Swaney Group

LeverUp™️: A podcast on Private Equity and Entrepreneurship - Paul Swaney | Scott Kelly | Startup Success

 

In this episode of Lever Up, we sit down with Scott Kelly, CEO of Black Dog Venture Partners and host of VC Fast Pitch. Scott takes us through his incredible 30-year journey, starting as a runner on the floor of the New York Stock Exchange to founding Black Dog Venture Partners, where he has helped startups raise over $5 billion and guided 30 successful exits. We discuss the value of assembling a strong team, how to prepare for raising capital, and why scaling a business at the right time can be the difference between success and failure.

Scott shares his unique insights on entrepreneurship, from surviving the dot-com boom to scaling tech companies and even dabbling in the music industry. Whether you’re an early-stage entrepreneur, looking to scale your startup, or simply interested in the venture capital world, this episode offers plenty of practical advice.

Key Points

  • How to build a resilient team that can scale with your business.
  • The biggest mistakes entrepreneurs make when raising seed capital.
  • Why scaling too fast can be just as dangerous as growing too slow.
  • The evolving venture capital landscape and how to navigate it successfully.

Get in Touch with Scott Kelly

Website: Black Dog Venture Partners

Social Media: @BlackDogCEO on all platforms

VC Fast Pitch: VC Fast Pitch

Listen to the podcast here

 

Secrets To Startup Success: $5 Billion Raised With Scott Kelly [S2: E2]

In this episode, we’re sitting down with Scott Kelly, CEO of Black Dog Venture Partners and the host of VC Fast Pitch. I had the opportunity to see what he was building. I would love to hear about your story, Scott. Thanks for sitting down with us.

Incredible 30-Year Career Journey

Thanks for having me, Paul. I tell everybody I’ve been a deal guy for many years. When I was in college, I was a runner on the floor of The New York Stock Exchange. I moved to San Francisco in ‘86 and worked as an investment banker, taking tech companies public. In ‘93, during the midst of the dot-com boom, I set up my incubator. Quite frankly, back then, you could put a dot-com on a light bulb and make money. Fortunately, we did. We had a few Xs between ‘93 and 2000.

In 2000, I moved to Arizona. I thought I was going to retire there but on a whim, I invested in a record label knowing nothing about the music business. By some ridiculous stroke of luck, we won a contest on MTV. Our first artist went gold eight months later. I spent roughly six years in the music entertainment business. In 2006, I set up Black Dog Venture Partners. What was happening was that larger venture capital firms in California, Silicon Valley, and New York would send us companies ever too early.

What we did was work with these companies to help raise their early-stage financing anywhere from C to Series A, help them scale, build their team, and then either hand it back off to those firms or help them get to an exit. We’ve been fortunate to help companies raise about $5 billion and help 30 companies exit. A few years ago, I came here for the Super Bowl and fell in love with the place. I tell everybody I’m a Tom Brady refugee. I can’t tell my New York friends that but since he moved to Florida, I was able to root for him. I then moved to St. Pete and I love it.

What excited you about St. Pete in relation to the venture space?

I love the culture. I spent a lot of time in Austin, Texas many years ago. I tell a lot of people that St. Pete is Austin years ago. It’s got the right culture and education. It’s got a great entrepreneurial spirit. There’s great capital here. I was talking to one of your associates earlier and it’s the mentality and friendliness of this place. You don’t get the velvet ropes that you get on Sand Hill Road in California.

I spent time in New York, Southern California, and Denver. I found that there are more insular places and less insular places. What I’m hearing you say is this is a less insular place. You’re on the ground on day one and decided to make a move out here. What was job one?

Job one started about four months before I got here. I recruited an intern out of college. It was July of that year. I said, “By the time I get here in September, I need to know some people.” He went around to all the networking events and entrepreneur startup events. Honestly, two months later, by the time I got here, I had already been in the local newspaper twice and had 600 people to do the work with.

We started off the ground doing what we do best, which is finding companies and connecting them with capital. We hosted our first event at the University of Tampa and it went very well. We’ve had 6 events in the Florida market and 3 in St. Pete. I’m proud to say that not a single event that we’ve done has not resulted in at least one company not raising capital.

You mentioned the culture. Are there any similarities between a Florida-based or St. Pete-based entrepreneurial asset? Are you finding some themes here that don’t exist in Austin or Silicon Valley from an entrepreneurship perspective?

The reality is you have this environment here where everybody is willing to help anybody else be successful. It’s not like, “I have to win and someone else has to lose.” I find that’s important when you’re an entrepreneur because the reality is you’re struggling to raise capital, make payroll, and build your business. It’s good to have other people that have that same struggle.

Raising Money Successfully

What are some themes that you’re seeing of entrepreneurs that are successful in raising money?

You have to start this process very early. I’ll be honest with you. The vast majority of entrepreneurs, 98% to 99%, shouldn’t go out and raise venture capital. You should grind and build the business. It’s ironic that I’m in this business but I tell entrepreneurs, “If you can figure out a way to do without it, do it without it. You can then keep calling the shots.” If you’re going to raise capital, it’s like any kind of marketing. You have to build a relationship over time.

I’m sure you, myself, and others don’t wait for the day you need to raise capital to try to find relationships with people who have capital. It’s got to be a 6, 12, or 18-month process. I did a lot of work in the nonprofit space when I was in San Francisco. I was on the board of the Boys & Girls Club Foundation. One of the senior members at the time said, “Before you do fundraising, do fundraising.”

Don't wait for the day you need to raise capital to try to find relationships with people that have capital. Share on X

A lot of times, if you look at a typical startup that is sexy, it’s two coders who have an idea for an app or those tend not to be the people who like fundraising or networking. What advice do you give those team members? Nobody’s going to go, “Bring somebody in to raise money.” That doesn’t work either.

It can and it will.

“Hire somebody to raise money internally.”

If you’re an entrepreneur, you have to be cognizant of the things you do know well and also the things you don’t know well. You and I both work with entrepreneurs who have very good technical skills. They’re engineers or coders but they’re not good communicators or accountants. They don’t understand proforma or the legal. It’s important to build your internal team around you that are experts and there’s the skillset that you need them for.

I picture the opening scene of Ocean’s Eleven where they’re trying to put their tribe together but the coders always gravitate to each other. Why don’t you give me an example of someone assembling their team? It’s almost like you have to assemble a team to get ready to raise some money. Usually, not one person raises money.

In all honesty, especially at the early stage, the team is probably one of the most important issues in raising capital. Ideas are a dime a dozen. You need a team that can execute those ideas, not just from the technology standpoint but from the accounting standpoint, sales and marketing standpoint, legal standpoint, and administration organization standpoint. You have to assemble that. With startups, you don’t have the budget to hire those people but build a team of advisors who have the skillset and get training in the areas that you’re weak.

Mistakes When Getting Seed Capital

As they’re putting the team together, what mistakes do you see entrepreneurs make as they’re trying to get seed capital?

One of the biggest mistakes a lot of entrepreneurs make is bringing in friends and family on the team and even raising capital. Another quote I learned very many years ago when I was a brand new retail stockbroker in the early ‘80s was my boss at the time said, “If you ever wanted to join Thanksgiving dinner, don’t invest family money.” That may be the circle that you know but you have to put yourself in a position where if you need to let them go, it doesn’t have a negative consequence.

If you don’t succeed in your business, it doesn’t have a significant personal negative consequence. That’s step number one. I tell a lot of entrepreneurs, “Go find successful companies that are in your vertical. Talk to those CEOs. Get their advice and recommendations on who to add to your team. They’ve already created the road map for you. You might as well use that map.”

Go find successful companies that are in your vertical. Talk to those CEOs and get their advice and recommendations on who to add to your team because they've already created the roadmap for you. You might as well use that map. Share on X

That’s interesting because you hear people say, “We’re going to raise our friends and family around.” Do you think that’s the wrong thing to do?

I’m not saying it’s necessarily wrong but you have to be completely honest and open, especially with friends and family. You have to realize something in the venture capital space, if you bet $300, you’re in the Hall of Fame of baseball and venture capital. The likelihood that you’re going to succeed, success as an exit in most cases is very small. You need to have that conversation with friends and family saying, “This is the money that you would take to Vegas. If we win, great. If we lose, enjoy the buffet.”

Choosing A Startup To Invest In

That’s a little bit different. I sat on the debt investment committee at my old shop and I’m always looking for what could go wrong. If you put a zero in a debt fund, it’s bad. Given that it’s different you’re hoping for about $300. What factors are you looking at when you’re personally deciding to invest in a startup or back them to help them raise money?

It’s almost entirely the team in the beginning. You can have great IP and product but the reality is the team is going to get the product developed and more importantly, get the product sold. Understand that putting the money in is the easy part but getting the money out is far less easy.

Putting the money in is the easy part. Getting the money out is far less easy. Share on X

Successful Exit Story

Can you walk me through a success story of an exit? I’d love to hear about a favorite highlight of a company you shepherded.

They haven’t exited yet but they have gone extremely well. We work with the company back in San Francisco. We raised capital at a $5 million valuation. This is where it’s like, “How much tech do you need?” He built an app to provide gaming. He didn’t build the app first. He built a mobile-enabled website to build the business. Before he had an app, he had already raised $20 million and already was earning millions of dollars a month in revenue. He went from a $5 million valuation and then raised $300 million. It has top-named clients like the NFL, Disney, and others.

Let’s deep dive into the teams. What about his team when he came to you was exciting?

He understood what he was good at. He was a good salesman with mediocre technical skills. He didn’t try to build it. He brought people who knew how to build things. Much like your early investors, some of your early team members’ skillset is important but maybe their relationships and connections are important. He brought people on the team who had experience doing marketing for Fortune 100 or Fortune 50 companies. He didn’t just buy a resume. He bought a Rolodex. I’m aging myself.

I say that all the time. I’ve got to stop saying that in the Reader’s Digest version.

That is your cell phone.

It’s your contact list and the CliffsNotes. Between $5 million and $300 million, how many benchmarks were there? Was that $5, $20, or $50?

They did $5, $10, $30, $40, and then $300.

I love the team part. How did the team evolve from $5, $10, $40 to $300?

In the beginning, they couldn’t pay for the top people. As they developed, they could pay for the top people. You get people who have exit experience who’ve worked with companies that have multiple billions of dollars so that the quality of the team improves based on their past successes.

It started to get some inertia. A friend of mine left whatnot. With the change in the venture capital landscape, they were sucking people toward them. There was a hard pivot of everybody running into VC. The market is a little tighter. As people are going into more Series A or B companies, what advice would you give them as they’re looking for which company to go to? How do they figure out which companies have the inertia and will keep going to that fundraiser versus some of the market?

The Dot-Com Boom And AI

It’s interesting you say that because a lot of things that we see, I’ve seen twice before. You put .ai on something and you try to raise money based on your domain extension. Coming back again but not too long ago, it’s crypto. I was there in the ‘90s when you could put .com on anything. We raised money for some of the biggest explosions in the dot-com era. We raised money for Pets.com and you could do your homework. The only thing that’s left is the sock puppet.

Webvan raised billions of dollars and was bankrupted very soon later. Every supermarket has a home delivery system. You’ve got to be careful with trends. The thing you need to understand is don’t go to a company that changes their domain name or what their focus is. Just because you know how to use ChatGPT doesn’t make you an AI company.

I wonder and I’d love your views on this. How many companies are wrapping around ChatGPT?

Vast majority. Honestly, it’s the same thing in the dot-com era. You had millions of companies raise ridiculous amounts of money. I was selling dot-com domains for millions of dollars in the ‘90s with the domain itself. Like any new industry, you have a lot of hype and then the cream rises to the top.

I’m a contrarian for what I see on AI. For the last hundred years, robots have been going to take all our jobs. I haven’t seen it played out that way. Zillow was supposed to disrupt real estate. It hasn’t. The house is an emotional purchase. Where do you see AI headed in the next few years?

It’s going to be game-changing and it already is. The reality is it’s been there for a while. It’s just getting more pressed. Like the internet and any technology, it’s going to revolutionize things good, bad, and different. On the contrary, I tell people this story all the time. You can understand what things get frothy when certain people tell you things.

Back in ‘99, I got into a cab in San Francisco and the cab driver told me he was investing in dot-com. I knew that was the top. “Out of the pool.” Several years later, I got into an Uber. It was 2017. The guy told me he was getting into crypto. I knew that was the top. I’ve been in an Uber at least three times in 2024 with some Uber drivers telling me they’re building some AI project.

The CapEx behind it is highly fascinating. To build on your story, I had an Uber and he was like, “Kathy Wood says this is what’s going to happen to the market.” I was like, “Something’s going on.” It’s certainly a signal. The team is a big component for you. You said ideas are a dime a dozen. Let’s say the team is good to first check. That’s maybe its first filter. Below that, which ideas do you back?

Picking Ideas To Support

After the team, you’ve got to look for someone who knows their numbers, market, and competition. I don’t know how many times you and I’ve heard someone say, “I have no competition.” You always have competition. Secondly, you have to understand your numbers, how to project, and have projections about how you’re going to get to your goal. Those things are good regardless of the industry that you’re in. The reality is if you have great tech, ideas, and products, that’s an add-on. If you have a good team, someone who understands the market and the competition, and someone good with the numbers, that’s going to make the difference.

You’ve got through the team filter and product. The idea is viable. They know the numbers. They’re competent. What is your process for mentoring young entrepreneurs? How do you think about that?

Mentoring Entrepreneurs

A lot of times, I want them to find something they can sell now. There are billions of apps in the various app stores. It is a fraction of a percent that even has a download. I go to entrepreneurs who say they’re building this great app. I ask them a couple of questions. I go, “How would you run this business before smartphones and the internet?” What they need to know is how to get a customer. A lot of times, if you can build something that someone can buy now, you can always make improvements. Microsoft has their problems but many years ago, they would build a piece of software and put it out to the market, let the market tell them what’s wrong. While they’re doing it, they’re selling it.

That’s Bill Gates’ Blue Screen of Death. It was on Letterman.

Entrepreneurs have to figure out how they can sell something. If you improve it, you’ll sell more of it.

Entrepreneurs have to figure out how to sell something because then if you improve it, you'll sell more of it. Share on X

Testing For Market-Ready Fit

I’m here with a minimum viable product. What’s the balance between embarrassing yourself and getting too early and too late? How do you tell internally if it’s ready to go test the market?

I would test it in a small circle. That might be where friends and family come in. It’s a small circle where the risk of failure isn’t great but there’s an opportunity to get some innovation. I have companies that want to send their app all over the country. I go, “Own your backyard first.” Many years ago, when I was in the music industry, there would be radio promoters who would want you to get on the radio.

They would go to artists and brag how they can get you 80 spins on the radio a day. What they didn’t tell you was 2 spins in Bozeman, Montana and 5 spins in Detroit. There’s no concentration. For example, we’re in St. Pete. Own Central Avenue, St. Pete, and Tampa Bay first. You can then work out all the kinks and problems in a controlled environment, where the risk of failure isn’t as great.

One of the things I heard, and I haven’t verified this, is that they always launch a lot of dating apps at BYU. Everybody’s focused on a very long-term relationship. They pilot it there, get the feedback, and then go out to scale. Own St. Pete, that’s interesting. What in the St. Pete market is viable to own? Is it restaurant tech or real estate? How are you thinking about that?

Honestly, we have a company in our portfolio called Vibe. They are an app to order cocktails. They ask me, “Scott, should we go to Vegas or New York?” “No. You’ve got so many bars on Central Avenue. Own this street.” Our strategy is to accumulate as many venues in downtown St. Pete, get as many downloads of people who are going to those venues, and build reach and some stickiness. Look at the market. You’ve got a great market. I’m looking out your window for sailing, water sports, and other opportunities. Understand the market that you’re in. Be a little hyper-focused in the beginning.

What do you think causes that belief to go, “We should go to Vegas,” versus pilot, test, and beta? I don’t want to say this is an old-school business but it’s how you do it. Is part of that product perceived but not actual overnight successes of things?

Yes. In the venture capital space, there’s a disservice to the media that they expose. There are all kinds of articles that are written about companies that have raised money but not a lot of articles about building a company without raising money. What that does is it’s creating a fallacy. I played football in high school. I had aspirations when I was a kid to play in the NFL but that wasn’t going to happen. I was too slow and short but I’ll have a successful life. What happens is they see the top 10th of 1% be successful. They assume that’s the roadmap. There are lots of great companies that are building great things that aren’t getting any press.

The venture capital space does a disservice to the media they expose. Share on X

They also tend to go to a different track. If the founder can scale it without getting any VC money, PE is probably going to pick it up. PE owns 30% of software. It skips the whole VC spec. That tends to be a lot quieter.

There were two founders at MailChimp. By the time they sold the company, they both owned 98% of the company so they kept it all. The second half of the story isn’t great but the first half is pretty good.

Bringing In A Partner

You told me if you can keep it in-house, keep it in-house, which is appreciatively counter to your business model but what is the right use case for, “I need to bring in a partner?”

The reality is I tell people when you bring initial capital, it’s got to be not dumb money. It’s got to be money plus something else, especially in the early stage. With some entrepreneurs, there’s so much desperation for the money. They would rather take a bad investor than no investor. There are all kinds of stories of investors who came in and then forced liquidity, weren’t good to work with, or created legal issues. In the beginning, if you’re going to get capital, bring in capital that has relationships, a Rolodex, contacts, or some expertise.

You want somebody that’s married to the outcome of the business. I hesitate to say sunk-cost fallacy or confirmation bias but you want somebody that’s done some work on the business.

They’re going to bring in sweat equity as well as capital.

The one thing that I have noticed as I’ve talked to young entrepreneurs is a lot of young entrepreneurs ascribe a very high valuation to a PowerPoint deck because they have an idea. Have you seen this?

Daily.

What do you do to unseat them to get them back to reality a little bit?

You have to be careful because you don’t want to hurt their feelings. Sometimes they need to be pragmatic. The reality is you have to understand the landscape. A company here might be worth X. If it’s in Silicon Valley or Shanahan Road, it might be worth Y. Many years ago, we had a company that was based in Phoenix, Arizona. We put them in an office space in the Embarcadero in San Francisco. We were physically there so we were able to double the valuation on the next round. That’s not the norm.

Raising capital is time versus valuation. The higher the valuation, the more time it’s going to take. We had a company that was in the midst of everything being overvalued. They tried to raise money at $15 million pre-money as a precede nonrevenue startup. They struggled. We brought the valuation down to $9 million. They raised some money and they’re still in business.

I don’t know anything about this space so explain this to me like I’m five. You’ve got a guy with a PowerPoint deck and an idea and a couple of people who are hacking away at something at night. When is the right time to raise money to preserve equity for the founders versus being able to scale? It’s a little bit of a heat map about how you should do this.

In raising capital, there are more arts and science to it, especially at the early stage. A lot of it could depend on certain things. If you have someone on your team who has that resume, had multiple exits, and raised a lot of money, you might be able to raise it at a higher valuation earlier. If you don’t, you probably at least need to get to the point where maybe you’re not generating revenue but you have something that can generate revenue. That’s more or less where we come in.

The buy box for you is if you want something viable very quickly that you could take out and at least prove the concept.

We want something they can sell. Honestly, what we do in a lot of cases is help them build that revenue. I’ve built a network of 13,000 deals but I have 30,000 business partners, distributors, and others that I’ve worked with. In some cases, I can introduce them to somebody who can buy their product and do two things on the capital raise. 1) Reduce the need to raise capital, and 2) Improve the valuation when they do raise capital. A lot of times, the best way to raise capital on a nondilutive basis is to sell something.

The best way to raise capital on an undiluted basis is go sell something interesting. Share on X

Venture Debt Vs. Venture Capital

I have a friend of mine who does fundraising for a venture debt shop. I get this question a lot from a founder who’s got something with some revenue and no earnings. Particularly on Twitter or X, they’re like, “Should I get venture debt or venture capital?” I don’t feel qualified enough to answer that question for them. What is your take on venture debt versus venture capital?

Locally in town, there’s a great guy named Zack Ellison. He has a venture debt fund.

That’s surprising.

We released our second podcast. Venture Debt is lower on the risk scale. They’re looking at numbers. They aren’t necessarily a bank but they have a bank mentality in how they invest. In the case of venture debt, they are betting on the team and everything else but they’re betting on the revenue and the cashflow because debt has to get serviced. There are interest payments and principal payments. There’s probably a balloon at the end. They’re looking at it from a different standpoint. The reality is venture debt is a great tool. As you move into maybe your A and B round and beyond, venture debt could be a good way to preserve the cap table for yourself. The cost of capital, relatively speaking, could be cheaper.

I’m making this up. You raise an A. That way, you go get some venture debt. Is your B round higher, more valuable, or less dilutive?

It’s less dilutive. You’re not impacting anybody in the A round, at least from a cap table standpoint. You may be able to build more traction to make the next round more attractive. You have to have a balance of that as you go.

Keeping The Motivation Alive

That’s interesting about the cashflow. Circling back a little bit to the overnight success, what do you find in entrepreneurs who can handle starting five companies and then busted? Do you still see that a lot yet? How do you keep them motivated?

Yes. Those are the ones I tend to like the most. The reality is it’s easy to try once and give up. Trying multiple times, you continue to learn how to not fail. I want someone stubborn and someone who may not like taking no for an answer but is willing to take a lot of noes to be successful. Much like anything, whether it’s selling your product and service, raising capital, or trying to find the man of your dreams, you have to be willing to kiss a lot of frogs to be successful in any of those pursuits.

The reality is it's easy to try once and give up. When you try multiple times, you continue to learn how to not fail. Share on X

The other thing I’m hearing you say is that with the CEO of the entrepreneurial venture, what’s helpful is they’re very sales-focused and are a good salesperson.

It’s not mandatory but if you’re not a salesman, find one fast. We’re working with a company where he is a very smart technician with a PhD but I’m not going to put him in front of an investor.

That serious?

I said, “We’re going to hire a CMO. We’ll let them do the pitch. You’ll be there for Q and A.”

He’ll go off track and go 20 miles deep. That loses the crowd. Won’t even know what he’s talking about.

That’s the thing, too. When you’re talking to investors, especially at the venture capital level, they are seeing thousands of pitch decks a year. They’re on hundreds of phone calls a year to find 5 to 20 companies they would invest in. You’ve got to be able to sell them quickly and keep their interest. At our event, we do a five-minute pitch. You asked about another example of a success story. In Phoenix several years ago, when we held our Fast Pitch event, we were doing one-minute pitches.

There was a company called Crowd Mics, which pitched for one minute. There was a gentleman from Sand Hill Angels in the room. I had lunch with them during the break, flew them up to Menlo Park a few weeks later, and invested the first $270,000. It led a $3 million round. Four years later, they exited. Tim and his brother run Spacestation Investments, a venture capital firm out of Utah that has hundreds of investments. They went from being the people asking for money to people being asked for money.

What about their one-minute pitch? This is a good piece of advice. I like the idea of a one-minute pitch because you have to be pithy. If you’re going to do a one-minute pitch, what was their pitch? What are the steps to make it a good one-minute pitch?

It comes down to two things. Either tell a good story or hit a couple of points quickly. What’s the problem? Why is it a problem worth solving for a lot of people? What’s your solution? Why is it better than anything out there? How do you make money? Who are your customers and competitors? Who’s your team? Also, the facts of what you need. How much money do you need? What are you going to use it for?

It’s a slower business than what we work on. We look pretty intently at something for weeks, pushing a month. When you’re screening that many businesses, the team is the green flag. What are the quick red flags that you see in a business?

Red Flags In Business

It’s not doing your research on your industry.

That’s surprising that someone would do that. That’s a huge red flag.

All the time. When I was teaching grad school in Phoenix, I would tell the story of a company called Juicero. This is legendary. People can look it up on Google. They raised, I believe, $120 million for a mobile-enabled juicer. They raised this from some of the top VCs in the country and legendary VCs. They took out the juicer and priced it around $700 to $1,500. They put out a YouTube video on how they could juice in under two minutes.

What happened next was within minutes, someone took their $100 blender and showed them how they could make juice in 60 seconds. That company lost all their money in 18 to 24 months. A complete zero. They didn’t understand the market and competition. Before you fall in love with your tech, find some customers who are falling in love with your tech.

Before you fall in love with your tech, find some customers that are falling over the tech. Share on X

Getting Customer Feedback

As you’re bringing the idea to market, what’s the best way to get feedback from your customers before you have a minimum viable product or you have a product out there?

You can do focus groups. That’s important. Doing research on your competitors, how they came to market, and how they reached out is important. It might be a real simple application that has no technology involved. For example, if you use this dating app scenario, before you build a dating app, host a dating event, have a dating chat room on Facebook or X, and see what people are going to be attracted to and what they’re willing to pay for. That’s usually some of the best first steps.

There’s a new dating app every 1 or 2 months. Is that ever a risk in other things you’re looking at? The business you’re telling me about is Vibe and I love that concept. I hate having to wait at a bar to put for drinks, pick up the drinks, and then pay the bill with a card. At a bar, it is the longest seven minutes of your life. To the point, I carry cash out to do it. How do you put a moat around a business like that once you get traction?

The question is can a moat be built first? The reality is something could be duplicated. A lot of entrepreneurs like to hide behind an NDA. Let’s be honest about this. If somebody wanted to steal your idea and they had enough lawyers under retainer, your NDA isn’t going to be crap. You need to have your IP protected and an NDA covered at some point. Be careful about holding your idea too close in the beginning, especially with investors.

Can you create a moat? Sure, you could create a moat with technology and team. The real moat is with execution. How quickly can you get into the market? There are all kinds of dating apps. Some of them are very successful because they execute quickly. They built a customer base and got revenue. There was an ungodly amount of rideshare apps in the beginning. Uber and Lyft executed quickly and got to scale. Can you create a moat? Yes, but the question is, what happens if someone comes over the moat? Can you still keep going?

Advice On Scaling

The scale point is salient. The people who tend to be entrepreneurial, I don’t feel like have experience or a desire to want to scale things. They want to talk about ideas, prove a concept, and have relationships. One of the biggest problems you can have is scale. “When do you scale?” What advice would you give them about scaling? It’s hard.

Scale at all costs. Build more clients and your funnel every single day. At the end of the day, your customers are going to be the thing that’s going to keep you afloat. We fall into another recession or we have another stock market collapse. Private equity goes south and the valuations aren’t there. You’re going to need customers to continue to make payroll.

That’s on the revenue side. It’s arguably harder. What about the delivery side?

It’s interesting you say that because when we work with companies, I ask them this question, “What happens if we’re wildly successful?”

It could be as deadly.

We’ve known several companies that have done very successful crowdfunding campaigns on Kickstarter and Indiegogo. They sold millions of dollars of products and couldn’t get the product into the customer’s hands. It’s a balance. You have a team so you have someone who can sell the product and manufacture the product at scale.

If I need to get to a person and I’ve got a CFO problem or more private equity problem, my best friend will come back to me in 2 hours with 3 people I need to talk to. How do you get immersed in that? Is it working in St. Pete that way? You get the scale problem. Can you solve that scale problem quickly?

Absolutely. I’m a collector of people. I’ll date myself. The Six Degrees of Kevin Bacon is that old college game where within six iterations, Kevin Bacon was in a movie or was in the entertainment business at some level. I run my business the same way. Every morning, I’m on LinkedIn finding new people. I’m up at 4:30. I’ll jog to about 5:30 and take a shower. That’s what I’m doing in the morning while building my funnel. I’ve been doing this for many years.

How many calls do you take a week? It’s virgin calls that you’ve never met or cold intro calls.

I would say probably 10 to 15. I keep them short in fifteen minutes. I’m very purposeful about the list I built. In the beginning, I made the mistake of wanting to be everyone’s friend on social media, whether it be LinkedIn, X, or whatever the case is. Now, I’m hyper-focused. The three people I talk to or connect with are fellow investors, interesting and fast-growing startup CEOs, and the media and distribution partners. Almost everybody else, unless it’s a social circumstance, I don’t connect with them.

Biggest Career Mistake

Here are always my last two questions. What’s the biggest mistake you’ve made in your career? What would you do differently?

I’ve already said not to do this and I say this from experience but it’s bringing family members to my business. It was a disaster. I will never do it again. In my line of work like yours, I get asked all the time for a job. I’ve had to turn down a lot of good friends. They may have been qualified for the position but I don’t want that hanging over my head. That was the biggest mistake I made and a mistake I’ll never make again.

Book Recommendation

This is the last question I ask everybody. What’s the book that’s had the biggest impact on your life that you would recommend for everybody to read?

The Millionaire Next Door.

Why that one?

When I was very young, I learned something about net worth versus income. Professor Stanley at Georgia State University wrote this book. He did a study of people who were affluent and people who were pseudo-affluent. I learned an important lesson. Don’t judge someone by the car they drive. I learned that firsthand. I’ll tell a quick story. I came from New York to work as a broker in Lafayette, Louisiana. It was when oil was $10 a barrel and unemployment was 24%.

That would have been the ‘70s.

It was in the early ‘80s. I was cold calling. Mr. Abear picked up the phone. I sold him $500,000 in municipal bonds over the phone. My boss says, “Get in your car, drive out there, and make sure he doesn’t DK you.” It means Don’t Know You. You remember those terms. I got out there and Mr. Abear was in a metal shack. I went to Mr. Abear. He was sitting there whittling some wood. If he had 7 teeth, he had 1,000 in his mouth.

I was 22 years, 11 months at the time. He gave me a check for $2.5 million. I looked at him and went, “Mr. Abear, I don’t want to be rude but how did you get this money?” He took me around the side of his house. What used to be rice fields were oil derricks as far as the eye could see. Seven years later, he backed my company before we went public. That is a book about how you can judge people not by the things they wear or drive but by their character and who they are.

He didn’t have a Benz.

I remember Ross Perot when he ran for president. He had a seven-year-old Chevy and he was a billionaire. In St. Pete, this place is flush with pickup truck billionaires.

I usually end on that question because it’s such a salient point. I feel like social media has made people more showy. What advice would you give to an entrepreneur to not get caught up and worrying about that? It is hard when your W-2 friends are getting raises and they’re cramming their Instagram in their entire life. What advice would you give to them to stay the course?

You had to be pragmatic about what you see and what you represent yourself in. It’s a great tool. It’s been very successful for me as for others. You have to understand to trust but verify when you see something. Be yourself when you’re creating content.

How can everybody get in touch with you on the internet?

You can reach me on social media at @BlackDogCEO on all platforms and at Black Dog Venture Partners. Our events come from VCFastPitch.com.

It’s great sitting down with you, Scott. I’m looking forward to seeing more and getting more connected in the SAP Community with you.

It’s a pleasure. Thank you.

 

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