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This week on the show, I have Jesse Randal, CEO of Sweater, a FinTech company aimed at creating a VC fund for retail investors. Jesse and I talk about pitch decks and raising venture capital. Jesse is extremely knowledgeable on this subject. I really hope that you love this episode. Welcome to the show, Jesse. I’m super excited to have you. Go ahead and ntroduce yourself to the audience.
Yeah, so my name is Jesse Randall. I’m the CEO of a FinTech company called Sweater, and I’m located in Denver, Colorado. I love startups. I’ve been working in the startup ecosystem for about 10 years. I specialize in financial modeling and go to market strategies you know, investor prep, that kind of stuff. And in terms of like how to get companies funded and in the market and then how to make that whole world work. And on the weekends, I like endurance sports, iron man competitions, anything that really kind of presses your mind and then I’ve got a family that keeps me busy. So that’s the quick intro.
Awesome. So how did your career get started? Can you tell us your story?
That could be a long story. I’ll give you the Reader’s Digest version. I would say that I did not take a typical career path to get where I’m at today. Definitely not what they teach you in high school or college for what you should do in order to be successful. I came out of undergrad and actually ran into the financial crisis, like I was in school as it hit. And then when I came out, of course the whole economy was just falling apart. And previous to that, I’d kind of dipped my toe into the entrepreneurship space. I didn’t really know what I was doing, but I was trying to build a company and it totally got wiped out by the financial crisis, which was terrifying and awesome at the same time. And that led me to go to grad school and I was pursuing to get into the clean tech industry.
I did a dual degree with my MBA with the Vermont law school and renewable energy policy thinking I was going to get into clean tech and then that whole industry just totally fell apart when I was coming out of grad school. It’s just like terrible luck. Right? I don’t know if you remember Solyndra and some of the scandals that took place about 10 years ago, but that whole world just shut down when I was coming out of school and there were no jobs. So up through a connection, getting connected into the software space which I’d never really taken interest in before. You know, I understood how it worked, but this was like in 2011. So it was like the very beginnings of social media really, like from a business perspective, you know, Facebook had only opened up for businesses maybe like 12 months earlier.
I mean, it was just the very beginning of this whole world. And I got pulled into this accelerator that was raising a venture fund and ended up operating that accelerator, put four cohorts through it. Since then I’ve worked with a couple of hundred software companies all within this space. And you know, I left that place and worked for private companies individually, you know, full-time capacity, helping them raise money. I’ve taken my own stab at building stuff before and now I’m building my own FinTech company that I’ve been working on for a couple of years and we’re really close to being in market. So it’s kind of a wild ride, but it’s been an exciting one and I wouldn’t change it.
Well, that’s a really awesome story. And I think it’s funny how bad timing can really be. For example, I quit my job to focus on my agency and a week later the pandemic hit and everything shut down. So I definitely feel your pain there. So, moving forward to what you do now with Sweater, what are some of the obstacles that you guys are currently facing while trying to grow?
Well, I mean, the stage that we’re at, we’re in a unique position as a company compared to most companies that are trying to get into market because we have regulatory hurdles that we have to manage. And so the things that we can say and the way that we can invite people to understand what we’re doing is more limited than usual. So I can’t just like open up an app and start taking people’s money. You know, that’s very illegal. So there’s all these other things that you have to go and do, and they’re expensive and they take a long time and you have to have a lot of credibility builds up around you in order to get sec approvals and things like that. So, you know, right now we are able to put together a waitlist offering, very limited information, but we can talk about our objectives, but not talk about the investment opportunity, you know, things like that and drawing very distinct, bright lines between those elements.
So, you know, to the extent that it’s possible, we’re building waitlists, but you know, our requirements to hit the market are very different than a typical company, because when we hit the market, we need to hit it really hard, really aggressively and run after it really fast, which is not your typical path, you know? So I mean typical, you know, startup, you build an MVP, keep it as thin as possible, you know, and you can grow a small user base and just gradually grow your way into it. And we just can’t do it that way. So it’s different and I’m happy to jump into our specific situation or talk about others, but yeah, that’s kind of where we’re at, you know, at a high level.
There are reasonable ways you can get the public into the private market.
Awesome, man. Well, yeah, I think it’s really interesting what you’re doing and I think it’s amazing what you’re doing and it’s something completely new to the space. Do you want to maybe just give us a rundown of Sweater and what it is and how you work?
Yeah, so at its highest level, Sweater as a venture capital fund that anyone can put money into. So if you’re not aware of how the space works, typically, if you want to put your money into a VC fund as an individual person, you pretty much have to be able to cut a half a million dollar check to even be able to play the game at all. And so even most accredited investors can’t do that. I mean, you know, my estimate is you probably got to have a net worth of 15 or 20 million to really justify being able to put that big of a chunk of your personal assets into one vehicle. And so most people just can’t do it. It’s like 99.8% of households can’t afford to put money into a VC fund yet when you examine the broader market and you look at the public markets, it’s a ridiculous number of VC backed companies that make up like the S&P 500 or the NASDAQ, right?
They started out as venture backed companies and the public can’t benefit from the growth and the innovation there as investors until they’re public. Right? So all the value that’s created in the private markets is really held only by a very small percentage of investors. So I ran into this problem, and it kind of makes me chuckle that we look around and we wonder why there’s a wealth gap, right? When there’s opportunities, the best, highest yielding assets like venture aren’t available to everybody else. Of course, you’re going to start seeing disparities over time. It just makes all the sense in the world. So from our perspective, we’re like, well, you know, there’s no reason, but there are reasonable ways you can get the public into the private market if you do it correctly. And that’s what we’re seeking to achieve to really break down some of these barriers that create the wealth gap and really give equal opportunity to everybody, you know, looking at like everything that just happened with GameStop and Robinhood and everything else. I mean, it’s brought to light again, just how disparate the options are. Right? There’s really two games being played. And most of that probably isn’t necessary anymore. It’s, it’s not 1947 anymore, right?
Yeah. So I really love what you’re doing and just so the listeners know, what does that minimum investment look like?
Oh yeah. So we’re aiming to have it as low as we can reasonably have it. So like instead of $500,000, we’re talking like $500, you know? And then there’s an investment subscription, you know, kind of like putting money into your IRA. So, you know, put in a hundred bucks a month and just keep growing your position. And then I didn’t say this earlier, but we’re delivering this as a mobile app. So it’s kind of Robinhood-esque, but for private market, your private portfolio, we take in all the money, just like a VC fund. And then we turn around and make investments into individual companies on your behalf. It’s fully managed. And then we report on all those investments back to you through the mobile app and, you know, kind of the way we like to describe it as it’s kind of, if everyone had only ever watched the NBA on TV, that was the only option. And we’re saying, we want to take you to the stadium. We want to give you court side seats and tell you you’re a part owner and the team. You’re not actually playing the game, but you’re right there. And that’s the experience we want to give the public.
When you’re actually raising money, the pitch deck is really more about capturing attention.
Yeah, that’s awesome, man. Really, really exciting. I think you guys are going to do extremely well. So I brought you on to talk about venture capital, something you have a lot of experience in. I want to talk about raising capital, specifically pitch decks. In your experience, what separates a good pitch deck from a bad one?
A hundred percent. You know, a pitch deck is only as good as the story to tell. And when you look at pitch, deck pitch, deck templates, you know, the ones that are out there, from the outside, they seem very straightforward. You hit very specific topics, you know, it’s like, well, you got to present the problem and then there’s a solution. And then there’s the market size and there’s a team and, you know, yada, yada yada, yada, these topics, but you can build a deck and have the exact same topics covered and have one be completely engaging and enthralling and the other one just dries dirt, you know? And so there’s an art to it, you know, just like any kind of storytelling, really the big difference maker is telling the story.
So, what’s that like to actually deliver a pitch? Is it like what could you share, like maybe a personal experience of what it was like, maybe your first pitch that you delivered?
First pitch, man. I can remember that I was 23 years old. I was an undergraduate finance and economics student at Utah State University. And I was in a pitch competition. So it was like, you know, quasi investors, but it was still the first time I remember pitching. And this was back like, you know, before there were real communities around this stuff. I mean, even Y Combinator was only like two years old, Techstars hadn’t even been founded yet. You know, like none of these programs that wasn’t a thing. Like at the time it was like incubators incubator was the hot thing. And there were a few incubators and it was like, give you a free space and go build a company. You know, there’s like no real help there. You know? And I still remember there was no guidance in that there were no pitch deck templates.
There was nothing like that. You just were supposed to pitch. Right? And you could have a presentation if you want it or not. And I still remember as me and a co-founder and we had this pitch competition going on and there was like, like $10,000 on the line or something like that. And I still remember that for some reason I was part of a different group. And that group, we all had matching ties because it was part of like, it was called the president’s club. And we, we went to fundraising events for the university and stuff, and we’d like represented the student body. So they wanted us to all be the same, you know, no matter what the adults knew, who we were and why we were there. So I had an extra one and I was like, dude, we should have matching ties.
So I still remember, we were all dressed up, had exact same matching outfit. We had this presentation and we pitched these guys. I mean, we must’ve practiced that pitch a hundred times. I mean, we had totally nailed it. We had 10 minutes to this pitch and we ended up getting second place in this competition. I think we got $3,000 or something like that. But I still remember just like, you know, the core principle was still make it memorable and it worked, you know, today it’s different. I mean, if you’re sitting, that’s a pitch competition, you’re meant to be pitching, but you contrast that with, you know, pitching your idea to an angel investor or that a higher level to an actual fund. It’s a very different game, right? It’s not like you’re standing in front of an auditorium and you’re clicking the button, you know, every 17 seconds and rolling through your slides.
Like that’s not the way that the real world works. You know, like when you’re actually raising money, the pitch deck is really more about capturing attention. It’s about getting a second date because most investors don’t want to spend time with you typically, unless they have some interest in what you’re doing and the way you prove and capture that interest is through the pitch deck. And so the pitch deck is really, you know, to separate between a pitch deck and a pitch, right? There are two very different things. So the pitch deck is really about getting a second date. You know, it’s like your dating profile, so to speak, right? Like if, if you’re on Bumble or, you know, wherever else you might be. I haven’t dated in 15 years, so I don’t know, but if you’re on one of these places, if that’s like your profile, someone’s going to come in and check it out and see whether or not they want to talk to you and succinctly the investors, that’s what your deck is.
Except instead of having a profile somewhere, you’re emailing it and, you know, however, you’re getting it in front of these people. So that’s really telling enough of a story and being self-explanatory enough and simple enough and compelling enough that they want to talk. And then later when you talk, you are not using the pitch deck. That is, you never sit down with an investor and flip open your laptop and start clicking through slides. That’s an immediate turnoff, absolute amateur hour. Like they’ll automatically write you off. Don’t do that. When you sit down with an investor, like an angel, it’s going to be super casual, right. You’re sitting down in a coffee shop or over lunch or something. You need to be able to talk about your business and it’s still storytelling, but it’s different, right? Your story isn’t necessarily following the outline of your deck.
Your story is like following the outline of your passion for what you’re doing more than it is following an outline in a deck. Right? And it’s the same thing with the VC fund, except you sit around a boardroom and it’s a little bit more formal. You know, and they’re going to be asking more pointed questions because most of them are pretty conscientious about their time use, right? So if they’re going to have you in there, they’re going to press pretty hard where angels are more casual. Right? But yeah. I think that those are good differentiators. That’s not the end all be all. There’s plenty more to dive into, but from a high level, that’s how I’d frame it.
It really comes back to the margins of your business.
That’s really interesting. I mean, I guess it just goes to show how much I don’t know about raising capital, but I always picture you know, delivering that pitch, like walking into the shark tank right. And sitting there waiting for you to present to them.
And shark tank is the most inaccurate thing ever. I mean, like I love shark tank in the light that it has normalized what it’s like to have something of value and trying to persuade someone with money to support you. But the technique of it is not realistic and the deal structure, oh God, the deals that happen on that, they just make me cringe sometimes. And like on one hand, it’s worth it because, you know, you’re getting so much exposure, like even not getting funded, you know, it has the shark tank effect and can totally change the trajectory of your business. Like I get the whole notion of it, but it’s sometimes painful to watch the deals that they’ll take.
Can you expand on them? I mean, how did the deals on shark tank compare to the deals that you’d see in real life with real VC funds or real angel investors?
Oh yeah. So if you just contrasting and to be fair, most of the businesses that show up on shark tank, don’t typically qualify for venture funding. Right? Venture funding has requirements, really financial requirements, not financial of like the current state of the business, but the financial potential of the business. So it’s important to differentiate between those, right? So maybe on one hand, you know, the shark tank deals are a little bit justified, but I still think that they’re a little underhanded for the most part. I mean, these guys are putting their own money on the line. They’re going to cut a great deal or else they’re not going to do it. Right. I mean, they have, you know, the world is their oyster. They’re not going to be throwing money to stuff that they don’t really want.
And heck no, probably half the deals that are done on camera don’t end up happening off camera. Anyways, I don’t know if you’re aware of that, but most of the deals will end up falling apart after the fact and they don’t publish that. They’re just looking for good content to put on TV, but you know, too, I guess to answer your question there, the types of deal structures are interesting. Right? Because they’ll do all kinds of stuff that VCs would never do, licensing deals and looking at royalties and stuff like that. So when Mr. Wonderful is like, I’ll take 1% of your revenues for the rest of your life, you know? And it’s like, well, it is Mr. Wonderful. I’m sure that he could, you know, really make an impact on my business.
But the thing that you have to understand, depending on those royalty levels, it really comes back to the margins of your business. So it’s not 1%. But you have only have a 30% margin is really taking one out of 30, not one out of a hundred. Right? So you’re really giving up three and a half percent of everything that comes through the door before you pay for anything else outside the cost of the product. Right? I mean, that’s a big element of the business, you know? So there are things like that that kind of make me go, ah, like that’s not the best thing. I think more than anything, it’s the valuations. They give them, you know, it’s like, well, you know, I’m raising $50,000 on $150,000 evaluation.
It’s like, oh my gosh, you’re going to give up 30% of your company. In the venture world, I mean, you don’t even raise money for less than a 3 million valuation, right? That’s the low, low end of the venture community right now. So the fact that they’re starting 90% lower than that, you know, 95% lower just always makes me go, ah, you know, especially when they walk in the door and they’ve already got $20,000 or $30,000 or $100,000, they’ve done revenue in the last 12 or 18 months. I mean, those are pretty good traction metrics. You know, the nature of those deals is I that those same people that are pitching on shark tank with the same traction and the same story in the same moment in time could go find other investors that would give them a better deal to do the same stuff right now, again, the shark tank effect. It’s hard to put a price on that, but yeah, generally speaking, it’s those kinds of elements where it’s just like, people just don’t always know what they’re getting into, and they’re kind of being led into it by whatever the sharks want that, of course know everything and probably have previews and all this stuff before the person ever even walks in the room, they know everything that’s going on. It’s all staged. That’s the main part about it.
They’ve got to put it enough to actually make a difference in the company and a bunch of factors.
So that kind of leads me into my next question. Do VCs typically like to see a solid proof of concept and how often does a VC invest in just an idea that has a lot of upward potential?
It depends. So there’s a bunch of variables there. VC’s position themselves at different stages of a company’s life cycle. So you’ll have ones that are very early stage, they call them. And then you’ll have early stage. It depends on who you talk to. So if you really look at the full life cycle and forget the investors and look at actual stages, so you’ve pretty much got like friends and family, and then you have pre-seed and then you have seed and then series a series B series C to however many series you want to go, right? And then eventually you go public. So funds will position themselves as being specialists in different areas of that funding cycle and within different verticals that they specialize in. So out of the entire venture world, right?
If you looked at all the stages and all the verticals, and then add a third tier of locations and geography, right? I mean, even if it was just a 10 by 10 by 10 block, of 10 different levels, 10 different verticals and 10 different locations, that’s a thousand individual blocks. And a VC is only going to specialize in a small handful, like maybe five of them, you know? So depending on where they’re at will dictate whether or not they’re interested in what you’re doing and what their requirements are. So if you were to take a company, a VC fund specifically, they never really dipped down into friends and family kind of stuff, typically, right? A fund will usually never write a check less than $100,000, maybe even $250,000 because fund economics are a funny thing.
And so they’ve got to put it enough to actually make a difference in the company and a bunch of factors. So generally speaking, this new stage of fund has come out called pre-seed. And there’s a whole bunch of history of why this is a thing because pre-seed today is what seed was eight years ago. But the average size seed deal has moved up along with everything else has moved up, which left this big gap down at the bottom. So they started this thing called pre-seed and it’s just kind of like, well, okay, then that’s going to move up eventually. Then what are they going to put down their pre-seed and they’ll come up with something. But, you know, if a fund is down there at the pre-seed level, then they typically don’t require a lot. They’ll often fund at the idea stage purely idea stage based on the quality of the team, how compelling the idea in the space is.
But even then I’d say that’s one in four, one in five, even for funds that specialize in that, beyond that they really want to see that you’ve done something. You have some kind of a proof of concept. You have a working prototype, you’ve got a couple of customers that have expressed interest. You know, something that shows that there’s something they’re more than just an idea. But then as you move up the scale, right, they require more and more and more. So if you jump up to the seed level, not only do they want you to have a product, they want you to regenerate and revenue. I mean, typically, you know, you need to have $10,000 to $30,000 a month in recurring revenue. It’s not lifetime revenues. Like every month you need to be having $10,000 to $30,000 a month in revenue for them to even talk to you.
And then when you go up to the series, kind of the basic benchmark, the easiest one to understand is revenue. But there’s lots of other factors too. So like the series a level you’ve really got to be generating a $100,000 a month or more, which is $1,000,000 annualized run rate to be qualified inside that. So, you know, as you move up, they all have different thresholds, but then there’s also quite a bit of movement back and forth, depending on who you are and what the opportunity is. And they’ll sometimes make exceptions to what’s going on, but that’s what makes this whole world so murky and difficult to navigate because they’ll say, yeah, we invest in seed and then you go to them and they’re like, yeah, but you don’t qualify for seed the way we define it, so, no, we’re not going to talk to you, you know, or you’re not a good fit, but then the fund next door might say that they specialize in series a, but then they’re excited about what you’re doing at the seed level. And they’ll fund you at the seed level. I mean, it’s all just, it’s a little convoluted.
The most important thing that I’ve learned how to do in the last 10 years is how to survive on my own.
So, Jesse, what would you attribute your success to over the years?
Well, I don’t know if I qualify for success yet. Let’s be honest. Depends on who you’re talking to. I mean, I’ve found success in my own, right. You know, if I were to say the most important thing that I’ve learned how to do in the last 10 years is how to survive on my own. And I think personally that that’s the most important skill set that you have to have as a founder, if you don’t come from money. So if you can’t go live with mom and dads and have them cover your bill, if you don’t have that, then rule number one is you got to learn how to survive financially, or else you’re dead. Right? If you can’t figure that out, you’re dead.
Because in the vast majority of situations, you are going to be funding things yourself. You’re going to have to build things yourself and inspire other people to build stuff with you. And while you do all that, it’s going to take twice as long and cost twice as much as you think. And on top of that, you got to cover your own nut, right? How are you going to buy your own food every month and pay your own rent and all that kind of stuff. And you’ve got to figure out how to make that happen. And there’s a bunch of ways you can do that. But I mean, we can talk about it more if you want. But I mean, from my perspective, that was a big thing to me because I came out of a job. I left a job and try to try to go after a high growth startup about seven years ago.
And I just did it all wrong. I made all the wrong mistakes. I wasn’t pushing for revenue. I was pushing to get funding. And then I got all backwards in my head. And then I ran out of money, and I don’t come from a wealthy background. I grew up on a farm outside of Jackson and on the Idaho side of Jackson, my family doesn’t come from money. You know, I didn’t have a rich uncle. I could call and say, save me or fund me. You know, it wasn’t like that. And so for me, like when I ran into money, I was out of money, and it was a big deal. I came out of that experience and said, I’m never going to do that again. And I mean, I have a family, I’ve got kids, you know, and I was like that, that was kind of stupid the way that I went about that.
And I had a pretty big chip on my shoulder, frankly. And so I worked for another company for about a year, helped them raise some funding ended up learning a couple of very important tactical skill sets that weren’t strategy-based and said, I need to set a goal for myself. And I said, I need to figure out how to survive. This is my goal. I don’t care about growing some big thing. I need to figure out how to survive. And so I left and started kind of an agency thing, and that’s a different story, how I got into it. But I had a goal. I was like, I need to generate $500,000 in revenue from something that I came up with. I designed it, I frame it, I sell it and I deliver it myself and I needed sell $500,000 worth of something.
And once I’ve done that, then I can move on with my life. And it took me two or three years to really get through that and hit that. And it was funny cause I came out the other end and I was like, well, that was nice. I did it. I figured out how to play this game. But I do not care about what I’m doing. I’m not passionate about it. I was doing B2B lead gen like cold outbound email and, you know, on behalf of companies. And I was like, I just don’t want to do that. The whole part of the industry was declining and that’s what led me toward Sweater. I knew I wanted to do something else. So I just kind of started waiting it out and looking for the right opportunity. And that’s how I came into Sweater.
But you know, to go to your question there about what’s the most important skill that I’ve learned. I mean, to me, that’s it, right? It’s survival because now I can go play this game all at once. Right? Whether it’s Sweater or something else one day. But what’s most important is that I know how to survive. And without that, you know, you’ll be scared to death as soon as you start running out of money.
Yeah. And that’s a great story. I really appreciate you for sharing that really does come down to surviving. And I think that all too often, entrepreneurs jumped into this new idea without really thinking, you know, here’s our burn rate. This is how long we’re going to be able to last. And they get a bill to feed my family. Right? I think what it really comes down to is just making sure that you have enough money saved up before you jump into an idea like that. So, you know, that you’ll be all right.
I think you can use it to inspire and motivate yourself to get some deals done and move that needle.
Yeah. And that’s the other way to do it. Right? And then you’ve just got it. You got a countdown clock and it’s easy to calculate, you know, how much you spend every month. And you know, what’s left. I was actually talking to some founders a couple of weeks ago. What’s the name of that product? Cross Net. So this product called Cross Net, which is like a combination of volleyball and foursquare. So it’s a volleyball net set up, but in quadrants and then you play that way and they’re killing it right now. They’re growing like crazy. But he was telling me about what they did in the early days. So each of them went and they got their bank account balance and they printed it off and they put it on a whiteboard. And at the end of every week they would go in and they would subtract what they had spent and always keep a tally of how much money they had left. And they all did it so that they could all see how much everybody else had left. And as they were cranking that down, that was their, their agreement between them was once they get down to a certain level, then they’re all going to have to go back and get jobs.
And so it was this constant, like pressure point front and center. Everybody knew what was going on and what the consequence was if they couldn’t figure how to make this work in that amount of time. And they figured out to make it work. But I was like, that’s pretty brilliant. You know, the countdown board, he had some fun name for it. I had that session recorded, but I was like, that’s brilliant because it puts it front and center and makes it, you know, because when you’re thinking about it, you can take it one of two ways. Right? You can either have it be like this negative pressure and like, you want to ignore it, which if that’s your attitude, you shouldn’t be doing this anyway. Right. Or it’s, it’s putting it front and center. So you don’t lose track of it and put yourself in a bad spot, you know? And as you make some money and you pick up a contract doing some random thing or you decide to drive Uber on the weekends or whatever, add that back in just as much as you’re taking it out. But you know, you have to be able to figure out how to make that work.
Yeah. I really liked that. It’s a great idea. And you know, I think it all really comes down to your mindset, right? Some people, like you mentioned, if you’re getting a negative connotation for something like that, and you’re probably not doing what you should be doing, but you said it’s a motivation, right?
Know how you’re doing. And you’re like, okay, I got to figure something out or we’re going under and type of thing. I think you can use it to inspire and motivate yourself to get some deals done and move that needle. Exactly. Exactly. And I think that that’s what most people have never experienced this how to sell. And that was a core thing that I identified about myself was that I didn’t know how to sell. And I wasn’t revenue focused because I had never had to be revenue focused before. And so learning that skill set is kind of awkward at first. But once you learn how to do it, it’s really easy to sell. Especially if you have anything that’s even mildly valuable, it’s all just about being able to describe it the right way within the context of the person you’re talking to and make sure that the value point matches what they’re able to pay, generally speaking.
And you’ll sell all day long. It’s really not that hard. It’s just a matter of practice. I was in a similar boat that, you know, you just have to have empathy and you just need to practice. That’s really what it comes down to throwing yourself out there and just being, you know, type of thing.
There’s really not a secret more than just awareness and the willingness to experiment and fail and be smart enough to know what’s working.
So Jesse, what would you say your secrets to scale are?
Oh, secrets, you know, I don’t know if there’s any such thing as a secret because all the information is out there. That’s the thing. There is no secret technique and something that’s really never been tried before. I mean, every once in a while you’ll find something unique. Like certainly some business is going to get built on the back of clubhouse and no one’s ever done that before, and they’re going to figure out how to draw a following and, and, you know, figure out how to make that work for their business model. And it’s going to be amazing, right? Someone will do that. And it will be within this new ecosystem, but that doesn’t happen that often, most everything else that’s out there. And it’s just a matter of, experimenting and being persistent and consistent and making sure that it’s that you can make the math work. I mean, I’d say maybe that is a secret is making sure you understand that the math works. I mean, my favorite metric in startups is lifetime value to cost of acquisition because it goes right down to the heart of unit economics. And if you can’t figure out how to make that equation work, then you don’t have a business that works. It’s that simple. You know, there’s scalability and there’s all kinds of other stuff, right? Depending on what you’re doing, like the nature of your business, but no matter the business, everything, every business has to have this core function of, you need to be making way more money off the other end than you are spending to get the money in the door.
I’ve been called a money machine. Right? Put a dollar in to get five out the other side. That’s good. Right? and that’s just, but that’s just producing the dollar right. Then what does the dollar have to do? And it’s, so it can become a little bit murky depending on what the nature of your businesses. So it’s like, if you’re a software business, I would just go top line revenue to dollars that it costs you to bring it in like fully weighted. Right? So it’s not just the cost of getting a lead, it’s the cost of the lead plus processing the lead and the salesperson that walks them through. You really got to be honest with yourself about that stuff. If it’s a product business, and you’re selling some new brand of potato chips, that’s all organic and, you know, infused with kale or, whatever is awesome these days, that’s actually not a bad idea.
Then you know that your product margins aren’t that high. So you’re automatically going to take 40% off the top because you’re paying for cogs on that. Right? So you’re really looking at, for every dollar you bring in, you’re only counting 60 cents into this equation to make sure again, that you’re being honest with yourself, for what the actual contribution to the business is and call the contribution margin, you know, call it whatever you want, if you want to be geeky and financing. But to me it really comes down to that. You’ve got to optimize for that. And there’s all the channels you can go through. There’s all the different techniques and every channel you know, you can own channels. You can be on rented channels, you can pay for stuff.
You can do stuff organically. I mean, there’s so many ways to go. And at the end of the day, it’s just lots of experimentation. It’s going where your customers are and hitting them with messaging that actually matters. And that’s really hard. There’s no easy way to go about it. And so in the early days you do stuff that doesn’t scale as they often say, right? And you start with experimentation and you go broad, not deep in order to figure out what works. And then you latch on to the stuff that does. And, you know, some people might call it growth hacking, like at some point you hack your way into something, you find something that pops, but then it’s like a firework and it’s gone 30 seconds later and you can’t do it anymore.
And that’s fine, but you can’t build a business off of that. So at some point you have to figure out what’s sustainable, which typically either comes back to word of mouth, which is inherently not sustainable in many ways. Especially in the early days and paid ads, and being very consistent. So doing the inbound approach is doable depending on the type of business. But again, like building the engine for inbound is hard. It takes so much work to put the infrastructure in for that. And in the meantime, what are you doing? Because it’s going to take you 12 or 18 months to get the foundation to do it. And what do you do before then? You’ve got to be doing other stuff, which might just be all hacks, just trying to get money in the door. But so you kind of have to know what you’re getting into, but I’d say there’s really not a secret more than just awareness and the willingness to experiment and fail and be smart enough to know what’s working.
Yeah. That’s, that’s excellent advice, Jesse. And I agree with you, there are no secrets to scaling a business, and I think it’s kind of ironic that way, but it turns out you do have a secret to scaling your business. So anyways, Jesse, I really appreciate you taking the time. What’s a great way for anyone listening to get in contact with you?
We’re excited about what we’re taking to the world and we’ve got a waitlist rolling right now. Of course, like I said earlier, I can’t tell you all the details, but to the extent that putting money into a venture capital fund is of interest. And owning part of venture backed startups, you know, come follow us. You can just sign up at www.SweaterVentures.com and you can join on the waitlist there. And then if you’re sitting connected with me, I’m pretty prolific on LinkedIn. You know, if you search Jesse Randall, I’ll probably be there at the top of the list in Boulder, Colorado. If I don’t come up immediately, they’re just Googling Jesse Randall, LinkedIn Sweater, I’ll pop right up.
Awesome. And we’ll make sure to link that up in the show notes. And thank you again.