The Exchanges

Q trends were you seeing? This was 2007 to 2011. What trends were you seeing back then in CPG brands? And, and try and plant the seed here. We're going to talk about one of your core products at circle up Helio later on. When did the seeds of what now drives Helio, when did you start sort of fermenting that and laying that in your head? Was it at Encore?

A Yeah. Uh, yes. Um, a bit. I'll, I'll tell the background on that in a second, but, um, first in terms of like the trends and consumer, like this is not an inspiring answer for the audience, but it's the truth. Um, consumer at that point was just wide open. There's just very little competition. So I want to tell you that I, I was a visionary that saw different industries moving before they moved, but Not at all. There just weren't a lot of funds that were doing it and you could make a lot of money. Um, it's not sexy. You know, you're never going to have an Uber that comes out of the consumer space, but reliably that industry makes a good amount of money. If you look at Cambridge associates, which is kind of the, the data company that tracks returns by industry to private investors in the consumer space, according to Cambridge associates, it's averaged a 22% IRR for 15 years, never negative vintage and half the volatility of tech. The industry means money. So There was nothing about, like, identifying trends at that point in time, um, frankly. Um, what I did experience in that, uh, seat is, is a couple things that led to starting CircleUp. One was, um, You know, in identification that there's hundreds of investment firms around the country that love consumer and retail, almost none of them will invest below 10 or fifteen million dollars in revenue. And so I would get calls every …

AI assessment note: “There was nothing about, like, identifying trends at that point in time, um, frankly.”

Q I love that. We'll dive into more of that story in a second. Take us back, though, to Duke. You're then graduating. When do you get associated with Bain? And I assume at some point you meet Scott Sellers and Robert Brown at Encore Consumer Capital. Take us through the first few steps you took in CPG.

A Sure. So I, I started at, at BCG right out of, uh, right out of college. Um, uh, then went to business school after two years, uh, did an internship at Bain Capital. Um, out of that worked at a consumer-focused private equity firm called TSG, um, and then worked at another firm, um, called Encore Consumer Capital, which is where Robert and Scott work. Um, I would say, uh, if I'm going to be, you know, totally transparent, um, Um, consumer was and is not, consumer products was and is not a passion for me, frankly. Um, what I loved was working on hard problems with smart people, and I thought that I had that in consulting. I did have that in consulting, but I missed ownership, and I thought I would get that in private equity. Um, that was a mistake, frankly. I don't think I felt as much ownership as I wanted, um, and certainly not as much impact as I wanted. Um, but that's what led me to private equity, and within private equity, Um, those firms were, uh, where I was drawn. They seem like, you know, seem like good firms. So that's, that's where I was drawn.

AI assessment note: “I started at, at BCG right out of, uh, right out of college.”

Q Okay. Interesting. Okay. Got it. Okay. Now let's fast forward. You're doing all this and you get a report back from these fertility things that say, Hey, Ryan, we need you to come back in tumors. We see tumors. What's going through your head at this point. What happened?

A Well, he told me it. Um, he, he said, I went in to get, um, the results from the test and I had no idea that they were looking at cancer. We were just trying to figure out what the issue was. Um, And he said, look, I, I found something else. Um, um, it is, it is very much an out of body experience, frankly. Um, you know, he said two tumors, um, he was confident that they were malignant. They ended up being malignant. Um, that was not, um, I mean, I'm embarrassed about this, but I actually didn't know what that word meant. Um, and so I had to Google that on my phone. Um, and, uh, I don't remember what else he said. Um, I remember, uh, shaking in when I was holding the pen to sign out, um, from the office. I remember Taking the elevator and going and crying with a nurse that then needed to draw more blood for more tests. Um, I remember calling my wife, um, outside the, uh, the hospital. Um, but I don't remember what else he said. It was a, it was a very, I, it really felt out of body. It felt like I was looking down at this conversation from afar.

AI assessment note: “it is very much an out of body experience, frankly.”

Q And take us, let's skip way up through, through going into college. Did you go into college studying something related to finance or what you're currently doing today? Or was your path totally something else?

A No, I had no idea what I wanted to do. Um, I, I, I've talked with my parents a bunch growing up, um, about being a lawyer. Um, they were pretty adamant that I not do that. Um, It intrigued me. The concept of going to law school, understanding logic and how to make arguments intrigues me a lot. Um, I kind of fantasized by doing that after I'm retired going, going to law school, but, uh, their view was just, you argue for your whole life and it's a, it's a difficult way to be happy. Um, so I went to, I went to Duke, um, uh, two reasons. Uh, frankly, um, it was the best school that I got into. Um, and it's, uh, I loved basketball. Um, and so I had a decision point coming out of high school. Did I want to go to a school that was recruiting me to play basketball, like a division three school, or did I want to go to try to walk on at Duke? And I tried the latter.

AI assessment note: “No, I had no idea what I wanted to do.”

Q raised a 1.5 million seat around in 2012. You raised 7.5 million series a 2013, a fourteen million series B in 2014. So you've got over twenty million raised by 2014. You raise another thirty million in 2015. You got fifty million in outside capital. They're all loving the GMV model. But you're not loving it. Why are investors giving you more money when you don't like the GMV model?

A That's a great question. Um, you get on a, uh, you get on a treadmill when you take venture, and, uh, you need to hit goals. You need to, first of all, lay out goals in order to raise the money, and then you need to go hit those goals to keep them happy and to raise the next round. And it, uh, that was the treadmill. Um, and so, You know, we, ah, we realized, you know, I don't know, somewhere around 20 16 or so that this, the model was broken. It just, we were selling dollars for 60 cents. Um, but talking about that with the investors around the table is hard because they backed that thesis. They backed the marketplace model. That's a heck of a model when it works. I was just really confident that it didn't work. Now, one of the problems for every founder out there is, um, you, you, you get told, like, you need to be persistent. You need to, you need to keep going. Even if it, even if it's hard, you also get told, Uh, there'll be times when you need, you need to pivot. Well, how do you know which is which? Right. And, and in the case of a marketplace, marketplaces are notoriously, you know, some of the hardest businesses in the world to start. Cause you have to kind of get the flywheel spinning from both sides. And, um, so when I would talk to the board and the investors about like, Hey guys, I'm not sure this is working. The response often back to me would be, well, it's just …

AI assessment note: “talking about that with the investors around the table is hard because they backed that thesis.”

Q Um, and now is he type A? I mean, you're a basketball player, you have a double knee or surgery, and then you walk on a Duke, you're persistent as hell. I mean, I assume you're going, I want to be CEO. Is he also that sort of way?

A Um, he's, he is competitive. He wants to be successful. He also is an incredible team player and wants what's best for the company. So I think, um, I think he, we just had a conversation about our respective strengths and how we saw the other person and how we saw, like, what would be the right thing for the company? Would co-CEOs be the right thing for the company? Well, let's look through history. Where has that worked? Where has it not worked? What does it mean for the team when they ask a question and there's two CEOs that have different opinions? Right. Um, and so we went through kind of a week long discussion about things like that. Um, and it was really productive for us to understand how do we argue? How do we debate? How do we disagree with each other?

AI assessment note: “he is competitive. He wants to be successful. He also is an incredible team player”

Q Looping back to your model and then talking about health and then wrapping up here. Is this statement true? Your circle up credit advisor fund is targeting a 12 to 20% APR at lower than a 10% cost of capital for yourself. So your yield there, you have caught 800 to a thousand points of yield there if you do it correctly. You're not deficit spending to grow GMV.

A Well, but we have fixed costs. Um, we have, we have a team, right? So when, when you say we're not deficit spending, um, the math you just worked out excludes that we have a team of people plus the whole technology, the team of people like, you know, sales marketing folks that are deploying this plus, um, the technology team. So we, we need to prove out a lot, frankly, where we have not yet proved out enough that this is a model. Um, you know, let's go take it from two hundred million to two billion or twenty billion. Um, When we have, I'd love to come back on and tell you that, but we're, we're not there yet. We've got a lot to prove.

AI assessment note: “when you say we're not deficit spending, um, the math you just worked out excludes”

Q never seen in my career as CEO or sorry, a CEO as worn out as you please. You need a sabbatical at least six weeks. It talks about false grit. You talk about this concept in reboot. What was the state of just your energy at the time? Was the pivot working? Were you at least excited about that? What was the state of your, your just emotions and health?

A Um, my, uh, mental and emotional health was beyond, um, So bad. It's, it's kind of hard to convey, frankly. Um, I was, I was not healthy. I was, I was very, very, very unhealthy, um, mentally and emotionally. And, um, I am blessed. I'm, I'm pretty religious guy. I'm, I feel very blessed by God that I was surrounded by people My wife, my parents are, you know, Dan, Andy, Matt, who, you know, frankly dealt with, um, dealt with me, uh, in a very empathetic and, and, uh, productive way. Um, and look, they all have jobs to do, um, Dan, Andy, Matt. So I'm not, I'm not saying this is all like, uh, apple pie and rainbows, but, um, I thought that they did it With a lot of courage and empathy. I mean, there were more than a few conversations when, you know, Dan would let me lose it or, you know, Matt or someone would let me lose it and wait till I was done. And then like, okay, let's keep going. And I needed that. Like I, I, I didn't feel like I could do that with the team. I felt like that team didn't know that I had cancer. Um, Uh, they found out earlier this year when I told them before the blog post. Um, but they, the, the board knew that I had cancer and they let me just be myself. Um, and so I feel really blessed that they were dealing with that in terms of like how I felt. I mean, it's, it's, I felt beyond strung out. It was bone on bone for so long. I felt lost. I felt dead. Um, …

AI assessment note: “I felt beyond strung out. It was bone on bone for so long.”

Q You're also trying to have Child number two at this point. What's going on there?

A Um, we had, um, uh, some really big fertility issues, um, uh, which were, um, lasted about a year or so. Um, and that's, uh, That was, that was really hard for me. Um, and, uh, you know, my story has been tricky for me to talk about because I know there are people that are worse off. There are people that wanted kids and couldn't have them. Um, and, uh, But I also don't want to not share it, um, for fear that mine isn't the worst story. Um, because if it were the worst story, I don't think it would be as relatable, frankly. Um, so we were able to make it through the period. Um, but that year of the fertility problems, um, was Very stressful and heartbreaking and, and, um, and difficult for us. And it was probably, it was, it was the hardest year of my life for a number of different reasons that we'll talk about. Um, but having kids has always been Something that I have cared a lot about, um, and being a good dad and building a good family. Um, and I talk about this a little bit in the post, but don't go into that much detail. It is influenced what jobs I've taken, uh, things I've done with my body and not done with my body. Um, uh, you know, never done drugs or smoked a cigarette in part, um, just Maybe it's irrational. I don't care. Um, but just like it's a focus. It's always been a focus since I was late teens on, um, on having a family, um, and not being able to do it and go…

AI assessment note: “we had, um, uh, some really big fertility issues, um, uh, which were, um, lasted about a year”

Q Mm-hmm. As we wrap up, you did some things along the way that I think a lot of other founders are trying to do, but they just sometimes don't know. Ed Batista, a coach. How did you find him? How can someone listening right now find someone as impactful to them as Ed was to you and is to you?

A I, um, am a part, or I was a part, um, of a, uh, uh, CEO peer group called Leaders in Tech. I would highly recommend it. It's phenomenal. Um, and in that group, one of my, um, peers, uh, in this, you know, kind of eight to 10 person CEO group, Um, recommended him, and it's a peer I have a lot of respect for. I'm not going to say who for confidential reasons, but he, uh, he recommended him, and I, I, uh, I mean, he's I absolutely get from God that has, and look, there's others that are phenomenal too, but has been amazing for me. Um, it's funny in the, in the post, um, in the, in the blog post, there's a picture of me signing the offer letter for the new CEO on the computer. And if you look closely in the background, you'll see a, a white sticky note and I'll show it to you right now. It's the audience can't see this, but we'll put it in.

AI assessment note: “in that group, one of my, um, peers... recommended him”

Q What were you expecting going into private equity in terms of your expectations around ownership? Was it some form of carry and how is it different? What did you realize when you got in?

A Yeah, no, it was more in, in consulting, you know, at BCG McKinsey Bain, you, um, you're hired to give advice from afar. You are a consultant. You are an advisor. And, um, there's some wonderful parts of that for someone right out of college, um, because you're learning a lot of different industries. You're learning different skill sets. You're working with absolutely brilliant people. And you're frankly, you're working on jobs that you have no qualifications to, to, to work on. Um, but, uh, I think the downside is whatever your recommendation is, you don't have to live with the results. You know, the famous McKinsey study from the eighties that gave, I think it was AT&T, the advice that the entire cell phone market would never be more than a hundred million dollars. The person who did that project doesn't have to live with the results, which is they missed out on something massive. They move on to the next thing to keep giving advice. Whether that advice is wrong or right, you know, you find out years later, but, you know, the person at McKinsey usually isn't fired for that bad decision. Um, and that frustrated me. It just didn't feel like I was in the game. It felt like I was sitting on the sidelines, kind of shouting advice. Um, and I wanted to be in the game. And, uh, I believed that the way to do that was to become an investor. Um, I got a couple calls in venture capital a…

AI assessment note: “It just didn't feel like I was in the game... I wanted to be in the game.”

Q But like, what's the metric? What's the metric? Is there some?

A Uh, I don't know. It just, that's what they said. So, um, probably either, uh, performance of the deals or, or my performance in sourcing or something like that. I'm not sure. Uh, but that's, that's, that's what they said. I don't have the same metrics that they, I didn't have the evaluation of all the other. Anyway, that's not the, the point I'm trying to make is like, it couldn't have gone any better. And yet afterwards, I still You know, and I get my yearly bonus or a deal would go well or whatever it was, I would still go and spend time with friends and never tell, talk to them about work. I was always ashamed at what I was working on. I wasn't proud of anything I was doing, even when it couldn't have gone any better.

AI assessment note: “Anyway, that's not the, the point I'm trying to make is like”

Q We're going to circle back to the business in a second, but you heard two words that would scare the living hell out of any human during those fertility treatments, which were Ryan, two tumors. And so we'll come back to that because you're juggling so much. You've now pivoted and convinced the board to get on board with moving away from marketplace. What's the new business model you're launching?

A To figure that out, um, Rory and I sat in a room, uh, we actually were moving offices to a larger office, and we sat in a room in the new office by ourselves for, I don't know, several, several days, um, and just tried to go through the process of laying out, like, what are the assets we have? Um, not in a balance sheet standpoint, but just, like, what are the things that we have that are good, right? So what are the things that we have that are bad, but certainly what are the things that we have that Have some kind of value. So, for example, we had a bunch of cash in the bank. Okay, that's a good thing. Presumably. Um, and, uh.

AI assessment note: “To figure that out, um, Rory and I sat in a room”