Jeremy Giffon on rescuing 'trapped' founders buried under venture pref stacks

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com tell them the technology brother sent you and uh good luck with your new Venture and so we're gonna have Jeremy come on the show right now and you know our main advice for Jeremy was to start buying 101 Billboards start buying 101 Billboards uh saying you got a special situation raise too much money call Mr gon what's up guys how you doing good how are you have you bought a billboard yet I'm working on it I'm working on it I think uh I think all the management fees need to go directly into Billboards that's that's what I've learned from the most profitable podcast that's great uh break it down for us what would go on the billboard what's your business how do you pitch it to people these days uh my business is uh picking up the the roadkill of the Venture industry uh the the startups the startups the the founders that have triumphantly built heroic and wonderful businesses and have gained millions and tens of millions of Revenue and built incredible teams and have a wonderful product and customers that love them uh but for the fact that they had too much Capital uh forced upon them and it has buried them under an untenable prep stack and made the whole business not work and uh and left them with no choice but to kind of uh get stuck in no man's land and my my my mission is to uh to to to help those Founders get back in control of their businesses and and uh and and run them you know as fully profitable cash flowing great businesses as God intended love it incredible line uh I would love to get a sense you know we spend a lot of time covering the news and the News tends to fix fixate on these sort of colossal failures and these sort of uh moments of Glory the AI pin for example yeah ex exactly um yeah you're seeing the behind the scenes which is companies that raised a lot of money you know maybe three to five years ago that are now in a tough spot you know the the the venture all this sort of turned sour on them what is the state of that market right now how busy are you uh I know you spent a lot of the last year raising your first uh independent fund now you're investing what what's uh kind of happening on the ground yeah I mean look it's uh there's a lot of these a lot of businesses there's a lot of great businesses out there and a lot of like stuck Founders and uh and there's there's more and more of them and um and increasingly a lot more VCS who realize that like you know um there is a there is a severe lack of DPI especially in the middle of the portfolio right now and so um you know there's you're starting to see a lot of uh a lot of great companies that realize they need probably a different owner uh an owner that's more in line with actually like their their goal and and their vision and then a lot of funds that are realizing you know gross irr is is all well and good but eventually you know you you you you can only eat the DVI and uh and and that's that's kind of that's that's what the you know that's what the capital allocators are starting to demand have you seen Founders that get in that position uh you know they have the opportunity you know they're talking to you or they get into a position are they ever trying to sort of pivot their business into a better AI narrative and then go back to Market and is that working or are they trying that and giving you a call back and saying uh yeah you were right like let's try to figure something out well yeah so no what they're doing is what they're realizing is that they can pivot to Ai and they don't need any more Capital oh interesting they they can you know especially if the business was built you know four or five years ago they can replace a lot of their cost with AI I think like every organization should be thinking hard about whether or not they uh ought to cap headcount and just you know keep headcount at or below where it is and increase kind of headcount so to speak through AI um and I think you know I think we're we're we're about to see kind of the the Renaissance the bootstrapper and so I think a lot of Founders are are starting to think like you know maybe I can grow my business 10x without more Capital because because of these tools and so you know yeah certainly you can you can you know slap an AI label on and go raise another round um you know you you certainly have the founder who's in the uh just just two more million bucks bro like just give me give me two more million like I got this but I think that's a mistake I think I think we're about to see like an era of incredibly like Capital efficient um businesses that by the way like are not giving up growth at all like you can still grow 100% a year um and if anything you can do with a lot less Capital you can own more of the business you can like um you know be a lot more in the driver's driver's seat and uh and you know really kind of control your destiny versus kind of uh lever yourself up as much as I know that you know you guys are always in favor of the max lever option exactly uh can you walk me through uh anatomy of a deal and how kind of the the pref stack water falls out on one of these uh what are the different um kind of tension points for some preed investor who feels like they're sitting on a 10x or 100x and then someone who got in late and clearly kind of knows they overpaid and just wants to get something back uh like how do you get all the parties around the table and then think about incentivizing the team going forward look I mean I I think I think one thing Founders don't understand or or maybe underappreciate is that you know your your cap table ultim like really affects your business in a wide variety of ways that are that are can be kind of very subtle um and so at some point you know maybe you go from having uh a venture fund as an ideal owner to being a neutral owner I think a lot of funds are in that stage now where you know it's not detrimental to be owned by a venture back to be owned by a venture fund uh but maybe it's not super additive and then eventually you get to a point where it can start to become um you know it can it can detract because just the incentives really diverge and so um you know what I'm really looking to do is like what I implore everyone to think about especially if they're not in a business that's like on a clear trajectory to raise you know need to burn hundreds of millions in capex for some kind of like nine or 10 figured outcome is think a lot about like who are my owners what are their incentives and like you know when you get to the board meeting is it actually is there friction or are they actually behind me and I think that's a lot of it and a lot of it could just comes down to like what is the cost of capital of your owners to get a little bit uh boring like the the cost of capital of um of the people that own you makes a really big difference um for like what they expect and what they demand of of your business and so you know it varies like if you're an individual if you're you know preed or seed you're happy to stay in the business there's no reason for you to sell you can roll over um if you're like a growth bun that maybe did you know a somewhat regretable you know it's a little bit wake up from the night after the party look around there's beer bottles everywhere would prefer to just pretend that it didn't happen maybe you want to get your Capital back like um um you know I think like often times the best outcome is just returning Capital which used to kind of be a Norman Venture and because this like bifurcation between huge outcomes and then very little liquidity in the rest of portfolio um is not happening as much anymore uh every venture capitalist today says they're in the people business right if you ask them like to have any type of specific thesis they just say you know we're we're in the people business found yeah yeah yeah so that that's that's gen generally uh the right take uh that's that's Center's point of view uh are you more in the people business or the value business because from My Lens you know you're looking for value and in in some cases you're more than happy to let the founder move on to their next chapter and bring in a professional CEO is that correct yeah I mean I I I I think I'm also entirely in the people business but it's you know is the I think everyone should be you know doing their highest and best use like following calling sometimes for a Founder that's that's you know getting more control more more sovereignty over their business and really kind of being in it for the long haul having way more optionality in terms of like financing sometimes a Founder you know a thing that happens far too much that that no one talks about is all these Founders who are stuck you know if you have 20 million of Revenue uh 100 employees and you've raised 100 million bucks you can't just quit if you're the founder even if it's clear that like what we're trying to do is build the next you know decacorn or whatever and so there's a lot of Founders out there who are who know and what's funny is the board knows and the founders knows but they're like not willing to have that conversation and so um you know there's a lot of Founders who are stuck and and for those who are stuck and would like to leave but don't want to abandon the building uh the the business I think um uh you know there's more options than you think and there's someone out there to get back to the people thing there's someone out there who is the perfect person to come in and run a business like that because you know a lot of times the person who takes a business from 20 of Revenue to 100 of Revenue can be a very you're looking for a very different type of person than someone who's going to start it from zero and grow it into a huge business and so it's really just about about like is this person doing the thing that they're really fired up about and if they're not then like do you really want to be in that seat are there any common character traits or or kind of either even background career paths for that type of operator who's maybe not the founder but the type of person person that can with pretty high confidence take a business from 20 million to 100 million in your experience yeah I mean I think like um you know my friend Andrew Wilkinson has has has written a lot about this I think he he really kind of has it right um You you know there's a lot of SE suite and Senior Executives at a business that's two or three times bigger than maybe the business you're looking at and those are people who are like highly capable has at least some entrepreneurial Spirit but maybe not you know whether by Constitution or circumstance not interested in taking the full risk of a Founder but still want to be in the driver's seat want to you know want to run a business and there's actually a lot of talent there that can be unlocked who are people who you know can't do the go through y YC thing but still you know would love to have real upside would love to to uh to lead a team and run a business and um yeah I think there's actually a lot of really untapped Talent there um and uh it's kind of an underrated option it's kind of like how it used to be like buying business and running it if you're like an NBA or something was like an underrated path to you know quotequote entrepreneurship um I think coming in and running like decently sized startup or business uh is kind of one of those now that that not a lot of people consider it's kind of like very like you're either a founder or you're just an exact um or maybe like a 4 500 CEO or something but there's a lot of middle ground and and I think um yeah I think there's a ton of untapped Talent uh question going off that uh search funds got very popular uh simultaneously it seems like Venture the world of venture capital discovered private equity and rollups and you know we've seen a number of companies come out the gates uh and decide they're going to uh basically raise Venture dollars to P pursue a PE style strategy that concerns me um you know given that uh private Equity is pretty good at what they do right they've sort of uh yeah gotten better and better and better over the decades around you know Finding uh you know fairly priced businesses and making them more efficient and growing them and selling them uh what do you think happens to these sort of uh software or AI enabled rollups and are you um salivating over the potential of of buying them uh down the road once [Laughter] they look I think um I think raising venture to acquire businesses is a great gig right now you know um it's yeah so so and here's here's why J like the Grim Reaper like if you're if he's excited about something no and here's why right you can if typically in private Equity if you want to if you want to go buy businesses you raise a fund you get two in 20 which is a great business model you've talked about this before Jeremy sort of the perfect business model but in the right now in Venture you can go raise $20 million at a 100 delute yourself 20% and so you actually have much better economics if you're going you know buying up these businesses uh and and eventually I think that's going to stop right yeah and and by the way there there's there's a hurdle uh in private equity and there's no hurdle in Venture Capital which makes the whole thing even sweeter yeah UMES sense but you know I'm I I'm not I don't think I'm a grim reaper I I I think I think I think I'm I think I'm a liberator I think all these Founders are trapped what I'm saying is that you're if you if you envision that you're gonna be doing a lot of business in the category in 10 years it's probably a bare signal right yeah I I think I think it's more uh more seeing exuberance you know once the uh once the NBA's Pile in it it it might it might be over um but like look if you build a business to 30 million bucks of Revenue that's like a heroic feat it's extremely hard to do and uh and then you somehow end up with eight% of it under a $200 million press stack yep that kind of sucks and I I don't think that's the outcome that's anyone is like trying to have happen but it happens as like a as a as a kind of um you know a spandrel of the of the Venture industry yeah the Grim Reaper is the bankruptcy attorney you are the you are the winged Angel yeah and you know there there are there are there are if if you really want to sell your startup for parts there are people out there who can do that with brutal efficiency and uh and they're great guys but like yeah I uh you know I'm a fund I want to sell these businesses for more money in the future which presumably means they get more they get more valuable you know I'm not I'm not a uh I don't want to just like you know make Toys R Us go bankrupt that's uh that's someone else's job but I mean is is over the long is your business correlated with uh like frothiness and volatility like in a post froth post highly you know High exuberant High exuberance like that is a good signal for you right yeah there will be more opportuni sure I mean I'm I'm I'm interested in in dislocations and dislocations certainly happen uh more in bubbles or exuberance um but I also it's happening more frequently too like it seems like it's a good mod it it doesn't seem like it doesn't seem like your fund is like a onetime like oh they just like unique case right now it's like no VC is built to do these types of things there needs to be a system to help process the ones that uh don't go perfectly and that's where you can come in yeah well look I mean venture has 10 AED in terms of dollars deployed in the last 10 years it's a completely different thing now you know just as the biggest firms are turning into PE shops the biggest Venture firms are functionally PE shops yep um there needs to be there's basically one product in silon Valley and it's like primary growth capital Y and um and you know once these markets become bigger more liquid more efficient there needs to be uh different kind of different uh just as there is in Wall Street or like on the East Coast there needs to be different um products offered to Founders like Equity at different costs of capital and things like that again like a really basic factor I think people should understand is like if you have if your model is to have a lot of zeros in your portfolio your cost of capital I.

E the like minimum return that you need is just really high which like creates all these knock on effects I really think Founders would like just take a crash course on Venture it would really help them a lot like a lot of really exceptional Founders kind of get into bad situations um that they probably you know probably like 30 minutes with like Chad GPT could could really kind of help them avoid and like maybe you should make a rapper I I honestly think you should make a rapper and just like create the the the sort of uh product for these Founders and say yeah anytime that somebody raises around send them your send them your little rapper and say hey put your sheet in here understand what what you're about to embark on and uh it's good could lead lead generation for you yeah yeah I mean I think a lot of the board members could use the rapper as well got him okay uh another question for you historically you've been heavily focused on software you acquired 30 some uh odd businesses while at tiny uh we've seen uh new categories attract Venture dollars like traditional basically traditional manufacturing businesses that have some sort of tech enablement is their world in the future where that is you know an area of interest for you or are you all in on software you know indefinitely everything is of interest to me Jordy I I I I just love there's always there's always like interesting problems to be solved that can that can create like predo efficient outcomes in in everything right now there's like a lot of them in sophomore Adventure but uh but yeah there will as long as like humans are not even in the drivy but like involved there's going to be like weird um you know uh dislocations and and and problems to be solved it's like amazing how many times everyone could be better off if they just like you know it's not something that they could it's not something they need a third party to do um but uh but oftentimes like a third party really helps so yeah it'll be it'll be on all kinds of things I mean right now you're seeing the Venture ification of Middle America and like as all these Venture Co start to buy up you know vets and and Med spas and all these things like Venture Capital I'm in like I'm in the rural Midwest right now uh and like you're gonna these people are going to start to feel Venture in a very tangible physical way and I think that's really going to change um you know it's just going to change the industry dramatically do you be uh uh you had a great heuristic for you know early detection of potentially great Founders being I think you put it as uh stripe account plus high school diploma or something High School report card can you break that down and tell me anym about that yeah if if if you made money online in high school I I I honestly can't think of an exception to of someone who's done that and has not ended up being like quite a successful founder um in one way or another this is like the inter you can just go on there with a laptop and make money it's like you don't got to do all this you don't got to like go to Harvard and do YC and all that like you can just go on there and like drop ship stuff make something that makes money that's a new tagline yeah uh what's your what's your read on uh General Catalyst exploring an IPO uh it's been something that everybody's sort of waiting for the first sort of scaled Venture fund uh to go public do you see all the big firms going that direction over time or is it going to be a pretty um binary and that you know andreon stays private forever blah blah blah uh or you know what what does that look like so I think like one very simple cut at this is just firms that are started by Founders versus firms that are started by investors so you know Mark and Ben they're Founders um uh you know GC it's also Founders um you know uh uh David Falco obviously entrepreneur um and so I think like I think it's it's kind of expected to see that when a Founder starts a business even if it's an investing business um they're doing it to why is any founder start of business to grow a big business and um you know I I thought I thought Mark uh Andre put it nicely in in in uh on on on Patrick's podcast when he talked about you know you can be a small partnership that generates some good returns and then kind of is uh relocated to um to some Wikipedia page or you can build know Goldman Sachs or JP Morgan or or Andre s Horowitz you know I think it's also in the name like uh you know I think I think they they like put put a lot of Clues there so you know I think Founders great Founders are just going to build big important businesses and um you know your business can only really get so big if you're actually in the business of like true Alpha out performance you can't you know build JP Morgan or Goldman Sachs or something do you think that there's a potentially Alpha in getting into one of those big VC firms but not in an investing role instead going into an operating role uh like what you see as an you know not a deal team but operating partner at uh ban capital or Texas Pacific group or any of the large PE firms assuming that these these large organizations are going to wind up actually operating more like PE firms not just at Financial scale but in terms of their behavior and so you're going to come in and and reliably be CEO of of Port uh portfolio companies that are coming in through like the PE arm essentially yeah I mean I I I think you know I think it's like joining um you know joining Goldman in in this in the 70s or 80s or something um uh you know it kind of depends it's actually kind of funny this is like kind of a niche thing but it's very interesting to me how Coos at funds are either like incredibly important heroic individuals that the firm would explode without or they're like completely back office kind of like low status no one likes them and they're also either they're either like extremely well paid or really badly paid and it's like which one of these very like high variance roles and I think it depends a lot on the culture of the firm and so um yeah I mean I would argue that like a lot of these firms uh uh most the people there already are not um you know strictly investors in the sense that they're not making you know judgment based Capital allocation decisions there research and all different portfolio support and all this stuff which is like um you know not what you would have thought Venture was in 2005 yeah yeah I mean I guess you just mentioned like the idea of like having a venture owner uh is not the right thing and that's where you come in a lot of times but in the future some of these firms might actually kind of set up shops to become better owners of yeah turned around assets essentially right they already are I mean SE Heritage you know seoa Heritage is is uh significantly uh or maybe not significantly but it's like roughly the size of seoa yeah um I know Andre's doing a kind of SEO Heritage thing GC is like they're all just starting to be giant at some sense in some scale you just become an asset manager and really what you're looking for are um uh you know different fee paying products basically and like really about it yeah I mean I mean I guess there's still there's still like a decision to be made between like oh it's like an index fund and they're just going to like blindly take a slice of everything versus they're going to like that's kind of been like the the meme around Andre a little bit is that they're just like in a lot of but then you have General Catalyst it's like we're buying a hospital Network and that's much more like private equity and so I understand that like all of this is going towards like Venture becoming asset managers but there still bu there still will be Forks in the road like Goldman Sachs does have a proprietary uh prop desk right but they don't have as much high frequency stuff as Jan street right there are different strategies uh and so it'll be interesting to see like where each fund kind of goes I think one more one more question for you uh mostly a prompt because we were talking about this in uh in a group chat I think a week ago there was a chart showing some of these new uh AI startups and their sort of Revenue Milestones you you laid out very clearly somebody was basically somebody in the chat uh I think it was Bill uh said something to the effect of uh are we short all of these and uh you know I've kind of like struggled with the question because people get a tremendous amount of value out of these products they love them they they've it's real Revenue it's real customers sort of trading dollars you fired back and basically said Iron law of the universe Easy Come uh easy go uh maybe just kind of extrap extrapolate that in the context of the um you know current AI Market yeah look I mean I I I'm sure some of them will be great businesses but it it it does seem very true to me that just you know anything that can be done very quickly can sort of be undone and I think you're seeing that I mean I think all the kind of like idees the best one changes from day to day the switching cost is pretty low like these are very smart teams I'm sure they will come up with um Moes and and uh and and you know stickiness and all that kind of stuff but I think um you know I I think it's kind of like if you think about you know the Internet it's like yeah everyone's gonna rush to use the internet enabled version of XY Z thing but is does that mean you know there's the um the idea that like Google is the last search engine not the first right and so I think um I think for a lot of a lot of the companies where it's just like I wish I had an AI version of this I want like the consumer intent is like I want to buy an AI version of this not like I want you know um uh you know pick your pick your kind of specific AI business and so you know I think some of them will make it out but I think a lot of them um will not because it's just that's just what the rush is it's like anyone who can add AI into this is adding so much value that I'll just like buy it I mean I I know like I pay for you know whatever six different models like that's probably not going to be true in three years right like there's probably gonna be one that I'll end up paying for too there's certainly no reason to pay for six right now um and so yeah and like if you know if someone launches a slightly like an incrementally better model tomorrow they're gonna get my 20 bucks a month until like you know until they don't and so um yeah I don't know I I just I I can't think of an example where like a whole class of businesses have cropped up grown immensely quickly and then kind of just been the new equilibrium um you know that that's certainly not what happened in the doc com there's some exceptions but in general that makes sense we have a couple minutes left uh how are you thinking about building your firm are you hiring for any roles right now uh what does the future look like for geffon and Company um yeah you know it's it's very interesting i' I've been I've been dutifully studying the uh all the great solo GPS of the Venture world and and and analyzing their their setups and everything I think it's very compelling I think asset management is actually a great like AI use case um so yeah I think you know the answer is yes I'm hiring uh little little Tech Bros exclusive here hiring there we go breaking breaking news scoop put the Chiron up yeah uh yeah I'm I'm I'm gon to make one hire I'm looking for like an investment principal someone who super smart wants to you know be kind of the first hire um keep the team really small you know a lot of Economics to carve up um and you know basically like I am uh I have more deal flow than I can handle right now and what I need is is help basically and so um yeah you know if it just wants to be someone who joins me and then uh me and me and them