Episode 131

Brian DeMuth: How to Start an Investment Firm

In February 2021, Brian partnered with Joel Griffin to launch Riphean Investments, a Fredericksburg VA-based firm making early-stage and growth equity investments in U.S. National Security markets. Brian leads the overall strategy and direction of the firm in addition to managing all aspects of the Firm’s investments and raising and managing venture funds.

He also serves on several portfolio company boards, working closely with their founders and executive teams to accelerate growth

Prior to joining Joel to launch Riphean Investments, Brian spent four years as the CEO of GRIMM, an engineering and consulting firm focused on cybersecurity.  In 2020, he was recognized by DCA Live as a Rising Star of GovCon. Brian regularly presents at industry conferences and has previously spoken at Pennsylvania Automated Vehicle Summit, Hack the Capitol, Mobile World Congress, and Automated Driving Systems Conference and Expo.

https://ripheaninvestments.com/people/brian-demuth/

https://ripheangroup.com/

https://www.linkedin.com/in/briandemuth/

Mentioned in this episode:

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Transcript
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Welcome to the business samurai podcast.

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I'm your host.

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John Barker got a great friend of mine today, spent about a

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year or so into his new venture.

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Brian to Muth in February, 2021.

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Brian partner with Joe Griffin to launch ruffian investments at Fredericksburg,

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Virginia based firm, making early stage and growth equity investments

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in us national security markets.

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Brian leads the overall strategy and direction of the firm.

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In addition to managing all aspects of the firm's investments and

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raising and managing venture funds.

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He also serves on several portfolio company boards, working closely with

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their founders and executive teams to accelerate growth prior to joining

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Joel to launch ruffian investments.

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Brian spent four years as the CEO of grim and engineering consulting

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firm focused on cybersecurity.

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And in 2020, he was recognized by DCA live as a rising star of gov con

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Brian regularly presents at industry conferences and is previously spoken

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at Pennsylvania automated vehicles summit hack the Capitol mobile WorldCom.

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And automated driving systems, conference and expo.

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Brian and I also typically have contest to see who can lose the most golf balls on

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the golf course when we go out together.

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Ryan, thanks for taking the time, man.

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Absolutely great to be here, man.

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I I love to be able to support however I can.

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You have a long history working in tech and in cyber.

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What was the driving force to start getting into, eh, investments and

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private equity and venture capital?

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There's a couple of things kind of Joel and my mutual drive to do this

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was we needed something new to do that, that sparks our passions enabled the

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things we were most interested in.

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And part of that is a big part of that.

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We were both already helping friends and acquaintances and transitioning military

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to, to start or grow their businesses a lot in gov con, but also in the cyber

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security market space commercially.

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And that was volunteering our time.

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We still do that, but we really we really wanted to find a way that we could do

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that and scale, we could scale a lot more.

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Plus we have a lot of friends that have exited their companies, their service

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companies within the government services market space and in the cybersecurity

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market space that we knew were looking for places, alternative places to

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invest their money, as well as getting directly involved on a part-time basis.

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But but get involved and really see where their capital is going to go.

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What, how is that capital going to get used?

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Do they have relationships as investors in what I'm doing?

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And then I invest in say, Could be seed, early stage company, or it could be a

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later stage government service contractor.

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We do both.

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But then they, those investors want to get involved.

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Most of them don't want to, traditional limited partners, traditional investors,

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they don't get heavily involved.

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But the types of people that were talking to us about what to do with their capital,

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they do, they want to get involved.

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If you imagine growing your own company and selling it, what do you do next?

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You have some kind of payout based depending on your sale.

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And then you want to go forward and do something.

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You still have value.

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You probably want to travel and buy things and all that, but you have value.

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You want to provide it, give a lot of relationships.

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How can you take your money and invest it and then get directly involved.

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And so that was a big.

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For me personally, another part of me that drives a lot of what

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I do is is this nature, it's the hacker nature that's in me.

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And I don't mean the, bad hacker on the movies and TV shows.

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But the pure definition of it, the old definition I like to know how things

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work, so you've, a bit about me from my earliest years, I love to take

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things apart, electronics, radios, vehicles, other mechanical things.

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My mother's vacuum cleaner that she had just bought when I was a kid, whatever.

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And I want to know how it works and put it back together and make it stronger, and so

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I've through my career from a professional perspective that driver is still there.

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I want to understand how these things work dive deep into them

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and then work on doing it better.

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So Joel and I sat out S set out to do.

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To create a way that we could bring not just capital, but growth advice.

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Even all the back office services.

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In some cases, we still partner with other back office providers as well, but,

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we want it to bring that expertise, not just from us, but from our friends and

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acquaintances and business partners that we've had in the past that can really help

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those companies that we're investing in.

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So that's where Ruffin invested in investments came from.

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Awesome.

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And I had the opportunity to speak to another startup.

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They had raised about 70 million from it's probably the

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traditional, the big companies.

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So this for me, this is like having that flip side of

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that, that, that conversation.

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What is, you talked a lot about bringing in other partners, what

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is it that you look for if you, if you got that large network for good

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partners, to make sure that the is going to work, because I imagine a lot

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of this is it's relationship based.

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Yeah.

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It definitely is.

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So we do have an investment thesis that goes around along with the

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investment fund that we're raising now.

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So we, aren't just making investments out of one fund, but

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we do have a somewhat traditional VC style fund that we're raising.

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And through that, we're doing both early stage VC style deals, venture

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capital style deals, and later stage private equity style deals.

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As you might imagine what we're looking for in the like

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tactical details of those two.

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Are not the same as each other but overall we're looking for

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strong dynamic leadership teams.

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And in many cases, especially on the early stage companies, we're

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talking about dynamic leaders that are founders right now.

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They're not going to have potential.

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They may not have everything, all the qualities and all the experience

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they need, but that's fine.

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That's where we come in.

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We bring that experience.

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We bring that team because we have a whole team of people that

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we've hired to bring into this.

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So we bring that team along to help help them become better at what they're doing.

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Exit with bigger valuations, larger valuations and hopefully

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in larger exit windows.

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But the specifics are really It's not a set.

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This is what we have to have.

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Instead we really look at it, work with the founders or the owners, or the C

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level executive team, depending on the style of company we're investing in and

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come up with what makes sense for all of us and not everything makes sense.

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And we're okay with that.

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That doesn't mean we might not make right recommendations and help

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them and introduce them to other PD and style firms that are correct.

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But what we're looking for, I think first and foremost to answer your question

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directly dynamic individuals that really want to, dive in and learn how to do,

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how to bring their dream to fruition.

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And second, we're looking for.

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Either products in the case of many of the early stage companies or a

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services delivery set of options, suite of products, if you will.

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So think like government contracting, there are market spaces that are

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growing more than others, right?

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There are market spaces where certain customers and functional services

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that are being provided to those customers are more attractive to us

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because we know we can one help those potential portfolio companies grow

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in those spaces based on our network.

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But we also know that we can take those capabilities and apply them

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to other government service spaces, other customers as well as commercial.

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And so we've had experience doing commercial gov con commercial crossover.

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So there's a, if we can find nuggets of each of those within a portfolio

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company, as we're just starting the relationship, building the rapport

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building with them, that's really.

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What causes us to sink our teeth in and start to look and go into

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more due diligence and start to really talk to the founders.

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And we're not just looking at what's right for us, right?

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Because we may really like one of these companies early stage or

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later, we may really like it for our portfolio and what it helps us to do.

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But if the founders aren't going to flourish under our support then you

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know, w we call a spade there too, it needs to be a win-win for all involved.

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And when I say all involved, it means that it needs to be a

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win-win for my investors as well.

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My investors need to it needs to align with their interests, right?

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So we kinda, we take a really holistic approach to how we choose

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what portfolio companies we.

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You dropped a lot of little nuggets there and just for anybody listening

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unfamiliar with, in unfamiliar with the terms, I made some notes while you were

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doing that, just to elaborate on exactly what some of those terms mean, because

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I'll be honest with you, I'm familiar with some, but maybe not in the con not

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in direct context or in enough detail.

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So you talk about VC style deals and PE style deals.

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What exactly, what's the difference between that venture capital and that,

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that private equity structure, absolutely.

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Yeah, I can I can give you the context of what I mean by it.

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There's probably many others that have their own context.

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I have seen PE firms that really, they go and invest in early stage companies for

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a minority share and, looks more like a VC firm, a venture capital firm, but they

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call themselves a private equity firms.

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So some of these terms do get used somewhat interchangeably,

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whether they should or not.

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But me.

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The VC style, the venture capital deals that we're talking about,

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we're talking about early stage.

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So these are usually product based companies or SAS service delivery models,

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where you productize a service delivery.

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And we're talking about early, early stage.

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So for us, we will get involved.

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Pre-seed so like into convertible notes we'll get involved in priced seed

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rounds, meaning that it's a, it's the first stage of an investment model in

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early stage companies where the company that is being invested in gets priced.

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And there's a number of factors that go into determining the

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valuation as part of the investment.

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Before that many companies take a, what's called a convertible note.

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It's essentially a loan with very strong preferences that when someone

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invests, whether it's a firmer, an individual into a convertible note

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for a startup company, that capital is really hard to call back as a loan note.

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Meaning, if you put money into this convertible note, you are unlikely to see,

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you are unlikely to say, Hey, it's ready.

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I want to take my money back instead of it converting to equity

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that usually doesn't happen.

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So the convertible notes are set up so that technically it's alone.

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So it's not an equity trade upfront, it's technically alone.

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But your as a number of terms in them that we could probably spend

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an entire hour talking about.

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But but essentially that investment turns into equity at a later time.

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So as an example one of our companies that we invested in early.

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They weren't pre company, but we'll even get involved in pre company

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and help you stand your company up.

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If you have a really interesting idea that something that we want

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to invest in, so we'll help you start from scratch if that's

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needed, which is an incubator model.

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And again, we're not, we, while we do have an investment thesis and we do

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have a specific process on how we go through things, we are looking to drive

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different and better results at the end.

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So we're willing to have a a more open and Frank discussion

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about how we go into a deal.

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So yeah, venture capital deals for us are usually early stage through

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a convertible note C a priced round, or what's called a series a which is

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the first big round that bigger style investors generally get involved in.

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We don't really go beyond that.

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Not that we wouldn't, but we don't.

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And then the PE deals are like, for instance outside of our fund we have also

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acquired governor contractor, wholly.

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It made sense to do at the time.

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It made sense, for the investors that were involved.

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And we'll go and do those deals as well.

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Inside of our fund, we will actually invest minority stake

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into say our government services, contractors supporting DHS.

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I'm using an example I don't have on preface.

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But that is something that might be of interest to us.

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And so we'll invest into that usually for a minority stake, but then.

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A whole bunch of that experience.

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Plus we have an advisory board with quite a few people who have a lot of

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experience growing and selling working in M and a of government contractors

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and other cyber technology companies.

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We even have people on our board who are known in the industry for taking

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government contractors public, and then bringing them back private again.

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So we have a pretty broad network and quite a depth of experience

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across that network that we can apply to the companies we invest in.

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I had the opportunity.

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I remember meeting somebody that I think was in that early stage you were talking

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about versus you said from incubator to maybe having an MVP or minimum viable

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product where are you at with going.

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Evaluating it, the idea at versus somebody actually has a prototype at a minimum to

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sit there and go, Hey, this idea in and of itself is good enough to get involved, to,

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I think I want to attach myself to this.

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How do you evaluate those?

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It's a there's no simple answer, right?

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Because every situation is different.

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And again, our part of our investment thesis is that every

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one of these situations and how we get into them, there'll be a

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little different and that's okay.

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But that doesn't mean you need to put a little bit more

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time into understanding it.

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So we understand the market spaces we're in quite well.

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Again, like I said before, if we don't, we won't go into a deal, not because

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there's something wrong with the deal, it's just not the right fit for us.

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And that's, that should fit.

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That should be the same for founders and owners as well.

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So we'll look at going back to your point about MVP, vice, no MVP

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If there is someone that brings a early stage pre-seed idea to us.

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But they don't have a functioning prototype, much less a minimum

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viable product already built.

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We will look at it.

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Now we have to do some more steps or some more things we have to do in addition

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to evaluating the technical concept.

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And is it, do we believe it's possible and do our advisors and our board

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of advisors believe it's possible?

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We also need to go and do market validation, right?

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So one of the things that investors look for is that you've done your homework and

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that you understand what the market wants.

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Not that one customer, or a couple of customers want it,

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although that's helpful, but what does the market really need?

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And have you done your homework and figured out what the market needs?

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We'll often these early stage ideas.

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There's a little bit of that, but there's not enough market validation.

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So if an idea like that is brought up.

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We will sometimes get involved and go be part of that market validation

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and then our total our term sheet.

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What the details of what we expect out of a deal might be a little bit

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higher if we're the ones also doing all the market validation and taking

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that risk on ourselves as well.

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If a company has MVP, which we have one, now that, I think the officially

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kicked it off early at the beginning of this year the term sheet closed.

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So we we have one that's that where the founder already had an MPP and it

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was really to be honest, more than MVP.

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And so he also had with that market validation and so much market validation,

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He even had companies interested at acquiring his company once he got to a

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certain point, which obviously he needed our, both our support in our network and

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our capital in order to get to that point.

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So we have one that's really interesting from that perspective,

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but that was a lot less work, right?

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Like we didn't have to do as much to validate it.

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And I know it'd probably be helpful with helpful to your listeners

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to give like a very specific, step-by-step go do this thing.

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The problem with that is most of those that you can find out on the internet

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or that other firms have given, aren't going to cover all the nuance, you

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really have to dive in and start having conversations and understanding what

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particular VC or PE firms want to know.

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Yeah that's something I've had with other people that have either

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went through some of the process.

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They, a lot of them have said it and I'll be on the flip side,

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they're looking to raise money.

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They said they were looking at the strength of the team the leadership

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team, as much as anything else.

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That was one of the key things.

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So from your standpoint, I'm gonna flip that around a little bit.

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Have you come across something where you're like, man, this idea is awesome.

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I haven't seen this before.

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I really would like to take this there, but I'm not sure that's the

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group of people to do it, but I'm going to take this idea and stick this

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in my back pocket and see what else I can do with this somewhere else.

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Yeah.

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The short answer is yes.

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It's their idea, right?

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They own it, but yes, that the short answer is yes we've come

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across something like that.

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The ed and often it, I can flip that a little bit because often it's

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not that the team isn't capable, it might just be the team isn't ready.

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And so we can introduce them to some other folks.

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We can introduce them to some people and even some of our consultants that can help

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them get ready which can really shake out whether or not the team dynamics are well.

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So if you've got a couple of partners, there's all kinds of horror

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stories about partnerships, and our business partnerships out there.

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And so sometimes it's easy to bulk of them fail.

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I don't know that I'd say that, but yeah, a lot of them

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there's a lot of horror stories.

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Let me rephrase that.

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The people that I do with the bulk of them fail.

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Yeah, no I, yes, I understood.

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So yeah, look at that because that could, that can hurt companies and

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then, something is probably important.

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I don't know if you, I may be skipping ahead.

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You may have some questions around this, but we also look at the

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structure of the company, whether it's a early stage company.

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Now if it's a really early stage company where it's literally not just pre money

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evaluation, but it's pre company, where are you going to help stand it up?

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Then I don't have this particular issue, but we look at the formation

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types of the companies and sometimes in the term sheets, and

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this is a lot of investment firms.

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Most investment firms will get involved in this.

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So for those people listening that are on the entrepreneurial side

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and want to go talk to VCs and PEs.

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If you have your company set up as an LLC or a S.

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If that, to be direct if you're a co or a single member, LLC, but if it's a, what's

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called a pass through entity, meaning that your profits and cash pass through

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to your, you investors, aren't interested in that structure because it doesn't make

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sense for protecting the investors money.

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Generally, not always, but generally investors are looking for your company

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to be a Delaware C Corp, right?

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There's some others that are attractive to Wyoming, see

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courts have become more popular.

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Nevada, C Corp is for certain types of companies, but that's

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really what they're looking for.

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And that's not a no-go when you show up to talk to an investor, whether you're

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an early stage or you're a government services contract, it's not a no-go.

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It just means that will be an additional step of the process where you will

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have to update the structure as part of the term sheet before those

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companies will move forward with you.

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So I think company structure is really important to how are the bylaws set up?

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Is it standard business practice?

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Yeah.

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Th that matters to us.

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It can, those things can be changed, but sometimes those things are really

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expensive to change depending on how you have set your company up.

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If you set your company up with 50 million shares inside of it, because

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you thought it would be great for for dishing out extra options for your

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employees, which is a good thing to do that might be more expensive when you

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need to when you need to go and make filing changes at the state level, because

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they actually charge you based on how many shares you have in your property.

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So there's a number of things like that.

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Again, that's another one of those topics where we could talk

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about business formation and what to do and what not to do.

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And it all depends on it.

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Like everything done.

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It all depends.

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If you're looking to keep the company and it's just going to be,

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your income generating company.

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Yeah.

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Pastor entities are great, S-corp will, will save you on taxes.

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Almost every time, but it all depends on what you want to do

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and those things can change later.

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You have to really think through that and have, be ready to hear

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that when you approach an investor.

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And that's one of the things you talk about, I think, correct me if I'm wrong

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with kind of the structure and the support team that you bring, the advisory

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board that you bring is your preference.

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Then to really find those really early, super early stages to

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sit there and go, hold on.

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We want to, we don't want to have to do a lot of retooling because somebody

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picked the wrong corporate structure or their team's not flushed out, but

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we can go ahead and accelerate, and use incubator model, but accelerate the

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growth and go to market expansion in the networking is early in the process

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as possible versus a lot of retooling.

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Somebody comes to you really late.

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They're so far down the road that you got to spend tons and tons

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of money to fix their screw up.

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Yeah.

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That's a part of it.

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It's not the main driver for why we pick the market space

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that we do for the early stage.

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But it is a factor.

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Absolutely.

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Because if we can help guide that it just saves time and money down the road.

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And the goal with any early stage startup is to Mo be the most efficient

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deployment of capital that you can getting the, really focused on those

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tasks, those items, those expenses those people that are going to get you to

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where your goal really is the quickest without the noise that slows you down.

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And so that, that is one year to your point.

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That is one factor, but it's not, again, it's not a, it's not a

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no-go if a company has all the wrong things, but it is a factor.

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It might change the terms of the deal a little bit in the later stage,

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companies were expecting to see that.

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So like we do invest in two government contractors service contractors in

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certain market spaces of the government.

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We expect to see, probably some of them be set up properly as a C Corp

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in the right states that we prefer.

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But the reality is there's a lot of LLCs and others out there and that's okay.

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We can help them to change to what they need to be, to support what we're doing.

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So it's not a, again, it's not a show.

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But on the earliest, any one?

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Sure.

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Have you had anybody, we always talk, you think about investments

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and investment companies has those ones that are relatively new, we've

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talked about having a minimum viable product or somebody that's just at

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the idea stage, and they want to know how to get her off the ground.

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Have you had anybody that's come that's maybe been around for a long

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time, but they've just not been able to get it to off the ground the way

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they wanted to, but the principles and the foundation is solid.

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Is that something that's out there?

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Do people invest in those types of things or is this typically still a new idea

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type of generation area for investments?

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No, I think there's definitely some of that out there.

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I've probably seen one or two before we started riffing investments

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that were interesting to me.

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I think the reality is.

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It and again, I, sorry I keep saying it, but it depends, it all depends

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on the specifics of everything.

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Yeah.

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Everything depends.

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It's a different person at different personalities, different such.

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Yeah, absolutely.

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But yeah, and I'm speaking in generalities, in the most part.

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So to answer that, yeah, there, there certainly are those things out there,

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and I think it goes back to the tenants, the different investors look at moving

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forward, it's often the leadership team.

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So if someone's had an idea out there that they just haven't been able to

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launch or have been too anxious to launch because a lot of us, or get too

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anxious to launch something now it's a lot of work and anxiety once you

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do it, it's often oh, that was easy.

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Now the hard part comes.

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But for someone that's sitting out there, you've been through this but

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the the reality is if you have a scenario like that someone's been

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out there, someone's been had this idea just hasn't quite got it sold.

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Hasn't moved it in the direction that needs to go.

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Or that they want it to go.

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I would S the advice to them would be, be open to, I'm not saying cave

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to whatever an investor or investment firm wants to see, but be open to

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hear that your idea while great.

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That's why they're talking to you, if either you've got a good intro and they're

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giving you a few minutes time, or you had a couple of conversations and they're

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talking to you for a reason, because they think it's an interesting idea.

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Be open to their suggestions, at least hear them out and then go talk

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to a couple other firms that are similar, but different than other

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ways, and try to figure out what, what they have to say about it.

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If you can get those intros and be open to the idea that you, as the founder, as

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the principal investigator of your idea.

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The open to the idea that you might have to change a little bit, or you

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might have to change your view of the world in order to get your idea done.

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Don't give up on your passion.

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Don't give up on your idea.

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Not saying that I'm saying you may have to change them.

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You may have to work hard on something that is not what you

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would normally work hard on, right?

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Like it might be team dynamics.

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It might be your manners in terms of understanding how to talk to

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people and communicate and improving those there's that goes a long way.

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It's often a challenge.

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And then again, seek advice on how to speak the language of

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the people you're talking to.

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No, your audience.

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Do you have situations with or.

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You're looking at somebody that's coming to you, they're looking for help.

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They're looking to get a, something off the board, you're looking to get her,

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return, help someone scale where you start getting into these ideological conflicts

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over this is, the intended growth of whatever it is and how to navigate those.

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So it's, so you're trying to bring people in that are on the advisory board.

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They've done this before.

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You've got somebody else going, they're stressed being those miscommunications

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and trying to smooth line, smooth those out to, to get there.

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How do you a bake that into any agreement?

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Repeated conflicts, everybody go, you know what, this kind of, this isn't

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working, we've been at this for a little while or to be able to sit there and

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go, who actually has the final say if there needs to be a shift or a pivot

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because of something new that emerged in the market space or something

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new, that was just, you didn't know.

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Cause sometimes you just don't know what you don't know and something pops up.

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So how does, how do you navigate those waters?

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I can tell you what we don't do.

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We generally don't go in especially on the, on most of the investments that we're

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looking to make under ruffian investments, we're looking at minority stakes.

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So in theory, the founders are keeping the majority and, are

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voting based on their majority.

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However especially in the early stage deals the later stage, it depends, we

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generally want a board seat or a seat at the table to help guide them and

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push them forward and be part of the conversation because that's what we bring.

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We bring all of that support.

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We've gotta be part of the conversation where the early stage companies

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were generally looking to have not just a board seat, but have,

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equal or close to equal voting.

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And the reason is, and I really liked the balanced out equal voting rights.

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Even if we're a minority investor.

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And again, it depends on the company.

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It's not a, it's not a hard and fast requirement, but

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it is up there on our list.

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And the reason goes back to what you just said, like, how do you

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work through those problems?

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How do you resolve those?

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If you have a board, you have the founders and the employees that they've

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hired that are running the company.

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And they're the executives.

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The board has charged with the powers to run that company, but then you have

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a board that's got a balanced vote where one individual can't just run

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forward and do whatever it is they feel they want to do to your point, right?

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Maybe the market changes, but their idea, this goes back

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to founders need to be open.

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I've been there.

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You need to be open to input and feedback on what might not be

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viable, but how your idea can pivot into something that is viable.

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For us, it's generally on the early stage companies, it's the

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way that we help resolve that is, if we're 15% or 35% equity stake.

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And again, it all depends on what we're trying to accomplish us and the founders.

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We generally still ask for equal voting rights because with those

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equal voting rights it doesn't allow us to out vote the founder.

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We don't want that.

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We actually want a conversation.

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We want to force the conversation so that no one can, whether it's

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ill will or just happenstance.

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We don't want anyone to be able to move forward and do something

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without having the conversation.

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So we generally look for in the early stage companies look

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for those equal voting rights.

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And it's just a, it's a way to force the conversation.

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So things do get hard.

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We actually haven't had any heart issues yet, but we've been doing this as

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Griffin investments for just over a year.

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So I'm sure we've done a lot in just over a year but we've been doing it for

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just over a year, but I have been around.

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And heard experiences of other firms.

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I think I think that's probably the simplest answer to that in

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terms of what we look for, but it's also, building rapport.

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We're at the stage where we're not going to work with people

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we don't want to work with.

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So we like to build rapport with investors partner firms, and portfolio company

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firms, that potential portfolio companies before we invest so that we understand

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the personalities, we understand the business model, we understand the people.

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And then that tends to that understanding tends to help in communication.

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It's, communication one-on-one right.

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And And can read Carnegie's books about communicating with people.

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There's a lot of good tips.

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All of that applies here.

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Make sure that you can communicate before you go forward and and get into

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a deal where you have to communicate.

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And one, aren't in the right relationship to communicate.

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And two don't have the right legal framework to communicate,

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which is why I said board seat.

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And then, making sure that rapport is built.

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Oh, the reason I put my risk mitigation hat on from cyber security going,

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that's a big risk when you're dealing with one, either a, your own money

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you're investing in it or B you've got a whole bunch of other people's money.

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You've decided to invest into it as well.

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Hold on a second.

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We have both.

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So yeah it's it, again, things are going really well.

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I'm very happy.

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It's been a humbling experience, but it is a lot of work.

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It's gratifying for us, but it's been.

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Can you talk about, I'm familiar with catapult, I'm familiar with rapid ascent.

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Can you talk about some of the success you've already had in the

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short time you've been around with either of those tour or one of

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the ones I'm not as familiar with?

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Those are the only two we're openly talking about right now.

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We still have, some others that are coming to the table, one other that's

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closed and is currently going through that like full standup process with our

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team guiding the founder through that.

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So catapults one, that was a private equity style deal that we procured

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from another firm that had bought them.

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Not long before us.

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We spent some time, it was a good company.

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A lot of past performance been around for 21 years.

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I believe government services contractor.

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I won't really talk about their customers, but it's all cybersecurity

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defense, some in, I'm going to not, I want to interject, I want to interject,

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I want to interject right there.

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That Brian works on a lot of, has worked on a lot of top secret things that we

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will all get smacked if he says too much.

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So please continue.

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Yeah.

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So I'm not gonna go down that path.

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But yeah, catapults a government services contractor that has

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a lot of interesting work.

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And the company was, it was, it's a good company.

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It was a good company.

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The employees were great.

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It had shrunk from where it was.

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We invested time and money obviously to update the systems and basically

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get the company structured for growth in the market space as it sits today.

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I'm not even knocking the past.

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I'm just saying that the company wasn't ready for growth in the way

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the market spaces is oriented today.

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So we spent time and money getting it ready for.

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And now we replaced the leadership team again, not because there's anything wrong.

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We actually picked up the leadership team that was at catapult and moved

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them to another project of ours that was, better for what we needed and

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then brought in some new people.

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And and then the team actually works together.

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So we do we do try to get our support team on the Caribbean side to to dive

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in and really provide growth support as well as back office support.

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So has been doing really well, expanding again and a is going

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after some exciting opportunities in the government contracting space.

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We monitor it as owners and provide advice and advisors to

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go advise that company directly.

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But we, that's where we stay in terms of Joel and I where we're at with.

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Rapid ascent, we invested really early into a convertible note.

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We were the first and largest investor into the original investment to that.

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That company has really started really started building up their their

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service offering their SAS service offering or product offering last

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summer in June hiring Austin team to really move something forward.

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And so now we were to a point where they've got a series of contracts

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with a very large US-based firm.

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I don't wanna say too much because I don't, I'm not certain whether

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they can talk about it yet, but I'm pretty sure some things will

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be coming out in the near future.

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They've partnered up with a couple of interesting apprenticeship

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programs where they're going to be providing their platform and

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training services directly to.

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A much larger apprenticeship program nationwide, so they're really taking off.

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And this is one of those where it's a good example of rapid ascent is a

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good example of where some of these companies could go when they're

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pre-seed or early stage companies.

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So we invested pre-seed into a convertible note right now Rapides

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and has already built a platform to do skills based cyber defense training.

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So it's really skills-based not certification or fundamental

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learning-based, but skills based.

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So think the skills you have to do a certain job.

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You can go to one program to learn them like the boot camp model in the military.

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You go to learn how to do your MOS, your military specialty.

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And so that's what rapid ascend is doing at a very high level.

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There's a lot more there.

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Certainly anyone that wants to know about them can reach out to me or the team

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there, you can hit them up on LinkedIn or through their website, but they've

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got a, an academy with an entire platform that, that, that provides those services.

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And we got involved very early.

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We helped them with stand up.

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We helped them with marketing and back office and, all the different

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things that that they needed.

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They're now heading towards a priced round probably a series seed price round.

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And then they'll had they'll head to a full blown venture capital style series,

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a investment round I'm guessing next year.

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We'll see how that shapes up the leadership team.

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There is doing a great job pulling together the, what the future looks like.

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But that company is another example of an early stage.

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We, again, we have a couple other early stage companies in the pipeline.

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One that's going to be announced soon, but it hasn't yet.

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So hopefully that helps with both of those.

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So those were awesome stories and two totally different ways that

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we've been discussing this entire time of, one kind of acquiring one,

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another one at the early stages.

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I know when I was talking with boy on, with his company, who does the PA

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they do passwordless authentication.

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And I'm not asking for a specific when I say this, but he referred to having

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I said, when you start getting the venture capital and money, I said, at

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some point you need to have an event, w with some of these, it sounds like.

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Rapid is saying, going through venture capital, you may be looking at an IPO.

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Is this a situation of acquiring other brother sister type companies to make

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something bigger, a bigger piece?

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Or do you go, Hey, we got everybody in, we've acquired this, we've grew catapult,

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for instance, we've 10 X, their revenue, and now we just want to spin it off.

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It's just like an, any, and all beyond strategy as an exit.

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Or do you have one way you're like, no, we want to make everything public.

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We want to go IPO with everything.

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I personally am not terribly interested in pub going IPO, but I'm

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doing an initial public offering.

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Although some of these could go that way for certain.

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But that's not really our core investment thesis, especially when

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we get involved at the earlier stage.

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Cause that might take more time than our current thesis supports.

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Cause we're generally looking for three to five years.

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Although some of these early stage companies could go as far as eight.

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And so we're not we're not generally going to look at the IPO route.

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We're not against it.

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We're just generally not what we're looking for with rapid ascent, to go

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back to that it's possible that that rapid ascent may go the route of, buying

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maybe through equity trades or other investor money buying other companies

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to bolts on in order to, grow that exponentially faster, or maybe get

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certain contracts in the commercial or government world that they want.

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Those are all possible, right?

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Those are all possible outcomes.

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And so I think the best way to answer that is we use us our experience

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and our advisor's experience to work with them and see what kinds

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of opportunities we can drive.

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Because I could see rapid ascent getting a bunch of bolt-on

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capabilities that we then integrate.

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That, and then it goes, for a larger much larger sale to maybe one of

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the large training companies in the country could be a possible path.

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It could be that a large, I don't know, a large financial firm might want

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to buy them because they have such a large swath of employees and services.

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They provide that maybe they want to buy a company to provide services.

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I guess what I'm getting at is it's hard to, it's hard to, unless you

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have something built in upfront, which the other one, that's still

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in stealth mode that I talked about.

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It had some, it had an opportunity built in upfront.

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So that one, we do have a path we know where we're going to go

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and what we want to do with it.

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We know what we're going to do if the first path doesn't work.

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So that's all kind of mapped out on these other early stage.

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It's hard to say because we don't know what other competitors or

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other overlapping capabilities are going to pop up in this.

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On the later stage PE deals and government service contracting those, we generally

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know going into them before we agree to them what their likely path is, right.

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That they have they meet a need that we know a large private

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equity firm that does buy outs.

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So there's Farmington capital and a bunch of 'em out there Carlisle,

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everyone just saw the ManTech deal, manTech is getting acquired by

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Carlyle and take it back private.

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So larger firms like that, we have an idea, not on all of them, but with

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many of them, we stay in contact with people and we have an idea of what their

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gaps are in the portfolio they want.

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So maybe we go into a later stage government contracting business and in

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our investment in part, because we know that there's a swath of PE firms that

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want to do buyouts that want to buy them and match them up with someone else.

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And so we keep our tabs on that.

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There's other large firms, the Raytheons and such man techs

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of the world before ManTech got acquired, that ManTech was known to

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acquire a lot of companies, right?

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That's part of how they grew.

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So keeping tabs on what's interesting to those portfolios that they have,

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their portfolio of services is another way that we can help map out where

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the government service contracting goes, because we can see based on our

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advisors and our experience, and we go to a lot of industry events to stay

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up, to speed on what, on who's doing, what we can see a potential path.

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And then we'll often have not an exact Hey, this is what we're going

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to do, but this is a set of paths.

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We believe have a high confidence of Great.

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So you can start positioning the company in a direction versus,

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and really pushing it in and go.

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We want to go this way.

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How about new startups coming into the, how about new startups coming

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in there that may be starting to mimic something you're invested in?

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Is there opportunities within there for you guys to come in there and go,

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Hey I don't like all this competition potentially entering the landscape.

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Let's see if we can suck these guys up super early.

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That's possible.

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You ha you do see that sometimes in the VC world.

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The, I think the short answer is no.

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Often that competition is actually good for our investments.

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Can help drive forward what's happening because they're going

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to go and talk to a lot more.

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They're going to in theory, make noise in the community, which then people

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who are doing their due diligence are going to find our portfolio companies.

Speaker:

Like rapid ascent has a couple of that.

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I haven't seen anyone who does exactly what they, the way in

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which they're providing what they're doing, but there are some

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overlaps right there certainly are.

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And some of those companies might be down the road, potential acquisition

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targets, or maybe they are more competition in the market space that

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really does make the pie bigger, for everyone else because people start to

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pay attention to a new market space.

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And often one company can address a whole market space.

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Anyway.

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So in order, so said another way rapid ascent specifically is seeking

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to help solve in a scalable way.

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The cyber defense job shortage.

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There are jobs shortage, but employee shortage, there are far too low number

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of candidates available to fill very specific cyber defense jobs out there.

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And so rapid ascent part of their thesis.

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To really attack that problem.

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There's what I think we're up to.

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I can't remember the latest spec was, but the last time I saw it, I think it's

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they estimate there's a million cyber defense jobs open in the United States.

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And we're not even talking to that and the worldwide numbers, like over

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5 million, so there's a problem there.

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So like you telling me they can't fix all that university, the training companies,

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and everyone has a place and a role to play, but they're not solving the problem.

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And so rapids since coming in with a different approach on purpose

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to look to solve that problem.

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But even if they have the perfect solution, they're not likely to scale

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to solve that number of job shortages, over over a short period of time.

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So market competition can actually help to drive the value of not just

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our investment, but multiple others.

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So I see it as a good thing, that doesn't mean we might not seek

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to acquire, that rapid ascent or else might not seek to acquire it.

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We could, but that's not a given.

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Gotcha.

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For your, the way that you run your different funds.

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Somebody listens to this and I'm going to ask this a couple of different ways.

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Verse on different scenarios is if somebody comes to you and

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says, Hey, I was CEO of XYZ.

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I want to be an investor.

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How does that process work on the flip side of that is they're like, Hey,

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all right, man, it's a million dollar.

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Buy-in no matter how that functions or is it a per deal?

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I'm just throwing out.

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Obviously I'm making up crap.

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Cause I don't know.

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So I'm asking, or it's or it's like, Hey, I only, I want to invest with

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you, but I only really want to do the, government contracting service.

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I want nothing to do with rapid.

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How do you, how does that function?

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How do you guys function?

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When say there's.

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Sec rules around what I can, and can't say publicly, I can

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talk to like you and I can meet.

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And I can tell you all those details.

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We can jump on a phone call.

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I can send them to you directly in an email, but I can't publicly disclose what

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we're doing with our funds until the fund is fully closed at the end of the fund

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cycle, which means you can't get into it.

Speaker:

It's fun how we can't market ourselves the way we would otherwise prefer to write.

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I'd love to just go, oh yeah, these are people I'm looking for.

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And this is all the terms, but I unfortunately, can't interesting.

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Yeah.

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There's you could be Ilan to just get on Twitter, man.

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That would get me in trouble with the sec, just like he's already in trouble,

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but but that's a whole other topic.

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Yeah, so here's the short answer that I can say.

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Yes, we're raising capital.

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But that's been said in a number of different forums.

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Yes, we have a fund that's open right now.

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I can't really go into the details, but suffice it to say if you are an

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executive or I don't wanna, really want to talk about class, but I guess upper

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middle class, like if you've done well or really well, but if you've done well

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and you have some some money that you're looking to put into alternative market

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spaces, we could be a place to go it's.

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The buy-in isn't as high as what people think it would be.

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I can't talk about it.

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If you want to know, people reach out to me and I can have a direct

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conversation with you, but but we do have a entire investment disclosure package.

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So anyone who is a serious, you do have to be a A qualified investors.

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So essentially you have to have over a million dollars in assets.

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You can go look up the terms.

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They're very clear out there.

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The sec has them on their site.

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So you do have to be, you do have to be that level of investor.

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It's a lot of middle-class meet that definition though.

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So I'm talking around this job, like you could probably, no, that's fine.

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But you answered the question.

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Yeah no, you actually, you answered a question.

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I'd heard more terms around real estate.

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If you're familiar with grant Cardone and Cardone capital, or he would talk

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about unqualified investors and qualified investors, and I've heard the term,

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but I've never taken the time to go.

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What I, what does that mean outside of somebody vets that I'm a real person

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and not a bot on the internet, correct.

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The statement.

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So for us, we were considering qualified investor, but that's actually a higher

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level than what we ended up going with.

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You have to be an accredited investor.

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So in an accredited, so there's, I don't want to butcher the

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terms off the cuff here.

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Especially as I was at a charity event until late last night.

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The interesting answer then.

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I'll behave.

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The the accredited investors are what we're looking for accredited or

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above as good with us, but accredited again, go look up the terms, but

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essentially it's over a million dollars in assets that you have or you have

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over a certain income and it changed.

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I don't remember off the top of my head again, I was going on

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very little sleep at the moment.

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Perfect time to come on a podcast and talk publicly, but yeah, so particularly

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with the grilling I'm giving you, so we're definitely we're looking for

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accredited investors which, a lot of people out there do meet a lot don't but

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qualified investors are another level up.

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And essentially you have to be able to prove that you had a one

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that your net worth is quite a bit higher than an accredited investor.

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And to.

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That you've had experience directly getting involved in

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large deals investment deals.

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And again, I encourage everyone to go look at the specifics and they're

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all over the internet, but, you can certainly find them from the sec side.

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Sure.

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I didn't, I'll be honest with you.

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I didn't realize a lot of that stuff there.

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Wasn't just general public rules that, or, stuff that's out there

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that everybody had to apply to.

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It sounds like it's very customized to your specific structure.

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Is that, am I interpreting that correctly or parts of that?

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The stuff that you can?

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It depends on it depends on what kind of fund you set up, what kind

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of investment vehicle you set up?

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That's probably a better way to say.

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It depends on the type of investment vehicle that you

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set up and then it depends on.

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There's a bunch of factors and the STC.

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Obviously the rules exist for a reason, right?

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But these, the, if you're going to publicly market a security, meaning you're

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going to publicly market that you have a investment thing that anyone could come

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and invest in an investment implement that anyone can come and invest in.

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You have to be you as an investment firm.

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And the partners in that firm have to be qualified at a higher level

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than other types of investment.

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Or you have to be specifically certified in working with people

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that you may not be able, may not be able to afford to lose the device.

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So there's different funding, investment funding vehicles that exist for a reason.

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And it's to address the different types of investment

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investor or profiles that exist.

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There's obviously, we've all heard stories about Hopefully not recently, but like

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way back when, people investing their hard earned, like family savings and then

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losing it all in some investment scheme.

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So these rules exist in part to keep that stuff from happening.

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Joel and I, as GPS, as general partners in the fund and partners in the firm

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we're required to fall under sec rules, we were required to pick a number of

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specific configurations of our fund.

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And when picking those that, that dictates which rules and which

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certifications and which requirements, Joel and I, as individuals and

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our firm have to fall under.

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And then we have to live by those or we get in trouble.

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So yeah, but for the fund accredited investor, Got it.

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You got two more questions and two to wrap up, you have a like a number of

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like your maximum amount of companies or funds where you go, Hey, we're tapped

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out on what we can handle right now.

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Does it function that way?

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It does.

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And that goes back a little bit to your investment thesis and

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how much capital you're raising.

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So I think, privately what I'm raising, but again, if people want to know that

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they can reach out to me and I'll be happy to, if you're an accredited investor, I

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can talk to you about what we're up to.

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But within the ceiling of our, in our fund or funds within those ceilings obviously

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we can only go so far as the ceiling deploying ours and our investors capital.

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So th that's one, but then it goes back to the investment thesis.

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Let's see.

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Let's just say it's a 10 million, there's a $10 million fund.

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That's not what I have, but let's say it's a $10 million fund.

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Obviously you're going to only deploy $10 million or less.

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And so the number of companies or how far you can stretch that all depends on

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your investment thesis, which is what is it that you're looking to invest in?

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How much are you looking to invest in these different companies?

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For, we have two profiles right now for our investment thesis

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that we're looking to invest in.

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Really, and there's some outliers for certain, like we're willing to talk, I've

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already said we're pretty open and want to look at what's win-win for everyone.

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But but there's really two profiles we're looking for.

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Seed, maybe an early, a startup company.

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And those, we're at our stage, we're looking right now probably.

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500 K to two and a half million is our investment helps into those companies.

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And it depends on the stage where they're at our confidence level and

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whether it quite frankly, whether there's other investors also investing

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in those early convertible notes we've made investments today that

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are just under 1,000,001, that's at a million, some that are higher than two.

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And so we're, we look for the right reason to invest over the specific amount and

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then apply the specific amount based on what we're trying to accomplish and what

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the company is trying to accomplish.

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So that's the early stage profile on the government contracting side.

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We're really looking for companies that are in probably getting up

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to the 25 million mark in revenue.

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And we do, we have done less.

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So we are open to talk, but it really depends on.

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On the specifics of what that co again, the market space

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they're playing it, right?

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So they're playing in the government contracting market space, but are

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they like, are they DHS market?

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Are they federal civilian agency markets?

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Are they working with just a couple of the military services agencies,

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all those types of things matter, depending on how our network can

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help them and we help them exit.

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But with those we're looking for companies that are in that 25 million revenue mark.

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Probably 18 to 25 million is probably the general what we're looking for.

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And then with those, we're probably looking for one to 3 million sometimes

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more invested into those, again, all, depending on those specific

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scenarios and, are they a single owner that has like the cap table, the

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capitalization table, the stock table is all one owner or are there a bunch

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of partners how does that all play out?

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And that'll help to derive what our investment will look.

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I will wrap up with this.

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Somebody who sees you out on the golf course, they know who you are.

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Brian, I got an idea for a company.

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How do you respond?

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What's your idea?

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So this I'm pretty open to conversations.

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I am busy because managing a lot of things right now, but

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but I'm open to a conversation.

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I I think you'll find a lot of people in these roles are I'll very quickly,

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tell someone like that and your golf course or wherever very quickly tell

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them whether it's like in the general profile of what I'm interested in or not.

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And because I do talk to a lot of other people in VC firms on a daily basis

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at least lately it's a daily basis.

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I have a good idea on, on, on some of what are a lot of what

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our partner firms are looking for.

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So I'll make a quick intro to some, to whoever.

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The intake manager is, the inbox manager is for those firms to, to make an intro.

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And that's not to say I, I haven't had it happen, but I keep hearing

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about it that there's some people out there that'll just keep pestering you

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in pestering, you and pestering you.

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That's not cool, especially if I've already taken the time to respond

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to someone, but at the same time I'm generally open to a conversation.

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Awesome.

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I really appreciate the time.

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This is super informative and seeing the flip side of the conversation, the

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investment company that, point of view versus everybody else, that's always

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chasing money, what you're looking for.

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I think this will for, I've been in that thing where I know tons of

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people that have tons of ideas and zero execution on some of that stuff.

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So being able to, say, Hey, here's what you, here's what I'm looking for.

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Maybe put somebody on a path that maybe have been sitting on

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the sidelines or even reach out.

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So I appreciate the time for sure.

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I appreciate anybody wants to reach out what's the, yeah, what's the best

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way anybody wants to contact you?

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Probably the best way is you can go to I'm sure John will have the the

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name up there for the spelling, but Ratheon investments.com and or reach

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out to info@ruffianinvestments.com.

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I do believe on our website, we've got a contact form of.

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Again, we're a little over a year old, so we're, we are still

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growing our communication with the industries that we serve and still

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growing our website and our presence and, all those things as well.

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Obviously we've already done quite a bit, but but yeah was probably the easiest way.

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I'm out on LinkedIn, send me a note.

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I send me a note with a very specific, Hey, I want to talk about

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X, Y, Z, and I'm not a sales person.

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And that's a better way to get me to respond

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and I will make sure all those links are going to be in the show notes

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again, Brian, appreciate the time.

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Absolutely man.

About the Podcast

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The Business Samurai
Skills and Stories to be a Well-Rounded Leader in Business

About your host

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John Barker

20+ years of technology, cybersecurity, and project management experience. Improving business operations to create a culture of better cybersecurity and technology practices. John is the Founder of Barker Management Consulting and the creator of the Business Samurai Program.

MBA, PMP, CISSP