Updated: Jul 22, 2020
This week's guest is Steve MacDonald. He started without money or connections but found a way to build a startup to over $100M in revenue and a 9 figure exit. Now he's an investor himself having personally invested in over 120 companies and counting. In this interview we talk about what it takes to be a successful company builder and then a successful angel investor. Steve breaks down how founders should approach capital raising and he describes what he will be looking for with his new investment firm, MacDonald Ventures.
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0:05 Allen finds Steve in Aspen, CO getting a break from the Florida heat and humidity.
2:30 As an entrepreneur, better a maverick or maven? Steve says knowledge (maven) is power, but not without action. Steve will take a maverick over a mavin every time.
4:00 To be a successful entrepreneur, you have to be great at a lot of little things, not just a specialist at one thing.
5:40 How does an entrepreneur balance being an independent-thinking maverick with also being a team-player?
7:00 Steve says a founder building a team or raising capital must be flexible and open-minded.
12:40 - Steve sold his company in 2017 with a 44x return on investment to his investors. He's had several other startups with successful exits prior and along the way. Prior, he worked for a Fortune 500 company at which he rose the ranks.
15:00 Steve has personally invested in over 120 early stage companies. Steve discusses the importance of 'diversified portfolio' approach to early stage angel investing.
18:30 Steve talks about what a 'syndicate lead' investor - and strongly recommends that approach to new investors.
20:30 New investors typically do not have exposure to enough opportunities (deals) to make a truly informed investment decision. Plugging into an existing funnel and co-investing alongside syndicate leads is the best strategy
23:05 Steve says that it typically takes 7-10 years before an early stage investor receives a return - and it's typically not until year 7 that a company hits the acceleration phase.
24:28 And when a company starts to accelerate, the founders are tempted to cash out. But if they stick with it, the win to both them and their investors can be much larger.
26:55 Investors that understand and accept the long game are more relaxed, which is good for their co-investors and the entrepreneur.
27:40 Years 3-4 are often gut-check years, for the founders and for the investors - can we be patient and get to the acceleration phase?
29:20 Why tolerate the long game as an investor - because of the big home runs that can happen. But you need a portfolio, you don't know which one(s) will breakout and which ones will fail.
31:00 McDonald Ventures: Steve discusses his new investment company and mission to find the world's next phenomenal tech companies. The 5 attributes looking for in a founder: Realistic, Humility, Traction, Preparation, and Commitment.
33:00 Realistic - when a founder is unrealistic (on many things including valuation), it hurts their opportunity within the investment community - because investors talk.
37:55 First-time founders don't always know how to 'set themselves up for success'.
38:50 Why is humility important in a founder and how does it manifest?
40:40 What should founders think when they are being passed on for funding?
46:25 How much traction is needed to attract a professional investor?
50:33 Steve talks about how CEOs need to be focused on asking the right questions and setting the right metrics.
52:20 No matter how great the product, business, or team - you cannot be unprepared for an investor meeting.
56:05 Steve talks about the importance of commitment and perseverance - this is probably number one of all attributes.
56:18 Steve says being an entrepreneur is like "getting in the ring with Mike Tyson every day for 10 years."
59:05 Steve talks about how he was not raised in wealth, just the opposite, and had no investor connections when he started. He describes how he did it - and it wasn't asking people for money, and he was able to raise $5 million dollars.
1:03:26 Courting investors is a relationship building process and you shouldn't behave as though you expect a check in the first meeting.
1:04:45 How to use the cascading 'herd mentality' approach to raising money.
1:10:10 The kind of businesses that MacDonald Ventures will typically be interested - business process automation will always be high on the list.
1:12:35 Steve explains why consumer product companies find it so hard to gain investment - and the Twitter origin story that few know.
1:16:26 Parting message from Steve - we are in difficult economic times right now but this is when great companies and great entrepreneurs shine through with perseverance and creativity.
Another interview w/ Steve: https://bit.ly/3jgu5Jn
Full Episode (YouTube): https://bit.ly/2AELfia