Investing in Your Network to Drive Growth

Lisa Reeves: So, my name is Lisa Reeves. I'm the Chief Product Officer at TriNet. Thank you so much for coming tonight and welcome to all of you. I think it's probably, what is it—the 10th of January, 11th of January. So, probably, first event of the year. So really appreciate you attending tonight. Would love to take just a quick poll of the audience and see how many entrepreneurs, just a show of hands. How many entrepreneurs do we have in the audience? Pretty good. Pretty good. How many investors? Okay. Okay, raise your hand. I mean, yeah. Awesome. And then just would love to see a show of hands, how many people from the coast who moved here from San Francisco, Boston or New York? All right. So, I think we know what a special place Denver is, right?

So, the topic tonight is really a discussion around your network. How do you build your network? Well, I think anyone who's been based in Denver, Boulder, the Springs anywhere in the Front Range knows it's pretty easy to build your network here. So, we'll take some cues from our esteemed panel here. But it's a wonderful place and I think that it's very special, I think compared to the coast. So, we'll kind of dig into that a little bit. And with that, I'd like to introduce our panel tonight. So, I'm going to hand it off to Aaron and maybe you can just introduce yourself, a little bit of background and then also your fund. And we're so lucky tonight to have two investors and then also have one entrepreneur. So, we'll have a point of view from both sides of the table. And I'll hand it off to you, Aaron.

**Aaron Stachel: **Yeah. Hi, I'm Aaron Stachel. I'm a partner at First Mile Ventures. We are a pre-seed and seed technology investor. I've been in Colorado for about 20 years. I came to Colorado via the Army. I was stationed down at Fort Carson. I spent about 10 years as a helicopter pilot and fell in love with Colorado and decided to stay. And so, I've been with First Mile since 2014, '15. We got our first fund off the ground, second fund in 2020. We do all pre-seed and seed. So for us, that's typically a company that has built something. They're getting ready to start selling it or they just started selling it. That's kind of our sweet spot. They're typically raising anywhere between a half a million and 2 million, and really trying to get their company out into the market, demonstrate some traction—a repeatable sales motion that gets them that next round of funding.

So as the name First Mile implies, we're really focused on getting them from kind of zero to one. We do mostly B2B software, but very broad within that, everything from blockchain to health tech. Not a lot of consumer, not a lot of physical products. We did 31 companies in the first fund. We've done 25 so far in the current fund. We'll do about another eight more. But really happy to be here. Colorado, when we started we were one of the early kind of seed funds here when we launched in 2015. It was really hard, as we were talking earlier, to even pull together a million bucks to get a company going. And it's changed a lot since then. There's a lot of lot more capital here, especially at the early stages, and it's just been amazing to see the Colorado venture network grow. So, happy to be here.

**Lisa: **Welcome. Alison.

Alison McQuillan: Yeah. So, I'm Alison McQuillan, co-founder and COO of Revtelligence. We're a professional services organization that helps small to medium-size businesses, as well as mid-market businesses look at their operational efficiency. So, we help to execute operational strategy to improve your lead-to-cash process. So, think of your sales system, the technology, the process is related to that, all the way through to your financial system, collection of cash, recognition of revenue. We look to streamline that so that you have faster revenue throughput, lower costs and then creates a great foundation for you guys to grow your business.

I didn't say anything about my being in Denver. Sorry. So, I moved out in Denver in 2008. Came out here to visit a friend, had a couple of job interviews lined up, loved it. So, stayed here. My co-founder and I founded Revtelligence in 2001, really on a passion that we had around coming into companies in that smaller end of the market and helping them through their digital transformations. We've been doing it in bigger companies where they could afford an entire team that could focus on it 24/7. But realistically, we want small businesses to have that opportunity to fight in that market and grow, beat out some of the bigger guys.

Lisa:
Did you say you founded it in 2001 or 2021?

Alison: 2021, sorry. Oh, my gosh.

Lisa: '21, that's what I thought.

Alison: Sorry guys, I'm nervous up here.

Lisa: I read your bio. You'll get a COVID question about that later.

Alison: Okay. I like it.

Lisa: John?

John Francis: Thank you. Sorry, jumped the gun early. Hi, I'm one of the partners at Stout Street Capital. I'm John Francis. We started Stout Street Capital in 2017, one of the newer seed funds in Denver. Currently, we are deploying fund three. We are a journalist fund. We invest in early stage B2B SaaS companies, early revenue companies, companies that are doing at least, I would say 20 to 30K in monthly revenue and growing in a good clip. Obviously, we're a venture fund, so we're looking at companies that have large markets. Currently, we have about 70 portfolio companies. We're in fund one and fund two. We just started fund three, which is a fairly small fund, a $20 million fund. We hope to write about 40 checks out of fund three and be fairly active. Our focus is not just Colorado, but outside of Colorado as well.

We tend to focus on, I'd say non-traditional tech markets, markets outside of San Francisco, Boston, New York, which has been traditional tech hubs. So, we tend to focus in outside of those regions. We are still learning a lot. We're still early, we're still one of the newcomers in the space, but there's still a lot to learn and I'm excited for TriNet to host us. And we also do a lot of community events through the UNMET Conferences and we hope to be a part of this community and be a productive part of it. Thank you.

Lisa: Great. Thank you. So, fun fact, I was the founder of a company in Boulder called Grid Craft and we sold it to a Workday, the big HR software company. And one of my co-founders then started a robotics company. And both of these gentlemen were investors in left-hand robotics, which was subsequently sold to Toro, the lawn mowing company. So, I'd say you definitely have a place in the Colorado venture ecosystem, both of you. So, thank you. My husband also worked there for a while, so thank you very much.

So, the format tonight is we're going to spend about 45 minutes just with a conversation until about, I think it's 7:15 we said, and then we'll open it up to Q&A. So, please, feel free to save your questions to the end and we're happy to take them at that time.

So, I guess let's just start off with the big question right now given the economy and what's going on. Would love your perspective on what you're seeing, whether it's nationally outside of Colorado or whether it's in Colorado from an investment perspective, and then also from an entrepreneur perspective. And this is really a conversation, so just feel free to jump in. I think the one common thread throughout this, and certainly for TriNet as well, is that we focus on small business. That's our sweet spot. And if you look at the front range, that's where a lot of the capital goes. That's where a lot of our investors are focused.

And there is a national recognition, I would say, for the type of innovators, the type of companies that we spin up here. And that's also reflected in all the companies from the coast and then come and acquire small companies. So, it's just like Workday coming in and buying Grid Craft. It's like Salesforce coming in and buying Verbita up in Boulder. And so, we see a lot of that. And it's great because it also spins off additional wealth and additional entrepreneurs into the community as well. So, would love any perspective that you'd like to share about what you're seeing right now given the current economic environment, either in Colorado or outside.

Aaron: Yep, I'm happy to start. I think I would kind of strike a note of optimism, especially at the early stage. I think a lot of the headlines are layoffs at Facebook and venture capital funding is way down. And all those numbers are true, but when you look at venture capital, a lot of the numbers are driven off the late stage, so, like those really big rounds by really big funds for late-stage companies. And so when that drops, and that has dropped really precipitously because the public markets due to the interest rate environment and all those things. The multiples for publicly traded companies have come down so much that those late-stage funding rounds that were getting done at really high prices in the last couple years are totally underwater. So, that market has pulled back and that's driven the top line numbers way down.

But if you kind of zoom out and look at the longer term trend, we're only back to 2019 levels. So, the 2020, 2021 years were really unsustainable, high pace. And so, we're kind of back to normal. Maybe things have slowed down at the later stages. But if you look at seed, I would say the data, and at least anecdotally, things have not slowed down that much at the seed stage. There's still a lot of funds that have been created in the last couple years. There's a lot of dry powder. We have not seen that much of a slowdown in deal flow and we've got room in our funds. So there's a lot, I think, going on at the seed stage. There is probably a little bit more caution because the bar to get to the next round has probably gone up a little bit and the time it takes to get that done is probably stretched out a little bit.

So, I think people are inspecting a little closer than they have in the last couple years, like can we really get to series A with this much money and this plan or do we need to rework it, or do it in a couple bites and things like that? But overall, I would say there's still a lot going on, especially in a market like Colorado that was already on its own kind of uptrend.

Lisa: So, find this guy after we're done with this session. Any additional comments?

Alison: I was going to say we haven't seen a slowdown really in our business and the pipeline coming in. What I'm noticing and what we're trying to do is because there is still a fear of you see the big company, Salesforce, massive layoffs, and as a small guy, you're worried that that trickles down. And so, we've changed somewhat our marketing to look at how are we economy proof. What is the value-add that we bring as a small business that makes it better? Are we white glove? Are we adding value because I can show that cost benefit analysis that some of the other guys out there maybe can't do? So, we are trying to take the fact that we're a little bit smaller and have a little bit more agility. We're taking that into account and it's allowing us to continue to grow when the bigger businesses are freaking out a bit.

John: I mean my insight, as Aaron was saying, 2021, 2022 to a certain extent, was kind of abnormal for VCs. You saw an abnormal number of unicorns or companies that blew past that billion-dollar mark, which is fairly elusive for large part of the VC history. If you look at the last 20 years, on an average you looked at about 30 unicorns a year. In the last couple of years, you saw 200. So, it was abnormal. And in some ways growth was in some ways subsidized by taxpayer money in some of the companies in earlier stages too. You saw a lot of that money coming in where people were spending that money to passion projects or projects that were maybe not in need or maybe it was a one. And a lot of that is being cut back. So, you see a lot of that retraction in growth in later stage companies and you see that trickle down in the earlier stage companies as well.

And going back to investors, what we are seeing right now in the private sector is there's a little bit of confusion or people are still trying to find a base, or people are still trying to see what's the best price. So, there's a lot of readjustment going on, realignment going on. To Aaron's point, people are stretching milestones just to avoid the conversation of an advancement purely because, "Hey, I don't want to do a seed until you hit all these metrics. I don't want to do a seed round unless you hit all these metrics." But maybe the dynamics of the company has not changed that much. And investors will realize that you're not going to see opportunities that are going to hit all those metrics where you feel safe. So, investors do have to go take risk. I think being in the private sector, you do have to take that risk. And people are just clutching onto their purses and they don't want to write checks.

And that's something that we are seeing. And I think that's… most of the entrepreneurs are experiencing that as well, where there's some reluctance from investors to writing checks, but I think that's going to heal over a period of time. And I think as stock markets cool down, that's one of the leading indicators for, again, it kind of trickles down slowly. Later stage, we saw a bigger impact of that late last year. Q3, Q4 was pretty, like, really bad. In Q1, we were expecting it to be bad. And we are just gradually seeing that trickle down to the seed stages right now where the deal volume's shrinking a little bit. And also, the number of people who are doing or writing checks cannot slow down.

But on the positive note, I know I said a lot of things that were dire, but 2021 and 2022 was a record here for VCs raising capital. And as you know, all VCs, they have a finite amount of time that they had to deploy capital and that's four to five years. So, even if they're not writing checks now, they had to write checks at some point. So, you're still sitting at $200 to $300 billion in capital that was raised just the last couple of years. So, you're going to see people coming back and just coming to terms with the new reality in this world, where you don't have a lot of that free money and people will start being a little more cautious. But I think people will get back to that deal volume that we saw at 2017, 2018, 2019, and we're only seeing that growing. So, on a positive note, that's how I see it.

Lisa: Great, thanks. Yeah, interesting perspective. So, starting to moderate now the historical trends. Great. Well, so the topic tonight is building out your network. And so, I just have to ask coming out of COVID, because we're kind of coming out of COVID, although I now know someone who just got COVID after having COVID four weeks ago, and I guess she took the drug and then it came back again. But let's say that we're coming out of COVID now. So it's investing in your networks and when you look at the past three years, it's hard. You started your business in 2021 and I just would love to hear any insights, thoughts you have around challenges, how you really faced invest or building out your network, investing in your network when we were not really networking because we were all on Zoom and remote. Any challenges, any positives that came out of that? Any insights that you would like to share? And in particular, would love to know your thoughts about starting your company in 2021.

Alison: Yeah. So, I think one of the big things about coming in at the tail end of COVID, not being able to necessarily meet face-to-face, is you got a lot more creative about what does your network actually mean. We always think about those people immediate to you that you talk to on a regular basis. Those are your network. Those are the people you want to reach out to to try to get that first couple of sales going. And then as you start thinking about it, you honestly know a lot more people than that. And we actually talking to a sales advisor of ours today and he was talking about how the network is a lot bigger than you think it is. Call those people you haven't talked to in six months, 20 years, get back in touch with them. While they may not have something to help you out, they may have other contacts that they've made since you guys knew each other.

So, really, your network doesn't die just because you haven't talked to them. Kind of like some of your friendships, high school friends you haven't seen in years and you see them all of a sudden at a reunion. Rekindle some of that. So, really get creative about that network and that can really help to create a different base than you originally thought when you started your business. And then it also forced a little bit of creativity in, what are the groups you really want to spend your time with? Who are the people you want to spend your time with? Because as an entrepreneur, I have only so many hours in the day. Even if I'm working 120 hours a week, I can't talk to everybody.

So, it's making those hard decisions because sometimes your closest people in your network are not going to be your best people to grow your business. And so, you have to recognize they may still be a good network person to have on your side, but they may not be the best person to help you grow your business and to expand, create partnerships. So, it's really being honest with yourself and understanding this is not a friendship, this is a business. And it's important to make those decisions and focus your time where you're going to get the most value, because it gives that other person higher value as well.

Aaron: Yeah. I would add that in terms of challenges and maybe opportunities. And during COVID, a lot of companies, there was such a war for talent. I think that's moderating now. But a year or two ago, most of the portfolio's biggest challenge was finding people, because Facebook was hiring, all the big tech companies were kind of like hoovering up all the supply of tech talent. And you see them kind of unwinding that now. But you had all these companies, they were working from home and then they couldn't find local talent and were hiring people in other places. And whether they wanted to or not, started building distributed companies. And I think if you have a core team that founded a company and you kind of have a built-in network and relationships and when you start adding people to that, they aren't part of that core group yet.

And so, it is sort of an art to bring those distributed people into the tribe and make them feel part of the team and build the culture. And I think being creative and I think really finding times, whether it's once a quarter or at a minimum once a year, getting everybody together in the same place to have that kind of water cooler relationship building, talking about things outside of work to build that trust and those relationships. So, when you are distributed again, you know who each other are and how you operate, and you can really be more productive as a team. And people feel better about coming to work even if it's kind of from their home office.

Alison: Well, and you bring up something that I was thinking about is network. We go to a lot of these networking things and you get 50,000 cards. But realistically, you've got to find a few people that are really that. So, not just your employees and you've got to make a tribe there, but your network itself to grow it, find those handful of people and bring them close. And get to know them on a personal level, because that's where you're going to gain the trust, so that when you give a referral you are willing to put your name out there. I've had referrals before from friends who are terrible. And I go back and I talk to them about it and they're like, "Oh, well, yeah, I mean you asked for somebody, so I gave you them."

You've lost trust in that other person now because you knew them and it was a personal connection and they gave you a bad recommendation. So, it's important to make sure that who you're referring within your network is somebody you trust because your name is on that line too. And so, really thinking about that, because that grows your network. It takes a little bit longer to get business that way, but that's where you get that recurring business coming back over and over again.

John: I mean my take on it as an introvert is 2021, 2022, were the years that allowed me to network a little better. So, I kind of took it as a good thing that I don't have to meet people in person. So, it was a lot easier. And I feel like it brought a lot of introverts like me into the entrepreneur world and the VC world, because it's a lot easier to send an email or just a DM on a Twitter and connect with them that way, or meet people in a virtual event where you don't really have to shake hands or exchange cards. So, it made it a lot easier. And I think a lot of people still appreciate that and that's going to continue, I think. Well, that's one of the good things post-COVID, is that's going to enable a lot more people to network. That's going to enable a lot more people to come into the business world.

And I don't think we're ever going to go back. Some of the hurdles that I see with that is virtual events have become a proxy in some way where you don't see a lot more... I'm really surprised that we have so many people here. So, I thought that with all the cold and the snow, people were going to stay home and probably do this virtually.

Lisa: It wasn't an option. So, food and drink.

John: Maybe, yeah. That's one of the things that people start looking at is in a virtual option. And that's made it easier for people who want to stay away from events and networking events to be more inclusive and that's opened up a new channel.

Aaron: Yeah. I just want to pile onto that comment and that's before COVID, part of the way you networked is like, “Let's grab coffee or lunch or whatever.” And I've found myself wanting to do a lot more of that, but I have a work schedule that has evolved into Zoom meetings just by calendars, just chopped to pieces with Zoom meetings. And finding that, well, I'm going to hop on the train or drive downtown and grab coffee or find a place to park or however you get around, and then have my meeting and then get back. And that might be really enjoyable, but it's like, man, I don't have enough hours in the day. How did we ever do that before? And finding ways to incorporate that back in has been a challenge for me.

Lisa: So, one thing I have to say, I checked out both of your websites. I am just blown away as VCs how transparent you guys are on your website. So, just thinking about building out your network of potential companies to invest in, entrepreneurs to invest in, it's really, it was remarkable to me how transparent you were about the process, about the range, the size of the investment, duration, just everything. Maybe you could comment on that. You both just nailed it and you should really check out their websites if you're an entrepreneur. It's very clear how the process works.

Aaron: Yeah. I think something from the investor standpoint, on the founder standpoint, when you're fundraising you're like, it's kind of a sales process. You want to build a funnel of leads and get that first meeting and you kind of wend it down. You hope you get a term sheet at the bottom and pull together your funding round. And investors are doing the same thing in reverse. It's like we're building a funnel of opportunities. And you want to figure out as quickly as possible in that funneling down process of who's going to be a good fit. And entrepreneurs should do the same thing. And so, we try and be really clear on what we do and how it works and what we're looking for, so that hopefully people self-select into wanting to work with us, that there's going to be good alignment and we're not kind of spinning each other's wheels.

John: And I echo Aaron's thought on it. And I feel like it's more of a Colorado thing. And I feel like most of the Colorado funds are very transparent and they're very clear about who they invest in or what they believe in. And that's something that's, I feel, like very Colorado-specific. And I feel like a lot of coastal funds can learn from us a little bit. And the reasons for it is key. And the reasons why people don't do it is also a lot of FOMO. People feel like, what if I don't see all the deals. And what that leads to is this general, I was talking to Lisa earlier about this, and this general feeling with VCs that you never hear back from VCs.

And we wanted to make sure that we are not in that bucket where we at least tell people what we invest in. And if you're not investing in them, why we are not investing in it and why it doesn't fit our thesis. And being transparent about it is good for a relationship. And we are building a long relationship with entrepreneurs and VCs when we invested, we are in for the long run. We are investing in pre-seed, seed stage companies that in all likelihood and we hope they last 10, 15 years until they exit. So, starting off with the truth and saying what we believe in is a good start, is what we believe in. And that should be true with all the companies too.

Lisa: So, kudos to you for closing the loop. I've been on the other side as a VC and it's been a number of years, but I ran the venture fund for SAP, the German software company. And you just kind of lead. This was a couple years ago, but you just kind of lead companies along. And you're exactly right, there's FOMO. And you never really close the loop or there's always one other piece of information that you need, those of you who are in the industry. So, I really, really admire that.

John: Thank you.

Lisa: Okay, so changing gears a little bit. So, the tie that binds us is small business. It's a huge focus for TriNet. You're an entrepreneur, Alison. You guys invest in early stage in seed. So, I'm just wondering from your perspective, maybe you could share a little bit about the challenges that you see as a small business. So, there's the talent, we talked about the talent or for you guys in investing in your portfolio companies, but there's the challenge around getting the right talent in place. Maybe that's eased up a little bit. There's also the challenge around just tools and technology. You have to report out to investors or advisors. You guys are trying to pull the information from your portfolio companies and then people like the VCA are asking you for information.

So, I'm just curious, what do you think were some of the key pain points, and how have you seen your portfolio companies address it or Alison, how do you address it? We didn't really talk about your network of advisors. Or I think you're thinking about some fundraising in the future. But any comments there I think would be enlightening for the audience?

Alison: Sorry, trying to get my thoughts together here. So, I think one of the biggest challenges for me was, I'd set up other businesses, small businesses before. So, I knew the foundation, what we needed to do. You had to get a lawyer. You had to go get your EIN. You had to do all of these things. And if we wanted anybody to invest in us, we wanted to at some point in the future get funding or a loan, we needed good financials. But I didn't know what I didn't know until I started moving into that space and talking to other entrepreneurs about how they got there, what they did. And it opened up this door of possibilities I didn't know was available. A PEO is a great example. I didn't know they existed, that I could outsource my HR for very little money, because it's one of those things where all I could think is, I've got a remote workforce all over the country, how am I going to find one person who knows all of the rules of these states to be able to pay properly, do benefits properly, et cetera?

And I kept running into some of those things as we went along. And so, I'd say, really leverage talking to other entrepreneurs. There are groups out there that can give you that insight. I've just taken out to coffee or had a Zoom meeting with owners of businesses where I knew their salesperson or their ops person, just to pick their brain about how did they get there, what did they do? Because there's a lot of options out there you just don't think about. I had a meeting with a banker at Huntington Bank the other day, more of a get to know you. And she mentioned that SBA loans, they're pretty easy to get. We are at a point where maybe we want to consider doing a small operational loan to help get us through that next piece if we don't want to find funding.

So, I'd always imagined SBA loans, the government, it's going to take years to get anything done and I have to have millions of dollars of a request. No, it can be small. So, really leverage those around you and don't be afraid to ask. Most entrepreneurs are happy to talk to you about how they got there, give you advice. They want to make sure you don't make the same mistakes they did. So, don't be afraid to reach out. Even LinkedIn, somebody who maybe you've never met before, have no connection with, it's a great community we just don't probably leverage as much as we should.

Aaron: Yeah. Not to be a downer, but for an early stage startup, there is no shortage of problems. And I think one of the ways that you can help yourself and your company, and something that we did try to do is kind of facilitate, especially for the senior leadership and management teams and founders, try and help them build a peer network. Because we have a portfolio of all of these people going through the same things. And sometimes it's going to be the first time you've ever done something and it's going to be so much research and brain damage trying to figure out to do it. But we have somebody else in the portfolio that just did that and “let me connect you guys.” Or just having that peer network of other CEOs or co-founders, whatever, that you can reach out to and say, "Hey, I've got to fire somebody for the first time and how did you do it?"

These are things that you're going to have to go through. But if you can pull that experience from somebody who's been in the same shoes as you before, it can be really valuable. We have kind of a couple of unicorn companies that we've invested in. There's moments where they've almost run out of money. It's never a straight line from point A to point B. And so, there's lots of challenges to build a big company fast. But the more you can build that support network around you to help solve those problems, the better you'll be.

John: I mean, just to add to it, I mean there's so many tools right now as a company, as a founder, even as a single founder, if you are the only person working for your company. I still remember when I started my first company as delivering gift baskets personally. And now you have other startups and companies that would do it for you and much cheaper than what you would ever do it for. Or even doing PEO for example. I remember the first time I was doing it, filling out PDF forms, and I was spending couple of days every month filling out HR forms and filling out those 940 ones or whatever. And I don't even know about them right now. So, it's just, you click one button and you're done. Payroll's done.

Technology has enabled a lot of operational efficiencies for founders and proprietors to do their job a lot faster, easier and without really putting a lot of their own manners. And they could just focus on growing their own business and growing their own customers and keeping them happy. And technology has made that happen and we are only seeing that grow. So, I feel like tech-enabled services and outsourced services are only going to grow and that's going to make startups happen more faster and get to product market fit a lot faster, and it's going to consume less resources for founders and make it easier for them. And we see that happening. And COVID has only increased the pace of it.

Alison: I was going to say, don't be afraid to let go and outsource things that aren't your bread and butter. Because you’re wasting time on... Yeah, you can do payroll. Yes, you can do your own finances, but you can also relatively cheaply put that out to a fractional CFO company that has everything from your strategy covered down to your regular bookkeeping and accounting work. And so, if it's not what you're trying to sell, it's really important to be okay to let that go, because that's going to save you so much time to sell more and sell faster. So, I agree that the technology has helped that, but then there's more and more of these companies who are willing to take on that operational stuff that's not core to your business, but you have to have it to run and succeed and measure yourself.

Lisa: Yeah, I think that's a great point. I mean there is PEO, but there's so many service providers. I know there's so many accountants, there's advisors, there's attorneys I know here tonight because I know a couple of you. But also, I think when you think about the Colorado ecosystem, so this is for all my TriNet colleagues that are here because they probably get tired of hearing me talk about it. But I think Colorado is just a phenomenal region to build a business. I don't know if we have a chip on our shoulder or if it's just the collaborative nature, but it's like you want to raise the tide for everyone here. And so, if you're a VC, you're not hiding a deal because you want to get the best price you can on that deal. You're syndicating it, you're building a strong board of directors, you're building a group of advisors around you.

And I think that we share a lot of information. And I think a lot of that does come from the accountants, the fractional CFOs, the lawyers, tax advisors, and I think also among the venture community and it's not just tech. We've talked a lot about tech tonight, but there's so many other industries that we have here in Colorado. There's the natural. There's what?

Kay Henze: Natural products.

Lisa: Yeah, natural products. There's telco, biotech, aerospace. And it's a really rich environment. It's not that we're just betting on one thing. And I think that investors from the coast and large companies and potential acquirers realize that as well. So, I'm a huge proponent for it. We raised the tide for everyone. Great. Do you guys agree with me or any thoughts? I mean, I would love to hear what you say.

Alison: We're sitting here nodding.

Lisa: You are? Okay, good, good. I didn't want to steal your thunder. But I think I moved here from the Bay Area. I think many people here have relocated from the Bay Area or maybe from the New York area. And I think it makes all of us better. And I know last year I think was a record year for fundraising.

Kay: For investing and fundraising in Colorado.

Lisa: And very diverse teams as well.

Kay: Well, I'm sorry, I'm jumping in.

Lisa: No. I think we should just go ahead and open it up for questions. Do you want to maybe introduce yourself?

Kay: Yeah.

Lisa: Okay. That'd be great. Sorry, so I didn't let you guys make any closing comments, so we'll just...

Kay: I'll just jump in. I'm Kay Henze. I'm the CEO of the Blackstone Entrepreneurs Network. Lisa is one of our longtime advisors in our ecosystem, which is awesome. And we exist to help scale up companies, grow their business, overcome their challenges and stay in Colorado. So, just on this theme, Aaron, I'd love to hear from you. Since the inception of your fund, what you have seen change in the Colorado ecosystem from a startup perspective in regards to the diversity of those companies, as well as just the landscape overall?

Aaron: Yeah. I would say in terms of diversity, our first fund was not very diverse at all. I think there was very much a thinner layer of activity here and it was a lot of network-based and it was a lot of existing networks. Our second fund is very diverse, both in gender and race and everything else. And I think that has a couple of reasons. One is there's just a lot more. It's not kind of a thin layer of people who've been here and know each other. There's a lot of people who've come here from other places. There's a lot more capitalists. There's a lot more depth. And so, I think there's a natural kind of growth in the diversity of the population that in our brand has grown enough that I think it's getting out past that initial network that we had in reaching more people. And so, I do think that that has changed, just between our fund one and fund two has changed drastically. You had a second part of your question that now I forget.

Kay: Just in regards to the broader landscape, are you seeing more activity? We see more activity. We see companies moving in from the coasts.

Aaron: So, my partner who founded our fund, he founded a company in Boston that he took public in 2000. It was a bit of a pioneer in cloud storage. I founded a company called Storage Networks. And he raised money from Greylock and some coastal firms and had just a great network on the coast. But during that whole time his family was in Colorado Springs. He came there for a semiconductor memory chip company startup that failed. And he's like, we're going to start this new company. We're going to put it in Boston. His wife's like, I'm not moving for another one of these startups. It's probably going to plow into the ground. That one actually did pretty well.

But so, he had a pretty good coastal network of really high net worth individuals. That when we were raising our first fund, you're like, Colorado is really up and coming, seed is now a dedicated step in the capital stack and there's nobody doing Colorado-focused, seed-focused fund and we want to kind of build a firm here. And he would kind of tell that story to his friends on the coastal like, “Oh, Colorado fund. That's really cute. Have fun with that.” I got a lot of opportunity in my backyard. I don't really need Colorado exposure.

And fast forward to fund two, you started to see the companies that were founded here really start to take off. There's a number of unicorns that have been founded here and have grown up. The old convention was, yeah, you can start a company in Colorado, but eventually you're going to have to move to the coast to get the capital and the talent to grow. And now I think the table is flip-flopped. It's like, no, don't come here. It's a shit show. Stay in Colorado, better access to talent. The money will come there now. It's not. It's kind of totally flipped around.

Lisa: Other questions?

Hunter Rudd: Hey, Hunter Rudd. Thank you for your service. I spent 10 years as a Green Beret in the Army, so I know how challenging that transition is. One of the things we talked about tonight is domestic labor movements and the changes in the domestic market. One of the biggest impacts I've seen is if employees can work from anywhere, I can hire from everywhere. So, how are you reconciling both domestic headcount growth against the desire to outsource or potentially find some of that fractional CFO services abroad, where you can get a licensed CPA in another country that's willing to accept significant reduction in salary to meet those demands of the company? How are you guys thinking about that from both a VC perspective and an operational perspective?

Aaron: Yeah. I would say at the stage that we invest, the teams are pretty small. It's hard to outsource much at that stage. Although, as John was talking about earlier, we've kind of changed the way we do things throughout COVID and there's some things that just won't go back. And hiring was really tight a couple years ago. We have a lot of companies, they could not find software developers in the United States at a price that they could afford. And they had zero other options other than to go to Eastern Europe or South America. And they had really good success with that in a lot of cases. And it's like, why would I increase my cost 50% to have a remote developer in America who's still not going to come into the office? And so, we have seen that on the development side especially where a lot of work, even if developers are all in the same room, they're talking on Slack.

So, I mean that work can be done pretty effectively remotely. I think there's some things you just can't outsource, especially if they're kind of like you were saying, critical to your bread and butter. And even if you are going to outsource, you still need somebody to manage that. And it's great for project-based or hey, we're focused on this, but we really need to build these integrations to these other systems. That's not core, we just need somebody to do it cost effectively and get it done. So, we see that pretty common, especially on the development side.

Alison: One of the things you mentioned I think is important is even if you outsource something that's not core, you still need somebody internally looking at it strategically from your business' vision, mission, all of that. Because some of you may have this idea that you want to source from the U.S. only and that's okay. And that will raise the prices, that will cause different effects there, but it also can bring in a different market. So, it doesn't necessarily exclude you. I'm a firm believer, coming back to what Aaron said, there are certain things you can outsource. Basic development where if I put a doc together and somebody just does it, do I really need somebody in the U.S. to do it? Probably not.

But there's certain things that we do as a professional services organization where that business analysis work, it's very difficult to have to find somebody abroad who can do the translation we need to successfully work with our clients. But again, that's part of our bread and butter is that business analysis, that translation. So, it's a balancing act. There's not a good answer except when it comes to how you want to run your business. And I feel like most companies who are doing funding from an investment perspective, a lending perspective, if this is what you believe in and this is how your company's going to run and you can show a business case as to why it's going to be successful, they're going to support that. Or if they aren't, you need to find somebody else. There's tons of options out there. Find somebody else who is.

John: I don't have a lot to add to what both Aaron and Alison said. Again, it depends on the function. So, if it's a core function and you're talking to customers, you want to make sure you can control that experience. And usually, you want to have a native team to do that. An outsourced team, unless without supervision, they may not be able to do that. So, again, customer experience matters a lot and that will probably determine what you outsource and what you don't. But again, rudimentary tasks, repeatable tasks usually get outsourced.

**Aaron:**I would add something that I think it's really challenging, again, at the stage that we invest that kind of pre-series A stage, there's like certain things you need to prove to get to series A. And you really don't want to carry cost. If it's like we need to build these integrations, it's like if I hire developers to build those integrations and it takes four months and I don't really have anything critical, there's things for them to do always, but there's nothing critical path to get to series A. My burn is now higher than it should be. So, my runway to get to series A is now shorter. So, outsourcing things can help you be flexible. We really need to focus on building this integration and then we need some marketing support. And so, you can kind of flex things up and down without raising your overall burn. You can keep it constant, but just dial up product, dial that down, dial up marketing, prove what you need to do, get to series A and then you can start to build your scale infrastructure.

Lisa: Great, thank you. Other questions?

Dan McGuire: One, sorry, quick question back here. Dan McGuire, Cerebral Brewing in West Monroe. So, I guess entrepreneur, advisor, entrepreneur, not in the software space, but interested in your perspective. Maybe just some examples of, what are the things that you look for in diligence that are critically important that you see in companies that are looking to investments from you? And then maybe just an example of a red flag that's killed a deal that we should definitely stay away from.

Lisa: Great question.

John: So, you're talking about non-technical founders or non-technical or non-software companies?

**Dan: **Whatever is specific to you.

John: Okay. So, I mean we tend to focus a little bit more on tech. One of the big things that we do tend to do is look at TAM. And the total market, addressable market is one of the key things that we look for. We also look for competition. So, we're kind of unique in some ways where we like competition. So, if you do have competition, we see that as a good signal. Whenever people say that, "Hey, there's no competition, we are the only people doing this," we usually see that as a red flag, unfortunately. But that's something that people do. I did that sometimes when I started a company and I thought, “Oh, no one's going to do this. No one has this idea. I'm the most brilliant person in the room.”

And usually, first time, second time founders make that mistake, where they do tend to underestimate competition or existing products. So, a complete understanding of the landscape from the founders is usually what we look for in the diligence process. Do they understand the market they're in? Do they understand the customer? Have they spoken to the customer or at least customers? Have they done their diligence before go building a product and spending millions of dollars? And also scale testing. So that's another thing that we look for is sometimes you have a lot of false signaling when it comes to startups. When you're starting something, you might have great initial traction, but it may not scale and there might be a glass ceiling that they may not be seeing.

So, sometimes doing some scale testing where you can say, "Hey, I'm spending $1,000 on Google to get my customers.” Can I spend $100,000 and still get customers. Or can I scale my channel to an extent where I can grow my business 10 times, a hundred times, a thousand times? Those are some of the things that we want to see when we’re talking to founders. And those are some of the things that we like to see in diligence. I don't want to take all my time, but very, very, very high level. Those are some of the things, obviously there're documents and other things, like charter documents, very basic financials and other things that we look for.

Aaron: I would like just to bring it back to the topic of networking. In terms of what we're looking for that's kind of general across industries is a word to describe it might be a magnetism. And part of the networking, why it's relevant is getting people excited about what they're doing. There's a communication skill and the way that you tell the story about what you're doing and why it's a big idea and why you should be excited about what I'm doing. It's not just charisma. There's kind of a way to tell your story that it relates to things like raising money. Can you convince an investor that this is going to be a big company and you should put money in? Can you convince that first customer to give your startup money for their product that they're the first customer?

Can you find a really talented person who has lots of opportunity to quit what they're doing and come work for your startup that has no customers? Your ability to convince people like this is going to be big, get on board, that is a skill that is really, some people just can't pull together. And if you can't do those things, it's hard to be successful. And that's a very broad thing that we really zero in on.

Lisa: So, I totally support that. I once had lunch at Zolo in Boulder, the Mexican restaurant for those of you who lived there for a while. An hour later I got a check for $250,000.

Aaron: Good storyteller.

Lisa: It's a good story. But I think it's a little bit of everything. You got to be comfortable in your skin doing that type of thing. And then as you pointed it out, John, so many other things as well. So, great. All right, well, I see that we're just about out of time and we still have plenty of food and drink. So, with that, I'd like to thank first of all my panelists. So, John, Alison and Aaron, thank you very much for attending tonight. And I'd like to thank all of you for attending. I know we have customers and we have partners and other people in our network, so thank you so much for attending tonight. I'd also like to point out, as you might have seen in the room right here, we are launching our second season of our podcast, Shifting Grounds.

And this is Michael Mendenhall, who is our chief marketing officer, and he basically talks to entrepreneurs and innovators, small businesses, about how they're growing their businesses and facing challenges in order to scale and expand. So, I really encourage you to take a listen if you haven't. And again, thank you so much for attending tonight. Please enjoy the networking and then also plenty of food and drink. Thanks very much.