The $25K Uber Bet That Became $135 Million

0:00One, two! Hi! Welcome in! My name is Alyssa! Eric, pleasure to meet you Alyssa. Eric's welcome to Coffee with Joe Shelby. Happy to be here. Amazing! What can I get you to do like coffee? You like tea? What are we feeling today? Well this late evening I'm gonna stick with tea. Let's go with a sweet matcha latte. I like matcha latte. I like your style. I love my matcha so... You owe me both. Oh yes absolutely. Do you like chocolate by any chance? Couldn't hurt. Okay beautiful. Yes I'm so happy to hear that. Okay I have an assortment of chocolate here. We've got Dubai chocolate, we've got Lindor. I live in the Bay Area too long to not go garrideli down here. I'm right. So I think it's gonna be sea salt caramel for you the way. Oh okay open it up. Give it a try. So I hear you are a lawyer. Is that right? They don't hold it against me. Okay so are you who I call if I get in trouble? That's exactly wrong. We're laundering money. No one's asking that. Okay.

1:00Because I don't do that anyway. So we're safe. You would never. No I'm on the corporate side. I help people most of the time acquire and sell businesses. So most of my clients are happy with me and they're not going through two times more. I love that. Okay. Good. It's a good time in the world right now. How's that doing for you? Delightful. It's compared with matcha. I love matcha. I love matcha. I love matcha. I love matcha. You're doing great. Delightful compared with matcha. Absolutely. Let's bring you over to Joe. Come on. Thanks, Liza. Absolutely. Come on over. Joe, we have Eric. Eric. Joe. But I know I wasn't much of a drag right here. But I appreciate you coming. I know. Sometimes it takes things like this to meet your neighbors. So thanks for coming out of here. Yeah. You first got to take our chocolate today. Oh yeah. Oh everybody's passing. Aw, yeah. And then a professional athlete. Oh I guess that'll do it. No no no. What's up everybody? Welcome to another episode of coffees. I am your host Joe Shelby and today we are sitting down with Eric Cox, a brilliant attorney and the

2:01COO of net capital, a mega company that is taking companies public business and acquisitions and mergers. Also the head counsel for Story Law. Please welcome the one the only Eric Cox. Thank you so much for having me Joe. Appreciate you everybody. Thank you for coming here today. Thanks for having me with my neighbor. We're going to make some magic happen. Eric, I like to start the show off with the same thing I ask everybody what's your morning routine? Oh, so I am I was never a morning person, but I had to become one like a lot of people that listen to the show I imagine. I like to get to the gym early and I try to get a little bit of a green tea in. I have my matcha right next to me for coffees with Joe. So yeah, usually try to get to the gym for a little bit of the first and then straight to straight to business. I do also try to get a little bit of the word in there. Kind of sit down and get kind of make sure that I'm centered. But as best as I can. It's a little bit of gym, a little bit of a bit prayer and then straight to business. Right right into it. Now you work at a life time or were you?

3:06If I had to go a single mile, I wouldn't make it to the gym. So I'm a garage gym guy. Most of the time, it's, honestly, largely a similar routine. My brother, Pupion, he's a physician. So most of the time, I'm doing the same routine that he recommends for himself. What's that routine? So I do kind of chest and triceps on Mondays. We call it Christmas, little back and abs, by his cab, shoulders, abs, then legs to bring it home on Friday. Leg day, Friday, always, right into the weekend, right? Oh, gotcha. So it's just a lift schedule. Yeah, lift, Peloton, Pupelton Monday Wednesday, Friday, and then a quick run on Thursdays, and then a soft run on Tuesdays. Oh, nice. All right, cool. Nice regimen. I appreciate that. Now, you are in the world of law. Now, tell the audience, what is it that net capital does? And how do you work with businesses like Apple and Snapchat, like mega companies? And what have you done for them? Yeah, I know, I appreciate that. So, you know, I'm what my law school used to refer to as a non-traditional law student.

4:06I used to take a little bit of an offense to it, but now I kind of embrace it. But essentially, I've always grown up doing emerging companies venture capital. I trained at Michigan law school, then went straight to Silicon Valley to a large law firm called Kool-E and Palo Alto. We got about 1,000 lawyers worldwide, but we represented 2 thirds of all VCs in the United States while we were in the headquarters in Palo Alto. So we got to do some of the coolest deals on the Apple team that acquired Suzanne, and also on the Snapchat IPO. I got to work on a really cool core-sare project for anybody who did gamers out there, who did peripheral manufacturers. Yes, yes, thank you. So I got to do so many of the fun things. And then my best friend from law school actually brought me over to net capital, and that is where really supporting entrepreneurs and their fundraising journey beyond the law really began. And that's a funding portal in Broker Dealer. We help entrepreneurs raise capital entirely online, hard to imagine after a couple of years, we've helped a couple hundred companies raise about a hundred million dollars to the funding portal from a little over 100,000 investors.

5:07So you can imagine if you have a cool group of people that love your product and you want to let them into your deal, get to be really thoughtful how to do that legally and compiliently, and we have all the regulatory frameworks down. We have all the team members that we need to build a launch a capital raise online, support the fund raise, and then get you to your next part of your journey. So what does like a small company, how many people do they need to reach out to you? What do they need? What's their modeling to be in order to even get your attention to look at the deal, to even reach out to these investors? Joe, that really is the hardest part is because, you know, I like to be honest to myself, I don't know. I've been wrong before when I thought companies would not have success. I've been wrong when I thought they would have success. Yeah, how do you model that? It's very uncertain and a lot of it is, let's call it what it is, is guesswork. There are certain things that do help us feel confident in a fund raise. A lot of things like social proof. If you have strong management team, we always say we're betting on the jockey, not the horse. So strong management team.

6:07Yeah, the CEO is like, okay, you grill in the CEO all the time. Background so we can check into, past success helps a lot. If you have really supportive advisors and investors, that moves the needles. Most of my family isn't medicine as I mentioned. So medical advisory boards, if you're in the pharmaceuticals, the biotech space that moves the needle a ton. And then at the end of the day, if your clients or your customers love you, that's one of the most important indicators to the success for us. Because then we can reach out to users, customers, we call them investors. Investors turn customers, customers turn investors. This is a pretty meaningful way to move the needle on that capital. Investors, that needs to be growing. It's goofy, I know. Nobody liked it, I apologize, but. I like it, I'm cool with it. Investors, right? You heard it first here, guys, that's a real word. He's gonna coin that in Webster's dictionary, let's go. As long as I'm twisting Joe's arm to get a fundraise going for the listeners, can own a small piece of coffee. Yeah, that would be cool. That would be the move. Yeah, we're now looking at big investments

7:10from different advertisers, and hopefully Netflix, we're knocking. I love it, they should be right here. Yeah, let's go. Now, why did you get into law to begin with? Oh, I actually love that one. I have a pretty, I have a lot of friends who. Especially if your parents are medicine, because if you go out into law, because I'm my parents are medicine, if you go out into law, you're like a failed doctor. Yeah, that's one way to put it. No, I watched my dad do a colonoscopy, I didn't pass go, I didn't collect $200, I went straight to law school. It was about as clear as that. It was hands down, God bless you for your service. Check please, I wanna do literature. You don't wanna do colonoscopy. That was never the answer for me. My brother followed in his footsteps, God bless, I'm gonna go doctor cox's, but no, not I said the fly. I think what really did though was in undergrad, there's an incredible micro finance program at Pepperdine, shout out Pepperdine here in Malibu. And we actually do, we actually, we sell water at these sporting events,

8:11and we take the funds and go do micro loans abroad. And so I studied abroad my software here in Buenos Aires, Argentina, and there was a small leatherworking community called Autorlom, and we took a couple thousand dollars over there, and they were making all of their goods by hand. And we're actually able to get a leathermaking machine there. And they actually repaid the loan before we left it into the academic year. So like when I saw that and the increase of productivity for the building from the scale and support their families better, it was like wow, that kinda ties into both. Why I went into law, because it was incredibly heavily regulatory. It was there was so many legal loopholes to go through to be able to deploy those funds and the same time, and also reminded me that, a cumulative of small investments can be really meaningful. And so those two things kinda support why law and why registered funding portal, not the same time. Makes sense, makes sense. Now I got a quick question for you. Yes sir. You know, you left your big fancy law firm, Yeah. Which is world famous. Yeah, that's it. And you chose to be the number nine employee at a startup Fintech company.

9:15Like, was that a calculated move, or were you high at time, or did you feel like you're going, because you've been obviously a contrarian, think you're not going in a medicine. So like, what were you thinking to do that? Did you know? Coolie. I love it. I went to coolie, and first of all, I loved my time at coolie. I think the best training in the world, in my opinion, one of the greatest law firm ever, and especially an emerging ECBC, emerging company venture capital. For me, my whole goal was three to five years to start my own fund. I was never gonna try to grind for partner. It was never really a real perspective of legal practice was always kind of a means to an end for me. Timing. Timing, I think today is what does it for you. The Jobs Act came out in 2016. I graduated with law school in 2017. The funding portal was up and running late 17 into 18. My best friend from law school told me that this opportunity to help join early, be a founder, be an entrepreneur, but also support entrepreneurs. We work with investors.

10:16So it feels like we're kind of playing VACE, where members of Fintech are regulated by the SEC. Uns of legal implications. So I checked a lot of my boxes. It had law, it had venture, it had kind of entrepreneurship. So when those things kind of all align, it feels like you have to opportunize. And I knew that this would be one of those things that we'd look back on, and I imagine it would be a staple of the community, right? There's no way that we can continue to have this world where only a certain group of people can participate in these deals. I just couldn't imagine that could be the case forever. And the idea that everyday people, people listen to this show, people that are online, people were clicking the links, getting the QR code, can own a piece of their restaurants that they love, the breweries that they love, the technology that they love. It just felt like that had to be a piece of the future. So yeah, I mean, it was definitely a leap of faith, for sure, not to say the least, especially picking up, I was grateful Michigan was pretty supportive, but still had some meaningful student loans. So to me, I'll take that leap of faith, grateful for my family and my wife's support. And yeah, we went out there and took the risks together. And we were fortunate that early on,

11:18we were able to bring in some good deals from University of Michigan early to prove the model. There's actually one of our first deals, I was court innovations, which I actually worked for as a law student, where you actually paid parking tickets online, to avoid getting, there's a debtors prison where you would get a parking ticket, you get your license suspended, driving with a suspended license, bench warrant. So we're clear, real clear path from not being able to pay a ticket to go into jail. And we just kind of created some simple software for people to be able to pay that online and avoid those complications. So it was cool to be able to prove that model, do some of that stuff early. And I had one of my, getting to work with your best friend, we'd already done emerging company stuff at the law school together, we'd already worked for student venture funds together. So we felt pretty confident that we'd be able to execute on the vision. So team, opportunity, timing, but I'll always be grateful for my time at Kool-E. That's great. I mean, it sounded like you were really like, looking for a wife for your job. Checked a lot of my boxes.

12:18Yeah, yeah, yeah. And similarly, you can. You didn't even mention that you got to move to Orange County. That's true. Yeah, I grew up down here. I grew up down here. Only really went to Michigan for law school, went to the Silicon Valley just for the job and got to come back home. Yeah, fully remote for the last eight years before was cool. So yeah, that was a big perk of it as well. Getting to be down here, my wife teaches Irvine Unified. So being down here at a great school district, all those things really, really added to the formula as well. You're right. Yeah, I mean, like you live in the best place, I would argue on the planet. I would not contest. Yeah, so. I mean, people in the hood and van i sometimes think. Oh, no. I pitch it all of the Southland. I love LA down to San Diego. I love the Bay 2, but the whole Southland has to stick together. I wouldn't call it the Bay 2. Except Irvine Newport Beach, it's bonafide facts that it's the best place. Look at him take a jab from the quarter. I know. Now, I got a question for you.

13:18What do you think is harder to convince the first investor or the hundredth investor? You know, I have, maybe this is, I'm not sure it's going to be super good for her. And I think people will probably agree with this. The first, I think actually, well, it depends on what you've done since with other 99 investors money probably. But, but that first investor in Silicon Valley, we used to joke around all the time. Every investor wants to be first to be second. That first investor, people would always say, add me to your newsletter, keep me posted. I can't wait to see what you're building. And then as soon as there's enough market signals and like lemmings, they start showing up out of the woodwork. There was probably a time in the 90s and third early thousands where there's true risk seeking, but by the time I got to Silicon Valley, everybody had the same data. It was put more money in later, gets better returns for your limited partners. And that's pretty much been the state of things since then. Now I got a question for me as an investor, like what's the highest yields you've seen some of your investments at your firm payout at NetCap? Wow, so we've, yeah, we've held a couple,

14:20we've held a couple hundred companies. We have just under a dozen exits, pretty early on still. Doesn't exit so? Just about, yeah. So that's pretty good. Not bad, especially because we take really, really early risk when we go industry agnostic. So we've gone all the way from, we had a really cool company that raised for a Broadway show just last year that might not ever return, but people will love the show when they're supported, they're gonna credit and they get to support and they get to go to the show and get a discount on things. All the way to truly high tech, high growth, lithium extraction companies or, you know, Boron, Nitri, NanoTubes, or some of the coolest things that we've ever seen. But I think we had just under 10X, we had an 8X return, it would be probably the best that we brought to the non-accredited investor pool, which is super, super exciting. Otherwise, they'd be excluded from the deal. One of our investors in net capital also invested in Uber. And I mean, you guys know the return on that one is probably still gonna go down as one of the greatest returning investments of all time.

15:21But I'm just bummed that we couldn't get those, those technology deals on the platform for everyday riders. I remember my wife actually told me about Uber, I'm embarrassed to admit it when she finds technology. I didn't know about, but we were riding Uber when it was still limousines off time. I remember those days. That was so fun. That was like, I don't know, 13 years ago, 12 years ago. I remember my friend, you got to invest in this company. This is like a great investment. It's so cheap. Yeah. What is this? You know, like, damn it. And we should have put like 10 grand, that would be a million. Oh, I mean, I'd be much more wealthy. Yeah, yeah. No, I mean, I think they put 25,000 into the deal, turned to 125 million dollars. That's an unbelievable return. My wife also showed me one of her students was working on chat, GPT early, but at the time, she wasn't even that good. I hate to say it. It was like a worse version of Wolfram Alpha. And I couldn't see the vision, but it was too early. I wish I would have kept track of it. But yeah, we all look at things that, I think we remember the ones that we missed more than the ones that were there. Yeah, I don't remember the ones that I even did,

16:22but I was you missed, you know. Why did I do that? Now, I got a trick question for you. Ooh, look at all of me. Do you think a great company can still be a terrible investment? Yes. Why? All the time. Because we talked about team being the most important piece, so all it takes is one, for every good member of the team, you have to be more thoughtful about avoiding negative value. People lose track of that and you hate to say it. I think there's a lot of coombaios sometimes, where it's like, oh, you know, me and my roommate are doing something. And we already agreed that we're going to be part of the team together. And that's fantastic and beautiful. We love that. But oftentimes, it's just not the team that you need to be able to execute at the next level, especially when you go from series seed, series A into the series B and C levels, sometimes an entirely different skill set that you need to add next level. And especially if you want to get to a public company level, get on the NASDAQ or the New York Stock Exchange, almost an entirely different skill set altogether. And so there's a bad rap for venture capital is bringing in more established different expertise

17:23into companies, removing founders. I don't think that's the way to do it. But realistically, there's oftentimes an entirely different skill set for different stages like company. And if you ride the wave with the same people at different stages, oftentimes, that can be a great company and a bad investment. Also, every once in a while, folks get a handful of the cash and they don't realize what the burn rate looks like. And they don't know what the next stage is to get to the next round of financing. And down rounds can cripple a company where you raised, there's just like a frothy market. And you were just so excited to take the highest valuation possible. But that wasn't realistic. And then now all of a sudden, a couple months later, people are saying, hey, I don't think it's worth that. And the market has agreed. And you're in a pretty tough spot. And then also about a third of all venture dollars go towards marketing. If you can't get the word out, it's kind of like a tree falls in the woods. And no one's there to hear it. Did it happen? And unfortunately, in startups, often the answer is no. If you have a great company that falls in the woods and no one's there to hear, it might not matter.

18:23And that's heartbreaking. And marketing strategy, you could spend a ton of money. But if the marketing doesn't resonate, and there isn't an effective marketing strategy that actually grabs someone's attention, that's hard because that's a science. And people don't like boring products. That's why this whole spin on this podcast has been a marketing strategy for me to market a boring mortgage company. Because nobody cares about my mortgage company. Highly effective power to amen. No, this is good. So I have to entertain you to draw attention to my mortgage company. If we're going to be honest, then self-serving, not a lot of people interested in corporate law either. Yeah. Nobody cares about corporate law. It sounds like actually not only does corporate law sound boring, but it's anti-climactic. I tell people mortgage, it's like telling you student loan debt. How would you like that? You're like, oh my god. So mortgage is a step above student loan debt. But it's debt on your house. But people like the house.

19:24They don't want the debt. They want the house. We sell the vision. They pick offense. The dog. Like the American dream. Yeah. But what does it take to accomplish that? Coffee's baby. Coffee's baby. No, you're absolutely right. VC companies fail all the time in the wrong marketing strategies. One of my favorite things recently has been the influencer investor recently, where the actual, you were just having athletes and entertainers on the call earlier today. Yeah. I love those investors. I love athlete investors, because not only are going to take the cash, but you're going to have the supporter of the founder. You're one of my closest friends, Baron Davis. He was early in on vitamin water. That he decided to take some equity instead of cash, promoted it. I think the idea that the Golden State Warriors we used to joke around in the Valley, their day job is basketball. But what will actually provide the generation of welfare most sees guys is the coin bases deals that Kevin Durantz gets into. Yeah.

20:24That's what's going to work. Durantz, a multi-billionaire from all his deals. But also, Steph Curry, any business he touches, you're investing it. What? Steph Curry's in the walk? I mean, because anything he's shouts out is going to succeed. So you get their money, and they promote the opportunity, and you save the third of entry dollars that you would have poured into marketing instead. It's a natural strategy. Just a quick question. Do you have any deals that Steph Curry's in right now? I wish. I mean, I'll invest in that. I love it. I actually don't think that I do right now. And every single deal that I have to mention, I have to do massive disclosure. So let's just knock out some quick disclosure. I'm going to go deadpan. Anything I say is not legal, financial or tax advice, not investment recommendations. Please consult your attorney, consult your tax professional, review every prospectus, and consider wisely. Only invests what you're comfortable losing. That should do it. Oh, no. No, I could never do that. I think you should. I've caught in a couple of these since I was reached out to.

21:25And I think what you're doing is incredible. Exposure is awesome. The opportunity seems super cool. But I do love, I do love, and through it. But on the same side, you have to also be every deal. You have to screen. You have to be really thoughtful about these deals. Sometimes there are certain influencers who are willing to take. You're pretty indiscriminate on their deal recommendations. And there's just a difference between who people are really supporting, believing in it, and can do the deal just the deal, support the deal, market the deal, versus folks that are really kind of just there for a payday. And that's a little bit of a fine line. So you still have to do this. And you're seeing that isn't 100% like a sure win, right? You see what's happening with Prime, for example, with the Paul Brothers. It's tanking. It took off big. But they didn't create an ecosystem for retention. So yeah, you'll get a big launch. But what's the ecosystem to retain? Like how are you going to keep the customers happy after the hype fades? Yeah. They're going to all try the product. Then they're going to be like, just like Prime.

22:25They're like, this is nasty. Yeah. I don't know. This tastes terrible. The kids like tasted it. They're like, don't bring this back to football practice. Right. Right. And demographics are fickle too, man. Things are super hot right now. Everybody's waiting for the next thing. I think you got to be thoughtful about your timelines on CPG, on consumer package goods that's really relatively quick turnover. And mostly times PepsiCo, Coca-Cola, they're not inventing anything new. They're buying. They tend to buy versus build. And so the exit should be build something enough that they like it and give it a bit. Yeah. Were you on the poppy? Perfect example. No, honestly, I always struggle with those ones because at the very beginning, they were talking about the probiotics, pre-biotics, all that stuff. There's not really, there's not like a ton of science to support that there's any health benefit to that. So I struggled with some of that. But it sounded good. A healthy soda? Like, come on. And they're delicious. And I have some of my home. I think some of them are delicious. Yeah. But it isn't healthy. I don't know. I mean, does it have pre-biotics?

23:26To the point where it's actually impactful, I think they had to change their marketing. I think they had to change their marketing because of some of the claims might have been unsubsanciated. So I think it's difficult. I think those ones are always tricky, especially because I think I have a heightened burden by virtue of having some medical community listening to me. Sometimes I straight up miss out on some great deals all the time by virtue of decision making. But the medical community and these startups have kind of converged due to this holistic biohacking society that we're in now. Everybody's claiming, drink this. You'll live longer. Drink that. You'll live longer. Eat this. You'll reduce your biological age. Drink that. You'll reduce your biological age. And everybody's just buying it all up. Like, everything I do is like relate some biohacking to some extent. And somehow it works. I don't know. I think I look great for me. I think you do. And I love all this stuff too. I've always been a quantified self kind of guy. I'm a big wearables guy. Actually, I had Gen 1 Apple Watch.

24:27I was like Fitbit and Up and before that. I love the folks over at FoundersFun who supported Fitbit and all those things. I think that's fantastic. You should always be thinking about like, at the end of the day, time is your most scarce resource. And if you can increase time, like one incredible opportunity. But I think to your point, a lot of folks are converging on that front though, when I've been doing with my family is a medical advisory. You actually love this. And maybe we can actually talk about this offline too, is having a whole slide dedicated to your medical advisory group. Medical advisors are incredible. Oftentimes these physicians are peer practitioners and go home and paint or whatever they enjoy. But looping them in on deals, getting them small piece of equity and getting them to promote to the medical community as a whole another strategy that we've been working on. And I think it's really helpful. And it also helps you think about things early. I worked on a deal that is really cool. It's like a five hour energy shot sized drink, two ounces, of like 10 to 20 grams of protein. And I think it's all of like 80 calories as like nine ingredients in it. Really true. I heard about that 20 grams of protein in a shot.

25:28So, so, so cool. And actually, that went through you guys? Yeah, protein quick. Big fan, spoiler alert, we support them. We own a piece. I actually advise them outside of neck capital as well. But we love the deal and it's super exciting because early on my brother was like, mark my words, red fives got to go soon. Like no one cares about the cut. If anybody's pouring out the two hour energy, the revenue is pouring that out into a cup and they see that it looks like bone marrow yellow that nobody wants is not appetizing. So be it. But fruit punch does not have to be red, no red five. And in California, I think six months or a year later, like band it. Yeah, so I think it's so impactful for you to be able to go through, speak with these people early, get their feedback before somebody else chooses the feedback and you have to make changes anyway. So, big fan of, big fan of medical advisory. All right, what's more dangerous to a founder? A bad business decision or a legal decision that they don't even realize is bad five years later? Well, I'm so biased. But I think I'm trying to suspend my bias for a second and I think the answer is still bad legal.

26:28We always say like an ounce of prevention is worth a pound of cure. I'm so disheartening because a lot of our clients, they think they're doing quite well and a lot of them are, but a lot of them are a couple hundred thousand. The runway is 18 months with a couple million dollars in there. But a couple hundred thousand legal fees dramatically decreases your runway. So I always feel bad. They're like, oh, you must be happy that this went wrong and now we're paying legal fees. Like, no, absolutely not. This is a nightmare. And the work that we could have done to prevent this would have been so much less than it's going to take right now to go retroactively thick stuff. So, most of the time, an ounce of prevention is worth a pound of cure. Good legal counsel is basically, in my opinion, early on invaluable. After you raise your first little bit, right? First you've got to kind of figure your sea legs. It's hard to do 600 an hour with zero revenue, but you probably want to think about pretty decent legal pretty early. 600 an hour is what attorneys cost now? I think that's good. That's good value right there at this point. I have partners like Cooler that are 2000 an hour.

27:30Wow. My experience is quite 500. I definitely have, I have close friends that are banging people over and I always use 600 because it's just like, a perfect example of just $10 a minute. And it's, but they're so many thousands of an hour attorneys now, especially in venture. But they've done some of the coolest stuff and their expertise has kind of been valuable. But I will say, if you can get a good kind of high value, early supporter attorney, then I think that's incredibly valuable. But I also will say that, you know, bad business decisions, I can't remember who had this framework. I was still bad, but I rip off so many smart people and it makes me think, feel like I'm smarter, but it's not actually even my thought. But somebody broke up their decisions into like, haircuts and tattoos. I think there's actually one more element there. They said most decisions are haircuts. You know, you got a bad haircut for a while. Not great. Showing up on coffees, looking like trash. Actually, my barber wasn't here today, so that's why I look like this. But it won't be the end of the world, right? But tattoos, those permanent, semi-permanent decisions,

28:32those ones you should put a quite a bit of energy behind and really think about those. Most decisions in life are haircuts, and you don't want to think too much about them. Get through them quickly, execute, and then those tattoo decisions though, you should, you should huddle up with friends and family and consider if that's the right decision. That's true, that's true. And I like that analogy, tattoo or haircut. And if it's a haircut, just pull the trigger. If it's a tattoo, lock in. Yeah, I'm gonna use that for my business frameworks now, especially with my partner, you know, because we got a lot of haircut decisions that we just sit here and like, we're huddling over like, dude, just come on. It's a haircut. Picking it out. I like that analogy, thank you for. I always learn, say, I'm the biggest student of my own show. Oh, yeah. And I always say, like, if anybody benefits from this show, it's me. Okay, then comes the decision that really changes your story. Instead of staying on the prestigious path, you left cool, you joined Net Capital, then there are only eight people ahead of you. How did Net Capital first get on your radar?

29:32I know you mentioned your friend, and what made you willing, really what made you willing internally to leave coolie? That was like, that's the baddest firm on the planet. I love, yeah, it's so true, and it's such a tricky one. So for me personally, it really came down to, I, so it's funny. I like to say, when I look for founders, when we speak with them, you're considering investing, I love a sales CEO. That is the most important, the most important skills that you can have as a chief executive, it's sales. You're not only selling your company to users, but also you're selling to investors, and you are selling it to your employees as well. The opportunity to own was the biggest piece, and I think we'll probably talk more about ownership and how critical that is. I was, there was really no path in my opinion to owning a piece of coolie, right? It would be 10 years, ideally, if you're lucky, make partner, pull down a couple million a year, and that's really just based off of the profit share. There's no coolie gets bundled into another mega firm, and I get a cut. There's no clear path to ownership there,

30:32and I do believe that ownership is the single most important, especially business ownership. I love real estate too. I'm not cutting against e-mortgage, but I do think business ownership is kind of hands down, the most important part of how you can get to your ultimate kind of dream lifestyle. So the idea to be able to come in, own a meaningful piece, direct, drive the direction, also you gotta keep in mind. It's also purpose. It's not even about money. Exactly. For me, e-mortage drives more purposes. You take away e-mortage, if I were to come in, I wouldn't sell the company. I was thinking about the other day, I'm like, as we get hit up with different people trying to buy us, what the hell am I gonna do? Right. I have a plan. My son, I want to be a take away, he's like, he's already wants to be a CEO. I got vision for my kids. I'm generational. What am I gonna do here? I'm not gonna start another company. It's gonna be a mega company. It's true purpose for me. It's outside of money. It's like, I have fun, but do you think that that's really what drove you? That was the next part I was gonna say was that, I was so grateful for my time at Cooley, but especially as a first year,

31:34and pretty much all the way through being a junior associate, you're fortunate to be on the call in the file, but I'm not really meeting and digging in with these entrepreneurs. I'm not really meeting and digging in with my clients. And so the idea to build actually roll up my sleeves, get involved and support my clients, that was unbelievable. I went from very much being like the very lowest common denominator, like things would get crammed down to us to keep the file thin, to keep the cost down. And sometimes you get exposure, we're really cool people. I got to do some snaps with Ed and Spiegel, which is still one of my coolest things on the Snapchat side, but realistically, a lot of these clients, they were my partners client, and I happen to be on the file, versus being able to be, this is like my contact. I call them, they call me, they need something, they're a person. So yeah, being able to actually be with them, meet with them, be part of their team, and support them, that's kind of invaluable to your point. So you now have the opportunity to find the next snap, is your firm equipped for something like that? That's exactly right. And so that's actually part of the funding, I love that you ask that question.

32:35Not only do we have the funding portal, that's helped a couple hundred companies, do the $100 million, but we also have our registered broker dealer, and this is something that most funding portals don't have. So pretty early on, we realized that, Reg CF, regulation crowdfunding, you can only do about five, you can do up to five million dollars per year per company, which is awesome. That's way up from when I started, when I first started, it was actually $100,000 maximum, moved to a million, moved to five. So we're proud that we've been able to get to be able to do more in larger deals, but realistically, a lot of bigger, better companies, they can't even use $5 million. So what we did early on was start building out our own broker dealer. So we have our own proprietary broker dealer, we own it, it's registered in all 53 states and territories, it could do every security exemption, every investment instrument, you could do $75 million under reg A, you could do an unlimited amount under reg D. So pure private placements. There's actually a design, where you got a funding portal right here, where your private deals could be behind a password, and people have to be a member of copies in order to log in, see the deal flow, and invest in those deals. Full white label solutions.

33:35And so that, I think, is what allows us to be able to go get the next snap, is that, not only can we help you with the first one to five million, but we can help with the $75,000,000,000, billion dollar financing, so we could do it through the funding portal and broker dealer now. So we are privately held mortgage cover, we've got about 1,000 loan officers, we entertained hedge funds, we've entered, but we never really, we're able to fund ourselves. Yeah, exactly. We've never entertained funding. For a company that I like ours, that has a lot of market share, biggest independent mortgage company in California, banker, broker, but we're the first broker of this kind of caliber in California. Is there any benefit to seeking, because we're self-funded, but I want to dominate the nation. I want to just take over all the other, so my model is to attract other independent mortgage companies to come to our ecosystem, because it makes a lot more sense. They plug into a billion dollar infrastructure, and they can leverage all of our technology, marketing, HR, onboarding, IT, legal, compliance, all, everything.

34:37Is there a benefit for a company like ours to go to, private equity, or you basically structure deals, or like keep funding it yourself? Two pieces. Can we grow faster? Can we gain more market share quicker? It's probably that. That one in control. So I think you're absolutely right. At the end of the day, I always say, I'm in the equity preservation version of capital raising. If you don't need the money, you can keep that equity, generally. But that being said, if you have opportunities to have access to a meaningful amount of cash, all that once. My friend did a SPAC, but he sold 7%, and had a five billion dollar valuation. So that was a SPAC, and he only had to go of 7%. Now the stock's in the gutter, but because the industry has a whole SPAC market. No, the mortgage industry is kind of tough. Right, right. So, you know, but I just, I don't understand enough of that world to really see any benefit to how we can benefit. Yeah, so if the terms are right, like you said, if you can get a meaningful amount of upfront cash and not at the part with too much equity,

35:38I think that's incredibly valuable. You could start going targeting those medium or small sized brokerages, acquiring them, bring them into the fold. That could be a meaningful way to use the capital. I think on the other side too, is that one of the things that we've always loved about these private capital markets is that you can keep control. I've seen too many times where you try to go to the, and I love the NASDAQ. I mean, right now, we're going after distressed mortgage companies. We haven't ever approached like a company that's thriving, and like, K, we'll just give you five million, roll under us. Right, right. You know, like that could be a play, but we don't have that kind of money. But that also could be, but your approach could be really valuable. Everybody wins there, right? People are kind of on the verge, and you can get a good, good, good, good value. That's our approach now. We just acquire companies that don't, you know, they're like, it doesn't make sense for us to operate. We'll never be in e-morgant. Yeah, yeah. We can't be. So like, we either face e-morgant in the ring, and they're going to take our talent. They're going to take our talent, or we just join them, and then we retain our talent. And we leverage all their ecosystem. Yeah, no, I think that's right. Distress assets are incredibly valuable,

36:39especially in the space. It sounds like that's a good move. There could be high performing assets that you could do merges with, merges and rules. Yeah, the play for us, if there's any value there, it would be like high performing companies to just roll underneath us, that see that we're just a much bigger player. And we can give them some sort of upfront severance, you know, to just walk away from their ego. Yeah, there's that. There's also marketing dollars, where it talks about the value of marketing, you know, having some bucks ready to do national campaigns and attract the talent before it goes to competitive firms. That could be a good way to use the capital. But then to the day what's nice about ours is we struck the deal. There's no book maker deciding what you're worth. We'd work together on that. We'd guide and advise on value, and it's your company. You tell us what it's ultimately worth, and we'll go to the market and see if we can get our investors to support that. So I think there's a lot more control. There's no liquidation preferences, no paratite terms, no preferences, you know, that the investors are generally hoping that you go and do something great with the money and then they get a return. They don't get to really say, if you want to go left, they don't get to say you're going right. Yeah, that could be a big difference on our account public. And not, you know, and that's why we never want to go public.

37:40Like we don't need, we have the regulators already up our ass. Yeah, we don't need like more people. Yeah, no. No, no, we're members of FITA, we're regularly about that. So see, I love my regulator partners. I love you guys too. Every state, including Washington, Arizona, Florida, we love you all. I hope you're all watching. Yeah. Yeah. We don't have the three territories. Puerto Rico, Guam, you guys heard an island? Now, if net capital had two years left after you joined, would you, would leaving Cooley have been the right decision? No. No, we didn't, we didn't, we reversed Virgins into a NASDAQ company in 2021. And that really was kind of the one piece that made it kind of super justifiable at that point. But, you know, that's hard to say. You know, I mean, honestly, no, well, I guess the theoretical thing, what helps a lot is that, you know, legal practice is a relatively small community. You know, I went to a top 10 law school. I worked at one of the best law firms ever. It was very fortunate that I still do practice, corporate and securities law. And, you know, I was wanting to keep that expertise with me.

38:40So theoretically, it's always an opportunity to go back and I guess, you know, no harm, no foul kind of thing. So maybe, but no, realistically, I think, as that could be best, you want to get the full, you want to get the full besting term and ideally have an exit. And that's what makes it generally worth it for on the technology side. And then, of course, the purpose side, you know, I cannot believe it. You know, I mean, so many great companies doing great things that otherwise might have been unfunded. There was a company that only did about a half a million to the funding portal, but then they got back by Bill and Melinda Gates Foundation. Now they're off to the races, but they wouldn't have qualified for that investment otherwise. So I guess, you know, come from a purpose side, sure, maybe, but from a kind of like the next step in my career, probably less just viable. Now, most people hear the term crowdfunding all the time. And they think Kickstarter, they think go fund me. And you're talking about something like, which is fundamentally different, right? Yes. People actually investing in privately held companies,

39:41which is, I don't know if that's, I mean, that's been around for a long time. Now, explain the regulation of crowdfunding to somebody who's never heard of it. And is this technically what you're doing now with net capital crowdfunding? Yes, both sides of it. So yes, on the funding portal, regsia, regulation crowdfunding, that is the up to $5 million bread and butter, about 100 million over there. The broker dealers more traditional institutional raises. Those are regs, regs, larger funds. You need a broker dealer on it. And that's kind of, it can be pure private placement or a credit it only. So you're only hiring for like five, six million. So you set five million for like a mortgage company, or it's like, we have that on the books. We have to keep that just to just appease our investors our warehouse. Yeah. So you're looking for privately held small little companies. Yeah, on the funding portal, and oftentimes they work together, right? You could have a regsia for right next to a regd, private placement right next to a smaller raise. But what's cool about the funding portal is that you can do two really important things that you otherwise can't do. You can generally slid slits at your fundraise.

40:42You can yell from the mall and top that you're raising capital. You can do national TV ads. You could actually have a QR code, act your restaurant, and everybody who loves your restaurant can scound the QR code, and invest debit card credit card, ACH wire transfer, directly through the website. Or you can go on national ads. You could do digital ads. You could be on Facebook, Instagram, et cetera. So you can generally slits at which is big, and you can accept non-accredited investors. That's about 90% of the United States, over 99% of the world. So allowing those smaller investors in the deal, and that's actually what I think is underrated is that these retail investors, those are the folks that will go out of their way. We did a fundraise for our company, the ticket company I mentioned, court innovations came out of University of Michigan. They had a minimum investment of $100. They had a $100 investor who was a truck driver, and he invested because he would drive along his route. And if you got a ticket on the route, he'd actually drive back to Kentucky to go to deal with the courts, and pay the fines or whatever. So we got them into three different court systems along, his route to avoid having to do all that. That's stuff that only the smaller retail investor does. 100 million dollar investors don't do that.

41:43Million dollar investors don't do that. Go out of their way like that. So you can have a credit and non-accredited investors domestic or international, and you can generally slicit incredibly powerful. But that being said, there's also the larger institutional stuff. We'd love to, you know, God willing, we'll be able to participate on any expansion leagues for the NBA, shout out NBA, let's see if we can get this going on. But you work on the Vegas one or what? Ideally. So I think. Idea, but not yet. Yeah, no, yeah. Workets were, it's hopefully, inking something like that. I think that'll be a perfect fit for fans and Vegas. Well, it's coming. Vegas will have an NBA team. Well, we want the fans to get in. There's never been a version. I saw the Packers, but they don't have real true ownership upside, right? They would, these folks actually have upside where the company is acquired, right? Yeah, that would be. And you know, it's gonna be, you know, Vegas is like completely changing their entire business model. Yeah. Just because, you know, Gen Z, these guys don't drink, they don't party, they don't need nightclubs and they don't need all night after hours. Correct. They don't do any of that. Correct. So the whole industry is just pivoting. Yeah.

42:44Yeah, you have to be fundamentally different in the way that you're approaching the next generation of investors. You have to provide value outside of, like you said, alcohol and late nights. I think the other thing is really cool about this type of version versus Kickstarter. And I love the folks over at Kickstarter in D'Go-Go, but that is always, you know, kind of charity based crowdfunding. You're supporting something because you want it to become real. Yeah. But this is equity crowdfunding. You're owning a piece of the company. There was a company, really cool, small company at the time called Oculus Rift. Right out of Oculus, right out of the Long Beach. And they actually did a front, they did a Kickstarter. My August, that was purchased by Facebook. Yes, right. Yeah, they did a Kickstarter. They raised like $2 million or Kickstarter. And a $100 investor at the time would get a, I think it was a signed poster. And then I think $1,000 or more investors, some sort of investor would actually get a Gen 1 Oculus Rift. And that's sick. I would do it just for that. But I would much rather have owned $1,000 worth of shares in Oculus when they were acquired for, you know, $1 billion. We actually did the math, actually. Just off of like traditional kind of pro-rata discounts over time.

43:45They'd done their raise of $2 million through net capital instead of through Kickstarter. That $100 investor should have been between, anywhere between $20,000 or $40,000 on the return. Just based off of what the security should have been worth at the time versus what they're required for by Facebook at the time. So it's real. It's like everybody, instead of throwing dollars at a, you know, a lottery ticket, you can actually, you know, have a chance and own a piece of a company that you believe in and hopefully see the upside. So big difference than charity-based fundraising, for sure. Wow, that is pretty cool. What do you think? You ready to put your first $100 in one of those companies? But he hasn't had anything like the, $100 is only gonna get you $800 at best right now based on these stats. That's right. That's right. That's right. That's right. That's right. Now is traditional venture capital doing necessary filtering or has it become, you know, a form of like gatekeeping? First of all, I love traditional venture. I love all my friends in traditional venture.

44:48I think the risk seeking that traditional venture is supposed to do as largely gone. I think there's a lot. Why? I think it's larger because of the data. The data came out, I think it might have been 2008 maybe, maybe until 12 and it couldn't have got reaffirmed over time. Generally, the, remember, these venture capitalists is not their money. You have to remember the whole structure of venture capital. Like they get their money from their limited partners, pension funds, other groups. So even the VCs that are deploying the capital, that's someone else's money, that's limited partners money. They're general partners, but it's limited partners money. So they have an obligation to return the funds to the LPs, right? And the data said that if you put more money in later, you get a better return for your LPs. And so that's why everybody's chasing the exact same handful of deals. They'd rather put $100 million into the exact same AI company as everybody else than to put $10 million into 10, potentially promising AI companies elsewhere. And the data suggests that they get better returns.

45:48So they're great companies that are getting under, kind of under, under exposure, not looked at, missing out on opportunities. And then they use that to reinforce their decision making. Like, oh, well, that company failed. Well, yeah, because they never got any investments. They never got any looks, they never had a chance. So they're kind of king makers, but they're using, but the data suggests that they should continue to act one way, but the data is reinforced by their decision making to begin with. So all that's to be said, I think we have lost the plot a little bit. Early stage venture is supposed to be that risk seeking at, you know, element, get the upside of the deals. I mean, people used to do, although there's one exception. Are you guys heard about this pre-idea funding that's happening at Stanford? No. All this will knock your socks off. This will knock your socks off. The idea. Pre-idea. So college kids come in with a smoke and idea. You're like, I'm in. Specifically at Stanford, they're a venture capitalist that are meeting up with these kids at these meetups of like coming out of like the, kind of the entrepreneurship associations at Stanford. And they're basically saying, hey, I'll cut you these safe notes, the pre-idea safe notes. And I'll cut you a quarter million dollars and it just goes towards whatever the valuation is, whatever you create next. It's like, it's on, it's, we have no idea what it will be.

46:52Yeah, we get our first year grades and then that determines our future. Well, I mean, that's really betting on the CEO. Before the CEO. Exactly. So I do a form of that in my industry now where I just like scout a town, like dude, you got great skills. You need to go get your mortgage license. Yeah. I think we could start a mortgage company around you. So I kind of do that now. Yeah. Like I'll straight up find someone who's just talented because I, you know, I talk to them, they're my waiter. But even though you have an idea, and I like that, but you can take transferable skills and bring them into something that you have, but you have an idea of what you want them to do. This is like, we have no idea what you're going to do. This is a good thing. You're just betting on the person. Just entirely. No clue what the actual outlook will be. But the goal is that our quarter million will go into whatever a discount on whatever rate is that the future of that's going to be. But you know this kid's a genius. That's it. So I'll text. And I like, this guy's a genius, I'm an investor in this guy. I don't know what the hell he's going to do. Pre-idea finding. You got to prove me that you have a million dollars in ARR or else you can kick rocks. Or you're a Stanford. You got this incredible quant skills.

47:52And I don't care what you do here's the money. Yeah. So that is fascinating. That is fascinating. But I mean, it's going to work. Just because you're, you know, at the end of the day, despite how far you are in the investment process, you're always betting on the person. Always betting on the team. Right, right. But you can't do without a was. Across the board. And I think that's why you're betting on the wases. Because it doesn't really matter who the jobs is. They're going to plug in a was. Yeah. Right. Right. But I think someone will kind of look for the jobs too in the world, which is even harder to do, those super big thinker creative types, which is like one in anomaly. Those are just like God bless them. Those are incredible, incredible skills says to have. But yeah, like there's this whole new unique world, which is basically, I don't care what you're going to do. I don't know what it is, but I want to be a part of it. And you can only do that. Because Stanford did the diligence, basically. Stanford already did the diligence. You're piggybacking off of. And that's what largely goes back to the same theme as that. Most adventure is following. It's kind of lemming-esque. It's like a handful of tier one VCs that are doing all the heavy lifting adventure.

48:53They're the ones that are paying the lawyers like me to do the diligence on the deals. And then somebody cuts a check. And as soon as there's so many follow-on funds, which is actually a great business follow-off. So many follow-on funds, which is like, if this group comes in, then they get a piece of my fund. Now, I've got a question for me. Are there any really hot deals that you're firm right now? You're like, dude, this is a good one. You got to buy this one. I know you want this question. I've been trying to die just because there's really no, I cannot make investment recommended. I am actually getting my Series 7 and 63 licenses. And I can actually make it. But what are our couple firms that really like caught your eye? Yeah. I'm like, couldn't have put a screen shot. Oh my goodness. Make sure we, if you guys subscribe right now. But see, that's what you get to do, right? That's why you should, that's why you should license our technology. And you could be a promoter. And you could recommend deals. No, so we actually just wrapped up. This is what I'll do. I'm going to play it safe. You guys are going to love this. I'm going to play it safe because I'm going to wrap up a deal that actually just closed. And that's what's going to work right there. They just sold out their $5 million offering. They've done about 15 million with us through the funding portal. Really cool promising company led by Brad over at Avidane.

49:53And I'm not sure if you've seen anything in graphing, the composite material science graphing. I remember when he first described this to me. And here's the hard part. This is what I know. It's actually a pretty promising company. It's what I'm like, either this is full of, can I say? You can say that's where. Yeah. This is full of shit. And I'm going to get off this thing. I'm going to look like an idiot. Or I'm going to look like a freaking genius. And sometimes there's those dichotomy ones. But when it is dichotomists, it's a good thing, in my opinion. And just by the grace of God, it seems like it's a great thing. So they have these incredibly high value, incredibly well-designed graphing flakes that are an additive to anything. So imagine you're trying to make this, you know, military-grade aluminum. You can add a little bit of graphing into it. And then you won't need as much of these rare earth minerals that we always source from internationally. Like basically we have no rare earth minerals here. And so instead of having to go get pounds of rare earth minerals, you can add ounces of graphing and get like performed, similar performance. You can do it to copper and alloys. And it's the same thing as those.

50:53Yeah, exactly. So we're talking about creating like aluminum that's stronger than steel and, you know, like incredible huge dispersion. So it could be the most impactful deal that we've probably ever done. Maybe graphing is expensive, right? Yeah, but they have their aluminum mill. They have the technology. They're working with some great team members. And I think, so that'll be the one, again, I can say it now because they wrapped up their fund rays, which I would check out Avenue and on that capital and see if they can, if they do another raise, I can't make investment recommendations, but I'd consider it. They've seemed to have done a pretty impressive thing. And I'm not even a material science guy. I had to learn everything from scratch about what this looks like, but that might be the, let me think about like, let me think about like, you know, AI, like chip manufacturers, heat dispersion, these data farms that are struggling with heat issues and cooling problems. Yeah. Grappies, they're all water. Wow. Could be transformational. Alloys, materials, like it could be military applications. It could be, you know, like, you know, yeah, it could be pretty interesting. Like aerospace and dust rule,

51:53like it could be pretty impactful. And this could, like this is gonna get trumps here. Yeah. Yeah. Yeah, they're already talking to DOD, like a Department of Energy, Department of Defense already conversations there. If it proves out, it could be the most impactful deal we've ever done, like by a light year. And it's crazy, because I think people still think of, that's a reg CF deal. They just did five million at a time. Sold out their first million, sold out the next five million, sold out the next five million. Every time they sell out, they create a new wait list. The next badge comes in, do another couple million. We had a, I did a live Q&A a couple of weeks ago, $885,000 investor came into a reg CF. This is crowdfunding. $885,000 check. Just came in, cut the check, own a piece. I think people lose track of, because the minimum investments, $250,000, every day people can get in, and people are kind of living that distract them from the fact that this could be the coolest thing I've ever worked on. Good. I mean, it sounds promising. And it sounds really good. And it sounds needed. If we believe ordinary Americans deserve access to private investment opportunities, don't we also have to accept the risks

52:55that come with that access? You absolutely bet, Joe. Yes, yes. This is not paternalism. We've always kind of designed it to where we want a diverse group of deals. Like we had a, we had a two pharmaceutical fund races, like a cancer immunotherapy, a non-addictive opioid, we've done a gravity simulation. There was a pretty time to the pandemic, we're launching rockets every day, we did a really cool gravity simulation tech that raised over a million bucks with us. These are risk assets. These are high risk assets. So you have to do your diligence, you have to invest only which are comfortable, potentially losing, and you have to be thoughtful about what you deploy your capital into. I like the idea that it's there. Like that's why I love. If you imagine that only, you know, you and I can get into deals by virtue of being accredited investors, there's so many people listening to this right now that are otherwise excluded from the deal. And it's all close back to like the 34 act, 33, 34 act. This is all back to like, we're worried that people were selling snake oil. And so instead of saying that the company's selling the securities has to do, you know, kind of more disclosures, we decided, okay, a certain group of people just can't invest at all.

53:55You have to, you have to make $20,000 a year, or have a million dollars in assets outside of your primary residence. That's basically 90% of the United States-ish that cannot invest in these startup deals. The largest wealth creation vehicle in the world is excluded to almost everybody in the world, which is tough. And so I've always felt like, yes, you have to be thoughtful. Do your research consider the opportunities, run it through AI if you have to, whatever. But I like the idea that you have the chance. And especially now, the argument against people having a chance at these deals is just, it's impossible to make the argument now with no offense. It's the prediction markets. You know, you could bet on the weather tomorrow. You could bet on how many times the president says a word on his in a speech. You could bet on who wins and what they over in the under-r and how many points of score. They'll let you do that with zero research, zero implications, like they won't screen you at all. As long as you're 18 years old and you have the money, they'll take it. And that's perfectly fine, no concerns. But as soon as you want to invest in a startup,

54:56like, I'll hold on a second. I'm going to need to make sure that you did your research, it's a qualify. We don't know if you want to let you get into this deal. So yeah, I think if you can show up and roll dice and they're going to let you do it, then at least you should be able to invest in a startup and have a chance to win, not bidding against the house. That makes sense. Now, our business is a real different. In my world and yours ultimately, the deals are the same. And the fundamental problem, somebody has an opportunity and needs capital to move on it. Now, how does an entrepreneur know whether they should be looking for debt, venture capital, private investors, or crowdfunding? I love that. It's usually, I like to think of this like a, I think about it as like a fundraising strategy. This piece is to the puzzle. And a lot of the deals we see, there is a debt element and an equity element. Maybe inside, you raise through crowdfunding and then you do venture debt. Oftentimes, I like to remind people, oftentimes,

55:56the time to take the debt is right after you've done an equity financing. You're less risky. You have cash on your books. You can get better terms. People lose track of that. They get the cash on the door. They're tired. And they just turn off fundraising. Oftentimes, that's a good time to turn around and get some venture debt. It can just sit there. You're not even paying on it. It's not using it. It's just available, but you have it at preferred terms. So oftentimes, it's a fundraising strategy where a lot of these elements are coming together. And so each one has their own downsides. Detters are oftentimes creditors kind of have worse terms because they sit on top of the capital stack. Common stock. If most of these companies fail on their capital, then the investors just wiped out. There's no recourse. Detters have incredible recourse. That's how it's whole things design. That's why a lot of debt instruments became more prevalent in venture capital because they could sit on top of the capital stack. And if there's assets, like a self-assets, you can get paid back. But obviously we said, generally speaking, there's pros and cons to every investment strategy. And generally, it's good to have elements of each.

56:59A founder comes to you tomorrow with a good company. And he goes, and he's making 500 grand in revenue, six months of runway, and no idea of how to raise. Give me a quick 90-day playbook. Yeah, oh, that's good. So it's going to be a pretty industry-specific because a lot of these companies, well, let's say, we have six months run away, 500 K revenue. Generally, that's probably a pretty decent rec CEO. A lot of companies, a lot of ventures going to see a million ARR. So a lot, like about maybe a third or 40% of ventures off the table right away. A lot of lenders are we uninterested in that limited capital, or if they give you capital, be a little bit predatory in the terms. It probably depends on a little bit on if you have a decent community. If you have people that enjoy using your service or enjoy buying your product, that could be a really strong indicator to run a REC CF opportunity through a funding portal. I think six months run away is always going to be pretty difficult. That's going to probably, there's a really good group called

57:59King's Crowd. They raised 100,000 with net capital, and then did a million. But they are the most recognized rating agency. They review every single deal on every single platform, and they grade them. And one of the big ones I always look for is kind of risk associated with burn rate. And so only a couple of months left to execute on your vision. It could take a couple of months to get the dollars in the door, at which case you might be kind of right on the edge, knock on the door of lack of success. But I think a modest raise in using some of that capital for marketing to drive more revenue could be a reason of opportunity. Now, this is a question I pondered. It's like, can a company be incredibly successful and still the investors got a bad deal? Yup. They can't. Where would the money go? I guess the CEO would take the money. I guess we work. So a lot more of that. There's obviously things like that, where it's just like bad people making bad decisions. I think even more than that, though, it's just that you can,

59:03it just really comes down to the terms. And that's what's so unfortunate. I remember some people, back in the day, there was a serious push towards liquidation preferences, where somebody could have an investment ahead of yours and they get like a 2x liquidation preference. So no matter what, they get double their money back, plus participation in whatever upside there is in the deal. And the new comment after that, a 1x or a normal liquidation preference, and now a lot of that value has already been associated with previous investors. That's what's so weird about this world, where a lot of the data says come in later with more cash. But at the same time, the greatest returns of all time are the earlier risk taking deals. Because you can get in there, you're not supported native, you're not down the cap table. And you can actually get a meaningful return early on. But it comes down to the deals. It comes down to the specifics. It comes down to what your investment instrument is, what the terms are, who's in control. And then here's the thing too. They take investment from one specific investment group, and that board of director comes on.

1:00:05And they have a very clear, strong vision of where they want to go, which might not be in the best interest of the company. That could be a problem. Shareholders determine the director's determine the officers. But oftentimes, the shareholders are a goamit of venture capital funds. So a handful of venture funds could control 50% of the company. And so they really can say, hey, I like where you're trying to go, but it's going to take me five or 10 years to get there. I'd rather sell this off a scratch right now and get my cash right now. Especially timing, people don't realize this. A lot of these venture funds have a 10-year horizon. They have to return their fund by the end of 10 years. If you take money a year, eight, year nine, they might come in, especially if you're a hardware company, they might be like, hey, that little thing that you have in the corner that's worth 100 grand, time to sell that thing. So I can get my money back and put it toward something else. So yeah, there could be great deals, but it is unfortunate. There could be specifics that can make them not great deals. That makes sense. That makes sense. So how does an investor like prevent an issue like we work?

1:01:08Oh, man. We're just so tough. I actually loved my time working in WeWorks. I think it's a cool idea. I think they made some interesting decisions over extended yada yada. So I think if you're an investor, well, first of all, most investors didn't even get a chance to lose their money there. But let's say when you're getting into the weeds there, I think having, if you don't have an accounting background, have somebody on your team that does. A lot of people could look at the books and realize that some of these things don't make sense. For example, I don't want to speak poorly about the most recent SpaceX IPO. And there's some people who definitely made money there. And there will be some people that will continue to make money there. I just couldn't miss out on it, because I'd rather lose money than be wrong. But losing $4 billion in Q1 without a... And then if you look at the data, basically, their AI infrastructure was like a Neo Cloud play, where they didn't even have demand for XAI enough. They're just selling that extra demand to other AI companies. I thought a super promising vision for your AI companies if you don't even have the users to use your underlying infrastructure

1:02:12that you have to sell it to your competitors. So, and you can see it. You can kind of see all that from the financial statements too. So if you're not super confident in accounting, maybe you kind of do a Coursera class and get a little kind of decent understanding or loop in your kind of friends and family community members so I can help give you some eyes there. But sometimes you could peek at these S1s. And once they're filed, you could feel pretty confident that some things are good or bad deals. You could be as confident as you want, but like if trust isn't in the picture, I feel like any deal will fall apart. How important is trust in a deal? Gosh, trust is everything. People move at the speed of trust. I can't remember, again, I borrowed that from somebody way more smart than I am, but people move at the speed of trust. You have to be able to believe in these folks. Good team members look at the backgrounds of the founders, the directors, their officers. Yeah, trust is critical. And then you also have to trust that, you know, when the hiccups come, because there never really be speed bumps in the start of space, just the nature of the business. You really have to have trust that these are the people that execute on it. And that's why it keeps going back to team.

1:03:12It's the team that you trust like an execute. You know, whenever they have to pivot, they have to be ready to do it. And so that's why you really got to look at the team. So trust is everything. Now in the next version of the American Dream, is it less about a great job and more about owning a piece of something? I think almost certainly. I mean, we've seen, we've just seen, you're kind of mass layoffs across the world. There was a period of time where you're having a six-figure job at a big tech company was like the most confident you could be in your future. And then we've seen tens of thousands of layoffs across the board on those. There's obviously massive push towards AI and everything. AI is designed to make companies more efficient. And efficiency means fewer humans. Like, let's just call it what it is. That's what efficiency literally is. It's exactly what it is. You know, they don't eat, they don't sleep, and they don't file for real workers' compensation, right? These are the types of things that generally mean fewer humans. So I think more and more people need to be able to creating their things. I think there's a world where people are either creating their own thing or advising and supporting other people's big thing. And that could be a place where they can have success.

1:04:14But realistically, if you know, if not owning your own thing is a kind of a precarious position these days, unfortunately. There's no 40 years in a gold watch anymore. I still hear that thing, it just blows my mind. People would just work at the same company for 40 years. And now the data shows, if you're not switching jobs every year and a half or two years, you're actually leaving money on the table. Like, I didn't take this tar. I obviously haven't been a good proponent of this. But the data suggests if you're not moving companies regularly, you're not actively leveraging up all the time, then you're not maximizing it for compensation. So I think people are definitely not, they don't feel like there's loyalty to the game as there used to be. And so I think you have to do what's best for you. People are switching teams. And I think people aren't definitely not loyal to companies, they're surprised when employees aren't loyal to them, but they're not loyal to the employees. And as soon as there's an opportunity in that board, and that board meeting shows up, and they're trying to figure out where the money comes from, it could become it from you anytime. So I think you've got to be thoughtful about having your own thing, unfortunately, in this world.

1:05:15Now we're still relatively early in this experiment, but private investing once happened largely behind closed doors, specifically to accredited investors. Now technology is steadily pulling those doors open. Right? Now 10 years from now, how different? What do you think investing is going to look? It took 40 years for mutual funds to be found popular. It takes a long time for financial instruments to become popular. I can imagine a world where we just won't use something if you don't have a chance to own it. I really can't. Why would I choose your product versus a competitor product? And that competitor product has a permanently open investment opportunity, and I can add to my position regularly. And as I use it, they become more valuable, I get a larger difference. I mean, that makes a lot of sense to me. Right. Why would you lead the customer is the most valuable part of your business? Well, that's a stock market science now. Yeah. Investing companies you use. Yes. Apple.

1:06:16Facebook, whatever. Meta, like, invest in those companies. Because you use them every day. Exactly. But the issue is back in the day, they could go public at a couple million dollar valuation. And now we just had a $1.5 trillion IPO. Where do you get returns? Like, how do you get returns when a company just go from 1.5 trillion to 3 trillion for you to double your money? In order for you to three times your money, they have to become the most valuable company in the world. These are the types of things that people should be thinking about. I think that's the SpaceX. Yeah, that's cool. Exactly. The hype was real. But it is. You're just going to, it's just safe. It's just like parking your money in the bank. Right. And they changed. They did a great job of getting folks to do things that have never been done before, getting included on NASDAQ 100 really early, usually at the weight of year. So outside of those types of like, you know, kind of. You're outside of those like, you know, some people could call it. Some people could maybe call it, you know, corruption or like, you know, or at least market manipulation or influence or whatever. But, you know, outside of that, I mean,

1:07:18why would I use a coffee brand like another one that I like? Like, you know, alcohol brands, we have a, we have a couple great investment opportunities of an alcohol brands. Like, how cool is that? I feel like George Clooney only in my own whiskey brand. We did a tequila brand that was so cool. They wrapped up their offering. They're called Ghost Tequila. It was a Ghost Pepper infused tequila company. And they just realized that everybody who sells a margarita sells a spicy margarita. And the worst part is muddling jalapenos. And it was like one of the largest return drinks of all time. I see the two spicy and not spicy enough and it just comes back. And it's just like, why just not just normalize that? Institutionalize that. Just make up the same all the day. We did a couple hundred thousand with them and then they took, you know, tens of millions from a Raptor group, like a big private equity group. So it's like, why would I use your product if you're not doing it? You care so little about me as a consumer that you're not going to let me own a small piece. You won't let me give you money to own a small piece but you expect me to use your stuff. I think 10, 15, 20 years from now, that would just be ludicrous. 20 years from now, do you think people find it strange that access to private company investments

1:08:18was ever largely reserved for wealthy people? I think so. Every time I speak about it, people are surprised. People are just like, well, why is it? And it's just such, because it's a weird approach to take it so paternalistic. There's no other world where we're concerned that you would worry that grandma's going to get swindled out of her pension. So what we said was, no grandma's going to come in. That's really bizarre. And I think also it's kind of offensive too. The way they describe accredited investors is often, they usually conflate it with a sophisticated investor. They use those kind of interchangeably. I think people should be super offended. You can make, you know, a hundred thousand dollars a year and practice securities law. But you're not sophisticated enough to get into a deal because you don't make $200,000 a year. The idea of using wealth as a justification for your ability to access deals, I think, is pretty ludicrous. And I think more and more people will feel that way as well. Now again, we do also have protections in place. You can only invest a percentage of your network and income, by the way, on the platform, by law. There's no world where somebody can make $100,000 and invest $100,000 through the platform.

1:09:20You can't do it. So there's already precautions in place. And like I said, it should be a stop in the face, especially compared to gambling and prediction markets. Like you can't have it both ways. You can't save people, can't put a hundred bucks in a cool startup, but you could put hundreds of thousands of dollars on whether it's gonna be warmer than 90 degrees tomorrow. 10 years from now, what would have to be true for you to look back and say, leaving the safe path was absolutely worth it. So I'm actually very fortunate that as of today, that is certainly true. As of today is certainly true that it was worth it. I mean, for me personally, one hand washes together. Securities law and financing are inextricably linked, right? So what I do at net capital supports me and my legal practice, what I do, my legal practice supports me in my funding portal broker dealer. So no matter what, that's helped a ton. I got to do really fun things like this that I otherwise probably wouldn't do. But 10 years for me to really say that's worth it though, for me to really say that it's worth it, I would like to see more of a,

1:10:21we partnered with an alternative transfer agent that would allow us to have an alternative trading system in ATS. It's a whole different registered group and there's a world where all of these private securities are liquid where you could trade your private holdings and private companies to other private investors. That is a very big nightmare right now. We've gone back and forth to the Fender and the SEC to try to do more and more of it. They don't like that we control the primaries and the second areas they want to do all sorts of things. So I think for me to definitely say this is hands down worth it is if we can see an active liquidity market for private securities, there's so many people that are trading secondaries, employees at big firms can't exercise their options. There are groups that are going in buying those options and flipping them. But again, that only happens through accredited investors. I think it would be so cool for me to like, bank on something, support it, maybe a couple of years later, I'm ready to go into my next opportunity and be able to have the liquidity to trade that. I think that would be like creating a private NASDAQ

1:11:23would be like my raison d'es, like why am I here on Earth? It would be so cool. We like to end the show with a little quick game show. I hope you can see it. Now Eric, this is going to be a series of hypothetical companies. Oh, I'm going to give you some basic facts. And you got five seconds to choose. So you have two choices. Take the meeting or pass. Okay. So I just want you to answer with one of those and I'd you explain why. Okay. AI start. Before you pitch one, can I say the caveat? Yeah, let's get that. I am always always sick of the meeting. I think 15, 30 minutes, like 15, 30 minutes, I have a walking desk, worst case scenario, I move like a mile just puttering around. I almost always, I'm always always to take the name. I'm the same way. But for the sake of the game show, let's say, it's in person after Drive Delay. Exactly. Okay. Right. Let's add this caveat. In person, you got to drive Delay. No, that helps a lot.

1:12:24Yeah. Because if it's a Zoom, I'm going. But this one, this one, there'll be a lot of passes. Let's go. All right. This is funny. And AI start up. Zero revenue. But 1 million active users growing 30% month over month and founder wants a $50 million valuation. I would still take the meetings. I think I'm pretty good at reasoning people in their valuation. I would help them understand why a potential down-round is not worth taking that money at that valuation. I would take the meeting, but we'd have a lot of work to do. OK. Now, a boring B2B software has $2 million in annual recurring revenue. It's profitable, and it's only growing at 15% a year. Nobody has ever heard of the founder. If they don't have an AI plan, I'd probably drive Delay, skip the meeting. I think AI will continue to eat B2B SaaS. In fact, that's probably part of why the whole market in my collapse on itself

1:13:24is that the same people financing the AI companies, the ones that already backed B2B SaaS, and they're eating each other. We'll see what the whole venture market looks like pretty soon. But I would probably pass on that B2B SaaS. If there's no AI plan, thanks for the time. Now, a viral consumer brand. It has $5 million in sales. A huge social following, an incredible founder, but the company loses money on every order. I would take that meeting. Yeah, that sounds like a cool company. You could bring in, fortunately, and a lot of people, great distribution that works. They can bring those costs down. They're really thoughtful ways to bring those costs down that we can make that work. That one feels like a low-hanging fruit, take the meeting. Serial failure. Founders already started three companies. All three failed. Same founder wants you to hear his fourth company. That's all. Nothing about the company or anything just that he hasn't got to die yet. I mean, something to be said about being a resilient and banging your head against the guy. I mean, I take the meeting. Let's see what this one is. I mean, it's true. Yeah. Yeah. Yeah. Heck, yeah.

1:14:24In fact, that ability to keep going nonetheless, I mean, it takes a level of uncertainty to be in this space already, but that's that kind of lunatic that gets the job done. Let's go. Let's beat up an L.A. All right. Now, a genius solo founder. All right. An incredible technology. No sales experience. All right. No co-founder. And he doesn't believe he needs one. Take me. I do take it. I would also think I'm pretty persuasive on that he does need fun. And he absolutely does. First of all, if you look at the data, solo founders are way underfunded compared to co-founders off the bat, especially depending on what demographic backgrounds they come from. I'm guessing technical founder is the reason he said no sales experience. Yeah, no sales. He's just incredible with technology. Oh, I'll drop a sales CEO in their heartbeat and I'll be pumped about it. Yeah, we drop the sales CEO in there. He won't buy. He won't buy anything. We'll never do it. Then. You know somebody like that? If it's a no-go, I'm going to do this without sales and it's a easy passive. Now, I know the answer for this next one, but I'm going to say a celebrity startup,

1:15:24massive celebrity attacks. Millions of followers, almost no repeat customers. That's not good. We don't like that. Why is that? I mean, that's the downfall. That's what happened with Prime. Yeah, they don't like that. They don't. So that is super concerning. The churn rate is one of the first things I looked at. If people aren't re-engaging with a product, that is a fundamental problem. I mean, how is Prime even doing it now? They just pivot it to like protein shakes. I think they had to. Wasn't there like a concern about like the caffeination in their target demographic shouldn't be having that much caffeine early? Yeah, they lost out. They were telling you collectibles basically. And that only lasts so long. No, no, they're killing it in collectibles. Oh, no, no. I mean, like people were collecting the bottles. I don't know if they were the kids or like hanging over there. So oftentimes you can kind of, if maybe there's something that we could tweak about the formula or something that people like, I take the meeting, I don't, I would really be concerned. I probably would not get the investment though. If people are not coming back to the well, that's a problem. Yeah. Pickle energy.

1:16:24Pickle energy. A founder offers you 20% of this company for $1,000. Don't like that, right? The company sells artisanal, pic-o-flavored energy drinks. Only problem, sales are somehow growing at 300% a year. So I'm definitely taking this deal. I'll tell you why. One, I love pickles too. It's just, it's gonna be to remarket this to athletes. You saw the FIFA, the FIFA referee that pulled over, had to do a pickle shock. He was cramping up here in the World Cup. Yeah. Oh, this is going straight to athletes after this. Yeah, no, it's, it's, it's, time you up, pickle me up. Great, so that's what we brought you. Got it. You got the pickle bitch? This is all been in the lab, right? Oh, we got a pickle juice. Bring up the pickle juice. Bring up the, I'm going to be so different pointed, but I don't have it. There's not a pickle back here now. Oh my gosh, yes. Now the career pivot, I offer you $1 million to quit net capital tomorrow and become a mortgage broker at e-mortgage capital.

1:17:25So that's, that's not crazy. I feel like one of my shortcomings is actually in real estate. We're in OC, big real estate network here. Um, yeah, that's not a crazy bitch. Is that a little bit of a little bit of a year fund? Actually, we just hired an attorney 350k a year. I do. I think one hand could, I think they could really go aside aside because I was funny. I started to think about doing more estate planning specific because I would do deals with people of be like, how do I estate planning? There's a real estate. There's a real estate side to that. So yeah, yeah. That's before the years. Yeah. Well, we got you. Hey, that's what I do. I set up mortgage companies. That's my job. I like it. I like it. I'm in the business of making businesses literally. I like this. Exactly. Consider myself like the private hedge fund that funds small independent mortgage companies. It basically takes small mortgage companies, make them big mortgage companies. Yeah. It's a great model. Well, the entity formation side, count me a fan, Lubian, consider me. I'm happy to do fun stuff on the entity formation stuff. Is they planning to? Look, I mean, look, if you throw in the pickle deals, sign me up for your mortgage. Let's go. Last question, bonus question.

1:18:25A great founder plus an average idea or an average founder, but a great idea. Who gets the meeting? Founder always. Great founder always. Great founder always. I mean, so many things, these things started off as bad ideas. So people don't realize that, I think. And sometimes they go from decent ideas to even better ideas. I mean, people remember, like people who's track of Amazon never became profitable until AWS. There were a public company selling books online before Bezos had his glow up. He would just flip them books online, which I think is a decent business. And it wasn't until Amazon Web Services that it was ever profitable, never profitable for that. And it's fundamentally different business entirely. Great founder, decent idea, hands out. That's the easiest one. Makes sense. You've been. Yeah, it's a pleasure to have on the show. If people want to connect with you, how can they find you? Yes, OK, definitely linked in my favorite for sure. And then you could just look for, yeah, I'm not super. OK, I had to do my middle initial end suffix. It's not because I'm a fancy feast. It's just that I have a generic name in Eric Cox, so you'll never find me.

1:19:26So Eric, Eric, the second with the Roman rule, so that's what it find me. Or you can shoot me in an email, Eric at bluecoastvc.com. That's my personal one that goes with me everywhere. But also netcap.com, you can find me, story.law. You can find me. But if you want to go directly to me about anything fun, unique, you've been inside law, inside finance, and so whatever, Eric at bluecoastvc.com, that's my, that's my everything one. Let's go. It's here. You're the man, Joe. Thanks for having me, dude. Don't lose track of me on that pickle, dude. I swear to god, if I see that pop up about it, if I see that pop up about me, I'll be pissed. Let's go. Thanks.

1:20:29You're welcome. Okay.