 How many of you love the show Shark Tank? Raise your hands, Hoot Holler. All right, we're gonna have words later. How many of you want to rip your hair out every time you see the largely fictional deals, the misinformation, the misguided advice, and especially the inaccurate takeaways on Shark Tank? Hoot Holler, raise your hand. Thank you. Y'all are my people. Today, we're inviting you, in light of that, to do a little escapism, to travel into kind of a parallel world that looks more like many of us wish it just would. We're turning the tables. We're asking our founder, Havel, who you'll meet in a minute here, to take a seat, to relax, to tell us about his company in his own words, and then sit back and let the finance gurus that we've brought around the table pitch him for the opportunity to invest in his brilliant work. Does that sound good? I hear signs of relief. Most importantly, though, I'm trying not to take tangent, so forgive me with these notes. I'm trying to model what it would look like if people on stage and on TV told the truth. Today, the truth of the fact is there are many forms of capital, and so we're going to start with that truth. We have three forms of capital represented today. We could have had more, but the kind folks at Socap, Chris, especially, who has been my partner in crime, can only take so much chaos. And those three are VC, debt, and revenue-based finance. So we could have had more represented up here, but like I said, the idea is really just to send the message that there is lots of forms of capital out there, and we're going to talk about three of them. So very quickly, because they will tell us a little more when they start their pitches, I want to introduce you to the panelists, mostly because let's be clear, Mark Cuban and Barbara Corcoran could never, okay? Please welcome our panelists, and I'll tell you a little bit about them as they come up. Havel Val. Wonderful. Thank you. Ah, thank you. We have an embarrassment of riches here. Representing VC and coming all the way from Nashville, we have Dean Newton at the far end from majority-native-owned relevance ventures. Thank you for coming all the way here. This is also Dean's first Socap, so be nice. Representing all forms of debt and all the way from Palo Alto in this case, not her first Socap, the woman who Janet Yellen looks to for advice and the first Native American to own an investment bank on Wall Street, my president and co-founder at known Valerie Redhorse Mall. And last and absolutely not least, representing revenue-based finance and coming from beautiful British Columbia, specifically Whistler, by way of Mexico and I hear maybe Switzerland. Sweden. Oh, bad mistake. We have the amazing Eric Walson from Deakton Impact Alternative Finance, which many of you might know previously as Adobe Capital. So please welcome our panelists. All right, so before we get started, we really need three things from you. One of them is patience. Imagine you're in the audience of a new show that's just figuring it out and things are going to be a little crazy, but it's all going to get fixed in the editing room. So please roll with it, as the folks at Socap have kindly decided to do. Second, we want you to help Haval out. He's going to be pitched three different forms of capital and he's going to ask them questions. If you feel like he missed something, there's something he should have asked. If you just selfishly wish that you could know some piece of information from the gurus we have here, write those down and be sure that they get asked. There'll be somebody going around either taking the piece of paper with your question or also with a mic, so there'll be two ways for you to ask questions. There'll be a moment here for you to do that after the pitches are done and the goal here is to walk out a little bit smarter than we came in. So please don't be shy, get your questions ready. And then third, third, pretend. Come join us on this ride because of course we know that there is such thing as blended capital. We also know that at any given time during the course of an entrepreneur's founder journey they're going to need possibly all these forms of capital, maybe at the same time, maybe at different times in their story. And we know that when we're actually talking about which sort of capital is best and who's the winner, the truth is all three of them might be right and many other forms of capital that we could have had here on stage. So play with us in the interest of the joy of competition. We have asked our panelists to pick a team and to defend it to the death. And then we've asked our panelists also to stick with that throughout the course of the conversation and we're asking you to do the same. And we're asking Havel to do the same and pick a team and at the end decide who's going to be the winner here. So you will have an opportunity at the end to do an audience choice. So as you're asking questions and formulating your opinions remember we're going to ask you to pick a winner too. And we're going to try not to bias you and Havel will give us his answer after people's choice has been shared. Does this all sound good? Those are three asks. We want patience, we want you to pretend with us and we want you to help Havel out. Does that sound good? All right. Havel, it seems like we have a deck that you'll actually be able to run us through if there we go. But first I want to start. Tell us what is NMC Concierge and in a world of people that are distracted with things like unicorns why have you decided to focus on small businesses? Thanks Natalie. I'm really excited to be here. I've spent way too much time on the other side pitching investors. On behalf of all the entrepreneurs I'll try to be aggressive with these folks and really get them to convince me and convince you why we should take their money. So New Majority Capital is a pending B Corporation and we are focused on helping close the racial and gender wealth gap. We believe in helping entrepreneurs of color and women become business owners by acquiring existing cash flow businesses taking advantage of the Silver Tsunami. We don't believe in unicorn hunting. I think that has a very low success rate. Instead we help our entrepreneurs get into a position where they can benefit from the cash flows of an existing business typically doing half a million to two million so they end up maybe in the three to five million wealth generation range in a five to seven year period. Thank you. I was going to say how exactly do you support them? We have three pillars. One is we have a 501C3 foundation that runs accelerator programs that help people of color and women understand the process of how to acquire a business what to look for in the business due diligence. We also help them with access to capital. That is a second pillar which is we have a dedicated impact private equity fund that helps them acquire these businesses using a non-extractive model. And the third pillar which I'm here to present is NMC Concierge Services. So NMC Concierge Services essentially will provide back office support services to all these portfolio companies. And the why? Now remember they're buying existing businesses from retiring owners and they're taking advantage of the silver tsunami. So a lot of these baby boomer owners haven't really invested in their businesses like you would expect them to. They may not have a website, they may not have a CRM system, they're accounting maybe all over their place, accounting is probably done by their niece or nephew or wife or whoever, right? They would all sorts of additional expenses to minimize taxes, they probably don't have an HR policy and don't use technology, right? I still work with so many small businesses where I go to manually write a check and put it into the mail. So we identified this need to service our existing portfolio companies with sort of best in class concierge services. And so these concierge services are going to be four existing businesses that we, along with four entrepreneurs that we've identified will acquire and then these businesses will provide these services, right? So these businesses already have cash flow. You know, we're sort of using the same model that we're helping others use. So they already have existing cash flow, they already have operations, they have people who know those particular verticals. What sort of businesses? Are we talking barbershops, pizza parlors? What are we talking about? Yeah, we're talking about, again, half a million to two million EBITDAs so they probably have five to 10 employees. They range from landscaping companies, HVAC companies, healthcare service providers, small niche manufacturing companies. About 10 million businesses are going to be coming up for sale over the next 10 years so there's a whole good variety of them to choose from. And then is it the right time to ask you how you make money? Sure, let's get there. So before we get there, just quickly, just to lay the stage, so these are the four vertical support companies that we'll have, right? And they'll be run by four CEOs that we've already identified. Can everybody see from that far? Because I think we've got too small of a screen here. It's accounting, bookkeeping is the first one, then marketing, information technology, and then human resources, the four. Okay. This is some more details on that. We can skip this. But here's the money slide, right? So we're going to use the existing cash flows of the business to finance the acquisition of this business. So for example, let's say it's a 2.5 million dollar company and half a million in net income. Typically these companies go for a 3x valuation, so if we need to buy that company, it's going to cost us 1.5 million. Now we've already lined up SBA 7A loan debt for 80% of the financing. We already have the bank ready to go. What we need is that $300,000 to acquire this one company. The 20% down payment? Yeah, the 20% down payment. And that's what I'm here to pitch these investors for. You're not pitching. I'm not pitching. That's a good reminder. Thank you. I'm always in pitch mode. Yeah, that's what we're sort of here to see whether these folks want to give us the money and at what terms. And if I don't like any of the terms, we'll just walk away. How quick that attitude switched. Yeah. And just for their benefit, I ran the numbers because I like numbers. So we looked at debt, RBF, venture. What is the risk return that they typically would expect? Just to give you a sense for how we're going to pay them back. If you start with half a million cash flow, we pay off the debt. In year one, there's $224,000 and so on. There's enough cash to sort of service them regardless of what instrument they use. And there's enough of downside protection for them to get their desired return target. And the three panelists have received this. So if everybody here can't see these numbers, just trust that this is context that was provided in terms of what it looks like over time. Yeah. Yeah. So that's the ask 300 per company, 1.2 in total. And to give you a sense, this is our team at New Majority Capital. So it's a mix of private equity, hedge fund, small business owners, and investment bankers. Anything else that we haven't touched on in terms of things that you want us, everybody here to know about the company and what the sort of vision was when you started it? Yeah. I mean, the broad vision is to help close the racial and gender well gap. And entrepreneurship through acquisition, which is what we're talking about here, has been kept away from people of color and women. They still do it at Harvard and Stanford, but there's not a lot of people talking about this opportunity. So yeah, that's a path we chose because it's much less risk and it's much well-defined upside as well. All right. Everybody satisfied? You have an idea of what NMC concierge services is? Raise your hands if you feel like you understand the business high level. Yes? Good. That's what we want. We're going to now move into the pitches. The way that this will work is that each of our panelists will have a moment to tell us specifically Havel and the rest of us listening in why their form of capital is the one that Havel should choose. And then they're going to pause and Havel will have an opportunity to ask questions. We will do that first with Val, then we'll go into revenue-based finance and then finally we'll end with VC. When the three of them are done, we're going to open it up for questions for you. Again, if there was something that you wish Havel had asked, if there was something selfishly that you want to know, we will give you the mic or we will read off your written questions. Please be sure that as we go through this, you are jotting down your questions and we will cover as many of them as we can. And Val drew the short straw or actually I think it was Balin told to go first. So do you want to kick us off, Val? Well, thank you so much. And Havel, I will need a chaiapractor if I look at you. So I'm going to look this way, but I am talking to you. Hi, I'm delighted to be here. I, as she mentioned, my name is Val. I am president and one of the co-founders of Known and I have spent prior to that about 40 years. That's how old I am in the debt markets, working mostly with tribal nations. I am Cherokee Indian. And I am going to try to convince you that debt is the absolute best instrument. Now, if we weren't on a panel at Socap, what I would tell you about Known is we believe an integrated capital is probably your best solution. So a little bit of this and a little bit of that to maximize the founder's ability to operate. But in this particular situation, you can only vote for one. So I'm going to go all in on debt and I'm going to tell you why. I think debt is your best option. So with debt, I would say the number one consideration is you have no equity dilution. And at Known, you will notice the word own. OWN is part of our name. And we believe, especially in founders of color, that ownership is so important. You don't want to give up equity. A lot of negative things can happen when you give up equity and then if things don't go the way you anticipate. So no dilution of equity. One of the other things that is great about debt in most cases, especially in this case where you're looking at subordinated debt, which means it's in a lower position of priority to your senior debt. There's a lot of room for negotiation. And so what I did for most of my career on behalf of tribal clients was to come in and say, let's talk about flexible terms that work out best for both the lender and the borrower. So in this case, if you could pull up slide 10, I think this makes my case almost more than I can make. But slide 10 says repayment of funding and Havel has already kind of penciled it out. And what we can see here is my cost of capital is the lowest cost of capital. Not only do you not dilute your equity, but your repayment, your interest, or your return that you're paying to either the venture capitalist, the RBF provider, or the debt provider is going, my cost will be by far the lowest. Now what happens in this situation is he has penciled out a five year term and what I would say, if I were negotiating for him with a debt provider, I would say let's push that out a little bit so you have more manageable payments because you want an amortized note, which means just like if you're paying your car payment or your house payment, you're going to pay some interest and some principal. But if we push the term out beyond five years, your payments are going to be much lower, but then we'll negotiate no prepayment penalty so you can actually pay it off at any time. And then the other thing that a lot of people don't think about with debt, you can actually do what we call interest rate arbitrage. So basically if you're borrowing money and you've penciled out 8%, you could create what we call a sinking fund with excess cash flow and put it away to make sure you have money to pay it off when you need to. But right now in today's market, you could actually get a 5% interest rate, so your cost of capital ends up being about 3%. Now that gets into some interesting stuff, but if you have a financial advisor to walk you through it, that would be your absolutely best option to get the lowest cost of capital. The other thing I would say is a really important consideration with venture and equity is often you're getting that money from what we call a closed end fund. So they raise a fund and then they deploy their capital and if you need more money, if you have some great opportunity or you hit a situation where you need more money, you can always come back to the lender. We would typically have an unlimited amount of money to lend because it's cycled money. We have a lot of assets available to lend because you're constantly being repaid and it's just a constant flow of capital. Whereas your private equity money is probably going to be done and unless they have set aside follow-on money for you, you're going to be out of luck. And I would also say that in the debt markets you can negotiate fixed or variable rates depending on what kind of interest rate climate you're in. So basically your options are so much greater and your cost of capital is so much lower. And I don't think we were able to get to slide 10 but basically it showed that my cost of capital over time was about 7% and the others were 15% and 38%. So the fact that you don't dilute your equity and it's the lowest cost of capital, to me it's a no-brainer that you should go with my option. Thank you. All right. I thought Val was going to be the softball one but it turns out she took the gloves off. So I appreciate this. How do we feel about moving on to revenue? Oh, excuse me. How do we feel about questions? Hey, Paul. Yeah. Well, thanks Val really. That was generous of you, I guess. I like the fact that you were able to extend the term and give me some more flexibility but the problem with debt is I've got this fixed debt service that I need to make to you or to your organization every year. Can you speak more about some flexibility there? Can you speak about debt forgiveness type options as well? You're a CDFI after all, I believe, or we're assuming. Our target market are the portfolio companies but eventually we'll offer these back office services to all BIPOC and women-owned small businesses so there's definitely a good impact there. Yeah. We should give a little context. Val is graciously stepped in for Luz Urrutia who I want to be sure that I name here. Luz is the CEO of the largest CDFI in the country, Action Opportunity Fund, an amazing organization if you don't already know about them. And Luz caught herself a case of COVID about two days ago and so wasn't able to come in. Val, who is not from a CDFI but who is stepping in for the role Luz was going to play is coming in to play the debt role but maybe you could speak to both. I can speak to both. I mean I do not head up the largest CDFI in the country like Luz does and she's amazing so tough shoes to fill but everything I just said applies. I was really talking about what I would call the capital markets and at known we focus more on middle markets and not so much small business loans but in the world of CDFIs and even SBA financing anything that is government supported you usually have the option to talk about everything you mentioned even debt forgiveness and then I would say we haven't even talked about PRIs which would be from nonprofits and those absolutely can talk about debt forgiveness so it's still the best option in terms of flexibility and then you mentioned at the beginning the fixed payment I mean this will always be a situation when you have what I would call regular debt you have an amortization schedule which is interest and principal just like our car payments or house payments but what I mentioned at the beginning is if you extend the term you're going to have much more manageable payments and what we do together is look at your business plan you're buying a company with existing cash flow we're going to make sure just like when you buy a house we're not going to overextend you we're going to make sure you can make that payment and if you look at the slide that got lost somewhere our payments are fixed but towards the end of the term they're much smaller than the requirements from the other two so it still ends up being your best option so we're going to move on to Revenue-Based thank you Val and thank you Hegel Eric would you like to take us away on Revenue-Based Finance? Sure so Navel the good news is we have what you're looking for I kind of feel sorry for Val or Dean we might have just made them lose their time here but I'm here to tell you about the fascinating world of Revenue-Based Financing or RBF for short we've been doing this now since 2010 before it was even called Revenue-Based Financing and so you're looking for flexibility and that's what we provide so the idea here is we'll provide you with a loan $300,000 and then we'll agree on a percentage of revenue which is going to be your payment to us so each month if you sell more you pay us more and if you sell less you pay us less so let's say it would be 3% of revenues so we don't have a fixed amortization schedule like Valerie rather we're in it in the ups and downs with you and so we have a strong incentive to help you grow your business because if we help you grow your business and you have more revenue you pay us more and we are exiting quicker and so the way we structure this is we would lend you $300,000 and you would pay us back two times our money so you would pay us back in total $600,000 but that's over time and so if there's a slowdown in the economy we're in it with you and so you're going to pay us less and your interest rate will decrease but if we can help you be very successful we're going to have higher payments and we're going to have our two times money quicker and so our interest rate eventually will depend on your success and we think that's a great alignment and similar to debt we're non-dilutive so you continue having your full equity ownership and that's why we think it's the best of both worlds it's what you want, it's what you need and that's our pitch to you I love the hushes and whispers and reactions over here I hope those are translating into questions that you're going to ask soon what are your thoughts? That was an okay pitch I think Just kidding I like the flexibility that you mentioned but I'm curious about your thoughts on why take a percentage of revenue versus a percentage of my net income because my net income may be zero in a particular year and I'd love to still pay you some percentage of zero I guess I think it has to do with simplicity we want to keep these loans simple and I think we are both aligned that the more revenue you have the better but we don't want to have to be auditing your expenses we want to make sure that you run your shop however we want and so there could be a case here where you would disagree that you're having some expenses because then you think they're maybe strategic in the long term, for us it's like well then your net income goes down to zero you don't pay us anything so I think we're misaligned there so I think that if we're at the top line we're always aligned, we always want the same thing and we don't want to tell you how to run your business you know much better what you're doing than we do and so if we start having an opinion and you should hire more people or less people you want to get into a bigger office why should we have that opinion and if it weren't that income we would have that opinion because your profitability is what actually triggers our repayment, does that make sense? Yeah, it makes sense but I don't like it Well, another question you mentioned your return expectation would be 2x and you know, I'm not sure what the math would be but how would you compare your cost of capital to Valerie's? So that's a great question and being transparent we're going to be lower than equity and higher than that so we're going to be in the middle there as I said your interest rate will depend on you over time and when we get to our 2x return but we should be in the mid teens Valerie can express she's more single digits and then Dean can dive in but usually equity is looking for more high 20s, 30s so we should be there in the middle and we can give a five to seven year time horizon and we can play with that number so that we come up with something that's comfortable for you I mentioned we had gurus here, yes on the panelist side and also on the founder side good questions, please jot down yours I am definitely going to call on you all if you don't Thank you so much, Eric Dean, are you ready to take us home? I am, so please pass these down never present to a VC and a pitch deck we can't show you ours but we made one and you all should have one if you're ever going to talk to us, little tip I didn't even know I was going to get this is a beautiful surprise so hey well first of all thank you for allowing us to compete for the business I hope we will show you why we're the best partner for you long term you've heard from the technical covenants shark the loan shark in the real sense because of the interest rates and I'm going to show you how we think we're the orca in the room and we can guide you to where you need to be help guide you I should say for those that can't see what it says it's the first page says orcas and vampires I think that makes someone over here a vampire first we approach this from making sure that there's an alignment in general so we look at who you are and what you're trying to accomplish who we are and what we do and then where we think that there's a fit and part of what we really dive into there is analyzing your business model which you showed us we didn't get any information other than the numbers that you showed us so who are we we are people who invest the majority of other people's money so I've got some of my own money that I'll be giving you but it's mostly other people we come with industry expertise in the sector that we're investing in and we're expected to produce above average returns for the folks who invest with us so we have bosses just to be clear we're not shark tank so shark tank is family office just because that's not venture capitalist and we're not some of these other vehicles that you might hear about but we're going to defend them all today anyway we invest what's called smart money so we bring in expertise it's not just the capital that you're getting we're going to be with you through it all and so sort of emphasize that paraphrase we are the home of the pivot the creators of the convertible note the architects of the exit and the only one you will hear from on the stage that will take your text message at 1 a.m. be at your office by 5 a.m. and stay there until your crisis is over we're maligned to sharks by our detractors but we're kindred spirits of the dolphin and the orca if we become your partner we will celebrate you during your wild ride but if the ocean becomes threatening we stare down the predators and we guide you to a safer shore who are you so let's talk about what we see you're not driven by the exit the way we are you're driven more by social impact but in many ways you still want the same outcomes you want great businesses great founders, success and at some point you have to return capital to the people that gave it to you so you're business driven we understand you're trying to raise $300,000 per company you're buying four of them and just to be clear here that is 100% financing on the acquisition of the business which is unique we took a look at your model and you shouldn't feel bad about this because we found some things that we questioned everyone who gives us a model we questioned a little bit I'll tell you no one's ever given us a financial model that 100% added up but notice a few things one is you're assuming no attrition in your model and 100% growth year over year and the same amount of money from each one in terms of spend but no customer acquisition costs I understand how that works because you've got a captive audience but you've still got an existing customer base so you're competing for their business the other thing is you're buying these businesses at 3X so the market exit cap rate is between 8 to 12X so that indicates to us that there's something about the businesses themselves that you're buying that need some help maybe they need investment, maybe they need architecture they need infrastructure, I don't know but there's something about those businesses that's artificially devaluing them that allows you to buy them for 3X we also notice in your EBITDA calculation you don't have any infrastructure technology or other investment capitalized so that would normally come after the EBITDA number, we would see that so that suggests you're not investing in tech so we would have some concerns about those data points, oh and one last point you won't get a second lender it's called a second, some people call it mezzanine depending upon the status but you're not going to get a 3% it's a 15% deal 14%, maybe 13% per person okay, right but attention, like I said the shark of the technical covenant I'll explain what that means in a second in case anyone was wondering who was being called the shark now we know so we have some concerns about that model so what we do is we do 3 analysis, what's the best case outcome the worst case outcome and some adjustments we think are fair so let's go to the worst case outcome let's assume things go badly your existing customer base starts to erode you are not a successful raising money for follow-on investments the way you're planning and so you can't keep the deal flow coming in that you're projecting in your model, something changes in the economy, you can no longer staff these companies with the people that they need, that could be because the economy is great, you can't hire the people right, in that situation you've not invested in your tech so you can't scale the worst case scenario something's just failing about the model in general and these numbers are not producing, you're going actually in a negative growth pattern, in that situation let me tell you what would happen he's never going to make the deal he's never going to promise you that, it's even available you will be in breach before you go negative with a conventional lender because you breach their technical covenants which means you're in breach even if you're paying them, they don't tell you what's going to happen I'm the only one you'll still have to deal with who's trying to turn the business around now what was really interesting about the analysis that we concluded was, we looked at the economic models of the best case and the worst case scenario and amazingly the numbers were almost the same and you think to yourself, Dean how can that be? I'm losing my ass well the point is, the numbers are almost the same there are two fact patterns at least that we came to where we thought might be interesting to you, one is, there's an enormous data play, if you invest more heavily in the tech here and build out a real platform, which you cannot do other one of these models because there's no cash available, you cannot take that cash and invest you're giving it to the sharks you're going to get an enormous data play, we have a portfolio company that's in a very similar fact but under yours, is doing a deal right now at a $200 million free, that is enormous growth because they invested in tech and they had data that could sell for enormous amounts of money, very valuable but that's not where we're talking about it because that doesn't get you to the same numbers that is worst case the best case scenario has something that we thought might be interesting and might not these are startup companies you might want to give them the services for free and they might take a little bit less in terms of being best in class if you took more stock from them in that situation, you don't have the cash right, you need that cash you know you need to be able to forego it to take the equity, now if they start to have exits the world's grand now I know it doesn't perfectly fit the pipeline but I invite you to consider this if you know and very few founders do, on day one where your business is going 100% of the numbers, everything is 100% guaranteed you don't have to worry about investing anything, you don't have to go getting customers it's just going to fall down from heaven they're your best deal but as a founder as starting out floating this on day one, you really can never have a crystal ball so I in exchange for my investment which is only 16.7% by the way of your cap table I'm the one who will take that gamble I'm the one who will invest in the ride and when it's not working I will show up to help you I hope I've earned your business I will at least consider it, thank you alright VC came out of nowhere and surprised me we went a little long which just means we're going to give you time for one question and then we want to make sure we have time for audience questions so is that okay, Hebel? sure, there's a lot he threw at us I didn't want to interrupt he was in the flow representative of the asset class they're chasing unicorns they want to take a large portion of your company before scaring you by the way, am I paying for this if I take your money? no, it's all free was that your question? that was just the preamble content yeah, so do you have any exit scenarios for us that could be based on giving you some multiple of your money back I'm sorry, I didn't catch the question do you have an exit scenario for us where we give you a certain multiple of your money back or do you want to hold on to us forever because we're not trying to create a unicorn here we're trying to create let's call it a zebra we want to create something that outlasts us and cause it a perpetuity so we normally have a 5-7 year time horizon if that is too short for you there are ways we can engineer exits that aren't exits so it can be through secondary we can be bought out there are ways we can negotiate that into the deal amazing, I know that Hebel probably has more questions but we want to prioritize yours so Chris and the team Casey, how do we want to handle this amazing, who has questions that you want to ask any of the panelists debt, revenue based, VC please raise your hand or hand us a piece of paper, whatever works for you there's a mic back there have a mic in front, we'll take a question in the front a question in the back you have a question yes, yellow, beautiful cardigan hi, thank you so much for sharing all this information my first company was in fintech as well it was very helpful I have a question for Valerie I loved your pitch with known I'm from Sanford as well by the way I wanted to ask you do you only invest in the US or in other geographies as well you're asking about known or right now we are only investing in the US but I believe you could jump in here, I believe this model is to include other countries and in my past life when I worked with tribes I did both US and Canada because of the tribal nations in Canada but our ownership at known is very diverse Natalie herself is Ecuadorian and Colombian so my guess is we will be expanding into other markets in the near future we could definitely talk about known offline any questions for the panelists related to this we've got, ooh good we have a bunch of hands popping up whoever we can get the mic to first wins proximity in this case wins yay I won cool question for all the panelists I'm interested if I was sitting in how else position which of you would play well if you did with others for example would you be able to take on if a company had some debt how would you feel about it if you're in the revenue based financing space or if you're taking the asset piece in I'm kind of curious like who would play well with whom up on the panel if you were to have that and very much for the thinking from the panel of adding debt or if you've already got someone taking a royalty off the top you guys get the question thank you and before you answer I would just say for those of you that are next this is the kind of question we also want we want you to help Havel make his decision please help me I will jump in I think everyone heard the question who plays the best with each other so could you work together theoretically in my opinion you could have equity coming from venture capital and then layer debt obviously on top of it and have a blended situation neither one of us like revenue based financing in this scenario because he's taking a piece off the gross not the net and we're basing a lot on that number and so we would probably prefer to do an equity and a debt play and not have the revenue based financing in there Eric thoughts in our defense from the vampires here you know we we're a substitute for debt and equity that's why they don't like us we make them a bit irrelevant and obsolete and so we're willing to give you more money so you don't have to deal with either of these I love this who's next stir the pot folks hi there I'm Allison Kelly with ICA fund great panel there's like fighting words up here love the financing options that you're all offering but we also know that a business owner like Havel needs capacity building and not just when there's a fire to be put out in the middle of the night but how are you going to help him navigate the anticipated challenges and needs that his business is going to have since you theoretically have enormous networks that can support him how are you going to do that very short from each they're not so we are the only folks that we're sure to do that we do it extensively I'll tell you I've been complaining about it I am 24 hours a day seven days a week and 75% of that is working for our portfolio companies trying to get them whatever it is that they need helping them think through these business plans and so forth so go ahead I'd love to hear your answer sure and so again we're kind of in the middle we will sit on your board we will help you grow the company but we're not going to tell you what to do right I I cannot tell you what your churn is going to be and what your tradition is going to be and I don't want to tell you how much to invest in IT you're the expert here and you're on the driver's sheet I'm going to go off topic a little bit because what we do it known we're in an intermediary so we're going to act as an investment bank or a financial advisor and honestly you want a trusted advisor who is placing any of this capital to really be able to work with you on the best capital and then stay with you to his point as a lender we typically would not require a board seat but sometimes that can be overreaching so you kind of want a lender that's your friend but doesn't get in the way of your business so I would always recommend a trusted financial advisor to really get to the truth of the three different scenarios I expected Nashville to take the gloves off but Sweden I'm impressed this is getting really good who's next we've got I know we had a lot of hands okay great hi thanks my question is about the cost of capital because I was very clear from Eric that it's the valuation is 2x and it's a 3% off of the profit or the revenue but I and maybe Val this is this the slide that you couldn't show us but I don't think I heard you say what the interest rate was and is it also a $300,000 loan and I guess then the question for you Dean I don't exactly understand the 16.7% and how that plays out and what that looks like over the cost of the five to seven years it was a little hard to hear but you're asking about the returns is that correct okay so yes the slide that couldn't be pulled up for some reason show that mine's pretty straightforward you're going to know the interest rate it doesn't change on revenue-based financing so it's I'm sorry I'm just going to I'll try to speak up this is better I understand how it works at least on the revenue-based financing what I was just curious about was the actual interest rate that you be talking about it you said you would be willing to move it from five to seven years out longer than that and I'm curious I'm assuming that we're talking about $300,000 loan what interest rate you would be willing in this interesting moment of inflation and the increase you know like what is your interest rate that you be offering me have are you asking me or the revenue-based you oh okay so in today's market there are high interest rates and so most lenders depending on if I'm coming as a CDFI or a bank depending on the entity I'm representing what I would do in this case and I mentioned it to the shark at the end the venture capitalist who said you know if I'm subordinated debt my rate needs to be higher I would probably negotiate peri-parsew with your senior debt so that we're at the same position so that I can give you the lowest rate possible and you know right now they modeled I didn't do this they modeled my debt at 8% and to Dean's point that would not be the correct rate of subordinated debt but it might be correct for senior debt and then if you're going to a CDFI or any other entity that's sort of a lender in our space you're going to get even a lower rate so maybe it becomes 5% to 7% and again it's all a negotiation depending on your business model and who I'm representing what money I'm representing got it thank you and then I think I understand how Eric you work because you're pretty clear but the companion question for Dean was you said 16.7% and I'm just curious how that ends up playing out over the course of the 5 to 7 years well so the 16.7% is not interest rate it's the percentage of the company we would own based off the 1.2 million that they're asking for in aggregate so we would be on the cap table there is no interest rate on that amazing great questions looks like we've got another one here and just for those passing the mic next there's somebody with his hand over here as well how you doing my name is Eric first off thank you so much for your pitches really interested in learning a little bit more but I do have a question for you before I actually take the time to you know listen to your pitches a little bit more I'm actually interested in your portfolio what is your actual percentages of BIPOC founders within your portfolio I love that question and for me it's 100% and there's another question after that so for each is that true yes for all three percentage BIPOC in your portfolio percentage what percentage BIPOC owned or led is that correct BIPOC owned businesses in your portfolio okay so so we invest in Latin America so it's a very high percentage this is my favorite question so far I've said now that you're on our fund right not in general 60% of our portfolio companies have a female person of color as a founder or co-founder of the cap table and we did that organically and what was that last part we did it organically meaning I want to add something this is a great question we would actually in real life support that venture capital coming into your company as a native owned fund because what we're trying to see is your equity owners staying in BIPOC in the communities of color as we scale so a native fund investing in your company would be something that we like but you have to be careful with sort of more traditional funds that you know out on what's the Sand Hill Road you know in Palo Alto might not be the right fit in the second part what are the actionable items to increase that percentage for from 60% of female BIPOC female lead to maybe adding an additional percentage for black owned male lead startups so are you asking me if we disproportionately carrying the number because we were adding women in is that what the no no just increasing that percentage well so it was interesting about the question I don't want to take too long answering it but we came at investing without any preset notion of percentages or any of that kind of thing and so when all of this discussion came to the forefront about and impact investing all these things we said well we should probably run some numbers and so we did and that's where we saw the 60% and frankly even we were shocked right we outperformed pretty much any venture capitalist I'm aware of that's a good thing where do we underperform grossly in Native Americans how weird and messed up is that right that's where you underperformed not underperformed there's not one Native American in our portfolio that was Native American founded we're doing stuff about that I can get a whole another conversation about how we're some now know some of this we're launching a nonprofit it's going to target on this very issue but probably answer your question black male did I get there I like to tell you what we're doing in the Native American space we're not targeted the black male space we're having a conversation with you about that in the Native American space we're launching a nonprofit that is really meant to be a clearing house to get this information what needs to be who are the VCs that you should be talking to what do you need to present to them what sectors are they in why should you trust them that's coming it's coming quickly we've done a lot of work on it so we don't have the answer yet but we're devoting a shit ton of time to it but the answer is pay attention and take actual action not sort of wait just wanting to also remember that we're trying to get Havel a really good deal here so any other questions that can help help Havel make his decision that will give him information that will allow him in a few minutes here to deliberate and make his final call perfect thank you my name's John I've had experience with VCs who are super excited by us and then we're struggling and stop talking to us which might have been good or might not have been good and I'm curious Eric you mentioned interest rates possibly changing what happens when we're not doing as well as you thought what is the consequence how do you react what do we have to be prepared for you know does our company still exist when we're not doing as great as you hoped is that for all of us okay so he made a comment that I was covenant strict or something the whole idea of debt from a CDFI who was supposed to be here is that it is builder capital or friendly capital that you can negotiate longer terms you can negotiate flexibility if something goes wrong what he's referring to is if you just went to a large bank you would have covenants that said if you fell below a certain revenue you go into default and then we start making you put money aside or we start doing things so I'm not representing extractive capital so normally with a CDFI or any other community type of loan you're going to be able to have work out covenants as opposed to just entering into default so there'd be a way to negotiate a longer term or a lower payment for a period of time or even a drop in interest rate for a period of time until you get back on your feet and that's something I did a lot with tribal nations in our case it's just baked into the model right you're going to pay us 3% of revenues so if your revenues go down by half you're going to pay us half if there's a month which is terrible and you don't have revenues you don't pay us at all right so we don't have to concede we don't have to stretch we don't have to give you that's just natural until we get our two times our money we're with you in the long term so I'm sorry you had that experience first of all I've heard of the story often recently for some reason of these things investing and they vanish when things go wrong I don't know who those people are but the Orca actually is an interesting metaphor here because I can tell you what I can do to them I can come in I can recap your company I can cram them out of your cap table I can lead that as a round and I can give you stock back in the company so you still own a big hunk of it and you're incentivized to go forward I can do that I can do that to them and I will tell me who they are all right I guess you know what you're talking to after this we are we I know you have great questions I've been incredibly impressed I hope Havel you found many of them helpful especially the insight that came out of them we are going to deliberate we're going to do it out loud we're going to ask Havel what his thoughts are he's not going to give us the answer we don't want to bias you but we want to get into his head a little bit and just have a short conversation to get some of his thoughts now that he's heard thanks to you as much as he has and then we're going to pause when we are done deliberating for a moment we're going to do audience choice so if you've already decided which you would choose of the three and who you would crown the winner here then great but if you want to hear out some of Havel's thinking maybe that'll help you make your decision that's what's next Havel where's your head? not the answer but thoughts yeah it's interesting they all made strong arguments I haven't obviously I haven't made up my mind yet so I'm getting to see what the audience thinks as well but I'm looking at three buckets to make my decision one is the financials I'm in the impact space and I want to be responsible with the capital I get so I want to make sure I can pay back these folks who then have to pay back their LP investors or other stakeholders that they have money from the second is are they going to be a true partner so what else are they bringing in besides money and the third is how flexible can they be so let me go on the second piece on the partnership piece I want to talk more about what else you can do besides money I think Alice brought up something around technical resources do you want to ask an additional question we'll allow that that's it and then we'll do a little more deliberation and then let the audience influence us as a lender we do not require a seat on your board but we will be a partner so we will definitely have resources and again depending on who the lender is I represent a lot of different types of lenders there would be resources available we would we want you to succeed and so we would come alongside you and help you make business decisions and bring other resources that might be helpful to you so that you can in fact make your payment to us which is ultimately what we both want in our case we have a lot of investors who have technical assistance grants and so we'll help you identify the ones that you need and the ones who can be most catalytic to your business and that is just part of our service I hope somewhat through some exaggeration entertainment I've demonstrated that we're the correct partner for you what you've heard from the first two is that they're not going all they tell us how they're not going to be involved we're not going to be on your board we're not going to tell you about your IT we're not going to do this we're going to take our money as we're promised I am going to be involved when the chips are up and more importantly when the chips are down and I understand if this were an ongoing business where you could get a lot of predictions and models and all that kind of thing it's not as a start up and that's very important we're here for you Hey Vol, any final thoughts on your part in terms of just where your head is the three things you're looking at again are how people partner with you what else how flexible they are and then as a responsible impact-oriented firm can we give their money back with the terms that they're looking for Are you going to be able to return what needs to be returned Any other thoughts? Considerations? Observations? Impressed? Not impressed? I'm impressed that they really did their homework which was good No other thoughts Are you ready for audience choice? I've got a bunch of opinionated people on the audience I think How are we going to do this? So I think that for ease we will have hands raised and we'll do a quick tally so we can go person well capital by capital and we can do a raise Alright So if we think I might ask our volunteer also to help us count just to make sure If it's hard to count we might need noise and hands I don't know And hand Let's get this noisy in here So if we think that Havel should take Valerie's deal from known capital Let's see your hands and let's hear you Who votes for debt? Who votes for debt? Who votes for debt? Pretty overwhelming I shouldn't add to the noise If we think that he should be taking a deal from Eric Let's see your hands and let's hear you This is also a quiet crew Such a quiet room And then finally if we think that he should be taking a deal from Dean Let's see your hands and hear you Venture capital Alright Wait on I have to make the decision I want the room I wish you knew how competitive Val was You just made her month And for those of us that have to work with her We're never going to hear the end of this one So thank you Alright What we want to know from you Havel Is not just what you've chosen Whether the bias and the influence from the audience helped make your decision But also why Should we do a drum roll? Should we do something? Alright Let's do it We like all three of you Let me start by saying that Now he gets nice But you know I was looking for You know as I said Flexibility, partnership And our ability to pay back Our investors You know with the reasonable cost Of capital And I've decided That I'm going to go with Valerie What The winner You've made her year And you know I'm the stand in today So that is really special Thank you And now we're going to do the Tim sheets We're going straight into that What we definitely want And I think this is where we need you to take it away Is just how was this This is our first time experimenting with this format Did it work?