· David Senra, Peter Rahal
[00:00:00] S0: So basically what they're saying is, "We'll pay you 1,000 dollars if you get on the phone and tell us about your experience with-" [00:00:00] S1: Yes, with Peter. Like, what kind of leader was he? [00:00:00] S0: Okay. [00:00:00] S1: And I'm like, "Yeah, take their money." I had no idea. And I thought I was going through the litigation, so I was like, "Oh, they're just trying to fucking find dirt." So I had no idea it was an investor. And then I'm like, "All right." And then the Epogee deal happens, meaning the chairman of Epogee comes to me, and we say, "Hey, let's figure out a deal." So then I reach back out to Neil. I'm like, "Hey, this is happening. You guys want to take a look?" And of course, reach out to Valor, like, "Hey, this is happening. We're going to need probably some money for this." Well, this is why I respect Greenoaks so much, is like, even me kind of being rude to them, they had put resources to do diligence on me, and in the best way possible, which was like, diligencing my leadership, which is actually the- I think the most fundamental thing for this investment to work is, like, you got to make sure is Peter the right type of leader. They had already done that when there was no deal on the table. [00:00:00] S0: Not only there's no deal on the table, you already told them there won't be a deal.
· David Senra, Peter Rahal
[00:00:00] S0: Not only there's no deal on the table, you already told them there won't be a deal. [00:00:00] S1: When I found out it was them, I was like, "Oh, wow. These guys are like, they're good." And I didn't do an auction. I want the right people on the cap table. And Greenoaks won just out of my respect for their approach. Kept it, like, with just friends I know. And then Valor had a conflict of interest because they were in the deal, so they couldn't do M&A because the deal was to finance the other company. So, Greenoaks led it, and yeah, they're amazing. I'm very lucky that Chad connected us. [00:00:00] S0: So, before I tell you the story that he told me about you, you just said, "I didn't do an auction." Why is it that important to not do an auction when you're fundraising? [00:00:00] S1: The reason why I didn't want to do an auction is, one, we didn't need a lot of money. So, it's very important. If we needed a lot of money, I think it's different. But we only needed, like, one or two players. We were growing like crazy, and I did not want to consume the company's resources in a way that would harm our operating our business. So I'm very sensitive to the resources an auction would take. [00:00:00] S0: What are the resources an auction would take? [00:00:00] S1: Well, you got to run tons of management meetings. You have to constantly answer diligence questions. Like, it's a lot of time. [00:00:00] S0: So your whole thing keeps going back to you're intolerant of wasting any time. [00:00:00] S1: Yeah.
· Peter Rahal, David Senra
[00:00:00] S1: Yeah. [00:00:00] S0: You've said this thing in like half a dozen ways, like in subtle ways since we've had this conversation. [00:00:00] S1: Yeah. [00:00:00] S0: You're obsessed with time. [00:00:00] S1: Yeah. So if you think of it as, like, the analogy is like aerodynamic. I want to be super aerodynamic through things. And then my goal also is, like, being on the other side as an investor, I want to maximize value, but not really. If I want to maximize value, I would run an auction and I wouldn't care. But I don't really want. I want to make sure the investors make money and they're good with the underwriting. So, like, you want to walk to the line where it's like rich, but not too rich, right? You can actually, if I'm on the other side, I can underwrite it pretty easily. I want to make sure all my stakeholders make money, and that's my approach. So, the con of that is maybe we could have gotten an extra 100 million valuation, I don't know, but I don't really care. Like, I want to make sure that everyone feels good. And then I- [00:00:00] S0: Why do you not really care? And I agree with this. I want to get your thinking out in the open. [00:00:00] S1: What's, like, 2%? It doesn't matter. It just doesn't matter. And I care about money, but I don't really care about that type of money. I care about how the people on the team feel and are excited and aligned. And I've seen on the other side of the table, and founders just prioritize enterprise value that early, and it's just fucking gross. [00:00:00] S0: Why is it gross?
· David Senra, Peter Rahal
[00:00:00] S0: Why is it gross? [00:00:00] S1: Because it's not about that. Like, it's about, in this stage, it's about the right people and it's focusing on the mission. It's not about maximizing enterprise value at this stage. [00:00:00] S0: And if you're good, you're going to wind up with the money anyways. It's just going to take over. [00:00:00] S1: Yeah. And, like, we got a good valuation, which is fair. But I don't want an investor feeling like, "Fine, we'll do it, but I disagree." [00:00:00] S0: So you said if you were on the other side, you could underwrite it. So essentially, you want to do a deal where, like, if you were Neil, you would take the- [00:00:00] S1: Yeah. [00:00:00] S0: ... "That's a good deal. You should make that investment." [00:00:00] S1: Yeah. Exactly. And that's how I underwrite it. Because I'm operating as a CEO, and then I'm operating as an investor too, because I'm participating in all this stuff as well. Which is a conflict, but I'm generally trying to bifurcate, like, all right, Peter's the CEO, but he's also an investor. [00:00:00] S0: You mean you're putting more of your own personal money into the company? [00:00:00] S1: Mm-hmm. [00:00:00] S0: Why would that be a conflict? [00:00:00] S1: Well, because if I could lower the valuation for me, like... [00:00:00] S0: Okay. [00:00:00] S1: Yeah. [00:00:00] S0: You would self-serve. [00:00:00] S1: Yes. [00:00:00] S0: You're trying to do what's best for the company, not just best for- [00:00:00] S1: Yeah.
· Peter Rahal, David Senra
[00:00:00] S1: Yeah. [00:00:00] S0: I read Michael Bloomberg's autobiography for the first time, like, five years ago. And then I knew he has one of the most profitable private companies in the world. [00:00:00] S1: Yeah. [00:00:00] S0: And I've heard crazy rumors that we don't even have to get into, which is, like, way richer than even... Everybody knows he's really rich, but I heard he's, like, orders of magnitude richer than has been reported. And he raised, I think it was Merrill Lynch, if I remember correctly, 30 million for 30% of the company. Then he winds up buying that first, like, 10% slug back to them from them, like, 10 years later, and whatever. It was like 200 million he paid for that, right? And then he bought the other 20%, I think, in 2008 for like 4.5 billion. So if you look at it, one of the best investments he ever made was buying back his shares, right? And essentially now owning all of his company. I think it was all of it or like 90%, something like that. And Merrill Lynch's point was like, "Well, we paid 30 million in like 1979, and by 2008 we made 4.7 billion on it," or whatever the case is. Could you see an example, a future? Because I do think you are kind of obsessed with control. Anybody's obsessed with quality and control and everything else tends to... I could see you wanting to buy back the shares at one point. [00:00:00] S1: The opportunity presented itself, for sure. The governance is set up in a way where I have that. So as long as that's there. But yeah, I don't- [00:00:00] S0: Governance is set up that you have control.
· David Senra, Peter Rahal
[00:00:00] S0: Governance is set up that you have control. [00:00:00] S1: Yeah. [00:00:00] S0: Yeah. [00:00:00] S1: And I'm good with power, so I don't abuse it. [00:00:00] S0: Are you going to continue to raise money? [00:00:00] S1: I mean, if we have a need, but right now we don't. [00:00:00] S0: But in every round, you put in more money of your own? Is that what you said? [00:00:00] S1: I should, yeah. [00:00:00] S0: Okay. [00:00:00] S1: Oh, yeah. [00:00:00] S0: Okay. [00:00:00] S1: Yeah. What the fuck else am I going to do? [00:00:00] S0: All right, so I'm on the phone with Neil, and he was like, "Peter's one of my favorite kind of founders," like the founders that he likes to back, which is, I kind of hinted at it earlier, which is like, nothing's that you wake up and just like, you don't focus on what's good. It's like everything is just not good enough. And all you see are the kind of flaws in your business, and you kind of attack those flaws, try to make your business stronger over time. Again, very common in the history of entrepreneurship. So I guess he came to visit you, and it was him and somebody else, and it was you and a bunch of people that work with you, and you were doing taste tests or whatever of maybe new products or existing products. And like, "What do you guys think of it?" "This is awesome." And you go, "Wrong. This is shit." And then he goes, he said, "Not only did he say it was wrong, that everything was shit," and then he listed all the deficiencies and the things that he wanted to- [00:00:00] S1: Yeah [00:00:00] S0: ... to fix.