How We're Raising Money for SingleBrain (The Clean Story for VCs)

And can I speak freely? Yeah. And I won't talk about numbers, but here's a problem with that narrative. So going back to your business, you grow organically.

You've been releasing new divisions, new products, single brain. The list goes on and on in a good way. I don't mean in a negative way. You've been seeing growth from it.

You're profitable on a monthly basis. Mm-hmm. You used to put some of your balance sheet in crypto. I don't think you have much debt unless it's government debt like SBA or anything like that.

So it's pretty flexible. Which SBA is some of the best debt you can take. The best. The best. Although I think they limit you to like 5 million or 7 million or something like that for a tech business.

Yeah. And the payment terms are actually very favorable compared to most banks or traditional debt. You just can get much more dollar amount from a bank if it's not SBA. So where are you putting your excess cash flow right now if it's not crypto?

Well, I'm trying to hire more talent. So you're just reinvesting by just growing the business organic. But like, because it's been all organic, right? I'm just like, now I'm like, well, first the Fable 5 was like, well, you need to go recruit these people first.

Go get these people, right? And then I was thinking about it. I was like, wait, they're all on deck. They're all ready. They're all bottom with the vision.

And then the thing is, now that we've done a few of these single brain pilots, they all want more and more. And then when we showed the single grain clients, they're like,

We showed one on that. Initially, I went into the call just to listen to what they were saying because they're like one of the larger clients. And it was like 20 minutes of just saying like, yeah, you guys are missing the mark here, da, da, da. You could be better over here.

Unhappy, right? And then rightfully so. And then the last 10 minutes, I'm like, hey, how about we give this to you guys? Showed him that. He's like, showed him single brain.

He's like, I'm speechless. And then he's like, we need this for everything, right? I'm like, great. Yeah. So now I'm like, okay, well, if the momentum is this way, then I'm like, I need it.

I should go raise something right now. For single brain and split it out. Both of them. Like single brain falls on their single brain anyway. So then you'll go out and you'll try to raise money.

Exactly. Yeah. Because there's a big firm in New York that everybody has heard of. They've backed like OpenAI, Anthropic, Shopify, Databricks. And they wanted to meet last year.

I said, hold on. this year i'm like oh we got something so i think i'm because if i own 100 right now and i'm raised we raise on like everything combined together um i don't need to dilute myself too much so yeah and would you take a lot of money what's a lot of money like or how much do you want to take a range 15 to 25

So 15 to 25 million to just scale faster. Decent amount. Yeah. I think it's worth it. I think you should spin off single brain into a separate company.

I know it can be separate. And the raise, I think you will actually raise quicker and you would lose less. Give the reason. I have a sense for what your reasoning is.

I don't want to guess it yet, but you give the reason. You give the reason because I think I know what you're talking about. Go ahead. Okay. So. Half your company, forget the revenue split.

If you just look at it, and I'm pretty sure the agency actually does more revenue because it's been around longer. So majority of your revenue is an old school model that has a terrible valuation.

The new company, Single Brain, has a lot of potential. It doesn't have the revenue profile of your older company, but it's much more sexy. You can raise money based off of vision without existing economics.

If you include your existing company, it muddies the water because some people pay you for the old business. Some people pay you for the new business. Investors like deals with no hair that are clean, that are simple. And I actually believe it would be easier for you to raise money just for single brain.

So second. Yeah. If I think Eric is a good operator and entrepreneur, but would you agree sometimes things go bad that you can't control for all entrepreneurs? Elon Musk had a lot of rocket failures before he had some success, right?

We all take risks. I don't care if you're Elon Musk or Mark Zuckerberg or Bill Gates, everyone's had failures. No one has 100% batting average. If you do, you're not really taking enough swings.

If you keep them separate, you also will have an agency. You can hire someone to grow it and you'll still have a business that is owned by you that grows that doesn't have a lot of money being raised against it. Because if something goes wrong for the investors to get back their $25 million, let's use that number. Mm-hmm.

they would take everything and you would get nothing for 10 years plus worth of work. And I look at it as, and I know you're willing to take that risk. If you had the agency separate, I don't think single brain needs 15 to 20. I think you can get $10 million on a round.

with great terms, maybe you'll lose 20%. You can even do it on a safe. You go push really hard on it. And then six months to a year later, you go and do a bigger round at 30, $40 million on single brain.

And you spend your time focusing on that. So we should unpack a couple things for the audience here. So the first part, there's two parts that Neil had here. The first part is exactly what I thought he would say.

It's the story. When you have a story that the investors can get around when something's hot, they love things that are hot, right? They're going to pile into that. Now, the second part, I didn't know your angle on that.

And I think it's actually a very smart angle. But here's the thing. The challenge with this. So the firm, the one that reached out to us a year ago, they're all in on the services as software narrative.

Because you saw Sequoia talk about it. You saw Andreessen Horowitz talk about it. You saw Y Combinator talk about it, right? So they're all in on agencies doing this.

So I would need to gauge him, this guy, to see... how he really feels like together or separate right to your point it's cleaner if it's separate and i would prefer it to be separate because then it's like i still have 100 of this thing over here that's cash flowing it's a lot easier um uh do you want me to introduce you to vcs i'll take i want them to all bid against you though yeah i i can introduce you to some but keep in mind west coast vcs are a little different than uh than east coast vcs so west coast vcs they tend to they're like lemmings they follow each other right and then um the east the east coast ones are they just go or they don't go so i can i i know more i know investors in all places of the world but if you want some intros i can make some intros i'll take them i already have a couple lined up i'll take even more

I was going to ask you anyway. Yeah, just remind me tomorrow. I'll do some text intros. But just go with the narrative of single brain. And just say, hey, this is where I want to spend my time.

People will love that narrative. It's an easy, clean pitch. And maybe they don't give you $10 million. Maybe they give you $7 million or whatever. But if you just take that chunk of money to get started, you can grow extremely fast because you don't have to be profitable.

People love the narrative and just go push hard. You know what the other thing is? I saw yesterday, kind of a single brain adjacent competitor, $136 million round, right? And then I saw Chamath for his services business, $132 million.

I was like, what is going on? Chamath was able to raise a lot of money, I believe, because of his brand and relationships. And that was not Sequoia. That was a Salesforce-led round.

Yep. Mark Benioff. And then Mark Benioff. Yeah, which is David Sachs. Yeah. And Benioff posted something on X with him and Chamath. I forgot where they were in Europe, but it was something.

Oh, they're like partying or something? No, not partying. It was just more like, hey, with one of the besties or something like that. You know, Benioff wrote him a check.

For Benioff, that is not a big check. Yeah. I'm curious. I mean, those of you listening right now, do you like this format more where we're kind of just like shooting the shooting the poo poo or because I enjoy this because it's a real conversation.

So, yeah. Yeah. I can definitely I have some solid introductions for you for people to take time. One of you met. Remember we went to a dinner at Avra with one of the buddies that are an LP in their fund?

Yeah, we're we. He's chill. Yeah. He's his deals in Europe. He'll fly to him and all that kind of stuff. He has like some amazing LPs in his fund. But are you an LP?

Yeah. Uh-huh. Okay. Well, I don't want to make you money. Why not? I was just kidding. Well, I don't know what fund he would invest in. Some of the funds I'm not an LP in, and so I probably wouldn't make money in the deal you're doing, but I'm an LP in some of his older funds.

Yeah. It's okay. You're welcome to invest as well, Neil. But I think that would be a really good fit. There's a lot of people that can do like $7 to $10 million rounds and just be like, go, because it's a huge idea and I think people love it.

It's not a, I think it's great. So I think Neil's number two is actually a great idea. My only issue is with the ones that reached out, you know, especially that company that this one's well known. Again, if they want services, software as a narrative, my sense is most VCs aren't going to want that.

And it's going to be cleaner. But some of these people that are in on that narrative, it's going to be different. Here's a problem. And can I speak freely?

Yeah. Here's, I don't want to talk about numbers, but here's a problem with that narrative. They're going to look at, hey, single brain, oh, you're doing this narrative. Cool.

You already have enough cash flow. I want to see your growth rate from implementing this. You're talking about when they're combined, right? When they're combined, because the problem is they're already combined.

I don't think the growth is going to be appealing enough for them to write a $15 to $25 million check because you have too much legacy revenue. And it's not like you can switch it all over the next day and make it all this new AI-enabled service type revenue. Yeah. So I believe if you just created the new co that just did this, you've already been building a good brand.

I think it's a much easier sell. I don't like, by the way, this episode was great. You know why? Because you learn about how, so Neil has this ship right now, right?

And he's like, okay, well, what do I do with the cashflow? Well, okay, what's going to grow the fastest? Okay, probably maybe SpaceX stock is going to grow faster, right?

For me, it's like, well, what's going to grow faster? Well, I have this new thing right now that has the wind behind it, right? And then it's about how do you structure this stuff at the end of the day? so yes and eric and i although we're similar ages we're in different stages of life and there's no right or wrong stage um i have kids they're growing they're they're growing up um i also have been an entrepreneur a lot longer than eric years longer so i'm just in a different stage in life like eric created single brain i think it's a cool idea i don't have it in me to do another one like

You didn't even have it in you to work when you were 25. You're like, I don't want to do the work. Well, no, when I was 25, I was working a lot of hours and I was still getting my hands dirty. When I met you, you're like, hey, hey, I don't want to do the work on this one.

Can we find someone else to do the work? That's true. But some of those businesses, like the retirement home community, our online websites, like a place for mom and stuff. Yeah, yeah, yeah.

They weren't passion projects of mine. I was always willing to put in the work when I was younger into my own businesses that I was 100% owner in or 50% owners that I truly loved and I was passionate about. But there was a lot of businesses like, hey, let's go create an insurance lead gen business or...

All right, so I wanted to take a moment to tell you about my podcast co-host, Neil's agency called NP Digital, and they work with a whole host of global companies or a global organization. Also, Neil has SEO tools such as Ubersuggest and Answer to Public. All you have to do is go to npdigital.com to learn more, and we'll see you on the other side. a place for mom competitor for a poker site or a poker site yeah those businesses i never had the passion on those subjects so i never cared to put in a lot of time but i was willing to put in some resources like money specifically nowadays i'm not willing to put in a time into a new business like i just nor do you nor do you need to yeah i i think the passion is also that the passion of compounding your money is more fun

It's easier for me to just take profit that I'm making and dump it into like SpaceX or the stock market than it is to go work. And you nailed it. It's easier for me to make money off my money at this point in my career in life than it is to go start another company. I look at that as just painful.

I look at it as just deploy the money I make every month and... Why grind it out now? Hey, I probably will make less money because of that, but I'm okay with that. If someone sends this clip to your wife where you said, I'm okay, she's going to hold it to you.

No, but she also knows that I enjoy working. So like when I travel and go to conferences and stuff, it's still, it breathes life in me. I can't sit at home and do nothing. But when you look at it, when I speak at conferences and network and new meals and all that kind of stuff,

That's a lot of hours of my week. But to me, that is not working. That's just chilling with people I like and having fun and networking and just shooting the shit. Well, I'll come back to how we spend our time at conferences because I want to call you up for this.

So we... Well, let's just talk about it first. So there's... So Neil's an Indian person. I also had another Indian friend that spoke at one of my conferences, and Neil and him both spoke, okay?

And the other guy was like, I saw him watching every single talk. He was like fully engaged for two days, right? Yeah. And he's like, you know, Eric, I'm just a student of all this, and I love it.

I can't stand people that come in and just do a talk and they leave, right? Yeah. I was just thinking about you because Neo comes in and just leaves. But anyway, that was just... Not leave the conference.

Sorry, not leave the city. Leave the event. Yes, leave the event and then you do other meetings. I'll do other meetings or even then I chilled with other people during lunch.

We were talking about deals and stuff like that. Yeah, yeah, yeah. That I enjoy. I do not have fun in listening to sessions. I'd rather send one of my team members and have them listen to sessions and take notes and then implement whatever they learn.

So speaking of single brain right now, I'll tell you kind of the interesting that we're doing with this. So keep in mind, guys, this is managed revenue agents that we build for clients.

When we start with them, it's a pilot. Okay, so it's like, okay, you pay us, I don't know, 25 grand or something for a pilot. We do it for 45 days, right? And my CTO and I were on the call.

Then what happens afterwards is we start to charge like a monthly fee, like 5, 10, 15, 20 grand or whatever. But after that, Neil, because it's so ambiguous, it's like, oh, Neil, you want us to say, oh, your, your, your anthropic bill is $10 million. Okay. What if we cut that by 90%?

Will you pay us 5%? Okay. We get a performance on that. Right. Or if it becomes, oh, you want more creatives right now? How much are you paying for creators right now?

$500 per creative? Okay, we'll charge you $50 per creative. Oh, how much are you paying for this? So it becomes more outputs and outcomes-based by just saying there's a tier.

It's like pilot, then there's a base fee, and then it's like after that we'll negotiate. And I think a lot of outcome-based pricing is coming for stuff like this. It's just you can't map it out immediately because it's too early. You can't go for the ask immediately.

So you go for the pilot first, then the base, and then you go for outcomes. I totally agree with that. And I think it's a slow roll. It takes time. People have to be patient for many years before this fully gets implemented.

Yeah, totally. And I think that's a boon for me. I think that's a boon for you as well. And I wouldn't be surprised if you buy a bunch of these implementation companies as well.

We're already starting to look for some of them. Yeah, I'm sure. The problem right now is everyone just wants crazy multiples. And I'm like, what are they asking for?

Someone asked for like 25 times profit, 20 times profit. I'm like, no, thank you. And there's a lot of them popping up. And they're all like, this is the new future.

I'm like, cool. They're like, it's so well, we have so much demand. You look at them every month. You're like, okay, so where's your growth rate? Where's the crazy growth that you're telling me you have so much demand?

What is the crazy growth rates that they're giving you right now? Some of them are telling me like they can triple every single year and we're seeing more. Well, they're not. We're seeing closer to like 30 to 40% growth for most of them.

For a year? Per year. That's not triple. Never. I'm like, no one's going to give you 25 times because growth is going to slow down as a ton of competitors enter the market.

There's also going to be more demand, but people are going to be willing to pay a lot less for this than they are willing to right now. I think in the future, or let me rephrase.

People will spend more money on it, but for the same project and the same hours, I believe in the future, people are going to be wanting to pay less for that because there's going to be more optionality. There's going to be more efficient ways to do it. People have learned a lot from it. But in total, in aggregate, I believe companies are going to spend more in total on it.

you know what i think would be better like for for if i'm putting myself in your shoes right it's like how do you hire these super crazy kids right now that are super motivated right and they might join as an intern 20 25 30 an hour within three to six months you know who's a superstar probably within the first month or two and then these people are the ones that are building this this out for you because they're so motivated and maybe you give them a piece of the action right um and i because i don't think this stuff is particularly hard when when clients come to us oh uh

So the token costs are getting out of hand. Okay, yeah, well, that's obvious. You would just buy your own or rent your own infrastructure, put it on GLM 5.2, buy some subscriptions over here. You give them the whole model.

But the kids already know all this stuff, right? Permission, governance, all these things. You have all these six layers over here. So that's probably a better model because one of our mutual friends, all he's doing right now is hiring interns.

nonstop interns and they're running circles around the product team the product team hates them their product leader got fired I think another one of the product leaders quit or whatever so it's like it's the same friend that's laying off a lot of people to increase EBITDA and redo their bank loans yes I like him it was a smart model yeah But speaking of that, when Eric and I mentioned debt and reinvesting your money, keep in mind one of the quickest ways to go bankrupt is taking on too much debt. You need to be conservative if you're ever going to leverage debt. Yeah.

You know, my friend Charlie Munger said this. He sits in my home. And so, you know, my friend Charlie Munger, rest in peace. He says, you know, the three ways that men go broke, ladies, liquor and leverage.

Yes. And it's really the last one that matters. It's leverage. He made up the first two. Ladies, the liquor piece was just for fun. It's the leverage.

So it's not saying don't take on leverage, but there's like too much leverage and there's also bad leverage too with bad terms. Yeah. It's like I meet up entrepreneurs who are trying to grow their business and they have no debt. And they're like, look at us.

We did 7 million in profit. I'm like, cool. What's your debt load? Nothing. And I'm like, I'm not saying go stack your company with 20, $30 million on debt, but I'm like, you have all these ways to grow, right?

Yes. What are they? Do you think they'll produce results? Yeah. When are you going to do them? Oh, we're going to do them in a year or two because, you know, I don't want to take all the cash flow.

It's going to be too risky. Yeah. Have you thought about getting an SBA loan and just taking three, three and a half million dollars? It's paid back over 10 years.

Oh, that's not a bad idea. I'm like, yeah, you can do a lot of that kind of stuff now. One of my friends, Sean, owns a company and he is taking on leverage to get into retail stores. And he's just expanding fast and doing deals with really big box retailers like a Walmart or a Costco and places like that.

I literally believe his Walmart deal is almost done. And it's great. And it's just like, yes, leveraging these kind of scenarios, low leverage is really worth it. That's less than one times profit.

What Neil's also talking about, too, is leverage is an amplifier, right? Just like AI is an amplifier of intelligence. So if you have a good business model, leverage will amplify a good business model, but also amplify a bad business model, too. So by the way, a good business model can become bad.

Remember, I had that loan from a few years ago. That was a lot. Yeah. Remember that one? Yeah. Thank God that worked out. That was a bad one. So it worked out for you.

It worked out. Yeah. That one was... That was like eight. Yeah. Got that down to very low. We'll just leave it at that. So anyway, all that to say is, um, I think when Neil saying this, you know, you just look at your, your, your, you're talking about the, the, the, the loan to value ratio, right?

What do you, what, what are you recommending to the audience here? If you're starting off half a turn, one turn. So a half a turn, if you do 10 million in profit, you take 5 million. One turn would be 10 million as you take 10 million on debt.

And you deploy it wisely. You don't just go and burn it and deploy it all crazy and all fast. And you draw on it. You can usually take it as a line or you can do like an SBA loan.

And when you think about it, if you're doing a million in profit and you took on a half a million in debt from the SBA, paid over 10 years, that's only $50,000 a year. That's very manageable.

Plus interest. The smart thing too, when you're talking about raising debt or VC, this is where you actually use the powerful models like Fable or Sol and you actually workshop it because it will help you unlock whether it makes sense to raise money or not. Because it's like, oh, if you want to grow faster and the only constraint is this, then yes, absolutely, you would raise money. But if you don't have a good system, then yeah, you shouldn't raise money.

Yeah, and me personally, I always operate at less than 1x. I never try to go over 1x. There's nothing wrong with doing 2x, even that. A lot of people say it's conservative.

I just don't want to be holding it in case there's another COVID or anything like that. So I always try to be at less than 1x. Yep. Yep. So that's what we have to say about debt and doing deals.

And I think we have time for one more. We do. You can pick one. Let's go with B2B creators are becoming channel partners. Where is that? B2B creators.

Okay. I see that. That's funny. Creator programs are evolving from awareness plays into pipeline and partner distribution systems. You know what's interesting?

I want to say B2B here, but one of my friends, I was playing poker with him. I was playing poker during the World Series of Poker last weekend. And his business does about $160 million a year.

And he works with Brian Johnson. So not B2B, but he's B2C. And he has grown a good chunk of his revenue off of just working with these D2C creators and just working with them as channel partners. And so I would just say that's one example, but you and I get a lot of outreaches.

And so I have my little Mr. Sue outreach thing, which is working really well, by the way. But I can't, you know what I would say? So anyway, that's it for today. We'll talk to you later.

Goodbye.