Ep650: Brett Martin – Fix Your Partnership or Quit It

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 winning investing, you must take risk but to win big, you've got to reduce it ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives to join me go to my worst investment ever.com and sign up for the free weekly become a better investor newsletter where I share how to reduce risk and create grow and protect your well fellow risk takers. This is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with Brett Martin, Brett, are you ready to join the mission?

Brett Martin 00:37
I'm ready to try and baby let's go.

Andrew Stotz 00:41
I can't wait to introduce you to the audience because you put in this kind of strange last sentence to your bio. And so here's Brett. Brett Martin is a co-founder of Kuhmo space, the virtual headquarters for remote teams in charge ventures, a precede venture capital fund based in Brooklyn, New York. He also serves as adjunct professor at Columbia Business School where he teaches data analytics. And ladies and gentlemen, he loves you, Brett, take a minute and tell us about the unique value that you are bringing to this wonderful world.

Brett Martin 01:19
All true, Andrew, thank you, thank you for having me. It's a pleasure to be here. thought a lot about risk. I've probably had more of an appetite for the most as I spend all day I think both of my shoulders from respect to snowboarding and surfing injuries. But yeah, you know, I, as an entrepreneur, I love to build products that help connect people, I've built products that have connected millions of people, multiple times, launch three products used by 10s of millions of people. And as a venture capitalist, I think about sort of early stage venture capitalists, I guess I think about what it takes to de risk the business all day every day. And I had at least five conversations with portfolio CEOs today about how they're removing risk from their business. So quite familiar with it. I've been on both sides of it.

Andrew Stotz 02:13
And tell us about what you're doing with Kuhmo space. And one of the questions also is if why not just focus on, you know, VC and why, why do you still find the desire to build, as opposed to let's say somebody's like, oh, I'm tired of that. I just want to you know, invest?

Brett Martin 02:34
Well, yeah, that's it's funny, because I think investing is often seen as so glamorous, and a lot of people that are building or looking at investors and envious of it, but you know, that your venture capital is a privileged job, what am I do I sit on a pile of money, I meet really interesting people, hardworking people all day, every day, I pick a few that I really like, and they pick me and then I give them money. And then we tried to get rich together. I mean, it's kind of a dream job, there's no doubt about it. That said, personally, I love the build, I love the look that when I show put some a product that I built and helped build in someone's hands, and they have a moment of delight and excitement, and they can accomplish something that they could never do before or in this case, you know, they use it to connect with another human use technology to connect with human and another in a more authentic way. That is what really drives me. And so I was investing out of charge ventures my current fund for seven years, when I saw a great business with lots of revenue growing really fast was really high margin that was defensible with an amazing management team, you know, the easiest way thing to do is just give them money, and then sit back and wait for your check. But when I saw Kuhmo space you know, this new form of interaction a more human authentic way of like interacting with groups of people online. I said, I'm getting back into the arena. And you know, I said I can't help but build this and I think that's really should be anyone's criteria for starting a business is if you literally can't imagine yourself doing anything else.

Andrew Stotz 04:18
And I'm at the website of Kuhmo space and it tries to identify the pain and so I'm going to go through it briefly just for the audience so you understand what Brett's doing but it says is your team feeling disconnected and siloed say goodbye to unproductive and morale draining video calls with virtual office that brings your team together, get answers and alignment instantly try it for free. So just tell us a little bit more about what what you're delivering through Kuhmo space and maybe for the listeners how they could you know check it out maybe go they can go to the website and learn more but tell us about the mission you're on there

Brett Martin 04:59
Yeah, arm mission is to take the millions of people that are working for remotely or for hybrid teams or distributed teams. And give them a place to show up and do great work to do great work together every day, in the same way that you know, an office, a physical office, it's not just for place to do work, it's a place to build relationships with your coworkers, it's a place to goof off, it's a place to have lunch, it's a place to, you know, watch presentations to have events, right? It serves all it's a place to keep your files and your information. And so it's a place to impress customers and show off your company culture and personality. And so, we know, we feel like we lost a lot of that when, you know, when we move to working from our desk at home, I mean, zoom and sock are incredibly productive, but they don't do a lot of things I just described. And so we felt like there was a place for new types of tool where you could be online with you know, your 20 other people at your company or 2000 other people at your company, and really feel their presence, know that they're there feel like those people working alongside you and actually go over and tap on my shoulder if you needed help, or if you need to get unblocked. Or if you just wanted to goof off a little bit. Or if you wanted to introduce yourself to a new person who joined the team. So that's, that's the mission of Kuhmo space, just give all the remote workers the same kind of positive experience that you might have in an office.

Andrew Stotz 06:30
And you know, for a lot of traditional people, what they've done is said as soon as the pandemic is over, let's get back to the office. But that's not going to be the case for a lot of people, right where I think about one of my business, I do so much online. And I have a course called the valuation masterclass boot camp. And basically, I also hire my students and others that are great. And so I've got a guy that was a student, he lives in Egypt. And he just passionate about bringing the student experience through the bootcamp. And so I hired him. And well, we use all the tools, you know, we use Zoom, and we use Slack. And we do all that stuff. But when if I come into the if I create, let's say, the virtual office type of thing, and virtual events and all that, what would you say is, you know, the thing that we're going to notice that wasn't delivered through zoom, or slack or whatever?

Brett Martin 07:25
Well, it's, let me I can share, I can answer that with an anecdote. So when we launched Kuma space, it was initially because I used to run an angel investing event, and for my fund, and it was bringing 50, sort of middle aged farts like myself together, and we would share deals, and it was great source of deal flow for my fund, pandemic hit. And everyone said, why don't you bring this online, and I said, Who wants to hear me give a PowerPoint presentation to 50 of my friends every month. And so, you know, we realized there was a gap in the market, there wasn't a really good place to bring groups of people online where they can connect in small groups and move fluidly between small groups. And we launched through MySpace, we didn't really know what people are going to use it for. But we knew it was better for that. And we had millions of people use it. We had them use it for weddings, for funerals, for graduations, for as virtual offices for events. And, you know, we eventually, you know, we were trying to decide, okay, which direction we want to go. And so we we actually, we still believe in face to face, we think there's a huge value in face to face, we actually have quarterly offsites, where we bring our team together from all over the worlds connected person, it's great to build rapport, right, but we just think it's inverted, we think you should spend most of your time, you know, remote wherever you want, without all the friction of being on an office and then occasionally come together. So anyway, we're about to have our first in person off site, we're so excited. And then Omer Kron hits, and half of our team gets sick, and we have to cancel the off site. Now. Luckily, we are in a very good position to throw a virtual off site. And so we pivoted on a dime, we started our virtual off site in our own virtual environments. And we sent out a survey to our team. And we said, what are your favorite things about working on backroom space? They said, We love shipping products, we love working hard, we you know, we love you know, getting good work done. And we love the flexibility of remote work. We'd love to be able to do low, you know, work from anywhere in the world not have to commute etc. So what do we hate about working at Kuhmo space and our team is we have a whole radical candor thing. And they said, you know, we hate cross departmental communication. It's really hard to get aligned with people sometimes. And you know what we don't feel like we have as strong bonds with our team as we would have if we were working in person. And we said, Holy crap, We had the same problems as every remote work every remote, fully remote company in the world. True, we weren't, we weren't using our company criminal space as an office. And we said, we need to dog food, our own products, we need to live in this thing all day. And so we pivoted into being a virtual office that was about a year and a half ago, and it's completely changed our the way we do business, the team morale is up that plus commis communication, people are brought to speed faster, better onboarding. And so it really just started with our own experience.

Andrew Stotz 10:36
Well, it's fascinating to learn about, and I've got the site up on mine, I'm going to set up a space myself, and I see that it's pretty simple to set up a free space. So for the listeners out there, if you're facing some of these challenges, you know, check it out. And this is what I love about podcasting is to get people like yourself that are trying to solve problems, you know, on there, so I appreciate you, you know, sharing about it. And why do you add he loves you at the end of your bio?

Brett Martin 11:09
Yeah, you know, I, it's hard to take a lot of work too seriously. You know, I feel like LinkedIn is just like, a total cringe zone of people taking everything too seriously. And, you know, that's how I feel. I love people, I love connecting with people love spending time with people. And, you know, that's the vibe of Kuhmo space. And so why not put put in the bio, it's great.

Andrew Stotz 11:37
Love it. Well, I love you and our audience loves. So let's share that love. And now it's time to share your worst investment ever. And since no one goes into their worst investment thing, here will be tell us a bit about the circumstances leading up to it. And then tell us your story.

Brett Martin 11:58
I had just come off my first failed startup. I moved back to New York City, I needed a job I got connected through my friend, he got me a job at a new, you know, early stage venture capital funds around 2009. And I was, you know, looking at deals, making investments, everything was great. And the owners of the funds said, you know, we actually want to turn this into a venture studio, we're gonna build companies that invest in them, and they said, alright, well, I want to start my own company. So that's fine. And I might as well do it with you guys, because you're already here. And at the time, I was 26 didn't know any better. I got a pretty bad deal. On ownership, I think I never own more than 20% of the company that I was founding which, you know, it sounds insane today, but back then, you know, 15 years ago, honestly, it was all over the place and incubators, were getting away with, you know, silly stuff like that. In my head, I said, you know, it's not about money. It's about control. Or I said, you know, I said I don't care about money. And then but what I realized was, yeah, right, money didn't matter. What really mattered was control. And so we take this deal, I start this company, I take a little bit, I think investments I got, you know, I took 150k for giving up 80% of my company, which is pretty bad, pretty bad deal. For the your audience probably chuckling. And so I took that, and I got the company up and running. And I built a proof of concept. And I went down to South by Southwest, which is funny because I'm actually going down there this year 2023 If anyone's around, and I barge my way into a pitch meeting. And I cut the front of the line, like any self respecting entrepreneur, I pitch some venture capitalists that were down there. And you know, when a VC does a thing at a big event like that, they actually don't plan on doing deals. It's really just marketing. Anyway, I pitched my startup, and these guys go. It's a pretty, it's pretty interesting. We should actually talk to you. So I have another meeting with him the next day. And next thing I know, I have another million dollars. And I'm off to the races. We launched this thing we're you know, we're on the cover of we had 300 press mentions in six months, in the you know, in the times and you know, all sorts of fancy things that TechCrunch Disrupt we've launched anyway, center of the universe for about 15 minutes. Our whole space freezes over like the like the ninth circle of hell. We go to South by Southwest the next year, US and 30 competitors who launched in our space, they're all using the iPhones, you know, Location Services. Back then the iPhone wasn't optimized. So every time any app asked for your location, they would ping the cell tower. So when you have 30 apps asking for your location, live all the time in the background, your battery life lasts for about 10 minutes. And the press just Kansas, and everything freezes over. And you know, at the time we had millions of users, and I wanted to keep going, I wanted to, you know, figure out how to make it work. And I had a totally fractured investment investor base, some people have put in millions of dollars and own 10% of the company, other people that put in a couple $100,000 and 60%, or company, I didn't have control. And, you know, that whole thing blew up. And at that point, I had 6070 $80 on credit cards, you know, and I was personally supporting their credit cards, all the funding dried up, and all and then every, all the investors just walked away. And so there I was scrambling, raising 25k, every two weeks just to keep the company afloat. I did that for did that for six months, until I finally got someone else that was willing to recapitalize the company and start the whole thing again. And all I needed to do was get my investors to agree to that deal. And they wouldn't take it. And I spent a month doing it, the whole thing blew up, I lost all my money, everyone who invested lost all their money. And so yeah, you know, it was an investment that was worth worse than zero, because I also wasted three years of my life doing it, although I wouldn't consider it a waste. But that was a pretty bad investment. I'm not gonna lie. Wow.

Andrew Stotz 16:33
And how would you summarize the lessons that you learned?

Brett Martin 16:39
There's so many Andrew, but I think the probably most important one I learned was about partnership, which is you know, if you're in a partnership, that's not working, you know, you have to push it to conclusion. So you either have to accept it how it is, you have to change it and make it work. Or you have to part ways, but the absolute thing you cannot do is complain about it. And, you know, stay in the middle ground. And we're not trying to have resolution, right. So that's the worst thing, the worst thing is to be in an unhappy marriage, but not doing anything about it. And so, you know, nowadays, I try to recognize when I am complaining, or, you know, there's one of my favorite quotes is a man can fail many times, but he isn't a failure, until he starts to blame someone else. And that was, that was the key learning, I realized I was complaining about other people complaining about my partner's complaining about the deal I took, which I took, by the way, instead of just, you know, taking action, accepting it, how was fixing the situation and moving forward. And, and frankly, I didn't learn it fully, then I had to go through a similar situation, again, where I finally got through it. But that was the most important lesson. So that would be my encouragement for everyone who's thinking about a partnership is or who's in an unhappy marriage, business marriage, is that, you know, make it happy, or learn to live with it or get out.

Andrew Stotz 18:26
Yeah, that's great. And maybe I'll share a couple things I took away, I was just taking notes as you were talking. And some occasionally people come and ask me for relationship advice. For them. I've never been married and never really had a super long term relationship. I hope that this will be the year that that changes, but I always I have a pretty good logical structure in my brain. So I always tell those people I said, well, since you've come and asked me, I said, I'll give you you know, I'll try to help. So I'd always say, I'm just going to ask you one question, I'd like you to answer yes or no. And that question will give you the answer to your question about your relationship. And then I really don't have anything else to say. And so my one question is, you've been together let's say with this person for a couple of years, you know them very well now. You didn't know them well in the beginning. So if this if you weren't in this relationship, and this person walked up to you today, and wanted to start this relationship, would you started yes or no? And if your answer is yes, then you've got some work to do like you're saying bread like then frickin fix it. But if your answer is no, then ended. I think that's where what the other thing I wrote down about what you talked about is resolved the problem. Resolved problems, stop complaining and frickin solve it. And one of the things that What's interesting about Thailand is that confrontation is not rewarded socially, in Thailand. And so it's very difficult for Thai people to resolve conflicts. And therefore, in many, many business situations in Thailand, there is no resolution. And then what happens is that the company splits into fiefdoms, where those people are building their politically, you know, power within that organization, to then get their supporters to oppose the other person. And they'll tear, it just, it's just the way it happens, and it can tear an organization apart. So I've learned a lot from, you know, confrontation. And you know, if you look at a Thai police versus American police, American police, like Rush in for compensation. Whereas Thai police kind of like, well, you know, they take it kind of slowly, you know, just a different mentality. So, the first thing I really take away is identify your problems and solve them. We're all going to be better off.

Brett Martin 21:07
Yeah, exactly. Just acknowledge that they're there. And, you know, realize that all the complaint in the world isn't gonna get you anywhere. So it's pretty simple. But it's surprising how many people let things fester. Yep.

Andrew Stotz 21:21
The second thing I wrote down was about founder shareholding. So you mentioned that, you know, the deal that you got, and I want to help, I want you to help us to understand if a young founder has a good idea. They don't have much money, but they got a good idea. And they're going out to raise money. What should they be expecting of how much of their company they should own versus give up? To get the Capitol? And, of course, let's think about it as good faith actors, you know, in this in this particular scenario.

Brett Martin 21:57
Yeah, I mean, look, like every deal is a deal. And there are a unique set of circumstances. But you know, as a precede venture capitalist in New York, there's a pretty consistent band in which people raise money, and I obviously depends on the idea, and it depends on how far along it is, and the traction and the founders experience and things like that. But, you know, a pre seed round, which is usually a million to $2 million dollars, or 750 to 200. Certification, $2 million, is somewhere between a four to $10 million post money valuation, so you're giving up anywhere, you know, somewhere between 10 to, you know, 20, somewhere between 10 to 20%, of your company, in a pre seed round, seed round is three to $5 million in New York for a company that is really are anywhere between a, you know, 12 and $25 million post money valuation. And so, you know, that is somewhere between 20, you know, around, you know, between 15, and 25%. Those are the consistent general amounts that people will give up when they raise the first round of capital.

Andrew Stotz 23:13
And when they're, as they're raising capital throughout that process, what should they expect them to be diluted down to? Obviously, they have 100% of the business when they have no capital and all that. But they're raising money, where do they end up after a few of these rounds?

Brett Martin 23:30
Yeah, you know, this is where capital efficiency comes into play, right? Like, if you can, you should bootstrap a company and not take any money from venture capitalists, like myself, you know, God bless you. And you know, there's nothing that VCs love more than companies that don't need their money. So, you know, but I think I can't remember, there's some stats, you know, by the time you get to an IPO, a founder, you know, if they have five to 10% of the company, there'll be there'll be, you know, that's, they're lucky. I think that, you know, we plan on, you know, somewhere between 40 to, you know, 50% dilution from the time we invest the time we accept, so, founder, you know, a little more on top of that,

Andrew Stotz 24:17
okay. I'm just reminded of one of my episodes, Episode 192, with the guy interview was a guy named some pot and he had a really interesting business, but the key thing there is that his VC money fell apart. And he realized the title of it, I said, you know, what, what we went through was the idea that basically, cash flow is your ultimate source of value, you know, and if everything else flows, you know, falls apart, getting cash from your customers, and then I heard someone say to me recently, we're customer financed.

Brett Martin 24:57
Revenue. That's great.

Andrew Stotz 24:59
I love that You know, we're customer financed. Beautiful. Oh, one last question I have is about valuations. And you mentioned about the problem about having different people come in at different valuations in different shares that they're getting, how important is that as, as a, as a founder is going through that process? That, you know, is there an alignment that they should be thinking about a related to that? Or how do they think about the valuation and the shares that they're giving up? In the different rounds?

Brett Martin 25:29
Yeah, you know, that's what I think we can go back to the story I told, right, which was, I was not valuation sensitive. There's a lot more than valuation, right? There's actually, you know, I think a lot of founders get hung up on the headline valuation, oh, is my company worth, you know, $10 million, or $100 million, or a billion dollars? And, and, you know, the headline valuation is not actually the most important, but it's not always the most important term. You know, there's lots of other terms, you know, how you're gonna get paid back? Or, you know, what, what happens in a down round situation? Who has control? How many board seats do you give up? There's lots of other terms, that you might be willing to take a lower headline valuation. But, you know, in return for getting some other terms. So my encouragement, you know, that's why you really should lean on your legal counsel, who should be giving you good advice about what's the better deal from a holistic perspective.

Andrew Stotz 26:31
Hmm. It's also one of the other questions I have for you is about how much should a founder expect to be supported by their investor? I, because I work with some different private equity, guys, and VC guys, and also with some startup companies, and it's often the case that there's almost very little value added by the investor. And the startup person feels like there should have been more. I'm just curious, what's your experience? And how would you advise a founder who's looking at different investors? And some saying, Yeah, we can do this with you? And we can do that? Or how would they look? How should they look at that?

Brett Martin 27:20
I have a blog post that I've never published called investors, The Good, the Bad, and the ugly. I don't know if it ever will get published. But I have seen that the cheque size is not often not at all correlated with the actual value add. I've had small investors that have, I had large investors that have done nothing. I've had small investors that have done a ton, and I've had everything in between. So it's really a case by case basis, and you really got to feel people out to figure out, you know, do you have the right vibe? I think, you know, is it someone you want to work with? So as an investor, uh, you know, a really important criteria for me is, is this someone I want to work with for the next 10 years, you know, I'm investing in these presea companies, I have to hang out with people for a decade, you know, and if I don't really enjoy, like, really enjoy spending 30 minutes on the phone with them, you know, once a week, right? I know, I'm not gonna give them my money, even if it's a great deal. Like, that's not worth it. That's not worth it. It usually just does not. It's not gonna lead in the right place.

Andrew Stotz 28:32
Yeah. And, you know, I started a business a coffee factory here in Thailand 28 years ago with my best friend Dale, and he runs it in. But when he calls at night, at the end of his day to talk about what's going on, I love it. I just, you know, for 30 years, and we've been friends since we were in high school, and he came to Thailand, and then, you know, say, here's an opportunity, but I just really, really enjoy talking with him and working on the business with him and going through that. So that's a great, great lesson for all of us. Now, let's just go back in time and imagine that you knew all the things that you know now, based on what you learn from this story and what you continue to learn. What's one action that you'd recommend our listeners take to avoid suffering the same fate

Brett Martin 29:29
it's so hackneyed I, I almost don't want to say it. But at the end of the day, I just think it's all about who you work with. You know, it's don't and maybe the more tech tactical advice is, don't be short term thinking about, you know, long term partnerships. Don't take the deal just because it's there just because someone's dangling money in front of you or just because, you know, you're you're pressured to take to work with people that you Not excited about, always hold out for people that you are love and respect. At the end of the day, you know, a good business partnership is the same as a relationship is you have to like the person, you have to respect the person, and you have to trust the person. And so if nothing else matters relative to those three points, and those three things are absolutely necessary. So, yeah, that's the short answer of it, you know, my co founder Kuhmo. Space Yang. Now, I've worked with him now on three companies. And, you know, I'd same thing i There's no, there's I, you know, he's a bastard sometimes, but I love him to death. And there's no one else I'd rather work with.

Andrew Stotz 30:47
Yeah, my other business, I have a tie business partner whom he and I have worked shoulder to shoulder in the same office in the same operation when we worked in investment banks. And then we started up our company together. And I said it at one point when our business wasn't doing that, well. He said, what's our plan B. And I said, there is no plan B, I, I want to work the rest of my life with you doing what we like to do. And you know, and doing it together. And that was when we really doubled down and said, How do we really build this business? So I just, I love the focus on that. And I think that's the key, the money stuff, and all that all those things can work out. But man, when it's not working between the chemistry and the cooperation, there's nothing there. It's gone. So what's a resource that you'd recommend stuff that you've done your your sites, anything like that, feel free to share with us that you know, can help?

Brett Martin 31:48
Well, you know, one thing maybe if, if you'll permit me a little a, Billy to pitch something we built. So we built a thing called a stats for startups. If you check this out, and it's, that's for startups.com, yep. And we basically went through the 1000s of pitch decks that we've seen in charge ventures since we started eight years ago. And we pulled out all the metrics, and we kind of built a periodic table of that. So whether that's annual contract value, or accounts payable or ARPA average revenue per account, right, basically all the sort of, you know, type of stats or match effects that you might see to value in startup, we put it all in one place. So that's one place that you as an entrepreneur, if you're trying to understand how to describe your SAS business. And you know, your investor asks you for a cohort analysis of your users, you understand what that you can look at, go to SAS for service.com, look it up. And, you know,

Andrew Stotz 32:56
understand, are you are you charging for this,

Brett Martin 33:00
as offer free this kind of stuff, then we put together for the community.

Andrew Stotz 33:05
So, ladies, gentlemen, I'm at the site right now, stats for startups, I'm looking at annual contract value, it explains like what it is and information about it, and all the other items there. So this is a great, great stuff. So I think that's one of the best resources I've seen recommended on the show in a long time. So thank

Brett Martin 33:26
you, thank you, I give a shout out to my partners, Donna's and Thomas, they put a lot of good work into this net.

Andrew Stotz 33:34
It's fantastic. All right. Last question. Besides surfing, what's your number one goal for the next 12 months?

Brett Martin 33:47
It's great. I think that I would like there's a long term partnership that I would like to lock down as well. That's a I have some good, you know, partner deal I'm working on and I feel like if I could lock it down, it's a particularly long term one one that I hope to have for the rest of my life. And so if I can get that done that'd be great.

Andrew Stotz 34:13
Sounds exciting. Well, listeners, there you have it another story of laws to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. And this discussion hopefully reduces risk in those listeners who are in the startup space. If you've not yet joined that mission, just go to my worst investment ever.com And join the free weekly become a better investor newsletter to reduce risk in your life. As we conclude, Brett, I want to thank you again for joining our mission. 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?

Brett Martin 34:58
Be beep Bold and be curious, have fun.

Andrew Stotz 35:03
And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast host Andrew Stotz saying I'll see you on the upside.