Pitch meeting mistakes, uncomfortable questions, and fantastic failures, with angel investor Donald Thompson

As an angel investor, Donald Thompson has had some wins and some fantastic fiascos. On today’s show, Don asks Tim what he looks for in an founder, what mistakes he’s seen in pitch meetings, why an investor might choose venture capital over angel investing, and why he’s decided to share his knowledge with other investors.


Voiceover: Welcome to First Check, a podcast so you can learn how to be the next great venture capitalist or angel investor.

You’ve seen the Uber’s, Google’s, and Pendo’s of the world; the 10 X to 100 X returns. And you want to know how you can get in on the action. As a partner at Cofounders Capital, Host of First Check, Tim McLoughlin has invested over $43 million in startups. And on this podcast, he’s going to share with you what works and what doesn’t so you can be ready to write your first check.

On each episode, Tim brings on investors and founders so they can tell you the ups and downs of venture capital and what lessons they’ve learned along the way. But on this episode, one of the limited partners at Cofounders Capital is interviewing Tim. Donald Thompson is the CEO of The Diversity Movement and Walk West, and the host of the Donald Thompson Podcast.

He’s a serial entrepreneur and angel investor, but as you’ll find out, his investments haven’t always panned out. So today, Don is an investor soaking in the knowledge on how to become better.

Tim McLoughlin: So, welcome, Donald. Thanks for joining us for the first episode. How are you doing?

Donald Thompson: I’m doing good. Tim, I really appreciate it. I’ve been looking forward to this all week. With the back-to-back calendar life, we’re all rolling to get the chance to chop it up and talk about some wins and some misses. I’m all in.

Tim McLoughlin: It’s very, very true. Every time I wake up in the morning, I figure out which conversation I’m looking forward to the most. So, great to have you on and thanks for doing this. So, I got to ask you, you’ve been an angel investor and you are an investor in our fund, “Cofounders Capital Fund,” too. What made you do the angel investing and supplement that with being an investor in a venture capital fund?

Donald Thompson: So, one of the things Tim, you know, as I was fortunate to, to lead and exit a couple of companies and just really blessed to have some disposable income that I wanted to see grow. I looked at angel investing because I wanted that control, right, of picking the deals that I wanted to be involved in. And I wanted to be the one on some board seats of some smaller firms and also, quite frankly, be able to focus some of my investments into funds that were led by founders of color.

And so that was something that was really important to me. However, I’m a businessperson. And we’re trying to de-risk what we do as well as create the upside. So, as I got to know you and David, your partner at Cofounders, and understand your thesis; the care you have for the founders that you’re doing, and quite frankly, just be clear, the track record of success, I said, “I need to get a little bit of that too.”

Tim McLoughlin: Well, now that, that’s great. Thank you. Yeah, there’s, there might be a little more upside sometimes putting those bigger checks into individual companies but having someone else do it for you that does it all the time, there’s some value in that as well. So, so I’m curious. Do you remember writing your first angel check?

Donald Thompson: I do. And my first angel check was a complete and total failure. And–

Tim McLoughlin: Really?

Donald Thompson: It was, it was literally like– Tim, I could have taken $25,000 and put it in a briefcase, and just start throwing money out the window on the highway, and then videoed it and put it on YouTube, and I would have made more money than I did in this deal. And the reason that it was learning, and a fantastic fiasco is I missed the relationship between the two founders. The business idea was good. The time of the market I thought was right. The technology they were trying to build was complex enough that it had a slick looking UI, but the back end was actually pretty simple.

And the two founders, turned out, couldn’t agree on two plus two is four. And they’d been friends, college classmates, but in a working relationship, it just didn’t work. And that meant that every decision was slow, every conversation was an ego contest, and it got weird fast because they couldn’t communicate together.

And you know as well as I do, your first idea as a startup is the genesis of your journey, but you’re usually two or three pivots away from winning. But if you can’t do that in a unified team, you’re destined to fail. And by the time they semblance of “got it together,” three or four entrance in the market where they could have been first, and they ended up crashing and burning. And so, I learned to look at some things outside of just the financial, but I missed that one.

Tim McLoughlin: How many times did you meet with that founding team with both of them in person at the same time before you made your investment?

Donald Thompson: Very, very good question. A lot of conference calls, and not enough in-person. So to answer your question, it wasn’t the frequency of the meetings, it was the lack of in-person or the same zoom where you can see the– hear the answer and see and feel the body language. So, even on zoom or these virtuals, you can see and feel expressions and body language and, and how, whether people are interrupting each other; a little harder on the conference call piece because you don’t have the body language piece.

Tim McLoughlin: Well, that’s great. Well, okay. Let’s fast forward. So, you, you wrote another check, you got knocked down, you got back up, you wrote another check. Did you do anything differently with that second check? That third check?

Donald Thompson: Yeah, I would say that the, the third or fourth in, in one of the firms that I’m, that I’m in now, that when I think back– let’s see, the hundred thousand I put in, the valuation of the business is probably $8 million now.

And I was number one, more hands-on early on in the business, right? I wasn’t running the business early on when it was even growing more hands-on. But number two, it was actually a single founder that I helped build out his team. And so, the difference for me and this one, which is a part of my angel thesis, not my fund thesis, but I still need to be a little more hands-on because I’m finding my way with my structural thesis.

But if I’m working with somebody that’s a competitive learner and will, will listen, then we can figure anything out together. I’m not afraid of that. Right? As a businessperson, as an angel investor, we can use our collective networks to find the right legal advice, the tech advice; we can figure things out together.

The one I’m thinking of in my mind that has done a lot better is because I was able to work with the CEO in building out a team. And that was a lot more fun, because there was some good synergy there.

Tim McLoughlin: And that’s something that we preach is one of the value props at Cofounders Capital; is we work so closely with the teams early on to make sure the right management team is in place. And surround that founder, whoever they are, with the right team at the right time.

And I think one of the, one of the pieces of advice for our angel investors or potential angel investors listening to this, is who do you have coming in on the round, that can be the Donald Thompson, that’s going to work with the founders from the investment group? Because not every angel investor is going to be able to pick up the phone or interview all the potential management team members.

But is there somebody that’s a target, a lead, an advisor to the company, that you feel confident has the investor’s back and is working with the company through those early challenges?

Donald Thompson: It’s one of the things that, you know, people hear the terms when they read about investing; the lead investor in different things. But what you said is a subtlety of winning. Who in that investment group is that founding team going to really listen to? That they have that relationship synergy with? And that can help them also understand how to talk to and communicate with the other investors? Because a lot of times if you’re building your first companies, right? All of that nuance is new.

That’s not something you’ve learned in school. There’s not an educational book to it. So having somebody that’s been on both sides, right? That’s put a little money in, but also has operated businesses, is really a good value add for those companies.

Tim McLoughlin: We have several co-investors and syndicate partners that come in on deals with us. And they’re not as hands-on involved, some of these groups, as we are, but you better believe they’re always calling us before they write the check to say, “How involved are you at Cofounders with this company? Are you actively involved? Yes? Okay, that checks a box for us. Now, we’re comfortable making that investment.”

Well, listen, I don’t want to tie up all this time firing questions at you. I want to give you the opportunity to ask me some questions and maybe grill me a little bit. So, maybe this is the time where we turn it over for you and let you run.

Donald Thompson: Sounds good! I’m excited. Well, we’ll kind of bounce it around a little bit. One of the things that I always wanted to understand when you’re looking at deals and opportunities, what are some of the turnoffs? There are plenty of books and things of how to write your pitch deck and videos and different things. But what are some of the hot buttons that say, “Yeah, that’s a no for me.”

Tim McLoughlin: That’s a great question. We, we go through several tiers of, from a time perspective, of when we’re going to uncover something that’s a turnoff, right? So, one could be very early on, we are talking to an entrepreneur who is trying to explain their business and we get 5 minutes into the conversation, or we get 5 slides into the pitch deck, and we still have no idea what their business does.

It’s that ability to articulate what you do, who your customers are, what the value props are to your customers in a concise, articulate way; is something that is great to see. So, the turn-offs are, “What do you do? I still don’t get it.” I used to put that blame on me as an investor saying, “There must be something wrong with me that I can’t understand this.”

And sometimes maybe there is still something wrong with me and why I can’t understand it. But, now at this point in my career, I feel like there’s a better chance that it’s the founder’s ability to articulate what they do. And that is a huge turnoff. I’ll give you a couple other things that as you get into the conversation, can be a big turnoff; which is, how well do they know some of the key metrics to their business?

If I ask a CEO what their cash out date is. When are they out of money? And they don’t know that to at least the month; preferably the pay-cycle, when they’re going to run out of cash, then I don’t know that that’s someone I want to be in business with. That’s something you should know. “How many customers do you have?”

The answer can’t be, “Well, it’s either four or it’s fifteen. I don’t know. It’s somewhere in between there.” You need to know that answer, especially early on with the business. The last part I would say is, if I can find an entrepreneur where I can keep tearing down their story, whatever story they’re telling me, it’s a huge red flag for me, because it raises an issue about trust.

I’ll give you my classic example that I always give. If I ask you, “How many customers do you have?” And you start with 20, and then I say, “How many paid customers do you have?” And then the answer is 11. And then my next question is, “How many customers are paying you full price?” And then the answer is 2. Now, I have trust issues.

How many other answers do I have to dig into to get to the truth? But if you give me that same answer in reverse, “I have 2 customers that are paying fully, I have another several that are paying some money, and then I have another 10 that are beta-users on the platform right now,” I feel great about that conversation. I’m not deterred by that at all. So it’s how you position it.

Donald Thompson: That is really powerful. And one of the things I want the audience to get, is that you also answered some key questions as an angel investor, that you can easily ask to that, right? Whether or not a founder knows their business? “How many customers?” And you went through a couple of different ways to look at that. But understanding your cash, this is a “live or die” business in the startup game. And if you don’t know we’re going to be out of oxygen, right? I don’t want to die with you without a chance to save you. When you think about someone that’s moving into the angel space, would you recommend that they start with a fund like Cofounders Capital?

Or like I did, right? Out of my own little bit doing my thing, and then combination of both. How would you recommend they leverage that first 25, 50, a hundred thousand dollars to, to start the angel process?

Tim McLoughlin: It is a great question. And I think it is talking about certain things like deal flow. Do you have an advantage with the types of deals that you’re going to be able to get into as an investor? As an individual? Or do you need to get access to those deals through a venture capital fund?

What is your area of expertise? If I want to invest in green tech companies, because that’s something I’m a passionate about, but I don’t have that expertise to vet those deals, maybe I should be putting my money into a green tech fund. And then there’s always the hybrid approach, which is, I would like to have some capital and then work with a venture capital fund.

Maybe like Cofounders, where there’s an opportunity for me to put additional capital on top of the money they’re already putting in, into some of the same deals. “They like this, and this is one that I have some expertise in?” Why don’t we double down, and I’ll put a little extra money into the deal alongside of Cofounders.

And so, it doesn’t always have to be one or the other. They could certainly be a hybrid. And then, you know this, Don. We’ve done this several times in the past. There’s a deal that comes into Cofounders Capital. You’re a partner with me in that, and it’s not a fit for our fund, but you have expertise in that space.

So, who’s the first person I’m going to email? And so, I think there are great relationships there. And so, if you’re going to start, I think, start with your thesis and then figure out are you going to have the opportunity to invest in companies in that space? Or would you like to diversify? Or get some additional expertise by working with a partner? Like a fund?

Donald Thompson: So, let me circle back kind of the beginning, right? We’re launching this podcast, you were bringing your knowledge and expertise of many years to bear for what I would call that, that growing investor, right? Somebody that needs that extra set of information, knowledge. Why have you decided to do this? Right? This is time, effort, and energy outside of your day-to-day gig, family, other things. Why have you decided to invest in using this platform to share your knowledge?

Tim McLoughlin: That’s a, that’s a great question. And one we’ve talked about a lot before we did it. And I think that there is such an opportunity to educate potential investors and unlock capital for these early-stage companies that have real opportunities.

And one of the things that I always get very discouraged with, is when a great company comes to me that I think can be really successful, but doesn’t meet our fund, or my investment thesis. And I don’t have anywhere to turn them. I can’t turn them to another angel investor that has this specific type of expertise. But, if there was a wider pool of people, of funds, of opportunities for those entrepreneurs to raise capital, they could grow their business.

They’re going to invest back in the community. They’re going to hire more people. Everyone know that that job creation is from small, mid-sized businesses that are booming, that are raising capital, that are growing. That’s what I want to create. And I just want opportunities for entrepreneurs that are outside of my space of expertise.

Donald Thompson: No, that’s a powerful question. And one of the reasons I’m excited to be here with you today is I’ve experienced a lot of what you’re saying, real time. Right? And, you know, I had the opportunity, I’ll share with the audience, and pitched an idea to, to you and David. It wasn’t exactly ready for what Cofounders was doing, but here’s the thing that I remember, and I’m happy to share.

You spent another 30, 45 minutes with us, post that call, talking through what we needed to do to come back later as a stronger value proposition for your fund; and then a couple of different ideas of other types of funds we could go after. And so, a lot of people are so busy that they’re not helpful anymore, and they forget that they were on the other side.

I want to compliment you and your partner that that was really meaningful to us. Because most people that are trying something new and they’re entrepreneurs, they’re searching for the answers. And you don’t want to knock somebody out of the game when all you can do is redirect them. And that’s what you’re talking about.

Tim McLoughlin: Well, thank you for saying that. And I had a, a meeting earlier today with seven young MBA students that are interested in getting into the entrepreneurial, investor ecosystem. And what I told them at the time was, “You have to maintain a brand and a reputation while saying ‘no’ 99.9% of the time. How do you do that? And if you don’t do it well, your brand, your reputation is not going to survive to the point where you can become successful at this business.”

I think that is something that’s really important to keep in mind, which is, spending that extra 30 or 45 minutes. And yes, that’s time consuming and yes, you don’t think you have time for right now, but where’s that going to leave you in 5 or 6 years?

Donald Thompson: That’s, that’s powerful. What are some of the resources that you leveraged to learn different industries that you might not be expert in? Right? And here’s my question. Cofounders looking at B2B/ SAS-based businesses, but you have a lot of variety across industries within that B2B/ SAS space. So how do you get up to speed quick on new industries that fit that B2B/ SAS model?

Tim McLoughlin: You, you have about 30, 60, maybe 90 days of diligence that you’re going to be able to do on a company. And if it’s good enough, they’re probably going to be able to raise capital from someone else. And you cannot kid yourself in trying to think that you’re going to learn everything you need to know about that industry in 30 to 90 days.

So don’t try. But if you have the right network of people that have spent their lives in a given industry, you leverage that network as best you can. And you offer opportunities to participate in the success alongside of you. So, “Hey, we need an advisor for this company that is selling a certain specific Healthcare IT solution. Let me call this investor that’s in my network who spent a lifetime in Healthcare IT, help me vet this idea, and then make that person an advisor with some equity in that company going forward.”

That’s how you do it. You don’t get up to speed by trying to learn the industry yourself. You do the best you can to know the basics enough to be dangerous, maybe. And then you leverage the expertise of people in your network that have spent a lifetime in that business.

Donald Thompson: So, one of the things for angel investors that’s really important, and this is business in general, your network is your net worth, right? Who can you reach out and touch that will get back to you in 24 hours that can help you solve a problem, that you’re facing real time? And that’s a great example of that, right? And that goes back to what you taught the young people, the MBAs; your brand and your reputation that has to do with deal flow, but your brand and reputation also, when you need that subject matter expertise, that will drop what they’re doing.

And said, “Yeah, I’ll spend an hour with you in that company helping you walk through it.” So that’s really, that’s powerful

Tim McLoughlin: And you don’t grow, you don’t grow your network by saying no to people, unless you have something to gain at that moment. Because you never know when that person is going to be able to help you out. But, if you have a philosophy, or, “I’ll spend a few minutes. I’ll see if I can help this person. Maybe it’ll come back to me. Maybe it won’t.” But that’s how you grow your network of people that are going to respond to your emails or pick up your phone call.

Donald Thompson: No, that’s awesome. So now you’ve worked a lot of deals and obviously, Cofounders record of achievement in the Southeast, stands on its own. You’ve had to have some misses; some things to where the, the thesis, the calculation didn’t net you the outcome that you wanted.

And so there’s two types of misses: One where you put money in and you were kind of surprised, right? Either a market shift or something within the company surprised you. And then the second phase is you said no to something, that in hindsight, you feel like you missed a winner.

Tim McLoughlin: Yeah.  I can speak to both of those. I’d say the misses that we wish looking back we had made investments in, and some of those founders have been on this podcast or will be on this podcast sometime soon; and I’m not shy about bringing it up, is we focused a little bit too much on the idea and the immediate value prop of the niche solution they were pitching at the time, rather than the ability of the team to figure it out.

Is the team going through the right process of figuring out who their target customer is, what their solution is, and what those value props are? Or are we more focused on the solution and the value props? And if you focus on the process of the team, especially in early investing, if you’re doing a pre-revenue company, you’re betting on the team, not the idea.

And we put too much, not more emphasis on the product they were pitching, but too much emphasis on that. On the other side, deals that we made investments in that didn’t work out, it’s one of those things that the, the small things, you know, they don’t, they don’t mean a little, they mean everything. And it’s just those little things that you look back on and you just say, “How could I have made that investment?”

A little piece of information that was hidden from you during the diligence process that you uncovered. Somebody turning over a financial model that just had a few too many mistakes in it for you to really be comfortable with. But you were so passionate about the deal, you overlook that stuff. A slight conflict between founders that, you know, maybe they were just having an off day.

And it’s those little things that now you see and are just huge red flags. And we’re going to make mistakes. We’re going to continue to make mistakes on both sides, but it’s all about pattern recognition and getting better.

Donald Thompson: That’s really good, good feedback. When you are thinking about the pitches that you decide to take on. So, how long should angel investors spend on that first pitch to get that first view? Kind of, what’s your cycle in terms of like, the quick 20-minute look versus a deeper dialogue question and answer? That kind of thing. And then also, what are some of the mechanics or fundamentals of a, of a good pitch?

Tim McLoughlin:  I always like to flip it around and maybe this is just being an investor. I always, I always think about it like this way, but the entrepreneur should come into that meeting thinking about the outcome from the investor’s perspective. Like, what does the investor want to get out of this? But the investor normally has the harder time looking at it the other way, which is, what’s a reasonable amount of time to spend with his entrepreneur?

If I’m thinking about writing a $10,000 check into a $4 million round, I shouldn’t be spending three hours with this entrepreneur. I honestly believe that most investors forget that because they have the checkbook. And so, put it into perspective. Am I going to be a lead investor in this round? Is my check going to be impactful? Is it an opportunity for me versus just the next person they meet that’s going to write this check? Are they oversubscribed this round?

Have some awareness of what that situation is before you ask how much time you want to spend with the entrepreneur. The first meeting, you should understand the business. You can dig in in a little bit, but your goal is coming out, is this somebody I believe in? Is this a person or a team that I want to spend time with? That I want to be in the foxhole with, if you know, there’s a challenge down the road? I know they’re going to work hard and I’m not going to be upset if they lose my money, which by the way, is more likely to happen than not. That’s really your objective with that first meeting.

Donald Thompson: When you think about pitches that you’ve seen in, in businesses and in that process flow, should the entrepreneur send things in advance? Or is it just that 30-minute window? Like, what are some things that people do? That go the extra mile, it’s like, “Do you know what? I appreciate that.”

Tim McLoughlin:  It’s sending information early, is great. I think it shows you’re well-prepared. You didn’t just rush to put a presentation and a package together right before the meeting. However, an entrepreneur should never enter that meeting assuming that that information has been looked at. When, when I’m back-to-back-to-back meetings, and I got an email the night before with an investor deck at 7:00 PM, and then I have a 10:00 AM meeting with the company the next day, I don’t want to start that meeting off by the entrepreneur saying, “So I assume you looked at my deck. What questions do you have?”

Donald Thompson: Got it.

Tim McLoughlin: Just take a step back. I’ll let you know if I’ve looked through the deck and I’ll tell you to move faster, but the entrepreneur should always start with the, “Let me take you back. I’ll take a step back and just tell you the fundamentals of the business and where we’re at. And ask questions along the way if you’d like me to move faster, that’s fine.” Also too, a lot of entrepreneurs assume that intelligent investors that they’re talking to, know their space. And they use terms that might not be familiar. They skip over key value props that might not make sense to the investor. And so, just start with kind of a blank slate, unless you have some reason to believe that this investor knows your business in your industry. I would still cover it and give the investor the opportunity to speed ahead if they’d like to.

Donald Thompson: No, that’s really powerful. One of the things as an angel investor that I had to get, you mentioned buzz words. Buzz word salad that people do in different industries. And I’m guilty of it in the diversity, equity, inclusion space and different things, but everybody’s not in tune with your lingo, right? So I think that’s important for the entrepreneur. For the angel investor, there are different kinds of structural elements to investments.

And so I’d like to, to at least talk about for a little bit, the difference between a equity investment, different than something that is using convertible note. And how do you balance and understand these things in the, in the right way to look at it as an angel investor, when you like a company and then they’re giving you a convertible note and you’re like, “Well, how much of the company did I buy?” Not sure. Right? It, it goes into that. If you take a minute and explain some of those structural things for angel investors.

Tim McLoughlin: Yeah, sure. So the three vehicles that you’re going to see the most are, in this type of investment, is a convertible note, which means you are making a loan to the company that is debt on that company’s books until a future point, when that loan will either be repaid or will turn into equity at some point and some valuation to be defined in the future. That’s the convertible note. That’s the debt, but that is debt. Equity is, “I am giving you this money right now. And in exchange, I am getting a certain percentage ownership in your business today.”

Now, that equity may have some sort of preference over other equity in the business, but you are getting equity. And then the third, which we’re seeing somewhat more frequently, but it’s more of a West coast type investment. It’s making its way over, which is called, “The Safe,” which is a simple agreement for future equity, which is not debt, but it has the conversion mechanism built in, which is, “I’m going to give you a hundred thousand dollars now. And at some point in the future, it is going to turn into equity”. Although, it’s not technically debt on the company’s books.

Donald Thompson: So, that safe agreement takes away the loan requirements. So, the investor doesn’t have the option to get cash back at the time of their choosing at the expiration. But they’re going to wait until there’s a more clear valuation.

Tim McLoughlin: That’s right. It’s a, it’s a very company, entrepreneurial-friendly term. It’s not an investor-friendly vehicle, but if there’s a hot deal, that might be your only option. That’s one of the vehicles that entrepreneurs typically would prefer if they can get it. And some of the more well-established, accelerators, you know, the Y Combinators of the world, that’s where it originated, are coming up with that, that structure. It’s very entrepreneurial friendly, but my advice to angel investors is, who put that deal together? It’s very important. Did the company propose this deal? Is this a deal that is being led by another institutional or experienced investor, which carries a lot more weight? Is this a deal that’s being put together by someone that might have a conflict of interest, like an existing investor in the company?

We’ve done all of those things. We’ve led the rounds, we followed the rounds, and we’ve led rounds of existing portfolio companies that we’re already investors in. And our opinion on how those terms are set are very different each way. And we have a lot more control depending on who set those terms.

Donald Thompson: One of the last questions as we wind our time together, and I’ve always enjoyed chatting with you and learning and, and appreciative to what, what you’re sharing. You talked about why you were wanting to do this in this podcast. What are some of the things as angel investors, when you see people, I want to be an angel in different things, just think about what are some of the lessons that you want them to think about that you learned to just save them time in this new adventure that they’re going after?

Yeah. You have to get comfortable with some difficult conversations. Being able to ask a founder, “How much do you think your company’s worth? What would you be comfortable selling it for?” Those are hard things to ask, but you have to get comfortable asking them. And over time you will. But the sooner you start practicing those things, I’d say the better.

You know, another thing is, “Do you see yourself as a CEO in a year?” I mean, that is a really difficult question. Don, you talked to me about a company. And I said, “Don, let’s say you’re not the guy in a year.” Like that, that’s not, like, you and I can have this conversation because we, we can, but that’s not something that’s natural for you to ask.

But it is a very fair question if you were going to make an investment into that company, and more importantly than what the entrepreneur says back to you, it’s how they say it back to you. Because they all know what the right answer is supposed to be. “I want what’s best for the company,” and” Listen, I’m comfortable with the valuation. I just want to move this thing faster along.”

Like, they know how to say it because they’ve been trained to do it, hopefully by somebody. I mean, there are wrong answers that you’ll hear, but it’s how do they say it? Do you believe them? So, the more you ask the questions, the more you hear the responses, you’ll start to be able to tell whether or not you believe them or not.

That’s a powerful point from both the investing standpoint, but business in general. You know, if you think about baseball, right? There’s starting pitchers, there’s middle relievers, and then there’s closers. That’s not different in companies. And the person that founded a company is not necessarily the best operational leader, right?

Like, in my background from zero to $5 million, I’m your guy.  Like, I can bootstrap, figure out everything, I got you. But when you want to talk about process for scale and structure and different things, I’m not your guy. But like, I don’t want to do, I don’t want to do any of that.

Tim McLoughlin: The way we say it is, I’ve rolled off of so many boards. And so has my partner, David, because there becomes a time in the company where someone can do that job better than we can.

Donald Thompson: That’s right.

Tim McLoughlin: And that doesn’t mean that we did a bad job. We probably did a good job to get them to the point where they raised more capital and they were a different type of business at this point. And someone else can come and provide more value. We don’t look at that as, as a bad thing. It’s just, there’s a time where there’s someone better at it than what you are. And about the difficult questions, if I can just touch back on that for a second.

Donald Thompson: Yeah.

Tim McLoughlin: Think about how much time you save asking that difficult question, how much time it can save you, but how much time it can save the entrepreneur. And so, if you’re scared to ask the question about how they value their company or what the terms of the deal are going to look like, and you continue with conversation two, three, four, five. And then all of a sudden, you hear the valuation or the terms, and it’s something you never would have invested in. You wasted a lot of your own time, which is valuable. And you wasted a ton of the entrepreneur’s time.

And, so maybe they should be a little bit more upfront about those things. “Here’s kind of what I’m thinking, and the terms I want to raise on,” but it’s the investor’s job to, for some of those conversations as well.

Donald Thompson: No, Tim, this has been great. Like, I am looking forward to being an avid subscriber and listening to the podcast. I’m a competitive learner knowledge junkie, but the compliment that I would give you, is that you have a lot of knowledge and experience, but you explain it in a very, very easy to follow manner. And there are some people that are really successful that can kind of lose you in their brilliance. And then there are other people that have that teacher’s heart, right? To where they have a lot of knowledge, but they’re going to break it down in a way that you can learn from it and use it. And so, Tim, I really appreciate it. I’ll turn it back over to you, my friend.

Tim McLoughlin: That’s great. Thank you for saying that. All right. So, so Don, I’m going to ask you this question. I’m going to ask you the question to every one of my guests, but you’re going to be the first one to respond. So, you’re going to meet with 10 entrepreneurs that you’ve never met with before. You have to write a $100,000 angel check. Donald Thompson is signing the check into one of those 10 companies, but you only get to ask each of the entrepreneurs one question. You got to ask them all the same question. What is the one question that you ask?

Donald Thompson: So, you know I, first, thanks for the cheat sheet that I knew the question was coming. Because this is a very, this is a very difficult question. And even, even in knowing it was coming, like, you know, I had to cycle through hundreds of things you want to know when you’re looking into business, but I did zero in on something that I feel really comfortable with.

I want to ask the entrepreneur to describe in detail, the persona of their buyer. I want to know that you understand that buyer intimately. Not that you understand that my buyer is in B2B, technology companies of this size. I want to know the personality of the buyer and why that is going to choose your new whizzbang, CRM over what is out there.

I want you to understand the buyer in terms of that, the time that that buyer is going to make a decision that your prices are linked to the level and size of the company that you’re going after, and that you can now tell me how that buyer persona wraps back to the sales cycle. So I think that if you know intimately, the buyer persona that you’re going after, now, all of a sudden we can make some better decisions. How to wrap your product vision, your team vision, your marketing, to really attract and convert, right? Against that persona. And it gives us a fighting chance.

Any businesses that I’ve worked in have had successes and failures, but if we knew how to sell and acquire clients, we could sell our way into running room, right? To survive and thrive in the end. And so that persona of that buyer is something that I would zero into.

Tim McLoughlin: I love that answer because that answer flows into so many of the assumptions that drive your business model.

Donald Thompson: Mhm.

Tim McLoughlin: Who is your buyer? Which affects, what is your sales cycle? What is their budget? How much can they pay for your solution? Is this pain point a real pain point? Is it a nice to have? Is it a must to have? And what’s the customer acquisition cost?

Where are we finding and getting to this customer? By picking up the phone through a LinkedIn ad? Through a trade show? All very different customer acquisition costs. That’s a great one. I’m going to add that. I’m going to, I’m going to steal that and I’m going to, I’m going to just add it to my list of top priority questions.

Donald Thompson: That’s, that was a good question. To narrow it down to one, like, you know, because I have lots of questions. You know, this just by being in this interview, right? Like I’ve, I’ve got tons of questions, but yeah, to zero it in. That, that was really, really helpful. And I think that this podcast is going to create a really good information engine and I’m really looking forward to it.

Tim McLoughlin: It’s great having you on. Thank you.

Voiceover: That was Tim McLoughlin with Donald Thompson. You can learn more about Don by visiting donaldthompson.com, walkwest.com, or thediversitymovement.com. For more information on how to become the next great venture capitalist or angel investor and to sign up for a newsletter with some exciting news on the way, like maybe a course that’s in the works, visit firstcheckpodcast.com.

And if you like this show, please subscribe, rate, and review on any podcast app. Including the one you’re listening to right now. This podcast is a production of Earfluence. Thanks for listening and we’ll see you next time on First Check.

Full Episode Transcript

Donald Thompson is the CEO of Walk West and The Diversity Movement, and is the host of the Donald Thompson Podcast.

First Check is hosted by Cofounders Capital partner Tim McLoughlin, and is a production of Earfluence.

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