Ep392: Jeffery Potvin – You Must Do Your Due Diligence on Investors Too

Andrew Stotz 00:01
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 risk, but to win big, you've got to reduce it. To join our community go to my worst investment ever.com right now, and you'll receive the following five free benefits first, you get the risk reduction checklist I created from the lessons I've learned from all my guests. Second, you get my weekly investment research email to help you increase investment return. Third, you get a 25% discount on all aced Arts Academy courses. Fourth, you get instant access to the Facebook community to get to know the guests and fellow listeners. And finally, you get my curated list of the Top 10 podcast episodes fellow risk takers. This is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests. Jeffrey potvin. Jeffrey, are you ready to rock? our present? Glad to be here. Great to have you. Well, let me introduce you to the audience. Jeffrey potvin is an angel investor in multiple regions who has invested in 55 more than 55 companies. He's a member of seven Angel groups and screening companies, while being the driving force behind open people network opn. Now this organization opn is a group of angel investors, helping accelerate the growth of early stage startups to the supporters fund and pitch it series. Jeffrey is a lifelong entrepreneur with a proven track record of building companies and reinventing existing businesses. I like that part. He's worked with a list of great clients from startups, enterprises over the years, Jeffrey is a mentor, coach, and loves to climb mountains. Jeffrey, take a minute and filling further tidbits about your life.

Jeffery Potvin 02:03
Perfect. Well, thank you very much, Andrew, for having me. And I guess a couple of things I'll add in there is one, you always got a mountain to climb. So I think we're climbing them every day. And on my case, I actually do enjoy climbing mountains, there's some pretty amazing mountains around the world that you can, you can jump on. But I think just getting outside and exploring the world in the vast open spaces helps you creativity helps you think a little better. And you know, just to all the things that we do. And all the things I've done in my life, exercise and getting out into the world is kind of a key piece for anything you do. And I'm a lifelong learner. So educating, always reading, I see all the books behind you. Big fan of that. And I think a lot of people always ask questions about how you get into investing or how I got into all these different things. And I think the best way to look at it is that when you're passionate about something, you'll do whatever it takes to learn it from beginning to end, and you'll want to be the best at it. So if that's any, any help for your listeners, is

Andrew Stotz 03:03
this inspiration. Yep, jump in and do it. Yep. There's nothing stopping you, except for your mind. Yep. I would love to talk about that. The exercise bit and getting out. You know, one of the challenges these days with the COVID situation is that many people can, you know, it's hard enough to get people to exercise in this world. But now, the government's given us real permission not to exercise by closing down, you know, all the places that we used to go to exercise. And I recently wrote a blog post that was about seven pages, I did a lot of research on it, to see that. You know, obesity is a huge, huge factor in COVID. And in fact, what I learned in pretty much every disease, and you know, the comorbidities related to obesity, you know, you don't normally die of obesity, you die of hypertension, or diabetes, or some other thing that's related or caused by the obesity. And if you look at the comorbidities on COVID, it's all about that. And the other thing that is interesting is that the average person in America are gained about 15 pounds over the COVID lockdown periods. And research shows that once someone gains weight, they very rarely lose it. So it's actually the policy that has been implemented, drives people towards the highest risk category for COVID and leaves them there. Because the weight gain is permanent. So I'm all behind you at getting out there. I do it not only for the creativity that you talked about, because when I walk all my ideas come but the other thing is that I just walk around the clothes Park and say f you I'm walking anyways I'm riding my bike out there on the As long as I'm not violating some law or locked down, that doesn't allow me out, I'm out there. Anything you'd say to that?

Jeffery Potvin 05:07
No, I think that's brilliant. And you really do have to exercise. You know, there was I learned from a kid when I was a kid, I read about this inventor in Japan. And what he did is he had invented, I'm going to, I can't remember the number anymore, but it is like hit 300 or 1300. Patents, absolutely phenomenal. And what he would do is he had a pool and he would swim in the pool. And as he was going underwater, he had to go to the brink of almost suffocation. And he would, that's where his ideas would come and you pop out of the water and write them down. So guess what one of his inventions was, I need to be able to do this underwater. So he created the underwater pen and paper. But the thing was, that's how we found how he got his inertia to drive forward and come up with creativity ideas. So in my case, it is through running, it's through the space, it's through being alone, it's through, you know, all of these different facets that are going when I'm being out in the open, and having that relaxed moment where I don't have the stresses of the world because I'm running or I'm climbing a mountain. So just like in your case, it comes through that. So it's that exertion, it's what's getting you to the brink of exhaustion or passing out your creativity comes. It's because it's again, it's you're doing one rudimentary thing running, you're not doing anything else, you can't have anything else bother you, but your mind's running. So to say on the exercise and everything else, I think people need to figure out what that is, what's that trigger that helps you become creative and solve problems. But it also allows for your body makes up a million different chemical reactions every nanosecond, and they need to be flushed out to create a balance. And that balance is going to allow you to overcome all of those deep emotions that you have, from anxieties to overeating, all of them can be solved by just letting your body exam itself and get out in the world. So I think if everybody takes a moment and says, you know, I'm gonna walk five minutes today, or 10 minutes and get some error, I think that'll help balance everybody's emotional build up and allow for a lot of that chemical reaction that's going on in your body, endorphins and everything to kind of get out and allow you to relax and get your mind in the right space.

Andrew Stotz 07:05
Great stuff. I mean, also, for the listeners out there, I I personally also believe in fasting. And when I talk about fasting, I'm talking about water fasting, meaning that you only drink water, and you don't eat any food. And basically, I've done that for years in different ways, you know, you got to read about it, you may want to if you do an extended, we got to get under some medical supervision. But what I've learned is that fasting, and right now I'm actually on my sixth day of a water fast. And what I've learned, I just learned so much the first thing that I learned is that hunger, will you know that that hunger is like a feeling, but it's not a need, you know that we have enough fat on our body that could last us for 20 days or so for a relatively skinny person. And so I learned that I also learned the feeling of burning fat instead of food. And that feeling is just fire, where you know, none, you realize from an evolutionary perspective, if in the old days, we're from, you know, our ancestors, you know, hundreds and 1000s of years ago, if they just got tired and shriveled up when they didn't have some food, well, we wouldn't be here. And so the body has a way of producing this amazing energy. And so I just, you know, I'm experiencing that right now. But also, the last and most important benefit is that research has shown that you can use fasting to reset your immunity. And that is fascinating research. And what I've found through that research, is that it really is helpful. So when COVID came, I did a water fast COVID comes back, I'm doing little water fast again, and just reset my immunity. So exercise, get out there and get in the fresh air, whether it's run, whether it's walk, whether it's ride. And the second thing is that, you know, we don't have to be on the juggle wheel, the food, food food all the time.

Jeffery Potvin 09:05
wholeheartedly agree with that, there's researchers found that there's an enzyme, it's in your gut area, that hasn't actually morphed since the prehistoric days. So the issue is that our body will always try to collect body fat because it stores it in order to protect itself, as you said, for the times it's not eating. So it's one of the things that didn't change with evolution. So in order to get rid of that, we all wouldn't have the body fat anymore. So they obviously haven't figured out a way to get rid of that. But it's so true. Your body storing for something that's not going to happen. We all have the ability to eat three times a day, and hopefully everybody has that. And if they don't, then they do store and try finally and find ways around it. So in the case of getting out there and exercising, it's needed. It's just a way for you to balance out your day. And I think the air and the auction and with COVID happening. Well I think the best part of it is that so many more people started to realize that I can get outside now. Oh, I can make time for this. And I think if you can build that into your plan of your daily routine, it's great for everybody. And it's going to be healthier on the on all of society and breaking down the numbers in hospitals and everything else, because you're being able to balance out your own life.

Andrew Stotz 10:16
Amen. 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.

Jeffery Potvin 10:30
For sure, well, I'm excited to share this, because when I'm talking to investors, I always say I could write a book about this one example. But the hard thing for me is that I also I like to share a lot of information about things. But I tried to avoid the actual contact of what it is because I think at the end of the day, We're all afraid to share exactly the details that encompass your fault, or the thing that you made a mistake on. But the great thing is that I take that mistake, and I analyze the Jesus out of it. And I figure out how do I prevent this from happening again? And then how can I share that to prevent others. And so and I think, and again, it's a pretty quick one, because where it started was we're working with a company for better part of two years on and off working through their journey. And an opportunity came up for us to make an investment. And the investment kind of encompassed a couple of things. I wouldn't say they're red flags at the beginning, but they become red flags. And what that was, is that there was an opportunity to invest in new emerging company that had some great IP, and they found an investor that would help them with the production of this end product. So that meant that they were going to contribute a large amount of funds. So we went through this process of doing our deep dive and analysis around the business. And as we started to get further in and got more interested in the business, and what they were doing, we'd already known about it. But now getting further into the deep dive of it, we requested that we wanted to meet with the investor that was going to pick the ball up and put a lot of money in to make this company successful, or at least break ground. So we met the investor. And as I started to kind of pick brain and learn more about them, I did start asking questions, because I had a doubt. And you never want to admit that you had a doubt but you kept going forward. But the doubt was there and I had questions, but they were able to answer the questions, even though my guts and everything still told me that something didn't feel right. But because the startup, I had been working with them for such a significant amount of time, I trusted that they had been working with this person already for a year and that this was a good opportunity. And you don't want to slow down progress. And we were going to come in as a bridge round. So we looked at it, we looked over it, we did all of the analysis, we came back and said you know what this looks great. This is we're excited to be part of your business and where you're going. And we'll come in as that bridge round to help break ground and moving forward. So long behold, we signed everything off, everything was good. And about six months into the project, give or take where the final handoff was supposed to happen. This unforeseen issue happened with the other investor, everything was in trust. And we'll just say that it ended up spending the next eight months trying to find this sad person. And once everything was solidified and sorted out, basically, they ended up having creditors coming after them they had to, they had to bankrupt the business. And there's a lot more detail that goes into it. But really at the end, the learning for what came out of this process was that not only do we scrutinize the startup to ensure that they are fully back fully driven and invested in their own company to move forward which they were. But now we have learned that when you're coming in as we do as investors we're first money in we want to bring the company to market that in this is the case, we actually need to scrutinize any of the investors that are going in at this time as well. So the learning is good, because it might not benefit us today. But it's going to benefit us in any sort of transaction that comes up in the next 510 15 years that we're doing this. So it might have fallen under the radar to seeing that wow, this investor created this fail. But the learning is and it's an expensive learning is that now going forward, we'll be scrutinizing both sides of the of the business to make sure that this doesn't occur. And then finally I look back. And again, this is my first time publicly talking about this investment. If I go back and look at all of the other fails, if you call them fails, to me, I think that they're just, they're like a Terran, a muscle that you're going to repair. And you have to keep looking at everything as a stepping stone to get into the next realm of what you're investing in to get to success orbs and more successes. So we've had a lot of other ones that have occurred during that time or over the last 10 years that we can call out. And some of the things that really popped out to me and it occurred inside of this, and it because you're not facing failure every day, you sometimes overlook the things that you learned in the past, because they're not in front of you. So you have to train your mind to continue to think about them. And it was like you were sharing before when you're analyzing the 138 questions that you had previously asked? You probably didn't even remember asking them. And when you read them, you're like, Man, that was a good question. I should ask that more often. So it's because it's not a continuous pattern. And life is about patterns. And in this case, you don't always remember those. So some of the ones that really stood out to me is that if there is any sort of panic or pressure to close a deal, I would say walk away, there's a reason for that. They're probably in debt, they've got creditors, there's something there's always a problem when it's high pressure. And that goes for anything in life, not just investments, someone's pressuring you, there's a problem, nothing needs to be solved in five minutes, you always have time to think outside of that, it can also be when they're bringing in different people to validate your problem and how they're bringing those people in, if they're validating a problem that you can validate yourself and figure out means and they have to bring somebody in as an outside party. That to me also shows a red flag that if they have to prove it, and you can't figure it out yourself and find it, there's a problem. And then on the paperwork and analysis side, a lot of times, startups early start startups won't have a lot of that. So either you're gonna buckle down and put that paperwork together and pay for it. Or again, it's just because they don't have it, they don't have time, everybody has time to make things proper. So make sure you paperwork at legal accounting, take care of all of those things before you make the investment. Because this isn't, it's your hard earned money. And it's not meant to be just giving away. Firstly, you really do need to scrutinize yourself and the process that you put yourself into, and why you have a thesis on what you invest. And you try to keep inside that thesis is as you have a pattern that's been developed, that you understand the nuances that can come out of that when you go outside that circle, that's where you get burned. That's where you start to miss things, because it's not part of your pattern. Great, I think are just some things that I would scrutinize myself against certain areas. And in the podcast that we run, I always ask about your history. So what have you what is about you like what is your past? What did you do? And then how does that influence your investing. And it's amazing, people don't realize that their past actually influenced their investing. They're like, Well, I was in finance. And I like finance companies, well, because you know the best about them. And that is really the pattern that we create in life is that everything works from one thing into the other. And when you go outside that comfort zone, mistakes can happen. So it's just paying attention to those little nuances that can bite you in the end. Great.

Andrew Stotz 18:33
So maybe I'll just summarize the learnings that you've talked about number one is, I would say I would describe it as do due diligence on the other investors, not just the company. Number two, walk away, if you're feeling panic, or pressure to invest. Number three was about validating the product and be wary if there's has to be some third party validation or something like that. And number four was the idea of you know, you've got to go in there and not expected there's been in time making paperwork, they're trying to make a product and sell that product. You've got to make a decision of whether we help them with that. Do we go with it as it is or what? And then I think number five is stay inside your circle of competence. Great learnings. So let me Maybe I'll throw in a few little things that I took away from that story. The first thing you said you said specifically they answered the questions. So we were okay. You know, you got to remember in the world of investing and maybe in life, the sneakiest people or the problem areas that you face, they're already prepared for all of these questions. They know how they're going to answer. So you have to go beyond the answer that you get. And that's a challenge. Most people don't go beyond that. Or the second thing you made me think of I got it. I got an analogy or a way of looking at business. You know, investing in business is just like a street fight. You're out there fighting and you know, you don't know somebody's going to come up behind you and hit you over the head with a bottle. Right. And the fact is, is if you get in a street fight, and that anything can happen, and you've got to be watching for everything, if you want to survive that street fight, and if you don't prepare for that, the consequences can be dire. So it's not just a straight line, there's many different ways that you can lose and investing in a startup. And the other thing I would say is that I'm talking about validation. You know, I often have, you know, new businesses and startups talk to me about, you know, validation, and like, you know, I mean, obviously, if you've got to convince some people, you got to go to a third party maybe and say, Okay, this method works, here's the scientific background and why, but the ultimate validation is the customer. And so I always say, if you didn't, if you're not ready to go out to the market, go find a customer that you could partner with, you know, and you could take it that would be willing, and you give them some special benefit over some other ones, and then say, Can I work with some of your team here to develop this thing? and test it and see, would you guys be interested in this? And that type of customer validation is the best validation? Those three things are my takeaways, anything you add for that?

Jeffery Potvin 21:18
No, you're bang on with that the customer validation piece is so so so important. And I find it in a lot of early stage investing, people always say there's not enough information, there's not enough data. I think it's so those people just don't want to do the work, because they're not into this baked into this fully. There's a ton of data, there's a ton of information. And client validation is just one of those data points, and being able to get that customer to tell you yes, I'd use this. We just spent three months deep diving on a company and people would say, Well, I can do it in a day. Well, did you talk to their customers? Did you talk to new potential customers, because at the end of the day, you're investing as a VC myself as a VC and Angel, I'm investing other people's money, just as I'm investing my own. And the risk is very high in early stage, and we want success. So validating an idea or validating a concept is so important. And doing that due diligence, even more important, because again, you're doing something on behalf of a larger group, and you want them to win and succeed and grow. So you do have to put the homework in. And I think, like any investment or anything that you want to be great at, you know, you could use the Malcolm Gladwell concept of 10,000 hours, I think that people might beat that process up. But what it really means is that 10,000 hours makes you proficient in a space that allows you to be I'm not being deemed as a pro or being amazing. What it deems is that you can put the work in to make sure that you're able to find the problems and the issues to validate it to move it into a successful position versus losing and having to go the opposite way. So by risk area, you got to put everything into it. If you're going to do it on the sidelines, then that's a tough, tough program to work out because you're only doing it part time and part time gets you part time results. Hmm.

Andrew Stotz 23:08
Alright, 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? There's so many. I'm only given you one.

Jeffery Potvin 23:39
overanalyze everything, okay. And that's why I'm saying that because it encompasses all of the 100 data points you need to attack. So scrutinize the hell out of every opportunity to go into that doesn't that means everything from climbing a tree to drive in the plane over analyze every position that's going everything that's happening in that to make sure that you've got the end result that you're looking for when you say yes,

Andrew Stotz 24:05
beautiful. Alright, last question. What's your number one goal for the next 12 months?

Jeffery Potvin 24:13
What I love about setting goals, and I think I was probably way back in the day, it wasn't so much trained into setting goals, I'm a doer, I just get things done. What I found is that we need something to achieve, we need somewhere to go. And when you're going somewhere that gets the rest of your team going in the same direction. And if you don't have that goal, everybody else just means they may not have the same drive and focus you do so you have to have somewhere to go. And then when you get there you got to find somewhere next to go because that's what's going to benefit your team, your business and the growth of you as a person. So our number one goal is that by the end of this year, we will be and have completed our $10 million raise and will have invested in another hopefully another 30 companies We'll be on target to go to our next $50 million raise. So we've bucketed ourselves to make sure that every year, year and a half, we've set that next goal, and we're going to achieve it. So I know this, it's about financing. It's about money. But really, at the end of day, it's about helping us help an early stage companies get to funding. And we want to make sure that we are the leaders in that. So we're going to keep chunking away at this. If someone else could have built a VC 30 years ago, and they were able to get today to 100 million and a $500 million, then we can certainly do that in 2022.

Andrew Stotz 25:32
Right on. All right listeners, there you have it another story of laws to keep you winning. My number one goal for the next 12 months is to help new mind listener, reduce risk, and increase return in your life. To achieve this, I've created our community at my worst investment. ever.com. I'll see you there. As we conclude, Jeffrey, I want to thank you again, for coming on the show. And on behalf of a stance 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?

Jeffery Potvin 26:12
You bet. Thank you very much, Andrew, for having me today. It's been a pleasure. Hopefully, I was able to get something off my chest, which was sharing this example. And I'm excited that I was given the opportunity to do that. And if I was to share something back to your community to the investor side, look, angel investing, it's a small fraction of the market, we need more people to get out there. And to start working and helping early stage companies get grounding and get into the world. And that takes some minor financing. So in the US and in Canada, it is literally 1% of the entire market that's helping real estate companies. So if anything, jump out there, start talking start helping early stage companies work their way through the cycle. And if you're a startup or an entrepreneur that's looking to get into this space, I wholeheartedly push you look for resources, educate yourself, learn and dive right into it, and figure out how to build that exciting product and find that angel investor that hasn't invested yet and get them into your business because

Andrew Stotz 27:14
we need both sides to keep growing. Fantastic. And for the listeners out there, you can go to the show notes and find all the links to Jeffrey and what he's doing more go directly to LinkedIn and just type in Jeffrey potvin. Toronto, Canada. Yep. And you'll find him anyways, 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 hose Andrew Stotz saying I'll see you on the upside.