How to Build a Capital-Intensive Startup in a Tough Venture Market:

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 we see who are founding and funding Uh Capital intensive businesses in area From sustainability to manufacturing to Home building and we want to show you The the lessons of how they did it and The main point is that there's not just Venture Capital sorry Sophie So I actually want to ask you Nikki what Other resources Founders can tap into For their Capital intensive businesses Great so thank you guys for being here Hope this is a helpful discussion Nikki I'm co-founder and CEO of homebound we Are a series C technology enabled Homebuilder on a mission to make it Possible for anyone anywhere to build a Home we've built a proprietary software Platform that makes home building 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 coastla Forerunner 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've 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 opco 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 propco 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 ten percent 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 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 Sophie that Gives perspective on why venture capital Is like you are fine with this Structured is it something you see Commonly in your portfolio the opco Propco 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 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 risk that you're taking on so

That it aligns with the stakeholders That you're 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 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 reduction act and so many Opportunities for companies to access Completely non-dilutive sources of Capital so Um yeah those are just a few but there's There are a ton of different ways of 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 Home Building or manufacturing or Capital intensive but can you explain Why client med 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 a hardware deep Tech Very happily 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 scale to address climate Change without you know spending quite a Bit of money Um 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 Decades but there are a few things that Have changed recently that I think have Opened the aperture for looking at more Happily intensive businesses for VCS Like me so so Chris was that your Experience raising your series a that's A venture capitalist or more open to it Now Uh well I would say we raise most of our Capital when the interest rate was still Zero percent so I'm not not sure I got a good Perspective there um 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 or like Venture Returns Um and secondly The way I think about Um 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 going to 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 what you can Charge your customers and your free cash Flow operations Um and we've we've managed to do that

And that the tldr is that you know if You're building out factories that are Hundreds millions of dollars and using Venture dollars to do it you're going to Very quickly going to get diluted to Hell and actually any growth investor That's looking at a series C spreadsheet Going what's my irr is going to 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 Scalably to prevent yourself from Diluting to hell and also actually make The growth maths work otherwise the Spreadsheet never makes sense and that's That's the kind of bottom line I think So you had a bit of nuance because we Think of there are startups as capital Intensive but there are less in your Case than the incumbents so I think time Is a factor here also that's the less Time you spend on manufacturing the less Expensive it is is that right Uh 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 debt line 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 mass Really changes on how much productivity You can get out of your Capital Equipment Um and I 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 well I think People from Bain are pretty good at Understanding they're very what's your Experience recruiting people who can do That thank you well just a couple Comments on 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 prep co-opco 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-propco is that there are a set of Investors who just think it's too Complicated they get to 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 uh call you sometime and then Never call you back the better ones will Say I would 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 Knows 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 propco APCO Structure I tend to like people who have Backgrounds with more complex companies And a habit track record of investing in Them because I know that I have a shot But you've got to First sort like is Somebody ever going to be able to invest Because they understand my business and Then you have to be really good at Explaining here's what my business looks Like here is where there's benefits to Having this structure and then hear the Risks and here's how I've managed the Risks so we do a lot in how our business Is structured and the relationship Between the propco and opco so that the Risk on the propco is Extreme 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 Um Anna 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 Home Building 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 the space before I have a lot Of people from Bain who are very helpful On all sorts of things on my team and I Highly 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 vain Or if they were at Bain they've gone Into private Equity but pull people out Of private Equity or You can look at credit financing teams At investment Banks you can look at People who've gone 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 contacts 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 out of private Equity Who knew everything about this space and His first day we had five pitch meetings For our propco 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 And so if you're using grants are a bit Different I mean what types of skills That it required 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 Um and and uh yeah opportunities in your Business are are transferable but Um yeah understanding grant writing Process is is quite complicated it's It's extremely esoteric they're the Requirements are different depending on Which department that you're applying to Grants for the difference between 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 of Um articles in ctvc over the last couple 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 Um and 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 the companies that we Invest in actually have some of that Expertise in-house but it is becoming a Little bit more democratize a little bit Easier to to write Grant proposals even A few very early and don't necessarily Have expertise in it there are actually A number of AI tools now that will write Grant proposals for you I wish I Remembered the name of one of them Um I'm blanking on it but you can you can Hit me up after and I'll I'll give you a Referral but 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 For early stage startups to be accessing Right now so Chris are you raising your Next round right now

That would be an SEC violation if I Answer that question No comment Well if you were how differently would You approach it compared to your series A Well okay let's talk about two things One is the fact that uh 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 30 70 percent So like I don't know imagine 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 uh so The the bar of like getting a partner to Bang the table at the GP level and like Do something insane is like increasingly High because everyone is frankly themselves because they just Have to tell their bosses hey the Portfolio is completely underwater Um The second thing is look at growth Stages it's like it's a numbers game Um do people believe the irr maths and The growth plan is a 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 going to make the thing Function generate like a 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 months once a year it's sort of Always Um and so we're out raising our third Propco fund and then we're always Talking to existing investors and new Investors about future runs for the opco 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 Wyden at Costa 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 going to 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 it 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 five Billion evaluations 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 in 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's out there and also say on the Debt side interest rates are really high But there is endless demand for good Places to place debt Capital so yeah You're going to be paying 12 percent or 15 percent 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 Sophie when we are 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 all the Extension and tricks we are seeing these Days Yeah I don't know if I have too many Tricks unfortunately and mostly Cautionary tales Um I mean I would I would separate the Market at least for venture out into a Two into a few different Um Sub sub categories one is I do think You have to be very cognizant of how Different things are at different stages You know the stories 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 it's a 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 seat in Series a where valuation compression Hasn't really been that extreme there 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 there's still There still are those stories that Nikki's talking about of you know Billion plus valuations when a company's Only been around for a few months so Um there's this tale of two different Um two different stages and then you Know I I come at this from a 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 are In the space Um and so like again I'm just coming at It from a bit of a narrower 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 pre-seed 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 there's a pretty big Gap between the series A and B Especially Um 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 Climatech that's that's quite hard you Know you're you're developing something That's maybe incredibly novel 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 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 Which is 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 the exact kpis That Nikki is talking about which is That you have a path to profitability That you have customers that their Israel Revenue growth ahead of you It's it's challenging in 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 it it the bar is Almost too high for for some of them to Meet any reasonable kpi also in terms of You're risking I think Nikki it was a Bit by accident but when you started Your business wasn't as capital Intensive as it is today yeah yeah Definitely Um so we started out of disasters there Was a wildfire in 2017 that burned down 6 000 houses in 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 at 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'd find a builder Who'd say I can start your home in three Or four years I'll put you on my wait List and it just seemed wildly backwards And we dug in and we're like actually This is worse than disaster is 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 it was the Largest and most destructive wildfire in The history of California until one year Later when the Woolsey fire burned down Five billion dollars 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's been a disaster like that and so That's actually how we started building Our business was we're going 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 Um where you have a mass influx of

People who need housing and there are no Homes there and so that's where our Propco 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 we think there's Something here and we started talking to Investors on the propco side and they Loved what we were doing we had a board Member who knew about the opco 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 prop coopco 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 Going to 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 Implode for Venture investors nobody Wants to price anything right now There's a lot of uncertainty on 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 in 21 and maybe they Haven't quite grown into it or the Market's 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 and all environments And between any round also to dig a bit Deeper into well there are 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 Or like late stage Um So I think there are 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 at Like 50 million in Revenue And basically if you divide all your Assumptions by two like everything that You everything that you think is going To happen just like divide it by two and If you can't make the irrs 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's 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 B at a seed level and You have to be like really diligent About it otherwise it like looks like It's going to work it looks like you're In a fundraise and you get a growth

Investor who looks at it and goes like This just doesn't make sense on a Spreadsheet Um and you can make that work a number Of ways you're getting customer Contracts up front your gross margins Are really healthy or like the math just Works at some Capital Tipping Point Um 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 in Seed and a but what ends up happening to Everybody especially in this sort of Environment is Um 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 is so be extremely Extremely careful about that and the Second thing I would say is like As you think about your customers where 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 at 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 That basically offsets the fact that you Don't have debt or non-dolluted 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 8 looks Around because if you're building a Capital intensive business it 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 up front otherwise you're Going to blow yourself up where you get To the A and be like wait we thought we Could raise debt now it turns out we Need another 50 million dollars to get There

Um 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 Gotta you gotta front run everything Like absolutely everything Um and if you're not thinking about that Capital Milestone the same way you would Think about customers or r d Milestones You 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 you know if you're building a Capital intensive business yeah and we Know how you feel about Venture debt now But how do you feel about grants Oh grants are amazing it's free money 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 Um whether you're in the defense base 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 Two million dollars but it's well known But it's you're never going to 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-diluted financing but unless

You're in parallel working with real Customers like no one's going to believe It anyway and I've seen a lot of defense Companies also blow themselves up by Focusing on like r d grants or civil Grants or something like that where yeah They're getting five million dollar Contracts but everyone knows it's 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 it so there's like a Lot of a lot of traps here Yeah if I can just touch on that real Quick yeah I I completely agree I mean When I when I see Um 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 Um As a you know potential of 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 I you know Having started a couple 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 I mean there are three

Reasons companies blow up it's like Founder issues Venture debt and I don't Know That's it actually those are the two Things that really blow you up when you Least expect it I 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 I think 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 svb line and it seemed great It was like all right it's five 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 five million dollars at Svb in a bank account that we can sweep Once it hits five million dollars and it Was like well wait hang on a second so You can give me five million dollars 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 and you're like okay 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 financable 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 who 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 we're 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'm going to divide It 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 a good business go Build it and crush it but don't build a Business that your wildest dreams all 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 Please we have mic available Any questions here Can we get the mic please Thank you for that um my question was More regarding the opco and propco 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 propquest side would you Recruit them at the opco level or then At the proper level Can you speak up just a little bit I Caught opco propco you want to Understand conflicts of interest and Revenue recognition I didn't miss the Second part can you recruitment wise Would you if you have really good people Who can help the prop core model Would you would you recruit them at opco Levels great question so Um the there are a lot of ways you can Structure opco and propco 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 propco 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 if I was Willing to do that I'm not willing to do

That because it creates conflicts of Interest with the appco and when I think About the business that we're building In homebound I think about we have the Potential to build a 100 billion dollar Business I'm focused on making that Happen with the opco and having the Propco 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 propco fees for that so we're Getting constant Revenue stream from the Propco 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

Yeah so if you see multiple companies is That also what you recommend yeah no I Think Nikki Nikki nailed it I don't know That I have anything out there Any other questions Yes Hi I have a question about basically a Later stage VCS so uh it seems like Earlier uh stage uh funds are doing a Lot of efforts to increase their Pipeline of startups effectively Supporting maybe acceleration programs Incubators I don't know 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 this could be but maybe you Have a set of actions that are on the Table and that you are exploring because Obviously It's a bit tough for later stage which Is these days and you have to do Something so what is this Uh so I'm primarily series B investor I'm never quite sure if people consider That later stage or not that I will I Guess in the context of this question Um it is harder for for later stage Investors these days I think getting the Returns Um The 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 that the Series be because there are so fewer Investors relative to the earlier stages So all of the capital Adventure has Flooded the seed in series a Um stages and much less in the series B And C there are also some massive Mega Funds that are maybe a little bit later Staged than where we play but Um For me sourcing is isn't really an issue Because we have relationships with all Of the earlier stage funds and of course They they want to be friendly with funds That might invest in their companies in The series B or C so Um I 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 a no 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 earlier 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 there are ways to make it so Thank you very much everyone for Listening Thanks guys thank you [Applause]

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