Ep337: Dror Tamir – Don’t Put All Your Eggs in One Basket When Raising Capital

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risks, but to win big, you've got to reduce it. And I bet you're exposed to investment risks right now. To reduce it, go to my worst investment ever.com and download the risk reduction checklist that I've made specifically for you. Based on the lessons learned from all of my guests. Fellow risk takers, this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guests. drawer, Samir drawer, are you ready to rock?

Dror Tamir 00:45
Absolutely always.

Andrew Stotz 00:47
Let me let me introduce you to the audience drawer is a serial Food and Nutrition entrepreneur with one exit under his belt. His passion is to improve the health of children and families through better nutrition. He is a 19 time international innovation and sustainability award winning entrepreneur and has held various positions with several Israeli and international companies over the past 30 years after a career at the Israeli Navy drawer is the CEO and co founder of the startup horrible food tech. The company is dedicated to the development and production of alternative protein ingredients that are healthier for humans, and more sustainable to grow. The company is the world's first commercial, grasshopper protein producer, drawer, take a minute and filling further tidbits about your life.

Dror Tamir 01:44
I think you said it all. Almost. I would just thank you for the introduction, Andrew and I would just add that I was born in a kibbutz in Israel. And my grandfather was the chairman of that Kibbutz, as the chairman established two food companies. One is called Gollum, the largest corn processor in Israel today. He was also the first CEO of that company, then established a bow which is today the largest feed producer in Israel. He also said that the management team of that company, however, I give the credit, to my personal passion to food, agriculture and industry to my grandmother, because she was the cook of the keyboards and is a very young boys used to wake me up at 4am and dragged me to the kitchen to crack 1000s of eggs and feed everything. And I will just say that, from that period of keyboards as again as a young boy, I remember stories of my grandparents about the 1950s. Israel used to suffer from both food security and local swamps buying in and destroying all the crops. While the kibbutz members used to run to the fields and scare the grasshoppers away. There's so other Jews Yemenite and Moroccan Jews coming to the same fields with sex, collecting tons of grasshoppers and eating them. So I learned at a very young age that grasshoppers are food for many people around the world, and that they are the only kosher insects out there. Hmm. And 35 years later, when I was looking at the alternative protein, the protein challenge around around the globe. That solution was waiting for me. I knew I knew I have the solution.

Andrew Stotz 03:25
That's a great story. And in fact, here in Thailand, we have pushcarts with people selling fried bugs. So it's not an uncommon thing I remember many years ago going to a village in a pretty poor area. And I saw a lady with a little bag over her shoulder that look kinda like you would keep fish in there. It's like a basket. And then she had a little net. But she wasn't in a pond. She was really at a puddle, a big puddle, you know, very, very shallow. And then she had this little net. And she was catching something she asked, I asked her look inside and looked in and it was just these little little bugs that were on top of the water. I forget what they're called, but she had about, you know, probably 50 of them in her bag. And she looked at me and she said that's dinner.

Dror Tamir 04:18
Why not? Hey 2.5 billion people across the world consume insects as part of their diet. Knowingly, the rest of us also consuming things but we don't want to know about it.

Andrew Stotz 04:32
All right, well, now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to it then tell us your story.

Dror Tamir 04:44
Well, first I start by saying that you see I invested all my resources for last six years in insects, and it is not my worst investment. So that's a good thing, but I will talk about it from the angle. They'll often entrepreneur, as an entrepreneur, usually you don't have money, you don't have enough money to do what you want to do. So your main resource is your time, your ability to spend your time and your ability to think that is one thing. The second thing as an entrepreneur, you have to be the most optimistic person on the planet, because you are the only one that will always know that your startup is going to succeed. And you need to convince anyone, everyone around the globe that this is the next success. And so you have to be super optimistic. But this leads you to a situation when you can actually make a very wrong investment. Most of the time as an entrepreneur, you are actually trying to raise funds to develop your business and grow it. And you are meeting 10s and hundreds and sometimes 1000s of potential investors. Always before every Nic, before every meeting, I'm sure that this is the person or this is the VC or this is the company that is going to fall in love in me and the business. And they're going to spend the funds that I owe invest the funding that I that I need, I have to relive that. But this eventually leads me to do some mistakes, which means, since I'm so optimistic, I'm following them. And I'm trying to provide whatever they asked for any information, every analysis, every presentation. And this consumes a lot of time resources. And sometimes even you even take you out of focus of what you do. And too many times I found myself wasting a lot of time, a lot of resources, and eventually receiving no investment. So which brings me to not actually not to square one, but actually to take a few steps back because that time cost me a lot of money. And I want to share with you a specific story of a lead investor. In one of our previous rounds. We had a lot of interest from investors, one of them approached us and said we will be your lead investor. From day one, they said we're going to invest 70% of the funds that you need. And that's exciting. Oh, that was amazing. These are the guys that we want to work with. We discussed with them the valuation we discussed with them the terms we discussed with them, what will be the plan, and we went into due diligence, the longest due diligence I ever had eight months of due diligence. Now, part of the due diligence, which the due diligence meant that we had to answer 10s and hundreds of questions of every aspect of the company, which is part of a due diligence, that's the cost of trying to raise money. But another part of that specific due diligence included discussions with experts that they heard about them made the heart of the company that may know how, and I must say it made me feel really uncomfortable, because it meant we need to share with persons that will never have any relation with our project and may even become competitors, because we are going to provide them a lot of know how they they do not have right now. So, I did not feel comfortable, but you know, we need the money, we have to open the books and show what we do. And we had those discussions very long discussions and eventually received positive recommendations. And after this very long time, after eight months, and it was time to the moment that you say show me the money, they said we are going to invest the funds that we promised but a third of the valuation we discussed, which was unacceptable unacceptable for us. They actually used the pressure we got into because of losing all that time. And things got even worse than that, because what discussing with them and going through the Delete you diligence, we had discussions with other investors. We ever since those were supposed to be full of our investors, we did not negotiate with them the terms we just told them we have a lead investor, what that we will agree what the valuation will be with them, you are going to enjoy the same terms. So these guys sign the SBA, the investment documents, were just sitting and waiting for us to finish the due diligence and in that process. So at the end of the eight month, we got back to them and told them listen, we have Noted investor, let's move forward with what we did. And the result was what was horrific. They just pulled their agreements, they decided not to invest. And we were left with nothing. And of course, after wasting over eight months, the runway was getting very close to zero. So I think the eight months of horrible due diligence was my worst investment ever. And since then I learned if things are not moving forward, I'm not going to invest too much time.

Andrew Stotz 10:38
So let's, let's talk about what you learned from this experience. Imagine there's a lot of startups out there that are listening to this interview, and that will listen. And they're in the same exact boat. And I'm just want to curious, like, how would you list out the lessons that you learned?

Dror Tamir 10:56
Well, I would say that there are a few lessons that you can learn from that. First one, as much as you're optimistic, it's crucial to bring in another person from your team. That will be your devil's advocate, that will tell you listen, you're wasting your time, they're not going to invest, that he will ask the hard question that you personally are not able to admit, that will be my first lesson, don't do it on your own, have someone joining you, and actually showing you the mirror, you're not going to get money move to the next one. That's the first that's the first don't do things on your own. And that's also relevant for any aspect of your startup. Have good people joining your trip. Second thing is that I learned, you can't chase investors too much. You can, you can apply too much pressure. If you apply too much pressure, they they can they learn they feel that pressure, they will not invest. So don't if you try too hard with an investor as we did, eventually, they will not invest because they feel this weak spot, and they can actually offer you a deal that you will not expect or accept. So again, think how much pressure you want to apply, and take your time. And if they do not come back to you. Probably they don't want to invest.

Andrew Stotz 12:30
it's such a challenging, you know, it's such a, it's a dilemma. Because on the one hand, you want to, you know, you want to work with them and all that. But on the other hand, you've got to be a little bit tough with them. But you can't be too tough. And, you know, so many things that I think about maybe I'll share a couple of thoughts I had from yours. story, I think the first one is, you know, time really is money. In the case of a startup. You know, I remember myself working in, you know, investment banks, Citibank and other places. And if you have a bad day, and you don't do any work, no problem, you have a bad week, you have a bad month, and you don't do any work, or almost no work, company is going to be just fine. But when it comes to a startup that has very limited resources, time really is money. And if you get caught up in something like this, that's that takes you away from the business. You know, it really is like spending money. And so the buyer may say, Well, you know that he can try to push it out. But the reality is, is that time truly is money. In the case of a startup. The second thing is something that you didn't mention explicitly. But it's something that I've felt myself in my own startups, and also from things that I would say, and I say, we always talk about a runway in the startup. And when we talk about runway, we want to have as long a runway as possible. And that means enough money, that we can get this plane off the ground. But that's not the runway that I think about anymore. There's an emotional runway. And the emotional runway is the confidence that people who are working for you have in you to make the idea work to get the funding to bring it all together and get the results. And this type of thing dragging in this out, you know, can really damage the confidence. And that causes the emotional runway to be even tougher. And that's why I think your advice about the devil's advocate is so good. Because as a leader, we need to know when we're spending too much, you know, energy and confidence that people have in us, you know, and so that two things Time is money and there's an energy or emotional runway that we also have to think about, is there anything you'd add to that

Dror Tamir 15:00
Absolutely, I think your second comment is super important. And what I want to add to that is, you have investors, you also have employees or partners that work with you. And the only way that you all can actually deal with problems or loss, as I, as I described, is to have them part of the journey. So if your devil advocate is actually one of those partners, one of your investors, one of your management team and one of your partners, things will look different, they will be part of the process, and you will retain a little bit of the confidence they have in you.

Andrew Stotz 15:46
You know, it. Recently I've been working on a presentation on Monday, I'm going to give a presentation to a group of students about 12 teams of students from different it's a competition, it's a case, or a business competition for students. And I've been a judge in that competition for many years. And I take my experience as an entrepreneur, myself, and my experience as a financial analyst. And I'm known for being pretty tough as a judge kind of like Shark Tank type of thing. These, uh, these competitions have been recorded. I've been doing it for more than 10 years now. So I went back to the recordings, and I got 216 questions that I asked, each in a separate clip that I cut out. And then I classified them into different categories, questions about marketing questions about finance question about operation. And I've come up with 24 questions that you need to answer. In this case, for my lecture on Monday, it's going to be to win a case competition. But the reality is, is that it really is all about all it says Same thing with your raising capital, in a case competition or in reality. And I just think about, I just was thinking about how challenging it is. Because even when you think you've got a good presentation, you've got a good, you know, your documents are good. There's still a lot of due diligence. And you really remind me of that not that's

Dror Tamir 17:18
Yep, I want to add something to what you just said. Yes, there are a lot of questions, 24, maybe even more than 24 questions that you have to have excellent answers to. But the thing is, as much as your answers aren't good for you and your business, the way you see it, they may not be good answers to the person that is sitting in front of you. So that investor, maybe they are looking at different business models, maybe they're looking at different categories. So as an intrapreneur, at the beginning, I was trying to update or adjust my answers to what the second what the other person is looking for. And I found out that it's not the right way to go. If what I believe what I think the business should be, doesn't mean that I should live, I shouldn't listen and do that the patients, but still stick to what I believe in. And if I if the right partner is there, we'll have a partnership. I love it. We're in any case,

Andrew Stotz 18:28
I think the point, the word that's a good word, in this case is authenticity. You're authentic about what you're doing. You're on a mission, and you're doing the best you can and you're inviting that investor to come with you. You may have discussions, you may get support from them, they may get things from you. But ultimately, you're the one leading the vision. So yeah, so

Dror Tamir 18:53
experience. Yep. Every time an investor asked me to update the presentation, tweak the business model, change the product, they and I did that they never invested. Not a single time. Yeah. In a meeting somebody asked me to do that. I would probably not follow up.

Andrew Stotz 19:15
Yeah, I say, I think it would be better if you put in, you know, 50% of the money that you want to put in and then we can talk about it. Yeah,

Dror Tamir 19:26
that's the perfect answer.

Andrew Stotz 19:28
So based upon what you learn from this story, and what you continue to learn what one action would you recommend our listeners take to avoid suffering the same fate?

Dror Tamir 19:39
Don't be blind. Be real to yourself. Don't own as an entrepreneur, you just want to give your pitch. We forget to listen and absorb from the other party. So be more open, listen more, understand what the messages are and If it is needed, go to the next one, probably that's not your partner. And this will save you a lot of money much more than you can get from that partner.

Andrew Stotz 20:10
Yep. Beautiful. Last question, what's your number one goal for the next 12 months?

Dror Tamir 20:16
raise money.

20:17
Exactly. Always amazing.

Dror Tamir 20:20
I actually Actually, that's always so I don't need to say that, that we were intrapreneurs, we need to raise money. Number one goal is to sign a significant joint venture with one of the leading food producers around the world and bring our products to one of the largest markets. We have several deals that in discussions, and I believe we will be able to sign at least two of them in the next 12 months. And beautiful moment, we are on a rocket ship. Beautiful.

Andrew Stotz 20:54
Well, for the listeners out there, I'll have all your information in the show notes. So if you're interested in investing, you're interested in buying, come to the show notes, click links, and contact or I'm sure he would be happy to talk. But don't drag it out for eight months, because he's not gonna allow that that happened. All right, listeners, there you have it another story of loss to keep you winning. Remember to reduce risk in your life by going to my worst investment ever.com. Right now, to download my risk reduction checklist. See how you measure up. As we conclude drawer, I want to thank you again for coming on the show. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Dror Tamir 21:52
Yes, two things. One is you have to be to remain optimistic after you hear all those stories. You have to remain optimistic any because you're going to fail all the way. remain optimistic. And the second one, don't wait for the perfect moment. Just go out and do what you want to do. Beautiful.

Andrew Stotz 22:18
And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. This is your worst podcast hosts Andrew Stotz saying I'll see you on the upside.