Welcome to FinTech TV.
I'm Remy Blair.
Angel investing once defined by individuals making early bets on startups have evolved significantly over the past decade.
Now venture capital firms have moved into earlier stages with larger funding rounds and access to company building services, making it harder for some angels to compete.
Well Jeff Barnes, a former nuclear operator and business growth expert has over two decades of experience connecting entrepreneurs with investors.
He helps business owners understand the psychology of investors and also navigate today's capital landscape.
Joining me here at the New York Stock Exchange is Jeff Barnes, CEO of Angel Investors Network.
Jeff, great.
Thank you so much for joining me.
Thank you so much for having me, Remy.
I really appreciate it.
Well, you're here at the New York Stock Exchange and you have decades of experience when it comes to connecting companies and also VCs and angel investors.
So tell us how things have changed and where we are right now.
Well, things have changed significantly since the start of our company in 1997.
And you know, obviously we have the Jobs Act coming out in 2012, the 506C regulations have changed everything when it comes to general solicitation, reggae plus, Reg CF.
I mean, literally the landscape of angel investing and investing in private placements right now is completely different than it was 1015, 20 years ago.
And so we've seen a number of, I'd say tectonic shifts when it comes to the world of startup investing, angel investing, private placements, and you're just seeing so many more companies coming out and doing. because the barriers have been lowered, but of course that makes it a lot harder because more entrants are getting into the marketplace, both on the investor side and the capital raiser or the issuer side.
Yeah, and Jeff, when we think about what's happening with these publicly traded companies and even IPOs, we know that it started with an idea and that's how it grew into a business.
But when it comes to opportunities and sectors, give us an understanding of where you're seeing opportunities and why.
Oh, absolutely.
So.
You know, we like the idea of the picks and shovels approach, right?
There's always going to be that bleeding edge innovator that has this harebrained crazy idea that no one believes in at first, right?
And it takes them a very long time to get to market.
Sometimes it happens what seems like overnight, but the idea percolated for a very long time before it finally made its appearance on the grand stage, right?
However, along the way you think about AI, you think about FinTech TV and what we're doing.
Here and what Fintech has evolved into like FinTech wasn't even a word 20 years ago, and here we are, we're talking about this financial technology that's changing the landscape of how business is done worldwide.
Well, FinTech relies on all sorts of infrastructure that also didn't exist or didn't exist in the way it has today.
So data centers and of course the data centers need power and energy, so the energy sector is shifting. housing and where people live, that's shifting as well.
So we think of this thing, you know, I have to steal this from our founder Greg Grier.
You know it's not trickle down economics, it's torrential downpour economics, right?
When an idea gets planted in the ground and blossoms into not just a tree but a forest, you think about how many jobs that impacts, how many industries that impacts, how many people's lives have been impacted.
Think about what Bezos did in With Amazon in the 90s versus where it is today, how many millions of jobs, how many millions of companies have been spawned off or hundreds of thousands of companies have been spawned off as a result of what Amazon has done.
And so that's what we think about when we think about investing in these early stage companies before they hit the grand stage here like Klarna did, raising $1.3 billion in a very few, few days, a few short hours really.
Yeah, and you just mentioned Clarita, which is going public at the New York Stock Exchange, and even the acronym, right, BNPL Buy Now Pay later that didn't exist a decade ago.
So there are a lot of ideas, seeds of ideas, but of course risk management.
So tell us how you manage that.
It's a great question.
And what I like to tell people is that You know, everybody thinks they have a great deal the first time they hear it.
They hear an opportunity, and let's face it, entrepreneurs, issuers, as we call them, are great at pitching their idea, you know, especially after they've done it 1000 times.
It sounds like the most amazing thing.
So if you haven't heard about a lot of deals, you think the first one you hear about is amazing.
And so one of the things that we really focus on is deal flow.
You have to see a lot of deals.
I mean, think about all the companies that've come through the New York Stock Exchange.
All the companies that have gotten listed over the years.
How many millions didn't make it right versus the ones that did.
And the only way that you know a good deal from a bad deal is you look at a lot of them and then you have to watch them over a period of time and you have to vet them out.
You have to really understand what due diligence is, and due diligence comes in a lot of different forms, and we help our members and our clients really understand what due diligence is.
When you think about venture capitalists and investment banks, they have teams of people that do due diligence.
So any one individual or investor who thinks that they can handle all of this on their own is really kidding themselves, right?
I don't. how smart you are or how much experience you have, it's really hard to unearth all of the skeletons in the closet when it comes to an early stage company because there's just not public data available about them, right?
And along those lines we also use our Rolodex, right, so a vast network we talked about the big teams of the VCs.
Well, guess what?
At the highest level, people always collaborate and cooperate.
And they're saying, Well, can you help me out analyzing this deal?
Can you help me out?
Like if we did this deal, is there a way that we can plug it into your network to help it grow, things like that.
We talked about the road shows with the investment bankers and whatnot and getting a company ready for going public.
That's their Rolodex.
They know who to call.
And so having that all dialed in properly and then the structure, how do you structure a deal so that you are protected?
As an early stage investor, you have the least protections generally available to you because the risks are enormous.
They're exponential.
In fact, you could lose everything and then some if you do it if you do the deal wrong.
We call that the DVRS method, so deal flow, vetting, Rolodex, and structure, and then we don't want to use just our money.
So we always tell people you should never take on a round or a deal all by yourself.
You should always syndicate it with other people.
And so using other people's money along with yours is the best way to go about it because it lowers your risk, and I think risk is something that's important whether we're talking about early stage or pre-IPO companies and that due diligence part is so key.
But as an entrepreneur, I'm sure you've seen so many businesses, both successes as well as failures, and when we think about the American dream, right, entrepreneurship, that's the ultimate goal for many Americans out there.
But what are some common myths?
That you'd like to dispel.
Well, one of the common myths that you're going to hit it big on your first try.
They did studies years and years ago.
They found out the most successful people on average failed 11 times before they became successful, right?
So and I was that guy, right?
I've failed many, many times throughout my life, and you learn a lot more in failure than you do in success because sometimes success, you don't see all the things you did right, but in failure you see all the things you did wrong, right?
And so that's really one myth that we need to dispel is that you're not going to hit a home run necessarily the first time out of the gate.
And even these amazing entrepreneurs that we think did it right the first time, if you look deep enough into their history, they failed enough times to understand what they needed to do, right?
Um, another thing that you really need to look at when you talk about risk and mitigating risks and understanding what to look for is what are the unknown unknowns and of course by the nature of that saying you can't really know what those are, but that's how you by networking with the right people and building out your Rolodex, you can ask other people their opinions and one of the things I would say most entrepreneurs are terrible at is listening to other people's opinions.
They really want to believe that theirs is the best idea and it's a certain amount of hubris that comes with that.
And so whenever we're talking about investing, we talk about investing in the jockey, not just the horse, right?
The technology might be great, it might look amazing, but is the entrepreneur coachable?
Are they willing to grow?
Are they willing to learn?
Are they willing to take the advice of other people?
And for all those entrepreneurs out there, what I tell them is you have to be. because you know there's there's plenty of people that have cut their teeth on deals similar to theirs, even if it's a completely new industry or blue ocean strategy.
They know that there's other things to look out for besides just how smart you are at the technology.
For example, if an entrepreneur is a brilliant genius person when it comes to their technology, but they can't get a team to help them out to save their life, they're not going to go anywhere.
Right, I don't, I mean, everybody knows Steve Jobs is not exactly the nicest guy, but he still inspired a team to work for him and work with him to build an amazing company.
So it's some of those things we look for, and entrepreneurs need to understand that they need to sometimes check their egos at the door, even if they don't agree with anything the investors saying or anything the venture capitalist is saying or anything that you know their coaches are saying.
They may not agree with it, but they need to be willing to at least listen.
Yeah, and Jeff, I'm glad you brought that up because Steve Jobs also popped into my mind when you mentioned that.
And there's a reason why we need those visionaries, right?
They have a place in the ecosystem when we're talking about startups, so that's something to keep in mind.
But finally, before I let you go, you said that this environment is becoming challenging.
So for those entrepreneurs out there who are watching, what would you say to them?
Well, for the entrepreneurs, what I have to say is that if you are just focused on the end result, the success, the showing up and ringing the bell on the New York Stock Exchange, if that's the only thing you're focused on, then you are completely missing the point because the journey of building a business is where you gain the skills, the expertise, the experience to really I fulfill those dreams because we realize that a lot of companies don't end up where they started as far as ideas and visions, right?
The vision changes, they pivot along the way, right?
The target market might change completely.
The technology might change completely.
And so what you end up with when you're planting the apple seed, you end up with an orange orchard, right?
And they need to realize that the journey, as painful as it is, right, people don't want to take your call.
They don't want to listen to you.
They think you're crazy.
You can't get a sale to save your life.
You can't get an investor.
Your your attorneys are charging you more than you can possibly afford, right?
That's part of the journey, and it's all learning experiences.
So sit down and reflect on the journey and analyze what's actually happened, what's been going on so that you can take the next step with a little bit more wisdom, a little bit more experience, and don't continue to repeat the mistakes, the same mistakes over and over again.
Well Jeff, I think there's a reason why there are so many sports analogies when it comes to investing in entrepreneurship.
So thank you so much for your time.
Great talking to you today.
Thank you, Remy.
I appreciate it.
Thank you.
