Can anyone become a bada** CEO?

I’m pretty stacked up with deals here at my firm Intersection Capital, but once a deal junkie, always a deal junkie, and I just can’t say “no” to these sweet companies that keep showing up. Suddenly, I’m building a $200M factory in Dallas AND funding a profitable race car company, what’s next?

When a new deal pops on my radar, It’s like that Amazon box, waiting for you at the doorstep after a long day at work.

It doesn’t matter how tired you feel… because you just KNOW inside that box is something… exciting.

Sometimes I think, “This Amazon box is an awesome gift from my past-self (a week ago) to my future-self (today) for the shi**y hard day I knew I was going to be having” like some John Conner meets Kyle Reese moment or something.

Anyway, that dream fades when you open up that Amazon box, and it’s actually the dishwasher repair manual you ordered a while ago.

What we’re really talking about here is what it feels like to THINK there’s something exciting in front of you, but there’s nothing “in the box” when you open it up.

That's exactly what happens to a lot of founder-led companies when they meet with investors:

It all sounds good and looks exciting, and there’s lots of great “talk” about a deal - but nothing happens. The box is empty.

Always.

ok, ok, maybe once in a while, an offer comes in, but read it carefully because its going to be a totally toxic sh** sandwich of a re-trade. Worse, you might actually have to take it if you’re out of other options.

More likely, your meetings with investors end up with wasted hours, days, maybe even weeks only to find you’re talking to the posers in the market who have ZERO cash to put into your deal…

I estimate that 6-out-of-10 “investors” that
you talk to have NO MONEY.

But they also have no problem wasting your time, pumping you for information, and saying “let me know when you’ve got some more traction” or some other Chad VC bullshit like that.

I see it all the time. And I’m the “repairman” guy who gets called in at the last minute to deal with these situations.

We can talk another time about WHY the market is so full of knuckle-head Chad VCs who talk big and then offer a tiny check, and only if you get a lead investor involved.

So today, let’s do something constructive talk about the real reason why YOU get these knuckle head investors hanging around YOUR deal…

And how you can send “signals of quality” to a higher-up investor market and get great capital partners on your cap table on YOUR terms.

Let’s dive in,

-Oren Klaff

The CEO Sweet Spot: Who REALLY gets the money in Capital Markets

Here’s the thing you DON’T learn on Medium from wanna-be pitch deck consultants.

It doesn’t matter how good your presentation materials are, eventually, you are going to meet with the “Final Boss” boss of the investment committee.

And in that moment, when you meet your Final Boss, it’s going to be the fire-breathing demon guarding the treasure chest with your money inside of it…

All this, against you, a newbie player in the Game of Capital Markets.

But of course, you won’t be throwing spinning back kicks in this game.

If you’ve learned anything here at all, you’ll be throwing financial data and your proforma revenue model.

And in that split second as you describe your proforma revenue, you will realize this uncomfortable truth…

How the Final Boss investor perceives your financial ability as a CEO/founder will determine the type of capital you have access to and under what terms you can get it.

Here’s what I mean…

For whatever reason, a lot of founders think venture capital and private equity is the only kind of money in the market.

But here’s how investors actually look at businesses and whether or not they want to invest in them based on three criteria:

1. Has the business model been validated?

2. Is it scalable?

3. Does existing management have the experience and ability to deliver attractive returns?

And based on these three questions, they’re going to put you somewhere on this chart.

Let’s start this conversation by talking about the type of company you are raising capital for…

Small Businesses that could get big (Insert a miracle here)

The only people who ACTUALLY want to invest in small businesses is a “control investor.” They want to buy the business for the cashflow and hopefully modest growth.

At scale, this might look like a PE firm doing a rollup in a fragmented market… but as a general rule, no real investor wants a minority position in a small business.

If you’re offering that - no wonder you’re talking to Chad VC’s and “angel groups” that never write checks bigger than 15K.

Startups

The only people who ACTUALLY want to invest in startups are – you guessed it – a “control investor.” Except for this time, it’s a type of minority control that you don’t even realize you’re giving up.

This investor is looking get into a high-growth company, and put themselves in a position where they can cash out first before anyone else does, aka THE PREF.

At scale, this looks like Silicon Valley’s infinite pump-and-dump machine, massive amounts of Hype and FOMO, and the many iterations of cash-incinerating startups that have no reason to exist and no clear business model (but with magic-math are worth billions).

But forget about Silicon Valley, you might as well fetishize Dubai, Geneva or some other high-wealth geography as “Palo Alto”, because: what about the trillions and trillions of dollars of REAL financial capital in the rest of the US?

Here’s what they want…

A Scaleup

Substantially all of the money inside capital markets goes into PROVEN business models where MORE MONEY makes it grow faster.

Do you have one of those? Good! This means you can get access to the very best sources of capital in the markets.

But the PRICE or TERMS of that capital will be decided by the final factor…

You!

Here are the three common “founder-led” archetypes I see in almost every deal.

Founder Type #1) The Technician Founder (He works IN the business)

Here’s the reality about most businesses. They are started by Technical people: these are people who’ve developed a technical craft working for someone else and have decided to strike out on their own.

Plumbers open plumbing businesses, chiropractors open chiropractic practices, and chefs open restaurants.

The primary motivation of this founder is usually an opportunity to be their own boss, do what they love, and make ideally more than they did at their job.

They are good at working INSIDE the business… but they lack the skill set to build a successful company.

This founder has ZERO chance of raising capital from investors for what is almost certainly a small business.

Your risk profile is extremely high and there is little chance an investor is going to be able to exit a minority position in what is actually a small business (and not a scalable enterprise).

Founder Type #2) The Technical FOUNDER (He works ON the business)

This is the most common stereotype we see in Silicon Valley lore. The tech wunderkind who invents something new that makes people rich.

This founder likely has a strong engineering or sales background that eventually evolved into some management skills.

In terms of where on our 4-quadrant chart this business is, it’s probably just starting to gain traction and demonstrate viability, but it’s still uncertain if this thing can scale and become a real enterprise.

If this is you, chances are, any REAL money that is putting capital to work in your deal fully expects to fire you in 1-3 years once you’ve done the hardest work…

And then put in their own management team to take it the rest of the way.

How many versions of this disaster story would you like me to give you, a hundred? A thousand? Pick any number, the data backs me up.

Founder Type #3) The Capital Raising CEO (He works ABOVE the business)

Once we hit that scaleup stage, the single biggest risk for investors is the risk of replacing the leadership team while they are ramping up growth.

For this reason, they prefer to see an operational company with a solid management team in place with an experienced executive at the helm

What does this mean? A CEO who can deal with the realities of a business rapidly scaling from the low 8-figure market cap to $1bn+.

Sure, the business might eventually reach a size where they’ll need to “top grade” management…

But here’s the reason why they want to see a Capital Raising CEO at the helm:

They know you’re going to need more money in the future, and they don’t want to be on the hook for it.

If you can show investors that you raise capital like Al Pacino plays a gangster, they don’t have to worry about having their money trapped inside a zombie company with an inept CEO.

Can Anyone Become a
Badass CEO?

I know what you’re thinking. You’re a REAL CEO after all, so this isn’t a problem for you.

But what if you’re not a badass CEO? How do you become one that investors respect?

Let’s play a game where I tell you three things, but only one of them is true. Guess which one it is?

To become a Badass CEO you …

• Present the key elements in the financial model about what generates cashflow over the next 24 months
  

• Present a big bold vision of the future because you’re changing the world. You’re going to do a lot of M&A and roll up the industry and then start a side-car fund (within the next 12-18 months of course).
  

• Present a killer list of Celebrity VCs who you’re talking to and are “interested in investing” because your deal is HOT.

If you can guess the correct answer, it means you have a chance of becoming a CEO that money feels like they can trust with their risk capital.

Click on your answer below and tell me what you think I can do to help you on your journey as a CEO.