The Exchanges

Q I go deep into like how much money you're making and how you built the business, but you are going to be able to teach us more. So I'm going to focus questions more on like, what are some of these things? So a lot of people, I guarantee they won't know what a four or nine evaluation is. Can you describe it to our audience? Assume they know nothing.

A Yeah. The easy answer is when you have stock pools or, you know, and you have a stock price that as you start giving away that stock every year, you need to reassess the value of it. And the foreign entity determines the value, the strike price value of any stock options that you give out, right? And the strike price being, you know, whatever, when in the future, when your employees need to buy the stock option off you, when they exercise their option, that's the set price that they make the gain above, right? So if the strike price is a dollar and you sell for 20, they make 19 dollars a share. If the strike price is five dollars, you sell for 20, They eventually make 15 dollars a share. And one of the interesting things a lot of first time entrepreneurs don't understand is they get mixed up comparing their four and eight valuation, which has big tax implications for their employees, as well as, uh, future gains implications for them. They mix that up with the exercise of doing a valuation for the purpose of selling stock to investors. And those are really two separate processes.

AI assessment note: “determines the value, the strike price value of any stock options that you give out”

Q in Excel that took into account all the money we raised, you know, all the option pools, everything it dilution, everything. And, you know, liquidation preferences, all that. And I could just plug in numbers of what we would sell for. And it would instantly tell me how much money everybody would make investors, employees, me, everybody. And it was so, so powerful. Do you do that kind of stuff?

A Absolutely. We will work with that. Our CFOs will build those, build those models for, uh, for our clients. And I think that's a really important point that you're discussing, which is really understanding the implications of sale. What we had a client come to us one time and he had an offer to sell his business and he'd been doing it for five years. He really bootstrapped most of it to build a pretty significant digital media site. And as he was looking to exit, he had this offer and there are really two aspects of it. One, his investors were going to get paid. We're going to get paid. But not as much as like, as actually the value of the last round and additional, he wasn't gonna make any money off his equity, but he wasn't gonna get some, some of his personal debt off of his back. Um, cause he took some investors, but really hadn't minimized the kind of amount he took on over the years. The kind of, the process went through with him is explaining, this is how much you make here. This is how you need to create a marketplace yourself. And this is that threshold price you need to set up. You want to make any money and really walk in and educate him through the process and what it looked like. And he, he ended up Going through an exit process with a different buyer who was able to kind of honestly make him a multimillionaire, um, and let him walk away with a pretty big win while…

AI assessment note: “Absolutely. We will work with that. Our CFOs will build those, build those models”

Q So what is that space like? I mean, it's competitive as heck. You've got obviously YouTube, then you've got all these other ones like Wistia, which might be more direct competitors. How, how will Vimeo survive? What's the positioning?

A Yeah, so what's interesting about Vimeo is that when I started, I had to go on these 30 minute explanations of what we were, why we were different from YouTube, and what our goals were. Um, it seemed maybe one out of all 100 people knew who we are, and when I left, it was the opposite. 99 out of 100 knew who we were. Um, I didn't really have to explain the value prop to most people. I think they recognized it just attracted a very different community, a different type of user, and the big thing that they did was built tools In order to support video makers and they focus the entire value proposition around the maker as opposed to the consumer.

AI assessment note: “focus the entire value proposition around the maker as opposed to the consumer”

Q Um, you mean like ratchet clauses on one note versus the next note doesn't have a ratchet clause. I mean, what do you mean by that?

A Exactly. Or the, what the cap is on the note, um, the discount rate, uh, interest rate, if they're doing notes, Um, or even in equity rounds that they're just, the more complicated you make it, the hardest to understand the implications of what an exit is going to look like and how much money they're going to make. So I think that's, that's one of the, you know, one of the bigger aspects we do. There is a lot of software now that facilitates the process, but if you don't structure correctly from the get go, and you're not working with your attorney to make it simple, even the software can't always help through all those pieces. It makes, just makes it much harder to deal with.

AI assessment note: “Exactly. Or the, what the cap is on the note, um, the discount rate”

Q Like board meetings or overheard phone calls or what?

A Uh, every, anything and everything. So I would sit in the board meetings. I was the one building the financial models as, you know, showing where we could go. And you just, you recognize there's two things that are important to every business. And I, and I talk about this all the time. Um, the first being you need to have a fit culturally. And the second thing, you have a fit and vision. And if one of those two things don't exist, right, don't get in bed with somebody. Don't do it because it's going to fall apart at some point. And I think on both of those standpoints, Particularly in the fit of vision, you had a big clash and that's, you know, what led to was a, uh, you know, a good result in shutting down before we launched because it would have been a really, really ugly process to have to do it later.

AI assessment note: “Uh, every, anything and everything. So I would sit in the board meetings.”

Q Um, are those index fund like ETFs or what?

A Yes. Index funds. Yeah, exactly. Um, right. And I think my financial advisor would give me a thumbs up if he's listening to this or something. Um, Whereas for, you know, there's some portion of my portfolio where, you know, my love and my passion and what I really, really, you know, live for is entrepreneurship and being part of this. And this is an extension of that. And it's putting my money where my mouth is on top of what I've already done with Nomad. Um, and these things, I, you know, they're just, I'm a believer in what they're doing. And, you know, I have a very long-term timeframe. You know, I think people mistakenly don't understand how illiquid they're going to be as well as how long the investment cycle is going to be. And I'm okay with that. I know that some of these things they pop will take seven to 10 years. I'm very realistic about that. Um, and my hope is that this, when that money comes back in, I'm going to probably just turn around and reinvest it and keep going through that cycle of having a pool of capital and consistently putting in businesses.

AI assessment note: “Yes. Index funds. Yeah, exactly.”

Q necessarily because they actually want the terms, but because they want to be invited to a negotiation table at the next round of funding, right? They want to be in, they want to use those almost as chess pieces to, to kind of get other things they want or force the entrepreneurs and the new investors to discuss it with them. So they get leverage. Do you see that frequently?

A I think you can, you know, one of the things that we really talk about is the difference between smart money and kind of just, just plain dollars. I don't want to call it stupid money, but you know, the smart money, the guys who come in and they're not trying to They're not trying to do too much in terms of what they get out of, out of the, you know, uh, investment terms. They're really there to help the business. And if you ask them, what's the number one thing they'll do, they'll go, they can list at least one or two things they're going to do to drive your business forward. Their value is more than just the dollars they put in. They can have exponential impact on the business itself. And that's the kind of money you need to attract where people aren't necessarily trying to do that. I can understand pro rattle rights. I know that like, if you put, you know, every investor, if they put money in, they want to be able to kind of sustain their equity levels in the future or have a right to, and I don't think there's anything wrong with that. Um, but there's definitely investors with, you know, different, they have different goals in mind and having goals online is incredibly important for investors and, uh, and founders. I have a story of a startup I worked at before I ever worked at IAC, where you recognized very early on that the investors and the founders were just not seeing …

AI assessment note: “one of the things that we really talk about is the difference between smart money”