In Silicon Valley, throw a nickel out the window and hit a tech genius. In Los Angeles, you might have to toss the whole bag but sooner or later you’ll hit one.
OK, L.A. may be the redheaded stepchild to those propeller heads in SV but there are giants in this town.
Two of them are Scott Painter and Jay Samit. As a business writer for about 25 years I say they don’t come any better.
I recently watched both present some nuggets of wisdom to a class of aspiring entrepreneurs at the L.A. chapter of Founder Institute.
Painter’s first company was Scott’s Auto Detailing Service, founded at a spry 14. It was the start of a career disrupting the auto sales business. Detailing all the companies Painter has launched would fill a book. He’s started 37 and has raised about $1.4 billion in the process.
So who better than Painter to address the subject of how to raise money for a startup business. As with all success stories, there’s pain before gain. While being the chief executive of a startup seems like king of the hill it’s not quite as glamorous as being a Persian kitty.
“As CEO and founder you will spend 50% of your time raising money,” said Painter.
His first warning to the Founder class, “If you don’t like fundraising, quit. You won’t make it.”
Here’s something else: “Be prepared to give up one-third of your company to investors.” That’s standard.
Here’s the good news: “It’s just as easy to raise $5 million as it is $50,000.”
If you want to do this, get out the business encyclopedia because there are some basic terms you need to know just as well as the face in your mirror, said Painter.
Some of the terms are: Balance sheet, income statement, cash flow and pro forma.
But wait, there’s more.
You need to understand return on investment, internal rate of return, EBITDA and discounted cash flow.
But wait, there’s more.
You need to know the difference between common stock and preferred stock, an investor rights agreement, strike price, liquidation preference and at-will employment agreements.
Feel like quitting?
If not, and you plan to go forward, there is one more thing you need.
“Get a prenuptial agreement,” he said.
Painter seemed pretty emphatic about that. Better still, don’t get married.
“These are things you need to know,” he said. “You need to be able to speak the language of investors.”
But you have to do the work yourself. I mean, you didn’t expect me to define all this stuff, and if I did you would have stopped reading this blog long ago. But I will help. You can look up the definitions here and here. And if that’s not enough, search Wikipedia.
Now, on to Samit.
The word genius isn’t adequate to define Jay. He has spent the past 25 years pioneering new forms of film, video and music production and marketing. As senior vice president of Universal Studios, he built one of the first online million-member social networks. At EMI Capitol Records, Samit pioneered digital music platforms that blew the doors off competitors and established several industry records.
“My job is to make buying music easier than stealing it,” he once said.
He left EMI to be creator and general manager of Sony Connect. He helped build it to one of the world’s largest online music store with over 2.5 million tracks serving 45 million page views a day in nine countries. He left long before that business hit the skids.
The story of how Samit introduced Sony Connect to the world is worth recalling.
He did so essentially for free. Reporters from around the world wrote about the launch as part of a free airline flight they received, the first ever in-flight concert at 30,000 feet, featuring Sheryl Crow.
He got Sheryl to perform for free, as she wanted to promote her new album. And he got United Airlines to fly for free, as they were just coming out of bankruptcy and wanted the publicity.
Samit likes free, that is he likes to ride on other people’s money. Here’s a reason why: Establishing a new brand to the world costs about $100 million in ad and market spending, he said. Not many can do that. What Samit sets out to do is attach his brand, whatever that may be, to the company that’s spending the $100 million. He once got a music artist to record a song that McDonalds used to promote a new product. Boom! His artist hit the stratosphere riding on McDonalds spending. He’s performed that trick time and again with large ad spends by IBM, Microsoft and other giants.
“Partner with market leaders, with brands people know,” he said.
Samit knows hitting a home run is hard work but it’s not always necessary to swing for the fence.
“Home runs are lucky and can’t be forecast,” he said. For the startup company, just shoot for singles and doubles, he said. Get enough of those and you’ll rack up enough points to win the game in the long run.
Here’s another gem: “The first person you should educate is your competition.” That is, hit them over the head before they see the bat coming.
One company that made a dumb mistake was Groupon. No sooner did this online coupon distributor first enter the minor leagues that it began boasting how they were the brightest boy in the class. What that did was tip off every top-notch entrepreneur that there was a big business to be had copying the Groupon model. Groupon might still the leader but a major competitor, Living Social, this week received $400 million in financing.
Samit handled it differently with his current company, called SocialVibe, which is smashing barriers to radically transform digital marketing. Samit joined the company as CEO in 2009 but kept the company in deep stealth mode until recently. Before it’s unveiling to the world he quietly but steadily built up a rock-solid list of clients. The plan was to build an impenetrable fortress before launch to keep from being overrun.
His brand advertising network now reaches more than 200 million consumers every month, and it just announced a $20 million round of financing.
Other tips Samit offered up include this: “Hire the best people you can afford. Experience is a lot cheaper than failure.”
“Don’t be afraid to pay for talent,” he said. “You should never be the highest paid employee in the company.”
I gotta believe Samit is the highest paid person at SocialVibe, though. Who could do better?
(Update: Samit said this to me in an e-mail response: “I practice what I preach – I am not the highest paid employee at SocialVibe.”
Thanks for reading.
Strength & honor,