve had quite a few exits, which is really we’ve been betting on great founders. And that’s why so eloquii then we sold. This is L, which was the first organic direct to consumer tampon line and condom company for women. And they sold to PNG.

I always feel bad when we sold it because it was the founder we supported from afar, or sometimes very up close. And then we have a couple of great ones that I’m just just so excited about today. It’s funny, I always get really excited about the super early ones you haven’t heard of yet. Because we’ve invested in these like, like, we just invested in this great company called Vivoo, that’s it’s like, okay, you pee on a stick. But it’s not a pregnancy test men and women can pee on the stick. It assesses your health for eight different categories, and you pee on it. And then like two minutes later, you take a picture of it with this app, and it assesses your hydration, liver, immunity, all these cool things.

As an investor, the business model is just beyond an amazing and I’m really excited about it. But then also, as a consumer, my husband and I are obsessed with it working out and you just like I feel a little I don’t feel my best I’m gonna pee on a stick and see, see what it tells me to do. And I like now eat cabbage, which I never ate, I think ever in my whole life.

Mimi: It tells you to eat cabbage.

Jesse: I think it was like for my immunity or something. It gives you these specific things to do. So it assesses it gives you a ranking and then says Oh, your hydration was a little low. Here’s some tips and tricks for drinking more water. Your pH is a little acidic. Here’s some things you can eat to balance that out. It’s really cool.

Mimi: I love that idea.

Inspiring founders

Jesse: Yeah, I’m a huge fan. So there’s there’s a lot in the portfolio that you guys haven’t even heard of yet that I’m so excited. But the ones you probably have heard of are the Skimm. We love the Skimm founders, they’re taking media by storm, they just launched their Skimm Well, which is sort of like their health media site. And then we have the

Glamsquad, Carbon 38, which is an international Athleisure marketplace, partially owned by Footlocker with 250 plus brands, and they’re just, I’m so impressed by that founder every day. I sit on the board, and I’m just honored to sit on the board. She’s absolutely incredible watching her build this company. And that’s not always the case. Like sometimes you sit on a board and you’re like, Huh, huh. Those are a couple. I could name drop my companies all day, but I don’t know, I’m obsessed with all our founders.

Mimi: Now, it doesn’t seem like you have trouble getting a pipeline, do you let them come to you? And you just have to kind of store it? Or do you actually go looking for companies?

Jesse: Both, you know, going into COVID. So we have just an insane amount of deal flow.

The Impact of COVID

venture capitalist inbound strategy
Photographer: Brooke Cagle | Source: Unsplash

Jesse Draper: I’m this like crazy human who I like give out my email addresses to like thousand person rooms that I speak to. I just know that you have to create a pipeline. So we have a ton of inbound. I also want to be very accessible. We invest in women, which is like off of the traditional Sand Hill Road in Silicon Valley, kind of like, typical trajectory of a company where it’s like, the Stanford kid comes starts a company, everyone on Sand Hill Road in Silicon Valley invest. I said, I’m looking for women. And so we get a much more like diverse pool diverse in age, race, and gender.

Accessibility matters

That is really, really important to me to make sure that people have access to us. So people can pitch us through our website, through I mean, I’ve taken pitches through Twitter, Instagram, LinkedIn, like we’re very accessible.

So we definitely have a significant amount of inbound, that is, we’ve finally have more of a process to sort through it was like very overwhelming for a while. And we have a generally a pretty small team. But then also, so like going into COVID, obviously, our whole strategy changed. So we were focused on three verticals. And we’re still sort of focused on those verticals, as we had been very thoughtful about how they were recession proof.

Now we’re also looking at things like ed tech more seriously. Technologies like this, like you and I are on Zoom. Right now we have this great app called Squad that’s like a more social zoom type technology for teenagers. And so you know, we’re all trying to figure out how to connect more through technology right now. So we’re really interested in that a lot more work from home technologies. So in that case, we are just trying to see what else is out there. So occasionally we do go seek out deals, but we also have quite a bit of inbound and if you’re a woman in consumer technology, we try to make sure we’ve like seen you or met with you. We’re taking a look at your deck at some point.

Mimi: Mm hmm. Now I always think that when I look at deals, the team is super important. Is that one of your big criterias or is it just the idea so if someone brings you a great idea, but they don’t necessarily have that you’re fresh out of college, you’re 22 and they don’t really have experience, does that matter to you? Or is it the idea?

Jesse: I think anyone could start a company, I think some of the best companies in the world have been started by college dropouts or high school dropouts, even, I definitely don’t care where you came from, or what your background is, I just care that you are building something incredible. And that you’re excited about what you’re building.

Criteria Governing A Venture Capitalist

venture capitalist 3 criteria
What a venture capitalist looks for

The three things I look for most are one, yes, the founder, founder founders, a lot of VCs will say, I don’t invest in solo founders. I invest in solo founders. I do prefer co founders because like, I think what founders need to understand is, it’s the whole idea of like, I’m, as an investor putting my money in you as a founder. If something happens to you what happens to my investment, because I have investors to answer to as well. And so I have to figure out how to make them their money back. So I just need to make sure everything is sort of taken care of.

A lot of investors have some horror story about investing in a solo founder, I’ve had $200 million exits with solo founders. So like I don’t, I feel pretty good about it, you know, I just want to make sure that you have a team that you can lean on, if you are a solo founder. So I do like co founders with complementary skill sets, I like to make sure that the founders, we have a whole sort of assessment we make founders go through, I like to make sure that the founders are open to new ideas that they’re easy to work with.

1. Relationships with founders

This is like, it’s bigger than a marriage in some ways, because it’s a deal you can’t get out of, you’re going to have to build this company with this person for 10 years, at least. And so I think very hard about the person who they are, why they’re doing this, what motivates them, and that they know their weaknesses, I think it’s really important that founders know their weaknesses, because it just means Okay, great, I need to hire someone for that. And I need to make sure that they have someone who kind of like fills those blind spots. So yes, founder is like everything. I occasionally bet on a founder, even when the idea is not quite ironed out when I’m like this founder will get there. Because you actually want the founders who are open to pivoting and many of my most successful companies did not start out doing what has been the most successful element of the company.

So you want the founders that are open to pivoting that will do whatever they have to do to make the company work. And because I stuck with that idea for so long, our founders have been doing have been doing incredibly well through COVID, which is like very rare. Because I always was like, who will be open to pivoting, who will like take the feedback and make it work and is open to go in different directions. Because I think the founders that I think of in terms of like, what red flags like just freak me out, is when I say Well, hey, let me just throw a curveball. What if your manufacturing plant like shut down in China, and we had an international pandemic, and you couldn’t produce product there, and you had to figure out what to do? And I really used to like use international pandemics and just strange curveball questions like that in the past where I’d say, what would you do then? And the founders who are like, Well, let me think about that. Okay, I could work with a local manufacturer. And then I think I could figure it out where I could you know, where they solve the problem.

Those are the ones I want to work with the ones who are likely, that’ll never happen, I would never even think about that. I’m going to run my company this direction. And we can only go this direction, this is the only direction to go. Those are the ones I’m sort of like, Okay, thank you. So nice to meet you like, bye. And I think the founder is so important. And you really want someone who is open, who’s coachable, who’s open to pivoting their company and just making it work.

2. Importance of product

And then the second thing I look for is product, as you mentioned, a really, really unique product. I typically like some kind of like proprietary technology, something they own, what’s defensible, what is the moat that they can build around them so that no one else can do it or so that they’ll win in this space. We invest in like 25%, like CPG, or like physical products. And I just like to make sure like we have this company called tea drops. And it’s like a bagless tea that you drop into hot water. They’ve patented this like pressing process so they can like press them into little flowers and hearts. And it’s very cool Tea Company. But they have the patents on this pressing process. So like no one else can do that. And so we really look for, if we’re investing in products, we really look for something defensible like that. And then the rest of our companies are pure tech plays. And so we just want to make sure that they’ve built their own technology and own all of that.

3. Proof of traction

And then the third thing I look for typically is some kind of traction, a million in revenue 100,000 users, but I never want those numbers to scare any founders. I also invest pre product. So if you were say a hardware company and most people don’t have like, you know, a million bucks in their back pocket to like start their company, you need to raise money in order to just get the product off the ground. So I just want you to prove to me that there’s traction in this space that there is an opportunity in the space that people want this, show me some data, show me something that proves there’s an enormous need and opportunity for this product. So just some kind of traction or just like proof that there’s an opportunity there.

Mimi: That’s great. Those are three good points. And how involved do you get with with a company once you decide to invest?

Staying Involved with Companies

venture capitalist on telephone in highrise office
ventPhotographer: Dane Deaner | Source: Unsplash

Jesse: Sometimes too involved. And sometimes we’re pretty hands off like, like, this is L, the company that we sold to PNG, I felt like she sometimes founders kind of go silent on you. And we have 62 founders, so like, every once while I’m like, wait, I haven’t talked to them in a while, what is going on there. So I remember calling her and being like, you haven’t talked to me in so long, you haven’t like told me what’s going on, I haven’t gotten updated months, I just checked, what is going on. And she goes, Oh, we’re out like a $50 million run rate. And I was like, I’m gonna hang up the phone, and I’ll never bother you until you need me, you call me when you need me, you’re doing great. Like, just let me know what you need. And then she went sold the company. And I was like, great.

I think we try to be super involved in the early stages. Once they get, I sort of say, like passed a nice Series B raise, which is like, they have some good traction, they’re doing like 10 to 30 million in revenue. You know, they’re off to the races and can kind of like take it to the next phase, I know what we’re good at, which is early stage. And I know how to get them to the next phase. So at about a Series B, I kind of say, okay, go fly butterfly, like you don’t need us. And we’ll check in when we need to. But we are very involved in the beginning. So all of our early stage companies, we check in with monthly quarterly, you know, make sure they’re sending us updates, we’re actively like helping them with everything from hiring to fundraising.

In one case, recently, we were operating an arm of one of our companies. So we’re very, very involved, I think it’s important to like stay close to the founders in the early stages, like they don’t have a network, you are their network. So you have to kind of like plug them in.

Coming up with valuations

Mimi: Yeah, that makes sense. No, do you because you’re early stage, I always find is trouble, like, it’s hard to come up with a valuation, what do you use for valuation, because you’re pretty much the first one in right giving them a valuation, because they might have had friends and family that would have been convertible debt or something like that for your, I assume you’re the first one in kind of determining what the valuation is.

Jesse: We do set valuations a lot, I’m a shark in some ways, but in other ways, you want to set the founder up for success. So like, if a founder came to me with a $2 million valuation, I would say something like, I’ll take that, but like, you’re gonna be screwed later. So go back, figure it out, and come back to me, like, I don’t think you should ever have evaluation, starting your company out that is less than a three, three and a half, or four, just like that’s a good sort of like, bottom line to think about. And that’s pretty low.

The things you take into account for valuation. First of all, everyone’s like, there’s so much controversy over what the perfect valuation is, really, the market sets the valuation, if I come in, and I’m an investor, and I’m willing to write a million dollar check, like I call the shots, and you’re gonna take it unless you find a better opportunity. But what you should think about as a founder is you’re always trying to push up the valuation. And then the venture capitalist is always trying to push down the valuation. And so you want the biggest valuation, you can and then the venture capitalist wants the lowest valuation, so they can own the biggest piece of the company.

You don’t want to give away too much of your company in the beginning, which would happen with a very, very low valuation. So you also have to take into account how much money you need and how much you’re raising. And so if you were raising like, I don’t know, just like at a at a $4 million valuation, I would say you probably don’t want to raise more than like, 2 million $3 million. That’s a lot for a $4 million valuation, and like you’re giving away a lot of your company at that size. And so I don’t know, it’s such a funny thing, because people always, I think everybody gets very confused by valuation.

Here’s the markers I look for in consumer, it’s typically like a two or three times revenue is like a pretty logical evaluation for companies once they get going and are producing revenue. So like, say you’re doing 5 million in revenue. If you’re lucky, you get a $15 million valuation. If you’re not, it’s probably a 10. And if you’re really not, it’s probably a little below a 10. And so that’s a nice just marker to think about. But then there’s companies that I’ll see will have like a $40 million valuation and are producing barely a million in revenue. So in those cases, it means they typically have really great proprietary technology, their team is super experienced and came from Uber, whatever. And, you know, you take into account all of these other things.

I typically find that happens with like more seasoned founders who like know how to play the game, where they’re like, Oh, yeah, no, we’re gonna go at a 40. Because like, I lost so much of my company last time. And so I know how to set it up for success. And I know that what we’re giving you is a huge value. But we try to come in like under a $10 million valuation typically. So that’s kind of like where I play.

Mimi: Thank you for that explanation. Because I think the listeners, you know, would like to hear that I think that’s complicated. A lot of entrepreneurs that I talk to, you are kind of like, confused by that.

Jesse: I mean it is really confusing, no real rules around it. Like, sometimes I just go in, and I’m like, I’m kind of feeling like, it’s like a seven. I mean, it’s when it’s under 10. It’s all sort of the same.

Mimi: Because if you hit it out of the park, it doesn’t matter if it was a three or a seven.

Jesse: Like, I know how much I want to own. And I know what size check, I need to write, at what valuation in order to own that. So yeah, I think it’s like people get to kind of caught up what does happen, here’s what you don’t want to happen with a valuation. So this, this company that say, has a $40 million valuation, and they’re only doing you know, they’re doing barely a million in revenue, you don’t want to have set yourself up where you have such a high valuation, that then you can’t raise because people can’t own enough of it. So then you’ll have to do they call it like a recap or a down round, where then someone will come in and be like, yeah, I’ll give you the money you want, but like, it’s going to be at a $20 million valuation because it just doesn’t look good for the company. And it’s sort of like pushes all the investors down. And it’s just like, not a good look. So you do kind of want the founder and the investor both know that they have to be like kind of reasonable in terms of the valuation but at the earliest stages, the investor pretty much calls the shots.

Meet the Drapers

Mimi: Right. I would love for you to talk about Meet the Draper’s Do you mind we talk about that?

Jesse: It’s not my show. It’s my dad put together this show. It’s like a shark tanky show and I love it because I get to spend time with my dad and my grandfather. And now this season, I stepped out and did I think I just did a finale or maybe two episodes, but it’s a family affair. So we come we take pitches, I found some good deals through there. I’ve sent them a couple of good deals. And it’s a crowdfunding show.

What’s different about Meet the Drapers versus Shark Tank is like anyone watching could invest. And these are really, really great deals. And everyone invest through a crowdfunding platform called Republic. So you could invest $100, you could invest $1,000, and you can get access to these incredible deals. And I’ve had a couple of our companies go through there actually. Then like now my aunts on it, and my cousins who are these like superstar celebrities, Nat now Alex Wolf, and my brothers pop in from time to time. So we’re just like this crazy, weird venture capital family.

I’m the oldest of four and my two brothers both run funds. And then my dad also runs a fund and we all focus on very different things. So on occasion, we’ll like we’ll collaborate but it’s it’s just this like, silly, fun family. So one of my brothers runs Boost, which is a VR blockchain accelerator. And then my other brother runs a new fund called Path and he’s very focused on CPG products. That’s great. No, I really enjoyed I was watching one of the episodes I thought Polly was on there. That was like when you mentioned Polly before I was like wait, she went actress, and now she’s on Don Draper. So it’s on Sony Entertainment Television, you can watch it there. And we’re in our third season. So it’s kind of cool.

Mimi: Now to the judges. Also, investors, it’s strictly crowdfunding.

Jesse: Oh, yeah, we invest.

Mimi: And then the valuations already kind of set when you do the crowdfunding. So it’s like you either do it or you don’t?

Jesse: Yeah, exactly. The entrepreneur usually has, because crowdfunding is just a whole different animal. So that entrepreneur actually has a lot of control over what they’re willing to offer up to a crowdfunded group of investors.

Advice for CEOs

venture capitalist -focus on profitability
Words of advice from venture capitalist, Jesse Drapper

Mimi: That’s great. To end I would love to just have you just offer some advice for a CEO either just tips as it goes through the fundraising round, what they can be doing, or just in general, like tips as they’re growing the company, any kind of tips for an entrepreneur as they’re growing their company?

Jesse: Yeah, I mean, I think there’s what I would say today that we found in terms of investing in women, specifically that I’m really proud of there’s so much data around it now is by investing in women, one, the company’s better, you raise half as much money and double the return. You have a more diverse employee base. Like all these positive things, there’s like a social impact element built in automatically because women just think about things like that. Plus, you’re still making billions of dollars. So I just like to, I like to think about that, because what I’ve learned from investing in women versus also I love men, we have like three male CEOs. So I always feel like I have to throw that out there.

We just want to make sure there’s female in the leadership team. But by investing in women, I realized how important profitability is, it blows my mind when I look at the Ubers of the world and the Weworks. And like, these companies are enormous and not profitable. And like, there’s something seriously broken there. Like, if you’re not making a profit, how is that a legitimate company. And, you know, we have companies that have raised $1.3 million, and then within two years, they’re doing 20 30 million in revenue, and may never have to raise again. And that’s something that women are much better about. Because they assess risk in a different way. And it’s very positive. So I would say, as a founder, really focus on profitability.

Profitability vs growth

There is this sort of element of profitability versus growth, and you have to kind of like intertwine the two in the perfect way. And so sometimes you have to grow, and you have to raise money, and you’re not profitable for a minute, but always have your eye on when you will be profitable. Because I think that’s incredibly important, it makes you more successful in the long run, it makes you have to depend on less investors, and you won’t have to give away as much of your company because you’ll be able to support your company without all of this help.

I think the best thing you can do, as a founder is like not have to take on capital, you should look at equity as cutting off your toe, like, if I have to give away a piece of equity. It’s like cutting off my. And so just think about that, because I think that you can raise less than you need and do better. Which is kind of a weird thing to say, because I’m a venture capitalist who wants to invest in like, own as much of your company as possible. But I think those are just a couple of the things I would think about profitability versus growth and like, what does that look like long term for a founde. I think a lot of founders Don’t think about that at the earliest stages.

Mimi: It’s true, right? Because you hear also in the news about like, like you’re saying, like we work so the world or the Ubers of the world that didn’t make money for a long time or still don’t make money and you’re not they’re not LaLa Land of, you know, Internet companies that are not making money, you’re like, Okay, well, then how are they getting these billion dollar valuations? Right? And so I think it’s kind of skews the landscape.

Jesse: And now some of them are imploding, like you look at we work and it’s just kind of floating. And that was a recipe for I was always kind of afraid of anything like real estate oriented, because unless you have a real estate partner, as an early stage investor, you don’t want to like go into a deal like that, because it’s so incredibly capital intensive, and you have to keep investing more and more money into it. But yeah, that was a recipe for disaster they owned so much.

Mimi: Right. Or they had the leases like my husband’s in real estate. And you should say that company’s gonna implode as soon as the market turns he said, because they have these leases, and then all the people that are renting or you know, have their monthly, they can end at any point. I don’t know how this company’s gonna last. And sure enough.

Jesse: Totally, this was so fun. Thank you.

Mimi: Yes. Thank you so much. I really appreciate it. You have some great tips. Just love what you’re doing. It’s just so exciting and keep doing great things and all your companies that you’re touching, I feel like are turning to gold.

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