Becoming investible is important to anyone trying to get a business off the ground. But where do you start? How can you make yourself more appealing to investors? On this episode of the B2U Podcast, we spoke with Christopher Langford of IDEA Fund Partners to help us navigate these waters.
Vanessa Vaughn Mathews Hey there, you are listening to the B2U Podcast. I am your host, Vanessa Vaughn Mathews, the founder and chief resilience officer of Asfalis Advisors. The B2U Podcast is brought to you by CBRbiz.com, a site connecting you with the resources you need to start and run a business in the Charlotte region. We’re bringing business resources directly to you. We discuss a wide range of topics like starting and growing a business, navigating government contracts and how to set your business apart in and around Charlotte. We’re talking with small business experts to get exclusive advice on how to start and run a successful business.
Vanessa Vaughn Mathews Becoming investible is important to anyone trying to get a business off the ground. But where do you start? How can you make yourself more appealing to investors? Here to help us navigate these waters is Christopher Langford of IDEA Fund Partners.
Vanessa Vaughn Mathews Chris, welcome to the podcast.
Christopher Langford Thank you, Vanessa. Exciting to be here.
Vanessa Vaughn Mathews I’m excited to have you.
Christopher Langford Thanks.
Vanessa Vaughn Mathews So before we get started, can you tell our listeners more about you and your background?
Christopher Langford Sure. Happy to. So, I started my career as an investment banker, so helping with mergers and acquisitions and strategy consulting and happened to focus at the time partially because of the time I got into investment banking on the housing market. So this was kind of the mid-2000s. We were in the midst of a big construction boom and a lot of my background happened to focus on homebuilders and distributors and specialty contractors. When I moved to Charlotte about 10 years ago I started to work with Lowes Companies, the big home improvement company, and was able to leverage some of my knowledge in transactions, but also in some of the markets around home improvement to work with them around strategy, business development. And my final role at Lowe’s was as the head in the founder of Lowe’s Ventures, which was the venture capital arm of Lowe’s companies, where we made investments in early-stage companies who were either transforming retail or transforming the housing value chain. Recently left Lowe’s and became a partner at IDEA Fund Partners. So, continuing to invest in an early-stage entrepreneur, but under a new banner.
Vanessa Vaughn Mathews I love that. So, we have some points of similarity there. That’s what brought me to Charlotte too was this home improvement retailer. So, if nothing else, they bring great people together.
Christopher Langford Absolutely, do a great job of hiring.
Vanessa Vaughn Mathews So let’s talk a little bit more about your role at IDEA Fund Partners like exactly what does what does that mean and what do you do?
Christopher Langford Yeah, I asked myself that most days, honestly. So, you know, as a partner at IDEA Fund Partners, we wear a number of different hats each one of us. On one side of the hat is we have to raise money. So, there’s no money to invest without having money in in the fund itself. So, we do spend our time kind of every few years raising a new vintage of funds. Most of that money comes from high net worth individuals who want to participate in the entrepreneurial ecosystem and also make a good rate of return on their capital. So fundraising is certainly one big element. The second is I do a lot of what you would call sourcing. I meet with entrepreneurs, I talk with them about their business, and ultimately, I look and see whether or not they are a fit for what our investment strategy is. For someone who may qualify at the very beginning of that and then I help to run the analysis of those particular investments, determine if they fit our investment strategy, our return profiles ultimately help structure those deals and then do work with the entrepreneurs after we make an investment in order to create a successful outcome. So, on any given day that might be human resources advice, helping someone find a vise president of product. Some days that might be a business development executive where I’m trying to connect them to people that might be able to help them from a partnership perspective. And honestly, probably 50 percent of the time I’m kind of a therapist. You know, being an entrepreneur is an excessively lonely, taxing job and one that almost requires you to put on this front of resilience on the outside. Right. So, your employees, your investors. You always want to look like you’ve got it all together and all figured out. And behind the scenes, it’s really nice to play that role where I can take my board member hat off, my investor hat off and just say, “look, how’s it going?” Like, “how are you feeling? What’s going on with your family? What are the things that are keeping you up at night?” And so, I think like therapists, this is shockingly really one of the biggest roles that we ultimately play there.
Vanessa Vaughn Mathews Yeah. So, before I ask you more questions, I really want to know what’s your “why?” “Why entrepreneurs? Why Charlotte? Why now?”
Christopher Langford So why entrepreneurs? You know, I didn’t necessarily have a particular entrepreneurial bug until I got started with the Lowes Venture side. But once you get in, it’s hard to get away from it, right? I just I find people…I find interesting people interesting and maybe that’s a little bit of a copout.
Christopher Langford But I just think there’s I think it’s something is super magical about talking with someone who fundamentally one disregards the status quo for how people make money or make an impact on society and choose to take on missions that seem like they don’t make any sense, right? And I think the vast majority of people that I run into this industry are exceptionally bright. They’ve got an entirely different view of what the world should look like. And they are dedicated with deep conviction to making the world look the way that they think it should. And it’s inspiring, it’s very, very intoxicating almost to be around people like that. And so, you know, not that not the big corporate life can’t be like that. But I think it is. It’s a very different mentality and world. And so, for me, I’ve always just really enjoyed talking with people with big ideas and jam sessioning with them. And then for those who I have the same level of conviction about the mission, joining the mission in in a small way, whether it’s funding, introductions, et cetera. It’s just I don’t know….I find it I don’t know that I could ever go back to doing anything else.
Vanessa Vaughn Mathews Probably not.
Christopher Langford No, I’m pretty sure I can’t.
Vanessa Vaughn Mathews From one entrepreneur to another.
Vanessa Vaughn Mathews So what’s the number one thing that an investor is looking for when they think about, hey, I’m going to put my capital into someone? What’s that one thing?
Christopher Langford Not to split it into two because I do think there’s a there’s a 1A and a 1B and if these two things don’t both coexist then to me it’s unfundable. And this actually goes to the sort of two different methods of investing, particularly at the earliest stage. So number one for me is “can, the founder inspire me to go on a mission?” I always say this; “every founder’s job is to convince a bunch of people that shouldn’t go on this mission with them, to go on them.” Right? Like their customers absolutely should not use their product yet. It’s most likely not as good as some, you know, enterprise grade product. Their employees should probably go somewhere that has benefits and better salary. Their investors could probably get a much safer rate of return somehow some way. But to me, when I sit across the table from someone, the number one thing that’s most investable to me is; if I don’t walk out of that meeting thinking “I want to be a part of this, I’m so convinced, despite all the odds, like for some reason, I believe that this is going to be successful” then I’m out. Like I can do all the mathematical analysis thereafter. I just I can’t get…I only have so many swings at the plate and I just can’t get behind anything where the person who I’m sitting across from doesn’t inspire me. I think that’s kind of number one. And that inspiration is what comes along with the second part, which is you need to have an exceptionally credible plan for what you’re going to do with that money. Now, again, I’m talking specifically about venture capital and there’s lots of other sources of money that’s out there. And I would say a bank would have a different, very different perspective of what they like. But for me, the other par…part of what makes you convincing is that you can tell your plan in exceptional detail. Now, that’s either because you have subject matter expertise that’s been built up over a long period of time or you’ve just studied this market with great conviction. So it’s kind of a hand in hand. Like, one is just have that charisma to inspire all the people who need to go on this mission that technically have no business going along with you, but then you better have a really good plan for how you’re going to put the money to work and ultimately what we’re going to get out of it on the back end.
Christopher Langford So I know it’s a cop-out because it’s not one, but. But I think those two things have to go hand-in-hand.
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Vanessa Vaughn Mathews And, so some of our business owners are from startup and some of them have different stages and they’re much more advanced. When should I start looking? If I’m a business owner for investors?
Christopher Langford I think the answer is when you know what to do with the money, right? So, if you absolutely have a plan that you have thought through 100%, then it’s time to start looking for the capital. I think that as you progress over time, there’s different types of capital that you might be looking for. I think, though, the number one thing is that that’s when you start and I think the sooner the better. So, talking specifically about, say, raising equity or venture capital, the one thing I can generally tell you is it’s going to take you a lot longer than you think. So, I think bank debt might be something, again, totally different. You might have an asset that you can take to a bank. A bank has a very specific underwriting procedure. They pull your credit scores. They look at some particular ratios and they sort of thumbs up, thumbs down you. And they can they can do that relatively quickly. When it comes to raising equity again, it’s this I’m going to tell you a story. I’m going to inspire you in sometime in the distant future. I’m gonna give you a whole bunch more money back than you gave me. That takes a long time. I have never seen a capital raise take less time than we anticipated. And that’s even with companies that have, you know, decent revenue and traction and growth. So I’d say, 1. You know, the best time to start is as soon as you know what to do with it. And 2. You absolutely need to start before you need the money. That’s another element that I’ve seen, which is investors will find out how bad you need the money and the cost of that capital will go up exponentially depending on how bad you need it.
Vanessa Vaughn Mathews Yeah. I’ve heard that ask when you don’t need it so you can have it when you need it.
Christopher Langford It’s like job hunting, right? People always tell you the best time to go find a new job is when you’re when you’re relatively happy and you have a job, right? Same thing with raising money. If `you say well we’re you know, we’re going to run out of cash in four months, it’s time to start raising then nine times out of ten what will end up happening is two or three months later, the board is going to start telling you to lay people off and cut costs in order to extend your runway. Just it takes a lot longer than you think. So, I think always be planning for the next fundraising cycle. And ultimately try to wean yourself off of capital as a source to stay alive and move it forward to it as a source of growth.
Vanessa Vaughn Mathews Gotcha. OK. So how does investment change as your business grows? And if you can, as you think about that statement. Walk us through all the stages. Of capital from initial startup days to, “hey, my business is at a different point now, and we now need an influx of cash, for equipment for, you know, staffing.” So, walk us through how that change happens.
Christopher Langford The number one thing that changes, that I would say, is the amount of information available to an investor and that changes the cost of capital. So, the very first day when you have an idea on a PowerPoint deck, the cost of that money is very expensive, right? And so that’s probably what most people consider angel funding, friends and family funding. There’s a lot of different names for it. Right? But that’s have an idea. I need 50 or 100 thousand dollars to build a prototype to prove that this idea doesn’t just live in PowerPoint it can live in software or somewhere else. And so, that’s kind of your first step. Nine times out of 10 angel or friends and family capital comes from what I call local rich people, right? There’s lots of them in Charlotte. There’s lots of them in most major metropolitan areas and if you can find the local angel group or kind of network your way in through LinkedIn or other channels, what you’ll find is most local rich people are constantly looking for these types of deals. And so that’s kind of your first form but at the same time, it’s gonna be a relatively small check for a moderately larger size of your company. Now, as you as you sort of prove out, yes, I can build the product. Yes, I can get someone to pay me for it or I can get some initial users. You start to move into what you might call like early stage equity, which is kind of where IDEA Fund plays. At that point, it’s still relatively expensive capital. Right? We want to make, you know, five to 10 times our money over the span of seven to 10 years. We’d obviously like to make more than that. We’d like to have the potential for that but that’s relatively expensive again. That’s equity financing. That’s “I believe your story. I believe that if you build it, they will come. I believe that one day you will make more money than you spend.” Right? There’s a lot of things that there’s not enough data to prove that those things are 100% true. Then when you cross over into the point of actually being profitable or building with assets, funding starts to get cheaper and cheaper and cheaper. So, you might have growth capital or private equity, capital, bank financing, etc. And the cost of all that capital goes down over time. And I’d say most of the time it’s just 100% correlated to the amount of information that enables me to underwrite it. In the very early days I just have to believe that people want you right. If you’re a million-dollar business versus one hundred-million-dollar business, I’ve got a lot less data to prove that that your business will work. And I think over time, as you prove out more and more pieces of the business as people want it, the product works. We can make money doing it. The cost of capital goes down substantially.
Vanessa Vaughn Mathews Wow. OK, so you talked about venture capitalists. You talked about early stage funding. What are some other means of raising capital and what are some of the opportunities that people need to know about, especially if you’re in the Charlotte region? People always talk about access to information. What information can you share?
Christopher Langford Yeah. You know there are grant programs like NC Idea. So, IDEA Fund was actually built in conjunction with the NC Idea Foundation. So, NC Idea gives out grants each year to people who can display that they have an idea that could be very impactful to the North Carolina ecosystem from a jobs perspective. And they helped fund some entrepreneurs with non-dilutive capital. Right. So that’s non-dilutive capital is always great. So, grants are one. I always say the best form a capital you can get is revenue. So, if you can get an early customer who will pay you and there’s lots of big companies in Charlotte. If you can convince one of them to give you a paid pilot, it serves similar purposes. Right. It helps you with development. It doesn’t go in your cap tables. It doesn’t eat into any of the returns or the investors. As you’re starting a business, those are some of the some of the earliest ways that you can say you can pull in capital without going to some of these other sources. There’s some people who are building some newer products around, like royalty’s and revenue share models where it acts more like debt, but they get a piece of the revenue going forward. Those are a little bit more in their infancy and I don’t know exactly how one might go about pulling those things together. Revenue is always your best form of capital. If you can get that sort of trumps all. And then, you know, there are an array of grants I don’t know them all, NC Idea being one, but look around and see where there are companies that are willing to kind of put capital in to develop products further.
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Vanessa Vaughn Mathews And I didn’t ask you this, but what space does IDEA Fund Partners play in, what types of entrepreneurs and business owners do you look for?
Christopher Langford So we tend to be first institutional capital in. So that means like right after the angels.
Christopher Langford The rich locals kind of put something together and help you build a product and get you to market. We tend to be the first sort of professional investor who comes in and writes a check. So, it’s still very early and that’s where we focus. From an industry perspective, we don’t have a particular industry that we focus on. Our legacy has been to serve the underserved. So that typically means markets where there isn’t a lot of resident capital. So, places like Pittsburgh that have huge engineering bases and lots of technology that’s being created, but very few venture capital firms in there. So that’s not San Francisco, right? That’s not New York or Boston. That’s been typically the focus of the firm in the past, which is find places where there’s less capital than there should be. But from an industry perspective, we will look at entrepreneurs across all types of businesses. I’d say the core the core element across it all is it’s either technology based or technology enabled because we do have to see a path towards, you know, large margins or a large outcome one day in order to return the capital to our investors.
Vanessa Vaughn Mathews And you mentioned early stage. What’s your definition of early?
Christopher Langford Yes. For us, I’d say our sweet spots like between 0 and 2 million of revenue.
Christopher Langford Yeah, we can play kind of anywhere in between. It just depends on the type of company. So, some companies require more revenue for us to have conviction than other companies, maybe more technology based where we can take more risk purely on the technology and less on the revenue currently available.
Vanessa Vaughn Mathews Got it. And you’ll have to educate me here, too. But you mentioned, you know, going after the underserved communities. So, you talked about Pittsburgh, because there’s not a lot of funding there available, would you consider Charlotte underserved?
Christopher Langford Yeah, I would.
Christopher Langford I mean, I think Charlotte’s an emerging market. There’s a lot of debate about whether or not it’s underserved from a venture perspective. A lot of entrepreneurs would say it’s really hard to raise money around here. And a lot of people have talked and have spoken to have said, “well, we just don’t see a lot of good ideas. We don’t see a lot of fundable businesses from a venture perspective.” There’s a little bit of a chicken and egg syndrome that’s going on in that I think I think Charlotte does classify within the underserved market. And there’s a really great emerging class of entrepreneurs here locally that I think has, you know, migration has played a huge role in changing this city. And I think it’s also changing the mindset from being more risk averse, kind of banking as culture to one where younger generations are moving here because it’s a very livable city but maybe they have history of being on the West Coast or in New York or other places where they started the career they’re trying to launch a business and they’re saying, “hey, why aren’t we? Why aren’t we taking a little more risk from an entrepreneurial scene?” Charlotte markets that we consider to be underserved. Charlotte, Raleigh, Durham, Atlanta, Charleston and Greenville. But also like Pittsburgh, Boulder, Austin, Austin is probably starting to be about properly served. Right. But there’s a lot of there’s a lot of communities out there where there’s more businesses being built than there is capital to support them.
Vanessa Vaughn Mathews Okay. So, what is the piece of advice that you can give somebody who’s looking for funding?
Christopher Langford Sure. First and foremost is make sure you have all of your stuff together. You need to know inside and out what your business is, why it’s different, what your market looks like, why you’re the right…So even if I’m convinced of all those things, I also need to understand why you’re the right person to give the money to. 99 times out of 100, you’re not the first person who’s thought of an idea. And so it all comes down to execution. So, tell me why you and your team are the right team to go there. I think the other part is you’d need to do your homework. You need to understand what kind of capital makes sense for your business. If you’re an asset, intense business and you come in, pitch me, then I’m going to say wrong. You know, that’s not what I do, right? I don’t lend money to businesses that have high asset intensity because they can’t scale fast enough. Right. In five to seven years. I need you to give me back 10x my money. It’s hard to do. And you have to put money into fixed assets. Right. On the other side, even if you’ve decided that venture capital is right for you, the other thing is you need to do your homework to try to find the right firm, you need to understand what size of a check do I write? What industries do I invest in? What geographies do I invest in? It’s not just anybody with money is the right person for me to talk to. Get everything in a row. Be able to convince me that you are the right person to take on this mission that’s going to have an amazing outcome and then ultimately get yourself in front of the right capital sources.
Vanessa Vaughn Mathews Love that. So, as always, you can tap into the resources that we have available at Charlotte Business Resources. This has been very insightful. And I think it’s important because business owners need capital, they need funding and they need that infrastructure in Charlotte to really grow and build sustainable businesses across the region. Thank you for your time. Before we end, is there anything else as you would like to share with our listeners that you think I have not asked you yet?
Christopher Langford No. I think the one thing that I’d say, particularly if we’re talking about Charlotte, is Charlotte is a very open and welcoming ecosystem.
Vanessa Vaughn Mathews You know, having spent a lot of time in San Francisco, in New York, there’s a lot you know, they would they would suggest that there’s ecosystem is. You’ve got to find your way and to the right people kind of place. What I found about Charlotte is you can reach out to most people involved and they will help you. Don’t be afraid to do so. I play a role at the Davidson Hurt Hub. Sims, I don’t know if anyone knows that, but there’s an innovation hub that Davidson created about a year or so ago, and I’m playing a role up there as a venture-capitalist-in-residence. So, I’ll be holding office hours up there for people who have questions, you know, very specifically to be able to spend time with them, give them advice and help them on this path. So, you know, if people are interested, I adhere to the same sort of open-door policy that I think a lot of Charlotteans do. So, I just say, don’t be scared, reach out to someone even if you’re not quite ready. I’ve found people to be quite welcoming around here.
Vanessa Vaughn Mathews Well, with that, how can they contact you? What’s your social media? What’s your website? All the above.
Christopher Langford And you can go to our website at IDEAFundPartners.com. So, lots of different ways to find me.
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Vanessa Vaughn Mathews Once again, I am your host Vanessa Vaughn Mathews. And thanks for listening to CBR B2U Podcast.
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