How to Build a Capital-intensive Startup in a Tough Venture Market

4:29PM Sep 19, 2023

Speakers:

Nikki Pechet

Sophie Bakalar

Chris Power

Keywords:

capital

companies

venture

business

fund

series

capital intensive businesses

investors

raise

people

climate

returns

building

important

bit

debt

year

aapko

valuations

capex

All right.

Hello, and thanks for joining us. Today we're going to discuss how venture capital is not just slower. It's also a lot more focused on profits than growth compared to a few years ago. And yet here we have companies and VC who are founding and funding capital intensive businesses. In area from sustainability, to manufacturing to homebuilding. And we want to share some of the lessons of how they did it. And the main point is that those not just venture capital, sorry, Sophie. So I actually want to ask you, Nikki what other sources founders can tap into for their capital intensive businesses?

Great, so thank you guys for being here. Hope this is a helpful discussion. I'm Nikki, I'm co founder and CEO of homebound. We are a Series C technology enabled home builder on a mission to make it possible for anyone anywhere to build the home we built a proprietary software platform that makes homebuilding both more efficient with better customer experiences. And over the course of the last five years since founding the company we've announced over 150 million raised from lots of top venture capitalists like Google Ventures COSLA for runner thrive, and many others, but we've also raised hundreds of millions of dollars of real estate capital from investors like Goldman Sachs. So that's my perspective that I'm bringing to the panel today. I think we'll all try to represent both our own experience but also what we've seen and sort of know about from other businesses that could be helpful. So the thing that I think is most important, first is your role as an entrepreneur and leader of your business is recruit a team, create a vision, and then raise capital and raise capital in this environment is really challenging. And so the thing that we found, I think all of us up here to be really helpful is knowing how to raise different kinds of capital matched to different use cases in your business. So in our business, for example, we've innovated on funding structure by pulling apart what we call the operating company, or the aapko, which is a technology business where all of our tech assets sit and where all of our venture dollars go. And they fund investment in primarily technology but also to some extent growth. And then we've separated that from real estate assets. So we have a separate fund that we call a property company or a prop CO and that's where we can raise capital that's focused on getting returns from those real estate assets. And it's helpful because venture capitalists like Sophie are looking for 30 40% Plus rates of return every year on their capital real estate investors. In our first fund we're looking for eight or 10% return on their capital, which we can easily deliver with real estate assets. Today, that number is up a little bit. It's more like mid teens high teens returns for real estate capital, but that capital is plenty. And we can even in this environment, we can go out and raise quite a bit of capital there that helps fund growth for the rest of the business and gives us more leverage on our venture dollars.

Yeah, I think so if you'd like give some perspective on why venture capital, like your fine was restructured, is it something you see commonly in your portfolio?

The aapko prop co model? Yeah, at later stages. And in really capital intensive businesses, we have started to see this and it's just really important to understand the way that the capital is flowing, what your priority is in the capital stack. But yeah, it's definitely a model we're seeing a lot more particularly in climate tech, which is where I'm focused as a as a VC, because that model can be really attractive for isolating higher returns and higher risk assets for for companies but it's just one one model. I think there are, you know, to Nikki's point there are a lot of different ways of structuring capital to match the type of industry you're in the type of risks that you're taking on so that it aligns with the stakeholders that you're taking that capital from. So obviously, as a venture capitalist, I think venture is a really important piece of the puzzle for a lot of industries and primarily for technology businesses at the earlier stages. It's really important, but being able to access capital from, you know, real estate specialists or from, you know, different types of debt providers and and one thing I think is really important, particularly within climate tech is understanding the opportunities around grants and subsidies because that space has just become so powerful for so many different types of businesses in the industry in just the last year and a half. I mean, there's been so much activity because of the IRA, the inflation and Reduction Act and so many opportunities for companies to access completely non dilutive sources of capital. So, yeah, those are just a few but there's there are a ton of different ways of getting capital for a really capital intensive business.

And just to add a bit more context on being capital intensive, because I think it's pretty intuitive that homebuilding or manufacturing or capital intensive but can you explain why climate tech is capital intensive? Usually?

Yeah, not it's not always I mean, there are plenty of climate tech investors who are focused on purely software there are software solutions that tackle climate change. I personally think that you need hardware deep tech, very capital intensive solutions for for climate for climate tech, because it's a very real world very physical problem that we're trying to address and you need very physical solutions to those problems and building physical assets takes money. It's very hard to achieve anything at at scale to address climate change without you know, spending quite a bit of money. Traditionally, venture capitalists shied away from capital intensive businesses. It was sort of a dirty word. That's why the bulk of VC investment has been in software in the last couple of decades. But there are a few things that have changed recently that I think have opened the aperture for looking at more capital intensive businesses for VCs like me so.

So Chris was at your experience raising your series a that's a venture capitalists are more open to it now?

Well, I would say we raised most of our capital when the interest rate was still 0%. So I'm not sure I get a good perspective there. We'll see what happens in the next six to 12 months. But yeah, I think if you're in a capital intensive business like you've got to get leverage on your capital assets to like juice, your Opco like venture returns, and secondly, the way I think about So our business is like highly automated advanced manufacturing. So obviously, we have a huge r&d team to automate factories for space and defense. But that requires us building factories, which inevitably require a lot of capital to just deploy CapEx for machines and robots and stuff to make them run. I think my perspective is the only way to get a venture return in capex heavy businesses is either your customers fund, fund your product and CAPEX like a SpaceX the government pays upfront, or you're gonna be really good at financial engineering so that whatever debt service you've got on your capex, heavy business, what you can charge customers is above that. And you're basically taking a spread between the debt on your capex whether it's a monthly payment or some like structured finance deal, where you can charge your customers and your free cash flow operations. And we've managed to do that and the TLDR is that, you know, if you're building our factories that are hundreds of millions of dollars and using venture dollars to do it, you're gonna very quickly gonna get diluted to hell. And actually any growth investor that's looking at a series C spreadsheet going, what's my IRR? He's gonna look at it, it's going to be 12%. So you really have to use finance as a weapon to be able to build deep tech companies scalability to prevent yourself from diluting the hell and also actually make the growth mass work. Otherwise, the spreadsheet never makes sense. And that's that's the kind of bottom line I think,

also to add a bit of nuance, because we think of startups as capital intensive, but they're less in your case than the incumbents. So I think time is a factor here also that the less time you spend on manufacturing the less expensive it is. Is that right?

Yeah, it's more about I think squeezing every bit of utilization from a capital asset. So a lot of our automation is actually built around. How many hours in a day is the machine productive? Versus is it sitting idle? Because ultimately, if you're doing equipment financing, or you just have a huge deadline from Goldman Sachs or something that can all be translated basically to a per month payment. So if you're making money 10 hours a day versus 24 hours a day, then the math really changes on how much productivity you can get out. Of your capital equipment. And I think, unless you're like really good at spreadsheets, or have someone on your team that can like help you navigate this, you really have to understand the numbers otherwise you can blow up pretty quickly on not the math never makes sense. Yeah. Yeah. I

think many people from Bain are pretty good at numbers. What's your experience recruiting people who can do that? Thank you.

Well, just a couple of comments and what Chris was saying one I just want to note so we've raised multiple rounds of funding in lots of different interest rate environments. And we raised before we had the prop Co Op co structure and after and I think your point on you really need to understand how your business works is essential. What we found in raising kind of post prop CO is that there are a set of investors who just think it's too complicated they get too I don't understand your cash flows. You have this off balance sheet entity. I don't even know what that means. I don't know the right questions to ask and some of them will just say, Yeah, we really love your business. Call you some time and then never call you back. The better ones will say, I wouldn't be totally honest with you. Your Business sounds really complicated and I don't understand it and so I'm not going to be able to invest so you get you've got to get good at getting fast nose of people who just aren't going to invest or you can look at someone's portfolio. And one of the first questions I ask venture investors I'm talking to is have you invested in anything that is capital intensive or has propped up cost structure? I tend to like people who have backgrounds with more complex companies and have a track record of investing in them because I know that I have a shot but you've got to first sort like if somebody's ever going to be able to invest because they understand my business, and they need to be really good at explaining. Here's what my business looks like here is where there's benefits to having the structure and then here are the risks and here's how I've managed the risk. So we do a lot in how our business is structured and the relationship between the Popko and Opco. So that the risk on the PopCo is extremely limited to the operating company. And then you have to get really good at explaining that which requires you to hire people who probably know a lot more than you do about it and so on I was referencing Bain, I spent almost a decade at Bain doing digital transformations for lots of old industries. And so I came from that into homebuilding knowing I wanted to create a next generation homebuilder with technology behind every step of the process so we could deliver a better experience than anybody had been able to deliver in this space before. I have a lot of people from Bain, who were very helpful on all sorts of things on my team, and how we recommend hiring people from Bain onto your teams as generalists in the early stages or McKinsey or any of the big consulting firms to just do whatever needs to get done, I would say for capital intensive businesses or thinking about fundraising in the capital markets outside of the venture world, hire experts who are probably not from Bane, or if they were at bay and they've gone into private equity, but pull people out of private equity or you can look at credit financing teams and investment banks. You can look at people who've gotten to hedge funds and are doing complex financial transactions. You need to find people who understand more complicated capital structures, who have both the industry knowledge so that they can help you figure out what you want to do and the context to go help fundraise. You will learn it fast. I have found it to be one of the most interesting and fun things that I've gotten to learn about but I knew nothing about this when we started fundraising. And I hired a CFO at a private equity who knew everything about this space. And his first day we had five pitch meetings for our prop co He taught me everything about it. And you have to find that person who can teach you and they have to be on your team. So that number one, you can manage risk in the business. And number two, you're actually successful at raising this kind of capital.

So if you do think grants are a bit different, I mean, what types of skills does it require to go look for grants?

Oh, yeah, it's a completely different skill set. I mean, I'm sure there's there's some overlap and just understanding your business and being able to model out the financials. And, and yeah, opportunities in your business are transferable but yeah, understanding grant writing processes is quite complicated. It's it's extremely esoteric. There. The requirements are different depending on which department that you're applying to grants for the difference between by applying for public versus private grants is quite different. There are a lot of resources that have come out recently, though, particularly with regards to the IRA and some of the federal grants that are available. To climate tech companies. There's a great series of articles in CTV see over the last couple of weeks actually, if you guys are interested in in climate Tech, I highly recommend going through them they they're step by step processes for applying for federal grants. And I do think it's really important in climate to have a good grasp of how to write good grant proposals. A lot of companies that we invest in actually have some of that expertise in house, but it is becoming a little bit more democratized a little bit easier to to write grant proposals, even if you very early and don't necessarily have expertise in it, actually a number of AI tools now that will write grant proposals for you. I wish I remembered the name of one of them. I'm blanking on it. But you can you can hit me up after and I'll give you a referral but it Yeah, it's becoming easier and easier to write write grant proposals. And I think that's an important. It's an important resource for early stage startups to be accessing right now.

So Chris, are you raising your next round right now?

That will be an SEC violation if I answer that question.

No comment?

Well, if you will, how differently would you approach it compared to your Series A?

Wow. Okay. Let's talk about two things. One is the fact that because interest rates have taken it, so there's two dynamics people need to think about one is the fact let's call it an emotional dynamic where every VC just told their LPs that half of their portfolio is negative study. 70%. So like, I don't know, Majan asking your partner, hey, we're gonna get a new dog or something like that. And then you already have three dogs and all of them just tore up the couch. It's like probably not the right time to ask the question. So the bar of like, getting a partner to bang the table at the GPU level and like do something insane is like increasingly high because everyone is frankly shitting themselves because they just have to tell their bosses. Hey, at the portfolio is completely underwater. The second thing is look at growth stages. It's like it's a numbers game. Do people believe the IRR maths and the growth plan is the return there, and therefore you have to really, really know your numbers. But I think that's like that's incredibly stage dependent. And I think the other thing is, once you've proven that the business model works, yeah, you're in a different tier of capital where it's more about spreadsheets and interest rates and IRR and how you're gonna make the thing function generate like either egregious free cash flow return or a 30 to 40% IRR. And that's just a different different category of fundraising. Yeah.

I will say we're a little bit later stage, which I think means we're just always fundraising. It's not like you fundraise, you know for a couple of months once a year. It's sort of always and so we're outracing, our third prep co fund. And then we're always talking to existing investors and new investors about future rounds for the aapko. And it has been significantly harder for almost 18 months to raise capital than it was before that. But one of my favorite investors David widen at COSLA reminds me all the time. This is normal 18 months ago was not normal. And so I think it's really important for all entrepreneurs to be thinking about this as the new normal and maybe it gets a little bit easier. But really, what's happening right now is the bar has been raised for what companies are gonna get funded, which just means you got to hustle harder and be one of the companies that gets funded. And one of the things that was really hard in the 2021 environment is all kinds of nonsense was getting funded at valuations that didn't make any sense and good entrepreneurs were sitting back thinking, Am I bad? Like, why am I not getting a $5 billion valuation? And I started six months ago, maybe I'm doing something wrong. And most of those $5 billion valuations that started six months ago are no longer and I think it's really important for all of us to be thinking about just build a really awesome business. That's a cash flowing business that's got a clear path to profitability that you can make really big and take public and do your own thing. And in this environment, there is capital out there. There's capital on the operating company side, the expectations are higher, the requirement for having a path to profitability is higher, the risk tolerance is a little bit lower. So you may be investing and building a relationship for a longer period of time. It might be your insiders that are going to lead around and then help bring in some of their LPs. But we are in a period where for about 18 months, dramatically less capital has been deployed, and still a ton of capital is being raised. So there is record dry powder out there. You can still raise it now and you're absolutely going to be able to raise it next year. But focus on building a business that's a real business that has a path to profitability. Get a great team in place. Don't waste money, but the capital is out there and also say on the debt side. Interest rates are really high, but there is endless demand for good places to place that capital so you're going to be paying 12% or 15%. And that's a lot of money. But I hope all of you guys are building businesses where you can comfortably clear a return threshold that would make that seem like an easy thing to do any day of the week.

But so if you when we were prepping for this we also talked about how to be strategic in terms of proving yourself as a company to make it to the next step. I think you have some advice on the milestones and maybe other extension and tricks we are seeing these days.

Yeah, I don't know if I have too many tricks, unfortunately. And mostly cautionary tales. I mean, I would I would separate the market, at least for venture out into two into a few different sub subcategories. One is I do think you have to be very cognizant of how different things are at different stages. You know, the story that we're telling are generally a little bit later stage Series B plus. And then I really do agree with Chris I mean it's really hard environment for growth investing those cycles are very long valuations. Have come way down. A lot of these investors have been hit incredibly hard in the last few months. But it's a totally different story at the seed and series A where valuation compression hasn't really been that extreme. There's so much capital there's so many new funds that have flooded the market in the last few years that it's been fairly resilient and so they're still in there still are those stories that Nikki's talking about of you know, billion plus valuations when a company is only been around for a few months. So there's this tale of two different two different stages and then you know, I come at this very particular lens and that climate is a bit of a unique beast in terms of what type of capital you can access and what the timeline expected timelines are and what types of venture investors are in the space. And so, again, I'm just coming at it from a bit of a narrow lens. My perspective on climate investing is that we need more rounds of funding. I think traditionally venture investing you know, it's followed the precede seed Series A, B, C, and then, you know, growth or or potentially, you know, exit depending on the path of business. I think there's a big gap, particularly in climate tech, and I would imagine this, this extends to a lot of other capital intensive sectors is a pretty big gap between the series A and B, especially. It's generally Series A, you're, you know, you've proved out the technology or you've proved out the product on a smaller scale and you're starting to get some commercial traction, but it's really Series B where those investors are expecting real commercial traction. They're expecting real dollars they're expecting real growth and often in climate tech that's that's quite hard. You know, you're you're developing something that's maybe incredibly novel and never been seen before. It's it's completely unproven. The scale and climate is so massive, it's almost hard to wrap your head around and to be able to achieve that in you know, three to four years or even five to six years to get to a series B is is nearly impossible. And so there either need to be other sources of capital in that what we call the valley of death. Is sounds dramatic and is dramatic because we lose a lot of climate companies between the series A and B, for that exact reason. There just aren't as many venture investors, there's not as much access to capital. It's much harder to prove out the exact KPIs that Nikki's talking about, which is that you have a path to profitability that you have customers that there is real revenue growth ahead. of you. It's challenging and climate because maybe your product isn't even fully proven out by that stage. And so I think we need more rounds of funding, maybe smaller rounds, but more frequently accessed because these really chunky huge, massive rounds that companies are raising every two years if the bar is almost too high for some of them to meet any reasonable KPI

also in terms of derisking I think Nicky was a bit by accident, but when you started your business wasn't as capital intensive as it is today.

Yeah, yeah. Definitely. So we started out of disasters, there was a wildfire in 2017 that burned down 6000 houses and Napa and Sonoma. And in the aftermath, nobody could figure out how to get their house rebuilt, including my co founder who lost his home in Sonoma, and we just looked each other and said, There's got to be a better way homeowners were trying to navigate this maze of insurance and architecture and permitting and they find a builder who'd say I can start your home in three or four years, I'll put you on my waitlist, and it just seem wildly backwards and we've dug in and we're like, actually, this is worse than disasters, but it's the whole industry. And so that's how we got started. We started building in our backyard and then we thought it was a once in a lifetime disaster was the largest and most destructive wildfire in the history of California until one year later, when the Woolsey fire burned down $5 billion worth of homes down in Southern California and the year after that. Hurricane Dorian knocked down 10,000 homes in the Bahamas like every year. There has been a disaster like that. And so that's actually how we started building our business was working to rebuild communities and we still that's still a piece of our business. And we're you know, we just broke ground on the first home in Fort Myers Beach, Florida where 16,000 homes were knocked down by hurricane Ian a year ago. So that's still a business. That is an important business for us, really in the DNA of the company of responding to homeowners in need. But we've now expanded to housing starved markets like Dallas and Houston and Denver, where you have a mass influx of people who need housing and there are no homes there. And so that's where our prop co fund steps in and says, Well, we know people need these homes and we'd like to finance building them. But step one was very much getting a track record and using venture dollars, plus customer deposits to build a track record. And then one day we pulled up and looked at our track record and we're like, we're pretty good. We think there's something here and we started talking to investors on the prop co side and they loved what we were doing. We had a board member who knew about the Prop aapko structure and really educated about it it, educated us about it and helped us figure out how we'd want to go out and do it. So you need that advocate whether it's somebody who knows grant writing somebody who knows proper opcode somebody who knows debt financing for other assets. Whether it's a board member advisor, I would surround yourself with as many of these humans as possible, find everyone who can help you and make them an advisor. But you really need to start with track record plus knowledge of what you're gonna go do and then make it happen. I also want to touch briefly on the point that Sophie made about I think for climate tech companies having multiple stages is important, but also in this environment, because of what Chris talked about with having, you know, portfolios employed for venture investors. Nobody wants to price anything right now. There's a lot of uncertainty and interest rates. And so there are tons of rounds happening right now that are convertible notes or other unpriced rounds that make it easier for an investor to say I like your company and I'll support you. I want nothing to do with setting the price for your business today, which is also helpful for founders. who maybe had some huge valuation and 21 and maybe they haven't quite grown into it or markets corrected. And it sort of helps bridge the impasse. And so, for all of you who are thinking about raising capital, think about convertible notes. Think about doing another safe note into your company where it doesn't have to be a complicated round. And once you get it going, it's a lot easier to just get more people into that note and it's a smart way to fundraise in all environments in between any round

also to dig deeper into welldone different sources of capital. But Chris, when do you think founders should tap into one versus the other?

This is actually a great question. So is everyone how many people are actually building a company in the room that's like capital intensive. Okay, and how many people are like early stage versus like, like seed a whole like late stage. So I think there were some real traps. So the first thing is, I almost would not start the business, whether it's climate or manufacturing or space or whatever, unless you can be like, build a spreadsheet of what you think the unit economics are going to be like. 50 million in revenue. And basically, if you divide all your assumptions by to, like everything that everything that you think is going to happen, just like divide it by two. And if you can't make the IRS work out of the gates on a spreadsheet, you probably shouldn't start the company or at least spend three months like figuring it out. I've seen a lot of space and defense companies blow themselves up where they use venture dollars, they build a product and then they find out that to scale it or whatever it happens to be. The market is just not going to underwrite it because you're you built your thing too expensive. The thing doesn't scale, like whatever so you kind of have to front run your series be at a seed level and you have to be like really diligent about it. Otherwise, like, looks like it's gonna work. It looks like you know, fundraise, and they get a growth investor who looks at it and goes like, this just doesn't make sense on a spreadsheet. And you can make that work a number of ways. You're getting customer contracts upfront your gross margins are really healthy. Or like the math just works at some capital tipping point. That's the first thing I would say. The second thing I would say is like, unless you're in real trouble, I would avoid venture debt at almost all costs, because it looks really attractive and cDNA But what ends up happening to everybody, especially in this sort of environment is hey, we've got 13 months of runway left, I'm going to draw my venture debt oops, the venture debt is not there. By the way, this would be bank account, your company's fact to be extremely, extremely careful about that. And the second thing I would say is like, as you think about your customers were the usual thing is, hey, I'm going to build a bit of software and sell it to like, some number of small businesses. And eventually we'll get to the enterprise. You should think about your capital stack in the same way where like, yes, you should use venture dollars to basically prove everything out until you're at that point where non dilutive or debt pools of capital, you just have to be big enough to allow those players to come in. But you should basically understand, like you're thinking about customer milestones, or I need to be a 10 million ARR to raise this round or whatever. You have to also structure your business to basically think about how much venture dollars do I need to take the basically offsets the fact that you don't have debt or non dilutive capital, but you really have to understand whether that's at three homes 30 homes, 50 million in revenue, a certain amount of unit economics, and you have to understand that before you start saying to investors This is what my seed round looks like. This is my series I looked around, because if you're building a capital intensive business that requires like different forms of financing to get there, part of your milestone should be on the technology side of the team side. But if you need three rounds of venture funding to get to this tipping point where debt people will come in or like you can scale it without without venture dollars, you might actually need three rounds or two rounds and you really need to know that upfront. Otherwise, you're gonna blow yourself up where you get to the A and be like why we thought we could raise debt. Now turns out we need another $50 million to get there. The last thing I would say is and this is a little bit more like esoteric is Yeah, apart from like, really, really understanding your numbers. I think you got to you got to front run everything like absolutely everything. And if you're not thinking about that capital milestone the same way you would think about customers or r&d milestones you'd like end up blowing yourself up, which is a skill set. I don't think a lot of people have, but you need to build that if you're building a capital intensive business.

Yeah. And we know how you feel about venture debt now. But who do you feel about grants?

Oh, grants are amazing. It's free money.

Easy money. It's free. It's free money. So what's better than that?

The only thing I would say about grants is like venture investors look upon them, like pretty unkindly. Whether you're in the defense space, and I'm not sure about the climate space, but I'm assuming it's the same there are a number of funding instruments where it's like a really quick and easy one to $2 million, but it's well known, but it's, you're never gonna get an actual contract. So no one really believes that that early grants are going to turn into something material. So you can use them as like, stop gaps of like non dilutive financing, but unless you're in parallel working with real customers, like no one's gonna believe it anyway. And I've seen a lot of defense companies also blow themselves up by focusing on like, r&d grants or super grants or something like that, where, yeah, they're getting $5 million contracts, but everyone knows is from a government entity that it's never going to be a $50 million contract so it doesn't count. So you think you've got revenue, you get two years down the track and no one believes that. There's like a lot of a lot of traps here.

Yeah, if I can just touch on that real quick. Yeah, I completely agree. I mean, when I when I see any grant or subsidies on a company's financial projections, we we write them down to zero in terms of what that means for the company's traction, but it is important as a potential non dilutive source of capital, if you can't access it, just to be able to stretch the venture dollars you are raising as far as possible. That's more of how I think about it. I will also say I having started a couple of companies myself, I really strongly agree with what Chris said around venture debt. You have to be so careful. The number of companies I've seen blow up. The three reasons companies blow up. It's like founder issues, venture debt and begging for another. That's actually those are the two things that really blow you up. When you least expect it. I will say venture debt does play a pretty important part in in some companies. Typically, it's when you have very Stable predictable revenues. That's really the time when you can you can bank on venture debt and when interest rates are not, you know astronomically

high with any other sorts of capital besides venture capital, that's just a pool of money to do whatever you want with, you really have to play through the scenarios of what could happen. And I think the trouble with venture debt in the way that it's generally been constructed. We had a early SPV line, and it seemed great, it was like alright, it's 5 million bucks and it's at a reasonable interest rate. Fantastic. And then there's a term in the docs that's like, and you must keep at least $5 million at SBB in a bank account that we can sweep once it hits $5 million. And I was like, Well, wait, hang on a second. You're gonna give me $5 million. But then you're gonna take it back and I can't use it. Why am I paying you interest on that at all? And it's super important to play through that and you you do it, you're like, oh, this actually is not helpful at all. And I think if you are in a place where you have Stable and predictable revenues, that's fantastic. And that's financeable but don't get venture debt. Go to a real bank, you can get a corporate revolver. So it this is where it's so important to find people who can help you look at your business and say, What are creative ways that I can finance this differently than I am today? Go find an investment banker who may someday hope that they can take your company public and just say, can I get 30 minutes to talk to you about my business? And have you come up with ideas of ways that I can finance it? There are tons of people will give you free advice on this. And you can look at there's, you know, factoring if you've got contracts that you have guaranteed revenue over some period of time, there are ways that you can pull money out of that and get it today and pay interest on it. There's corporate revolvers for having steady revenues. If you have assets, you can finance the assets. There's a bunch of different ways to do it, but go find experts who can look at your business and help you think about it. And try to not take the venture version of a real financial instrument. Go find the people who administer that financial instrument with real businesses elsewhere and get your business to a place where you know you can do it. I also totally agree with Chris on thinking multiple rounds of financing ahead. If you're trying to get your seed done, don't focus on getting your seed done. Make sure you're getting a seed done for a company that will be able to raise an A and a B. And don't waste your life building companies that are not going to be able to raise future rounds of financing or thinking about a series D and an IPO and you also need people who will look at your projections and say that's cute. I divided by four I know that you're never going to be able to do this and listen to those people because they are probably far more right than you are and figure out if you really haircut those assumptions. Is it still a good business? And if it's still good business, go build it and crush it. But don't build a business that your wildest dreams I'll have to line up for any of it to work. So I'm really curious

to know what people are in the room have questions about I want to open the floor for questions is whether Mike vailable. Any questions here? Here can we get the mic please?

Thank you for that my question was more regarding the aapko and proper model. How do you manage conflicts of interest with regards to revenue recognition, but also, effectively the recruitment side of it? If you have a really good people who can help on the proper side? Would you recruit them at the upper level or then at the proper level?

Can you speak up just a little bit? I caught up kopko You want to understand conflicts of interest and revenue recognition. I didn't miss the second part. Can you

recruitment wise? If you have really good people who can help the prop co model, would you would you recruit them at Opco level?

Great question. So the there are a lot of ways you can structure up coinpot co and there are lots of other things you can call this. You can call it a joint venture. You can call it a fun complex. There's lots of different structures that people will talk about. You could have employees at both companies we do not and I think the conflict of interest point is really important where we certainly have talked to investors who say we would love to take the prop CO and turn it into a real company with independent value outside of the real estate where you're building IP and you have teams and all that I could raise endless capital who's willing to do that. I'm not willing to do that because it creates conflicts of interest with the Opco and when I think about the business that we're building and homebound, I think about we have the potential to build $100 billion business. I'm focused on making that happen with the Opco and having the prop co have really healthy, ongoing real estate returns. But I'm only looking for investors who want to invest in those real estate returns, not people who want some separate business that's going to end up creating conflicts. And so whatever your business is, you should be thinking if you're going to create a separate entity, you should be thinking about having control over that entity and making sure that you can run that entity like we have oversight from our current operating company team and we charge the Popko fees for that. So we're getting constant revenue stream from the PCO, but there are no employees there. And it's set up specifically so that there's no conflicts with that. So depending on the way that you structure, your vehicle, super important to make sure that you think about like this is the business I'm building for us. It's the operating company, this is what we can turn into a massive business and avoid anything that will create conflicts that make that difficult. Thank you for that.

So for us your multiple companies. Is that also what you recommend?

Yeah, no, I think Nikki Nikki nailed it. I don't know.

Any other questions? Yes.

Hi, I have a question about basically latest sage VCs. So it seems like earlier stage funds are doing a lot of efforts to increase their pipeline of startups, effectively supporting maybe acceleration programs, incubators, finding some partnerships with universities for later stage VCs. It's not as obvious and in the current market. Do you see that? Later stage VCs are doing any active efforts to increase the pipeline? I don't know what it this could be. But maybe you have a set of actions that are on the table and that you're exploring. Because obviously it's a bit tougher later stage receives these days and you have to do something. So what is this?

So I primarily Series B investor. I'm never quite sure if people consider that later stage or not, but I will I guess in the context of this question, it is harder for for later stage investors these days. I think getting the returns. That returns that you're targeting have been challenging the last, you know, 18 months or so. But what's challenging is not the sourcing, I think that's actually one of the easiest things but the series B because there's so fewer investors relative to the earlier stages. So all of the capital a venture has flooded the seed and series A stages and much less than the series BSC. There are also some massive mega funds that are maybe a little bit later stage than where we play but for me, sourcing is isn't really an issue because we have relationships with all of the earlier stage funds. And of course, they want to be friendly with funds that might invest in their companies in the series B or C. So I wouldn't say there are any tricks up my sleeve for that. It's really just maintaining good relationships with earlier stage investors. And one thing that I really hold myself and my team to account on is being able to get to know as quickly as we can if we're going to get to a no. Again, having been an operator myself, I know what a time suck it can be when you're raising venture funding and we're just very mindful of that and I think the companies that we speak with and the early stage investors that we know really appreciate if you can just say quickly this is not a fit for us.

Well I hope that the message that people got is also that you can get a yes even if you're a capital intensive companies and that dough ways to make it so thank you very much, everyone for listening. Thanks, guys. Thank you