0:00:00.0 Announcer: The financial views and opinions expressed by the host and guests on this program do not necessarily reflect the viewpoints of 107.7 The Bronc, Rider University or Certified Wealth Management and Investment. The material discussed is not designed to provide the listeners with individual financial, legal or tax advice.
0:00:25.6 Announcer: It’s time to grow your bank as 107.7 The Bronc Presents Master Your Finances with Kurt Baker, a certified financial planner professional with certified Wealth Management and investment. Kurt and his team of financial guests will help you turn those singles into seas of green and plan your financial future accordingly. Now here’s your money managing host for the hour, Kurt Baker.
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0:00:55.2 Kurt Baker: Welcome to Master Your Finances. Are you curious about how established investors see private markets? Do you wanna learn about a unique market space and private equity? Serial entrepreneur, Ben Jen will discuss how investors source transactions, the people involved, and how his firm 1435 capital conducts due diligence. Ben will share with you strategies you can apply and utilize daily to gain a deeper understanding of how markets work based on his years of experience and involvement in over 300 startups. As co-founder and founder of executive strategist, investor and mentor, he’ll make you feel intrigued as he provides you with a perspective about markets not commonly shown. Ben, you’ve got an awesome story here. Before we get started, if you wouldn’t mind ’cause there’s a little story behind the actual name of your company, the 1435. You wanna tell us a little bit about that and how you came up with the name of 1435 Capital?
0:01:49.7 Ben Jen: Sure, So our offices are located in Carnegie Center behind the Princeton Junction train station. And those 1435 stands for so the width of a standard gauge railroad track is 1,435 millimeters. So it plays a little bit to the fact that capital and the markets never really stop moving and the trains move, Well, usually move a lot quicker and they move up and down rails. So it’s more of a… Of a illusion or I guess alliteration to how capital markets move. Just the same way that freight in railroads move as well.
0:02:27.0 Kurt Baker: Okay. Well freight moves a lot and it sounds like you have lots of cars in your train from what I can understand. So maybe tell us a little bit about, I mean, you’ve got such an amazing background. Tell us a little about how you got started ’cause I know you started pretty young and what intrigued you about this whole idea of investing and so forth when you were, I mean, is this something you did in your crib, you were like looking at the things around you going, “Well, how can I multiply my toys here?”
0:02:53.1 Ben Jen: Maybe not so that early.
0:02:54.4 Kurt Baker: Okay. Yeah. What got you kind of sparked along the way?
0:02:56.8 Ben Jen: Sure. I started off as an entrepreneur in high school. I, Well, actually in high school I didn’t even know I was really interested in entrepreneurship. I was actually more interested in pursuing medicine at the time. So it was just, it was a very different environment, obviously. But I started off with entrepreneurial aspirations in high school. I had an exit or two earlier on and over the years I’ve had a lot of different startups and a lot of different ventures throughout the tech space with my most recent exit being in telecom.
0:03:33.2 Kurt Baker: Okay.
0:03:34.4 Ben Jen: And then I burned out from doing startups one after the other and decided to say, alright, look at the other side of things, what does the investing side look like? Especially from, I had a lot of experience, Well, I had a lot of, I had bit of cash lying around from all those exits. Looking to see what are opportunities there were, yeah, I basically fell into the angel investing space and eventually evolved with, with several portfolio exits along the way to larger investments and to more later stage investments as well. So at this point, I’m a little bit all over the place in terms of my investments, in terms of my portfolio.
0:04:17.2 Kurt Baker: Yeah. So you, first off, you started off in medicine, right? So you had an interest in that. Were any of your early on investments in that? Because I mean, you were… You were acting as a principal, so I just wanna get some more basic, ’cause not everybody really understands how this happens and here you are in high school.
0:04:28.9 Ben Jen: Sure.
0:04:29.5 Kurt Baker: You’re listening to the teacher talking about biology or something. Look, hey, don’t you… Did you see a need or I mean, what got you going as far as, I mean usually there’s some spark that gets you visceral, like interested in something and you go, okay, you go from an interest to action. So can you describe to me how that worked in your mind. What got you really excited and then when you went from excitement to like, I think I can actually do something about this?
0:04:56.2 Ben Jen: I don’t think, Well, in retrospect, I don’t think I’ve ever had that much of a interest in medicine as much as I did in anything else. ‘Cause I think, I guess I focused on medicine, but as a career pathway. But when I got into college I realized it really wasn’t for me. ‘Cause I spent more time working in my startups more time focused on anything else but my schoolwork. Was never in class I were, if I was in class, I was never paying attention. That’s for sure. So…
0:05:28.3 Kurt Baker: ‘Cause you had all these startups going on, right? So can you just tell us a couple of the early ones? What did you get, what did you start up? What kind of a business was it?
0:05:34.6 Ben Jen: It was a tech support company. It was IT, tech support company. Nothing fancy, nothing sexy, so to speak. But the, it just grew to a larger company, a larger platform and eventually saw an exit at some point earlier on. And then I’ve done other startups along the way mostly in a tech space from healthcare EHR platforms to… You know, more in EdTech as well, mostly focused on Tech, and then I fell into Telecom as well ’cause, it was a natural segue of progression. But yeah, Mostly in the Tech space.
0:06:22.7 Kurt Baker: Okay, yeah, so obviously it was a little tech-savvy, so now were you like… I mean you were the guy clicking the keys on the keyboard? Or are you the person that found somebody that helped you do that? Were you kind of the visionary? Like, hey, here’s something that I think we need as far as education… I know that’s a big one. Education Technology, where we shifted from just handing people books and maybe doing something that’s a little more interactive…
0:06:42.5 Ben Jen: Once upon a time I knew how to code, yes. [chuckle]
0:06:44.3 Kurt Baker: Once upon a time, okay. So you do know how to do, but it doesn’t sound… I’m sure. You’re not doing that now, so you move on and you’re like, Okay, that’s great. So you’re more of the visionary, right? You see a need, right?
0:06:55.3 Ben Jen: Yap.
0:06:55.7 Kurt Baker: And then you go, hey, I think that we could do something a little better than what’s out there.
0:07:00.1 Ben Jen: Right.
0:07:00.4 Kurt Baker: So you’re kinda seeing that and then you solve the problem, So you’ve done that, it sounds like quite a few times, yourself. And then you said, hey, that’s great, I’m a Principal, you’re the guy that gets up at 4:00 AM and is making sure everything happens and then you gotta… You close out at midnight, or whatever it takes, You just… Because you’re the guy that has to take… Make sure everything happens, You say… “Okay, well, that’s great, I’ve had some successes and now let me go help others do that,” And I think one of the things a lot of people… Maybe you can talk to us a little bit is it, when people get involved in like… If I’m like an entrepreneur, why would I hire? Why would I bring in an angel investor or another investor, when I’m already being pretty successful? Maybe my business is rolling along and doing okay. Just can you speak to that, why they come in because you offer something a little more than just the bank, the bank writes a cheque and says, hey, send me a payment every month. But you’re doing a lot more than that right? When you get involved.
0:07:58.5 Ben Jen: Well, A lot of startups don’t really qualify for bank financing, a lot of banks require several years of proforma and several years of history, either with institution itself or just in general, and usually almost always they involve a personal guarantee of some sort. Versus a company might seek startup funding because they’re looking to grow their company, they’ll want to… Maybe they wanna staff up, maybe they wanna grow operationally speaking, maybe they wanna add an additional line of business, something that would be capital intensive that they can’t get from a traditional bank loan or a traditional lending scenario. So typically, they go on… Go on a little road show and then… To get our deck, and then they go pitch to different investors to kinda see who’s interested in… Who would get involved with their ventures. Typically, you want an investor that can also help from an operational perspective and to provide something of value besides cash. Because having cash is great, but having the operational experience to carry it to the next step is even better.
0:09:11.2 Kurt Baker: And that’s kind of what I was really… ’cause I know that, and especially the young entrepreneur or a new entrepreneur, doesn’t have to be young, somebody that’s shifting from… Let’s say that I worked for corporate America, I go into work, I do my little thing, maybe I’m very good at it, but when you go out on your own, there’s no HR Department, there’s no… You don’t make a phone call and say, “hey Joe, can you go over and fix this for me?” It’s you. And so you have to get all this stuff together, and when you’re young, these mistakes can be extremely costly in either time and/or resources.
0:09:39.5 Ben Jen: Of course.
0:09:40.1 Kurt Baker: And in some cases, it could put you out of business if you make some serious mistakes. Now, someone in your position, that’s done this multiple times. So how does that work when… Let’s say we get together, it looks like there’s a nice match. ’cause it’s a little bit of a marriage kind of thing, right?
0:09:53.8 Ben Jen: Oh, absolutely.
0:09:55.3 Kurt Baker: You have to like me, obviously, ’cause you’re not gonna write a check and get involved, and the entrepreneur has to like you too and feel like, hey, there’s a good fit, I think you can kinda help me out. So kinda tells a little about how that goes, as far as how that relationship gets built initially, ’cause when they come in your door and give you this deck, and the deck is basically an explanation of what they’re doing, right?
0:10:13.2 Ben Jen: Right. It’s a bit of a courtship as you described it, ultimately, the investor has to feel comfortable with the entrepreneurs, have to feel comfortable with what they’re doing. I tell people ideas are a dime a dozen, there are just so many ideas out there, executing those ideas is the most important part, ’cause people say, oh, what happens if someone steals my idea? Well, great, let them steal it. If they can’t execute or they can’t put it together, then it’s worthless. And a lot of people don’t realize that you can have whatever Fortune 500 background, whatever companies and firms as your background, but ultimately, if you’ve never ran a start-up or if you’ve never been in the space where you’re having to wear four or five different hats, it’s kind of irrelevant. So ultimately, teaming is probably one of the most important things, especially for earlier stakes start-up. If you don’t get along with your co-founders, it’s not gonna work. If you don’t get along with your employees, it’s not gonna work in some capacity, so having the right team dynamics is extremely important to any early stage company.
0:11:22.9 Kurt Baker: No, I think that’s critical, but I wanna definitely get in that, we’re gonna take a short break, but I wanna talk into that dynamic and how we make sure that actually works well from the start. You’re listening to Master Your Finances, we’ll be right back.
0:11:34.3 Announcer: This is master your finances with Kurt baker certified financial planner professional. Learn about tax efficiency liability, owning managing and saving your money and more from Kurt and his experienced panel of guests. Master your finances is underwritten and powered by certified wealth management and investment and Rider university. Rider university offers flexible education for adult leaners for more information it’s rider.edu/nextstep.
0:12:01.4 Kurt Baker: Welcome back, you’re listening to Master Your Finances, I’m here with Ben Jen, a serial entrepreneur, and we’ve been talking a little bit about, how you started with some trends, initially doing a lot of start-ups yourself, started in high school, got really good at it and decided, hey, look, I’d rather kinda get involved in the investment side and the… Essentially a consultant, you’re kind of a… I hate that, I don’t want to use that word ’cause you’re more than that. But you’re actually gonna assist them with the process of building the business and I think, as you stated before, many people that are like already working somewhere else don’t really understand just how much is involved in actually running your own business and how many stressors there are on you. Especially when you’re trying to create something brand new that’s never been done necessary or is a couple of degrees from something that’s already been done.
0:12:50.0 Kurt Baker: So it’s a little bit new but you mentioned something right before the break that I think is really, really important is that once you just, once you come together with an investor that’s gonna help you one, it has to make sense from a financial standpoint obviously, and also it has to make sense from a personality standpoint. And then you also mentioned the employees what I think is great too. So would you mind walking us through, like how do you determine that? Right. One, how do you determine, one, it’s a good like business that you want to get involved in. And once you do that, how do you make sure that the culture in the company that’s… That the company founders and the employees is gonna kind of match with your own philosophy and culture?
0:13:29.7 Ben Jen: Sure. I mean it’s always interesting because a lot of people usually try to put together the best team members or the best people to kind of join a lot of these initial calls. And it’s hard to kind of gauge who they really are, especially through just through Zoom calls and just through meetings. But at the same time or just even in person visits, because usually it’s a, well I wouldn’t want to use it the term a dog and pony show, but sometimes it is.
0:14:02.7 Kurt Baker: Right.
0:14:03.0 Ben Jen: Putting something together to make it look like or maybe put something together for investors to seem like they are cohesive team or something. But you usually do diligence takes weeks if not months because you’re kind of, you’re nitpicking every aspect of the business, nitpicking every aspect of their operations and nitpicking through the team as well. So usually after a few meetings usually they get more comfortable, more relaxed and it’s helpful to observe people’s behaviors and just especially on a Zoom call, you kind of tell. Well, on a Zoom call it’s a little bit harder, but in person’s a lot easier to tell how people get along, how teams kind of work, even if it’s at a distance. But on Zoom calls it’s a little bit more difficult because usually they’re just sitting there at either at home or wherever they may be. But I mean usually at that point it’s more so if they have some operational track records, usually those speaks volumes for themselves. But you never, and I mean that’s why investing in startups is always a major risk because you never know what may happen down the road.
0:15:12.1 Ben Jen: You may never know what happen who may happen a few months later. So there is always that tremendous degree of risk associated with it, which is why most people stay away from it because they’re like… Well and I think statistically it’s found that 90% of startups fail within the first five years. So a lot of people just stay away from it ’cause well it’s, it’s, you have to be able to stomach and realize that it might be a complete loss just because something doesn’t work out. Maybe the team doesn’t work or circumstances change from operational perspective or something else. So you never know.
0:15:50.4 Kurt Baker: Right. Yeah, no, I can see that ’cause I mean in our business you want to take kind of the middle of the run, so to speak. You don’t want to be involved too early because of the high risk period.
0:16:00.3 Ben Jen: Right.
0:16:00.6 Kurt Baker: And you don’t wanna wait too long because you might, you might get crushed on the other end of the mountain, so to speak.
0:16:04.5 Ben Jen: Right.
0:16:04.9 Kurt Baker: So people are fairly conservative, tend to stay in that little middle range, which you’re kind of outside of that, which is obviously important. Otherwise we’d never get what we have. Will never happen.
0:16:14.5 Ben Jen: Exactly.
0:16:18.1 Kurt Baker: So you go through the due diligence. So any I think it was interesting how, this sounds a lot to me from my perspective, almost more of a personality assembling than it is like necessarily the plan itself. It sounds to me like, and maybe I’m reading it wrong, but it sounds to me like you’re paying a lot of attention to the people involved because you have the right people involved. You can solve problems, right, if the right team is together. But if you have, no matter how good the business plan, if that doesn’t work, it’s just gonna fail.
0:16:45.4 Ben Jen: Correct.
0:16:45.8 Kurt Baker: Right, so even if the plan might have some faults, you can maybe pivot, right? So you get to a certain point and you’re like,” Hey, maybe it’s not gonna work exactly the way that we thought. But maybe we can move and try this instead. And let’s just… ” So what kind of experiences have you seen along those lines? Like figuring out the teams and like things that might change along the ways? What are some of the things that you see happen in some of these companies?
0:17:09.8 Ben Jen: I can’t begin to tell you how many times if I’ve invested in this, in something and later on they pivot or changed because for whatever reason they realize it wasn’t gonna work. Or maybe a team a key team member leaves because they found something else, or, they’re moving on from a career perspective. And sometimes all you can do is sit back and watch and see what happens. But and when you mentioned earlier kind of like a consultant, more like a mentor and advisor to a lot of these companies.
0:17:41.6 Kurt Baker: Right.
0:17:42.5 Ben Jen: ’cause effectively I’m, it’s always, it is in my best interest to kind of guide or steer things towards a better outcome for the company and for my investment as well. So that’s usually why I usually don’t touch companies or don’t touch industries or I don’t have a lot of operational experience in, or I don’t have a lot of background that I can provide or help in. So I usually stick with what I know, in terms of investment perspective which turns out to be a pretty wide swath of companies [laughter],
0:18:18.5 Kurt Baker: Right over 300 companies. That’s a lot so I mean, you, I mean you obviously are doing something right because you have a very, you have a much higher success rate than one in 10.
0:18:27.0 Ben Jen: Right and…
0:18:29.0 Kurt Baker: So that’s a pretty amazing thing all by itself.
0:18:30.7 Ben Jen: Right? I mean there’s definitely a fair share, a chunk of companies that haven’t succeeded along the way.
0:18:35.3 Kurt Baker: Right.
0:18:35.3 Ben Jen: And so, but yeah, for the most part I wouldn’t say lucky, but I would say that, I think definitely having a hand or a say in from operational perspective has helped tremendously in terms of guiding the company forward.
0:18:51.7 Kurt Baker: So for somebody that’s thinking about, hey, maybe I need to add an investor, a mentor, an advisor type person to my business model, I’m doing good. Maybe I can do better if I have some additional experience in there. So just from a, because sometimes I worry, well, I don’t want somebody come in and like taking over my company, right?
0:19:08.5 Ben Jen: Sure.
0:19:08.5 Kurt Baker: They’re gonna feel like, but so what, how does that relationship really work and how often do you… How often are you involved and things like that. So if I’m the original entrepreneur, and maybe there’s, a couple of founders originally. So what kind of things actually typically do happen. I mean, are you in there like every day in their office saying, Hey, here’s what we gotta do at 3 o’clock this afternoon and make sure this happens. I mean, what kind of relationship does it end up being? Usually.
0:19:33.5 Ben Jen: Usually it turns out to be something more of a I take a board observer seat or maybe a board seat with the company just to kind of provide sometimes it’s monthly, sometimes it’s weekly, sometimes it’s quarterly guidance in terms of they’ll just ask me on a quarterly basis, “Hey Ben this is what I’m working on.” This is, these are the things that we’ve done in the past quarter. And these are things we’re working on the next quarter. And you’re usually asking or using it as a summing board to figure out, what are some of the next steps that they should pursue. And sometimes they just need a third party perspective to just kind of hear them out and to kind of make a decision as to what they should or shouldn’t do. So a lot of times it’s what call it a therapy session for them, but sometimes it feels like some of them do call it therapy. ’cause it’s like, oh you have someone else listening to your issues and problems and kind of providing a bit of guidance as to where they should go next.
0:20:30.4 Kurt Baker: No, and I think that’s critical because many people, if you’re not an entrepreneur, you may not know this, but an entrepreneur is kind of a lonely business because if you’re, you’re the boss, everything’s on you good or bad.
0:20:41.2 Ben Jen: Exactly.
0:20:41.7 Kurt Baker: And not every day is the best day. So you, it’s nice to have somebody else, to talk to that has some experience and maybe he has already gone down this path or a very similar path in the past. Because, I mean, what’s interesting is a lot of businesses all have the same essential components, right?
0:20:57.8 Ben Jen: Right.
0:20:57.9 Kurt Baker: You need good employees, you need a good plan, You need to execute it. So a lot of the primary components, you need to put proper systems in place. So you kind of assist with that where they say, Hey, we’re putting this stuff together, and you find things. So what kind of things do you typically find when you’re actually doing your due diligence and you go in and say, well, maybe these are some things you might want to think about doing a little differently.
0:21:17.4 Ben Jen: Yeah, I mean, most definitely there are definitely a fair share of companies that usually ’cause they’re, well, they get tunnel vision sometimes they kinda lose focus on anything else beyond them. And they sometimes need a reality check or a little bit or maybe a course correction a bit sometimes. And it’s helpful to have that outside perspective. Say, Well, maybe you’re focusing on this one thing too much and maybe you should be focused on some other broader things. Or maybe you should look at some other alternatives as well. ‘Cause sometimes it’s difficult if you’re working on one thing and all you see is this one part of the picture, and you don’t see the rest of it.
0:22:00.2 Kurt Baker: Right.
0:22:00.5 Ben Jen: So it’s easier to have not easier, but it just helps to have a different perspective on things and say, Hey, maybe this isn’t the only direction you can go in. Maybe there’s like a plan B or a different path that you can go on.
0:22:14.2 Kurt Baker: And I assume they’re usually pretty open to those ideas. And because I mean, I would be, if I was talking to you, I’d be like, Hey, this guy, obviously.
0:22:21.1 Ben Jen: Usually they are. Usually they are.
0:22:23.4 Kurt Baker: Yeah.
0:22:23.4 Ben Jen: Usually they are. Usually the people that who fail to do diligence process, we realize that are more rigid and aren’t open to suggestions and ideas and aren’t as open-minded as they think they are. And those are the people that would have problems accepting changes and would have problems accepting criticism and feedback. And those are the types of companies that could look great on paper. They could have a, good revenue and a lot of traction. But ultimately if they can’t accept some criticisms or critiques, it’s not gonna work out very well.
0:22:56.8 Kurt Baker: Oh, that’s interesting you bring that up. I definitely wanna talk about that. We’re gonna take another quick break, but it’s, I found that part very interesting. You are listening to Master Your Finances we will be right back.
0:23:05.7 Announcer: This is Master Your Finances with Kurt Baker, Certified Financial Planner professional, learn about tax efficiency, liability, owning, managing, and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by Certified Wealth management and investment and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/next-step.
0:23:34.4 Kurt Baker: Welcome back, you are listening to master your finances. I’m here with Ben Jen. And just before the break we were kind of going through the due diligence process. And you actually mentioned something that I think is very, very interesting to me. So you tend to shy away from founders or owners who really don’t take criticism well, which I found very interesting because I think that’s important. I happen to agree with you. So what kind of issues, what kind of things have you run into? Like you’re going through the process, can you kind of maybe give us some stories without like giving us any ID number? Don’t, give me any identifiers, just kind of a generic scenario.
0:24:13.1 Ben Jen: There’s definitely been companies that we’ve been pretty far along with due diligence and then we find out at the 11th hour that, oh this, this one co-founder has an issue with the way that the first co-founder is running things or maybe he doesn’t agree with the certain investors or we find out later on that there may be a proxy war waging in the background. And usually those are red flags like run for the hills and duck for cover type of things.
0:24:43.4 Kurt Baker: Right.
0:24:44.2 Ben Jen: ‘Cause the last thing that I want to be involved in is some sort of proxy fight with another investor or stuck with a board or stuck with a group of people that, they are just are having serious divisive issues within the company. And there’s definitely been quite a few deals where at the last minute we found out that there were issues.
0:25:07.2 Kurt Baker: Wow.
0:25:07.8 Ben Jen: And we were fortunate enough to be able to back out of them. But yeah, [laughter], there’s been a lot of a lot of those different stories and tales.
0:25:17.3 Kurt Baker: Yeah. So I guess that kept stand, like you probably pay a lot of attention how the different people that are in power, the different founders, Right. ’cause usually most of these probably have more than one a lot of these, right ’cause usually you create a person in the technical, I mean, that’s what I’ve found it’s typically a couple people that get together and do most of these things.
0:25:32.5 Ben Jen: Yep.
0:25:32.6 Kurt Baker: And, so how that kind of, that core original founding dynamic works is gonna tell you a lot about how when they add one more person, now you’re adding another person to that group. So you’re just gonna be another one of those cogs in that wheel. Is that gonna be a nice smooth wheel that runs nice and [laughter] it runs around Nice. It gonna be kind of bumpy, before the chain comes off every once in a while.
0:25:51.5 Ben Jen: Exactly.
0:25:51.9 Kurt Baker: That’s probably not so good. Right?
0:25:53.8 Ben Jen: Right. Yeah, usually we look for companies that have more than one co-founder involved just because, well, one person kind of, if it’s just one person and not to be morbid or anything, but if they disappear or die, or just become incapacitated, what happens to their company?
0:26:11.0 Kurt Baker: Right.
0:26:11.3 Ben Jen: Their company ends right then and there. So typically we look for investments where there’s at least two or more co-founders, and people that have maybe gotten along with each other, and just have some significant history together. They could have been college roommates, they could have been in high school together or something, but they’ve had some sort of history together where they’ve either worked at the same company or done something together. So it’s not like pairing two or three total strangers together.
0:26:42.5 Kurt Baker: Right.
0:26:43.6 Ben Jen: Usually in those scenarios where complete strangers that are like mixed together is when things don’t exactly work out or…
0:26:50.5 Kurt Baker: Okay.
0:26:51.9 Ben Jen: Usually they’re trying to still figure each other out along the way, so it’s… It makes for an interesting dynamic there, or lack thereof. [laughter]
0:27:02.0 Kurt Baker: Yeah, I think it is fascinating me how this, a lot of this just keeps coming back down to personalities and how they work together and whether they can solve it. ‘Cause as we talked about before, being a startup or even… There’s a lot of stressors on these…
0:27:14.9 Ben Jen: Of course.
0:27:15.4 Kurt Baker: From a market perspective. So, you’ve been involved in a lot of different companies, I’m just kind of curious about… I know you’ve got the telecom, you had the tech companies.
0:27:27.0 Ben Jen: Yep.
0:27:27.4 Kurt Baker: What do you see happening right now and where do you… What kind of things are you kinda looking at currently? Obviously in a generic standpoint.
0:27:35.6 Ben Jen: Sure.
0:27:36.0 Kurt Baker: What things are you kinda interested in and why do you kinda have some interest in those things? There’s a lot going on when you talk about tech these days, it’s like…
0:27:42.5 Ben Jen: Yep.
0:27:42.7 Kurt Baker: It seems like… My mind kind of explodes and when you try to wrap your head around all this stuff, right? What kind of things are you trying to pay a lot of attention to right now?
0:27:51.0 Ben Jen: Right now we’re focused on a lot of… Well, I think it’s just because they’re strictly interesting, it is a lot of food and beverage tech companies. And the other thing that we’re focused on is a lot of infrastructure companies, which I know the two topics have nothing to do with each other. But there’s a lot of innovation as relating to food and beverage space, between the development of a lot of different machinery and a lot of different advancements on how maybe something like ice cream or frozen treats could be delivered in the… And used in office space or…
0:28:27.8 Kurt Baker: See to me, that’s very dangerous…
[laughter]
0:28:29.5 Kurt Baker: For me personally, [laughter] because I might sit in front on the ice cream machine all day instead of doing my work. So [laughter], it sounds great, [laughter] but I don’t know.
0:28:39.7 Ben Jen: And then from an infrastructure perspective you see around the world between what just happened in India or just even here in the US. Where you have a lot of crumbling infrastructure between transmission lines and/or just road issues, or just everything in general, infrastructure as a whole, it’s been… It’s pretty out of date, and…
0:29:05.7 Kurt Baker: So what are some advancements in that? When I’m… I’m an engineer, so I have a little bit of knowledge of this, but just for the general public, you kinda wanna drive around and you’re like, “Okay. Well, you got a pipe that moves water and you got your transmission lines that bring electricity. I’m good. My lights are on, who cares?” Until there’s a storm and then nothing works, but…
0:29:22.6 Ben Jen: Right.
0:29:22.8 Kurt Baker: So what kind of innovations are you kinda seeing out there where maybe we can do this a little bit better? Right.
0:29:29.5 Ben Jen: I mean, it’s simple things, or not even simple things, but things like the more of a push, especially… Like California is making a push for more electric vehicles or electric vehicles will be on the road by… I forgot what year but…
0:29:40.1 Kurt Baker: 2035, I think.
0:29:41.4 Ben Jen: 2035, I think. Right?
0:29:43.0 Kurt Baker: Yep.
0:29:43.3 Ben Jen: So pushes like those, however long and slow the government moves, it kind of pushes the industry towards one direction or another. Especially if more towards EVs and such, we’re gonna see way more of those on the road in the next five or ten years…
0:30:00.6 Kurt Baker: Sure.
0:30:00.7 Ben Jen: And that means the infrastructure to go with it as well, from charging stations to the… A lot of them have to do with computer components these days and a lot of it has to do with battery components, so there’s a lot of those changes in how batteries are made, what batteries are synthesized out of. There’s a lot of smaller things that are part of the overall infrastructure that people aren’t really looking at because it works and it runs, but…
0:30:30.0 Kurt Baker: Right.
0:30:31.0 Ben Jen: It has to come out of somewhere.
0:30:32.4 Kurt Baker: Yeah, definitely the EV thing. Those are some pretty aggressive goals in my mind. When somebody… When I first heard that announcement, I was like, “Wow, that’s a pretty aggressive goal if you don’t want to sell any more ICE,” they call them, right?
0:30:43.7 Ben Jen: Right.
0:30:43.9 Kurt Baker: The Internal Combustion Engines…
0:30:45.2 Ben Jen: Yep.
0:30:45.7 Kurt Baker: By 2035. That’s gonna be an interesting transition because, one, I keep thinking about, “Well, that’s a lot of juice, a lot of electricity you’re gonna be flowing around the system if you wanna charge all those cars.”
0:30:56.2 Ben Jen: Right.
0:30:56.7 Kurt Baker: And two, I guess you brought up the charging station and then the batteries themselves, right? We have issues with like, they work, but how much lithium do you have, and how expensive, and what are we gonna do with the lithium batteries when we’re done? Right? I know they used to yell at me, “Don’t throw the lithium batteries in the garbage.” Right? “You gotta recycle them properly.” Well, now you got a whole car full. [laughter]
0:31:12.1 Ben Jen: Exactly.
0:31:13.7 Kurt Baker: So that adds a whole another issue.
0:31:15.5 Ben Jen: Right.
0:31:15.5 Kurt Baker: So do you see some of these… I guess, are these some of the opportunities that you see? Like, “Hey… “
0:31:18.9 Ben Jen: Oh, yes. Most definitely. It is not just the initial developments, also the end of life cycles, it’s the whole ecosystem and part of… I guess, for our cars, the construction of them, where the chips are coming from, where the chips are being made, to the batteries themselves, and every other part of it, including the recycling.
0:31:43.6 Kurt Baker: Yeah. You mentioned the chips, and I think it’s interesting. I guess, we heard about that, we had the supply chain issue. We just assumed to get your chip, you go down to the local electronics store and you just pick up your chips, but it’s not quite that easy… Now, I guess, we had a fairly centralized production, now, I guess, are they starting to disperse that a little bit from a supply chain issue? Are you seeing any of that? Are there any opportunities as far as the delivery of some of these… Some of them are pretty basic, right? Like a memory chip, right?
0:32:07.0 Ben Jen: Right.
0:32:07.0 Kurt Baker: We kind of take those things for granted, I guess.
0:32:09.0 Ben Jen: Yeah. But those are all complex electronics these days., they get smaller, and smaller, and smaller, and there’s a lot of complex components and things involved with it. I think ultimately the US is gonna try to make more investments towards us base, try to be more less dependent of Taiwan on chip manufacturing. But it’s gonna take time. It’s gonna take expertise and it’s gonna take a while.
0:32:31.7 Kurt Baker: Right. ‘Cause these are pretty expensive plants, right?
0:32:34.2 Ben Jen: Exactly.
0:32:34.3 Kurt Baker: They usually… I hear billions.
0:32:36.2 Ben Jen: Correct.
0:32:36.9 Kurt Baker: They don’t spend like a couple of a hundred thousand towards these things.
0:32:38.9 Ben Jen: Right, exactly.
0:32:41.0 Kurt Baker: So yeah, that sounds like a lot. So how do you come in contact with the… I mean, there’s a lot happening here.
0:32:47.1 Ben Jen: Sure.
0:32:47.6 Kurt Baker: And as you mentioned before, you have all these great ideas. So I guess, where do you get this information from? Because I mean, I’m reading all the publications out there that I read, but your funnel is much bigger than mine, probably.
0:33:02.1 Ben Jen: Sure.
0:33:02.2 Kurt Baker: Because I’m not getting into a minutiae of like, how do you make a chip and what’s gonna go in my iWatch or whatever, and whatever the case may be there, to measure my heartbeat. Whatever it is. But I mean, they get very specific some of these things, right?
0:33:13.3 Ben Jen: Of course. Yeah.
0:33:14.1 Kurt Baker: So how does this stuff kinda come to you? ‘Cause I mean, you’re not the only person doing this out there, right?
0:33:18.9 Ben Jen: Right.
0:33:20.1 Kurt Baker: There’s a couple of you out there.
0:33:22.1 Ben Jen: I mean, there’s…
[laughter]
0:33:23.1 Ben Jen: I mean, there’s no shortage of people emailing decks, sending me request on LinkedIn. I mean, at this point I have had to kind of restrict how people message me at this point.
0:33:32.3 Kurt Baker: Okay.
0:33:32.7 Ben Jen: ‘Cause it’s just inundated with pitches.
0:33:32.9 Kurt Baker: Okay.
0:33:34.0 Ben Jen: And I find it easier just to go to different events. Actually, there’s one coming up in Florida that I’m going to with my team in December, called Venture Summit, where we hope to see…
0:33:44.3 Kurt Baker: Was that Venture Summit?
0:33:45.3 Ben Jen: Venture Summit, Yeah.
0:33:46.2 Kurt Baker: Okay. Cool.
0:33:46.6 Ben Jen: And it’s in December that we hope to see a couple hundred companies.
0:33:49.2 Kurt Baker: Oh, okay.
0:33:51.1 Ben Jen: And there are definitely a lot of startup pitching events as well. You know that… Well, a lot of them are virtual these days, but a lot of angel groups as well. Also, a lot of deals that we see through them as well. So there’s no shortage of deal flow on our part. If anything, we have too much of it. So…
0:34:09.2 Kurt Baker: Okay.
0:34:10.0 Ben Jen: We’ll keep saying, “Oh, we’ll just send you deals.” I’m like, “Okay, I really don’t need another source of deals.”
0:34:14.4 Kurt Baker: Right. Right.
0:34:15.4 Ben Jen: But it’s more so the quality of deals as well ’cause there’s no shortage of, well, they are on the mail, “Oh, I saw on Shark Tank they did this.” And I’m like, “Well, it doesn’t really translate. What you saw on Shark Tank versus reality are two different things.”
0:34:28.8 Kurt Baker: Yeah. You wanna explain that a little bit? I know that’s… Maybe while we take… We have to take another quick break, but I’d love to hear that comparison. ‘Cause I mean, that’s the TV version, right?
0:34:35.6 Ben Jen: Sure.
0:34:35.9 Kurt Baker: And you’re like the real life version. So, you’re listening to Master Your Finances. We’ll be right back.
0:34:40.7 Announcer: This is Master your Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing, and saving your money, and more, from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part buy Certified Wealth Management and Investment and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/next-step.
0:35:12.5 Kurt Baker: Welcome back. You are listening to Master your Finance. I’m here with Ben Jen. And you were talking a little about the quality of the deals. Then right before the break, you talked about, well, just because it was on Shark Tank, it doesn’t necessarily mean that’s something that we might be interested in. So can you kind of tell us, because that’s interesting. I mean, whenever you’re a professional in an area and you watch a TV show about it, you’re always like, “Well, that’s not exactly the way things work.” So what are your kind of your thoughts when you watch a Shark Tank? What’s a little bit different or the same, I guess, between the two versions of the show and the reality?
0:35:42.2 Ben Jen: Sure. I mean, I think a lot of people don’t realize that due diligence still happens in the background. It still happens after the show, or after they’ve filmed it. I mean, there’s someone that is always checking to make sure that whatever they claim is real or exists. And I’m pretty sure that they don’t air the ones that don’t exist or don’t work out. But there’s a lot of checking off boxes and making sure things happen. But a lot of it… Yeah, people aren’t, usually don’t have investors clamoring to go invest, and throw out random numbers at you kind of on demand. Usually it’s a more… Like Kurt pointed out in the first quarter is, there’s a bit of a courtship that happens. There’s a bit of… It’s like the process of dating.
0:36:34.5 Ben Jen: There’s a lot more… There’s a lot more poking around and figuring out what the company does. And you don’t usually get an offer on the spot. And it’s usually not something with some crazy economics either. People usually have the notion that, “Oh, I’m gonna give 5% of my company away for… ” in an exchange for some absurd valuation. And that’s not how the real world works.
0:36:57.1 Kurt Baker: Yeah. Some of those numbers seem a little high to me, frankly. And I’m not even in the business. I’m like, “Wow. That seems like a lot for something you just started and maybe you do or don’t even really have something going on yet.” But yeah. So… Yeah. So I guess the due diligence behind the scenes, that’s key obviously, because people can talk… I mean, there’s a lot of great salespeople out there. They can tell a good story, but you gotta be able to back it up with the facts. Right?
0:37:22.0 Ben Jen: Right.
0:37:22.1 Kurt Baker: Basically. So once you do that, and then you gotta actually put the actual contract together. I guess in real life, this is not really like a one hour stand, so to speak. Or one night stand. This is like a long term marriage.
0:37:36.6 Ben Jen: Of course.
0:37:37.2 Kurt Baker: So once somebody comes in and we… Let’s say we get together, you invest in the company, and you talk about exits. So some people don’t realize it. I mean, it’s not like a bank, they’re gonna give you the loan for the next 20, 30 years and they want you to keep coming back and renewing it every five years or whatever the case is. You guys have a plan too. You go, “Okay. Well, here’s what we’re coming in. Here’s what we’re gonna try to accomplish. And here’s the strategy.” So it’s a lot… I always talk to my kids about when you buy real estate. So it’s like you’re always looking at the exits. Whenever you invest on something, the first thing you think about is, “Well, how am I gonna get out? Or when am I gonna get out?” And people don’t… That’s kind of counterintuitive, but that’s actually the way you do it.
0:38:13.9 Ben Jen: Exactly.
0:38:13.9 Kurt Baker: So can you walk us through how that part of the process goes, and how it’s a little different than maybe some other things people are used to?
0:38:20.6 Ben Jen: Of course. Yeah. ‘Cause we’re always thinking in the back of our minds, “All right. So what are the exits gonna look like? What is the multiple gonna look like? What could the potential look like? Would this company get bought out? Would it be acquired? Would it do a merger and roll into a larger company with a IPO?” Now those are all sorts of different ways that companies can exit these days. Or there’s ways of prolonging their runway on the private markets as well. But there’s a lot of different things that they could do.
0:38:49.4 Ben Jen: But yeah. It was always a consideration. It’s like, “Alright. Is the company’s valuation too high?” If it’s too high and we’re sitting on it for three or four years, are we gonna get a better multiple out of another company that’s earlier on that is doing something similar or has a similar story or… These are all factors that we’re always playing with in our back of our minds, when we’re looking at something. ‘Cause sometimes it’s just, “Oh. We’re only getting a 2X over the course of five years.”
0:39:17.2 Kurt Baker: Right.
0:39:17.2 Ben Jen: We could do that with the markets.
0:39:19.6 Kurt Baker: Right. That’s true, hopefully. Well, maybe not this year, but usually.
0:39:23.6 Ben Jen: Right but, it’s like… So we’re always looking at, what is the best thing for our buck? Almost. Maybe something we can get a potential 25X return in a possible five years versus… These are all things that we’re considering. Obviously that’s not always the case, sometimes it’s something that we really like and really passionate about and we’ll go with it. But these are all things that we’re always…
0:39:48.8 Kurt Baker: So there’s certain return you typically go in with a minimum. Like I’m not gonna really…
0:39:52.5 Ben Jen: Sure.
0:39:52.5 Kurt Baker: This doesn’t really… This isn’t really worth my time, so to speak.
0:39:55.4 Ben Jen: Sure.
0:39:57.0 Kurt Baker: To do. ’cause it’s a lot of work on your part.
0:39:57.6 Ben Jen: Of course. Of course.
0:39:57.7 Kurt Baker: You’re actually participating in the running of the company to some degree.
0:40:00.8 Ben Jen: Yep.
0:40:00.8 Kurt Baker: You’re not just buying the stock and…
0:40:03.6 Ben Jen: Sure.
0:40:03.7 Kurt Baker: Selling the ticker a couple years later.
0:40:05.4 Ben Jen: Sure. I mean, obviously, things always change. But at the back of, at least, my mind, if I can’t get at least a 10X out of it, it’s not worth my time.
0:40:13.9 Kurt Baker: Okay. And that’s over usually how long is the holding? I mean, there ranges, I’m sure…
0:40:18.9 Ben Jen: Sure.
0:40:19.1 Kurt Baker: What are some typical holding periods that you’re looking at usually? When do you want to kind of be out?
0:40:23.1 Ben Jen: Usually three to four years.
0:40:24.5 Kurt Baker: Okay. So you’re looking at something that’s ready to really go, take off and really kind of…
0:40:30.4 Ben Jen: But sometimes, we… I recognize that maybe it’s gonna be a five or six years, type of thing and it might be… But usually those are earlier companies and maybe a potential multiple could be even higher so… But those are all things for consideration.
0:40:45.3 Kurt Baker: ‘Cause you add other things. Now you talked about a couple things and I think I wanna delve it slightly because what decides… What are the factors that say, “Okay. Well, maybe we’re gonna look for another company to acquire us at some point.”
0:40:57.9 Ben Jen: Yeah.
0:40:57.9 Kurt Baker: So there’s gotta be some kind of affinity that you see when you go into this thing.
0:41:00.6 Ben Jen: Sure.
0:41:02.7 Kurt Baker: IPO which the initial public offering.
0:41:04.4 Ben Jen: Yep.
0:41:04.7 Kurt Baker: I mean, are we just gonna go public and let the world buy us and then there is pros and cons to that of course, or do we wanna stay private and maybe do a few more tranches. Maybe some more investing? So that’s a lot of different things. I remember hearing a quick story about Elon Musk, he keeps… He brought Tesla the public ’cause he needed the money, basically. But he also has SpaceX private ’cause he says, “Until we figure out a plan to go to Mars, I don’t think we have any real value yet.” So he plans on keeping it private for a while and some of the employees are like, “Well, we want our money.” So anyway, this… The same investor, two different philosophies…
0:41:34.6 Ben Jen: Sure.
0:41:34.6 Kurt Baker: Based on two different companies. What are your thoughts about that?
0:41:37.7 Ben Jen: Well, I don’t think we can cover the entire thing in this show, .
[overlapping conversation]
0:41:41.1 Kurt Baker: We have about five minutes or less [laughter]
0:41:43.8 Ben Jen: I think, there are certain sectors and certain companies that, if it’s… Let’s say it’s a food and beverage company, maybe they’re focused on a specific… Maybe they’re one faceted. It’s a water company for instance. They’re more likely going to get rolled up with a larger brand like a Pepsi or a Coca-Cola where they’re managing hundreds and hundreds of different products and brands versus going public on their own. Versus… I don’t know. A company, without using specific names, there’s definitely… I guess more software-driven or not even software-driven companies more I guess, let’s say Aerospace. ‘Cause you mentioned Elon Musk. Aerospace companies that would require a longer runway that they could probably seek a lot of private financing for it ’cause space in the prospect of going to the moon or Mars is…
0:42:42.8 Kurt Baker: It’s very sexy. It’s kinda cool.
0:42:44.5 Ben Jen: It’s very sexy. And it’s very exciting.
0:42:46.0 Kurt Baker: Right. It is [laughter]
0:42:47.4 Ben Jen: So, usually they can stay private and do a lot of private rounds that way. And even early investors can seek liquidity on the secondary markets in the private secondary markets where existing investors or Cap table holders sell their shares to a new investor. So there’s a lot of different ways to seek liquidity and get exits out there but again, this [chuckle] The answer could take a whole segment in itself.
0:43:15.0 Kurt Baker: Right. Right. Yes. So you might prolong… Basically, it just sounds like it depends on what market they’re in, what you’re trying to accomplish and how it may happen. When you’re doing something really difficult, like space, literally we really haven’t done this to this kind of fashion.
0:43:30.0 Ben Jen: Yep.
0:43:30.8 Kurt Baker: We’re just not sure what this is gonna end up being.
0:43:33.3 Ben Jen: Right.
0:43:34.6 Kurt Baker: Whereas a beverage, we’ve done a lot of those, so you can kinda know. I mean, locally we had Bayer. It was bought out few years back and he did pretty well with that and mixed it up behind in his bathroom or something. I don’t know where he made it originally. Basement, I think. But he… Now he is off making liquor or something. I don’t know what he is doing, but he… But anyway, so it’s… Once you get the templates down… These are a lot of different business. So what would you say to somebody who’s out there thinking, “Alright. I’ve got a great idea,” or maybe the next stage where they’ve got something going on, what should they be thinking about from their perspective? How do I get myself ready for somebody coming and maybe join in with me to help me really grow quickly?
0:44:10.8 Ben Jen: I mean, ultimately investors like to hear a story. And I think in general, people like to hear a story. Having good story and have a good history as to… I mean, putting together a deck and having good story that goes with it. How did you get… How did you start, how did you progress, what made you go into the industry? What made you find a solution to this industry? And why are you the group to take it to the next level? Why are you the group of entrepreneurs to make it work? So telling you a story from a progression perspective and where you could take it and how you could potentially exit and a lot of people omit, especially to raising money is like, “Oh well,” they forget or leave out… Why are they raising money? How much are they raising? I don’t know how many countless pitches I’ve seen where people just gloss over those details. Well, as an investor, that’s what I wanna know. How much money you’re raising, what you’re looking for, and why are you raising it.
0:45:09.5 Kurt Baker: And what are you gonna do with my money basically. Right?
0:45:11.2 Ben Jen: Exactly. Exactly.
0:45:11.5 Kurt Baker: I hand you this large amount of money. What exactly you plan on doing with it? You gonna put in the bank and make a CD rate or something? No.
0:45:17.0 Ben Jen: Exactly.
0:45:18.0 Kurt Baker: We don’t wanna hear that.
0:45:19.4 Ben Jen: And a lot of people forget, that’s all part of the story and all part of what the investor is looking for. So it’s helpful to wrap… Make sure to remind people to wrap those components into their pitch.
0:45:31.7 Kurt Baker: Yeah. So that’s interesting to me. Somebody’s going out searching for money, they put together a great story about why they didn’t… Why they’re passionate, which of course sounds like a founder to me right.
0:45:38.8 Ben Jen: Right.
0:45:39.5 Kurt Baker: It’s not a great idea, it’s not something I need to do. I found a need, I accomplish it. But when they go out and they’re looking… ‘Cause maybe they were bootstrapping this thing all along the way. They were… And they’re willing to give up everything and eat Ramen noodles for the next 10 years if they have to. But they wanna make this happen.
0:45:54.4 Ben Jen: Right.
0:45:54.5 Kurt Baker: But when you add a large influx of cash, sometimes people like, “That’s great.” But you have to actually know what to do with it. You don’t want it to sit there. And so thinking about that… Now, is that something you might assist them with? You say like, “Here’s what… ” Or do you cut… Do they really need to know this is where we see this going. They have to really have a pretty clear idea.
0:46:14.4 Ben Jen: They may not have to know 100% where it’s going, but at least a pretty good plan or idea of maybe 20% spend towards operation or 20% towards operation or 30% towards R&D.
0:46:27.1 Kurt Baker: Okay.
0:46:27.2 Ben Jen: Some sort of break down as to where they’re spending the money. Usually when people are like, ” Oh. I’m gonna use it to spend my personal salary.” Those are usually turns off. I’m not giving you money to go spend on yourself. I’m giving you money to go spend on the company.
0:46:38.0 Kurt Baker: They’re not gonna go shopping [laughter] We don’t wanna hear that. Right?
0:46:41.3 Ben Jen: Right. “Oh yeah. We’re gonna use it to go live off of… ” I understand that entrepreneurs need money to live off of, but at some time people are raising money so you can grow the business and grow operations out, so at a later point, you could be comfortable enough with giving yourself a salary type of thing.
0:46:57.3 Kurt Baker: Right. So we’re running out of time here. You have any last-minute tips for anybody out there thinking about this is a path they might wanna take with their company?
0:47:05.7 Ben Jen: Yeah. I think making sure that you have a clear and concise story and knowing what you’re wanting and are looking for, and putting it together in a cohesive deck. There’s no shortage of decks that are flowing out there on the internet as well in terms of good decks and bad ones. Making sure that someone looks it over, maybe practice a bit before you get out there and pitch to a real crowd is helpful.
0:47:32.6 Kurt Baker: It’s awesome, Ben. We really appreciate you coming on. Everybody’s been listening to Master Your Finances, have a great day.
[music]
0:47:40.6 Announcer: That’s all for today’s episode of Master your Finances. Missed Kurt Baker’s biggest money managing tip or even a full episode, head on over to masteryourfinances.us or 1077thebronc.com/masteryourfinances. Look for Master your Finances on Anchor, Spotify or anywhere you get your podcasts. We’ll see you next time only on 107.7 The Bronc.
