The Hidden Math Behind Every Venture Capital Fund, with former Wharton Prof. David Bell

26:38Right. You could buy shares of private companies on a secondary market. Absolutely, yeah. And then, of course, there's the possibility, if you have sufficient assets, of becoming an LP. How would a person who's interested in some type of investing sort through and compare risk profile pros, cons? I mean, how would you even begin to frame that? There's pretty decent public information out there about the industry. And then there's things that you can dig into for particular funds to ask about performance and so on. And certainly before you ever wrote a check or made any commitment, like you would want to have an in-person or a face-to-face discussion with the general partner.

27:20You'd want to see the track record, not just the things ideally that they'd invested in that had sort of gone really well, but also the bets that they'd made that had gone bust and what their kind of rationale was. So it needs to be, we talked about marketing and marketing speak, right? This is a very high involvement decision. I mean, it's maybe not quite as high as buying a house or something like that, but it's a very important decision. So I think also to the extent that you know somebody who's already an LP, that can potentially be helpful as well. But you're looking for signals that this GP is really going to manage the money efficiently.

27:55You might also be looking for exposure to certain kinds of companies. So there's a fund that I'm in LP have been in all of their funds that I think is just exceptionally well managed. And it's nothing to do with what we do at Idea Farm. It's mainly software and service businesses and things like that. And I just know the team works unbelievably hard. They're incredibly high quality. They get into really good deals that other people don't get. They've got a bit of magic that's allowed them to be very successful and to perform at probably the top 5 % or even more. So it's something that you really need to diligence before you go in.

28:32I wouldn't be charmed by a GP. And again, it's like the old, I mean, I'm not that old. I never saw this, but it's the Groucho Marx thing, right? You don't want to be part of a club that will let you into it. You know what I mean? So like if the GP will accept your money off the bat, that's not necessarily a good sign, right? And of course, since we're here in New York, I mean, there's been unbelievable scandals around the venture industry not that long ago. I think about someone like Bernie Madoff, who was just the guru who, you know, doing whatever he did, who had these incredible returns for whatever, 20 years.

29:09And I don't think if you remember from the documentary that the guy even made one investment. He was just printing out fake reports and sort of carrying this mystique. So, yeah, you really need to dig under the hood. Who are these people? Who are the other LPs? What have they invested in? what are the big winners that they've had how do they source all the deals and so on yeah yes i guess it's not a flyaway decision unless you literally say gee i'd like to be part of this and i can lose that 250k it doesn't matter well then it's a different consideration right yeah but i can imagine if somebody's listening to this have a net worth of let's say five million yeah 250 50 ,000, that's 5%.

29:49And sometimes you want to take 5 % of your total portfolio and invest it a little bit more aggressively or alternatively. So here's one thing that you can do. Here's another bit of jargon that you may have got into with Bill, but when you're a limited partner in a fund and you're committing to having your capital called into that fund, the 250K, hey, the fund manager, she or he is investing different bets in different companies. Sometimes what will happen if there's one company that's a real breakout company, that's just absolutely flying off the charts, and the GP managers, let's say she's already put 2 million into it, that's all she could really do, but sees the thing as just going through the roof.

30:33But because she needs to have a whole portfolio, she can't dump the whole rest of the fund into the thing that's taken off. The other piece of jargon here is something called an SPV, special purpose vehicle, where she might go out to all of the LPs and say, hey, this thing is going off like a rocket. I'm going to try and very quickly bring together like another 5 million bucks. And I'm just going to put the 5 million, not into a whole bunch of bets, but it's all going to go into this one thing. When you get that kind of opportunity, that's also something that you can do instead of committing your 250K to the entire portfolio that's yet to be chosen.

31:09and you could dip your toe in the water by putting something into an SPV, which in theory should be one of the best performing companies because the fund manager is sort of doubling down on it. Does that make sense? Yeah, it's a concentrated bet. Yeah, so there's a buddy of mine. Actually, I'll give him a shout-out. He's a great guy. I'm dating myself, but what a great guy. He's a guy called Evan Lowenstein. Evan and Geron, they were twins. And they had this great song, well, others, but the hit was, I'm crazy for this girl. She rolls the window down. did it if you've heard it you might recognize it's from the orts whatever and so he does many things as a musician entrepreneur all kinds of stuff but he's been very successful investing in various spvs and technology companies and so on where he's just gone into the spv obviously more risky it's only one company but the fact that an spv is even being raised to begin with right tells you that the GP has very strong conviction.

32:06So again, for the audience, I made a huge mistake with a fund that I, fantastic GPs, they were doing an SPV and Alibaba and I was like too stupid to throw all of my retirement money into that SPV, which if I had done, would have been a huge return. I already had some exposure because I was part of the fund and the fund had put money into Alibaba, but had I thrown a huge chunk of money at the SPV, that would have been a huge return. Right. Yeah, you always remember the opportunities that you met. There does come a bit of loss aversion where it's like, oh man, I remember passing on an opportunity.

32:44And that's part of the game as an investor for sure. You might see this, some people even have it on their websites, but there'll be the so-called the anti-portfolio. So you might go to the website of a fund that their anti-portfolio that they miss is, oh my God, we knew Jeff Bezos, but we didn't invest in Amazon kind of story. Right, right. Here are the things we missed. Here are the things we passed on. Yeah, exactly. As a small business owner, one of the hardest things, one of the hardest skill sets that I still have not fully learned is hiring. Hiring is probably one of the most difficult things to do.

33:21And as we talk about VC funds, it strikes me that in a way, if somebody is an LP or an aspiring LP or they're considering becoming an LP, they are in a sense making a quote unquote hiring decision about that GP, that fund manager. How does a person, if you think of it in terms of the quote unquote hiring skill set, how does a person evaluate a good one from a bad one? man. So there's all the surface things like the credential. Oh gosh, this woman went to MIT. That's very fancy. So there's the credential and the label. But I think if you could accomplish this, maybe it's not easy to figure it out, but if you were able to have a conversation with a company that that GP had invested in and you could learn a bit about whether they were helpful or not, that would be a very, very good signal.

34:14So you look at the portfolio that the GPs had and they had a huge win by investing in company X. If you were able to somehow get access to the founder of company X and say, Hey, did this person really help? Were they a good investor? Did they add value? Did they bring another capital? Did they help us hire? That I think is a very, very good signal. If you could ask the recipients of the GP's money, whether the GP was actually good or not. I think in these kinds of things, right, you're always trying to look for signals. And I'm sort of thinking, what would those signals be? That would certainly be one if you could get access to it.

34:51And not to be too esoteric, but there's a guy who got the Nobel Prize for the economic theory of signaling. Michael Spence, he became the dean of Stanford Business School. And he wrote this sort of, it was actually quite humorous, a white paper back in the 70s when he said, Paul is trying to hire someone. She's got two people with a resume that are equally good. Always reference letters are always good as well, right? you never give an employee a reference to this issue. I'm a total idiot. So the problem you have is you have asymmetric information, meaning that you don't know whether this potential employee is good or not.

35:24They know, right? You're trying to choose between hiring between me and Joe. We both look amazing on paper. So the theory of the signaling says, is there a candidate who does something that's so painful that a lazy person wouldn't do it? And that's what separates them from the pack. In a technical term, it's called a separating equilibrium. And sort of the joke here is like, if Joe was a guy and he went and he burned a whole bunch of money getting a fancy education and working his self to death and graduated top of his class, like that's a credible signal that he's good because that cost him a lot of time and effort to accomplish it.

36:03It's like the reverse problem where Hyundai offers you a 10-year warranty on their car. they're not going to be able to do that if their car's a piece of crap the whole thing's going to unwind so you're trying to find something that only someone who's truly like the good person could actually deliver against you know what i mean i know it's a little bit esoteric but this guy he got the noble prize for basically saying and here's the cynical part of it is that if you went to a fancy place and worked like a dog even if you learn nothing you know right the signal still valuable because you had to put in so much effort to actually accomplish it.

36:40Does that make sense? Yeah, yeah, yeah. That absolutely makes sense. Yeah. I kind of wish I'd come up with an idea. That's like a Nobel Prize winning idea, but it's quite deep in a way, right? I think you're looking for these signals all the time and companies are sending you signals all the time, right? I have no idea what's going on on the inside of my Mac, but I trust that little Apple logo and that's a signal to me that it's a good product. Right.

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38:22Let's take the example of someone who went to a fancy place and worked like a dog. There are going to be certain areas in which they have tremendous talent. They're very good at X and Y. Yeah. But there are also going to be specific areas, as is true with all people. Yeah. where they fall short. Some people are great visionaries, but they're poor on operations. Some people are great at operations, but they overcomplicate things and overdesign for edge cases. So you have, I guess, with any person and with any basket of skills or talents, there's a variety of both pros and cons. And that's just inherently true of all humans.

39:07And a good team is comprised of people who counterbalance each other's strengths and weaknesses. From the outside, how do you evaluate that team cohesion? It's a tough one. And again, I certainly don't want to, I mean, in the context of just explaining the theory of signaling, the credentialing could be important because it represents something else, but certainly by no means does a university credentialing doesn't really mean, I think, very much at all. Maybe it's like 2 % of the variance. And this would be a fun one for your listeners because I'm sure many of the products they might have actually used.

39:45So I'll give a shout out to like the most successful entrepreneur from New Zealand is a guy called Nick Mowbray who with his siblings started a company called Zuru that makes all kinds of toys for kids. And now he's a consumer company called Zuru Edge that in the last six or seven years has built 27 consumer brands like Millie Moon Diapers, Rascal and Friends, Monday Hair Care, by far the most successful consumer builder in the CPG space, probably in the entire world. I think Nick, when he was 18, was probably building a toy company, not going to MIT. So yeah, there's many things. So to wind it back, I think somebody who other people look up to or want to work hard for or aspire to be part of that team, if you get a signal of that as part of their personality can be important.

40:35And again, I think what you said is like having the mix. And one thing I enjoy about my partnership with Jim at the fund is he and I are quite different in a lot of ways. We have similar thoughts about things, but I'm probably overly optimistic, a bit too laissez-faire. He's a guy that just really gets stuff done. He's always more pessimistic, which is good because especially as a GP, you don't want to be writing checks to just everybody who comes through the door. So when you get into the team situation, you are looking for these, I think, complementary skills, but there has to be some underlying core of similarity and agreement.

41:10I think that's absolutely critical. So whatever that underlying core is, that has to be solid because if you have deep philosophical differences about what the heck you're doing and why, that's probably unresolvable. But if you have different viewpoints that's coming together, there's a really good collective whole. That's very positive. Right. If a person is thinking about potentially becoming an LP, but they're weighing that against buying shares of a private company on the secondary market, where there you've got something that's a bit more established. Right. So you're weighing it against that option.

41:49You're weighing it against some crowdfunding options. Yeah. You're weighing it against investing in syndications. Yeah. other than risk profile of later stage a little bit safer early stage a little bit riskier yeah what are some other ways to understand the risk profile differentiations that's such a good one boy i wish i had some better divining rod into it because yeah i think the first thing is certainly stage like somebody who's got to further along probably is more likely to get to the end but that also has to be tempered by like a really important question which is at the end of the day like who the heck is going to buy this thing and for what price i'll give you a really interesting example so i was at a consumer conference maybe a year or so ago and there was one founder and she was talking about a beauty brand that she had built and she said once i had a hundred million dollars in revenue i had like a dozen people knocking on my door maybe from l 'oreal to church and Dwight to whomever.

42:47And there was another guy on the other side of the room and he said, I was building sort of a mattress type company with a tech angle to it. And I literally had one person that I could sell to. And we had one go around that fell through. And luckily, two or three years later, it came back and it got done. So I think with all of these things, right, like money on paper is just that until it's money in the bank. It's been in the news a lot lately, right? It's a bit of an unfortunate story about Allbirds, how it was$1.4 billion, I think at the peak of the IPO and then dropped to$39,$40 million. And now I think I saw it's being rethought of as an AI company or something, right?

43:24So you might have said on the secondary market back in whatever, 2018, like to buy that could be a good thing because it was really taking off. But if you'd bought that and held it too long, you'd really be in deep trouble. So why are the investors or the founder like putting those shares up? Maybe if it's a founder, you might say, well, she just got married, is having a family, needs to buy a home. That makes total sense. So it kind of depends on the motivation for why those things ended up there. Maybe it's an investor with a different risk profile, wanted to unload a few. But I guess just being in this venture world for so long, as optimistic as I am, I always see these things as really, really risky.

44:07and I think if it is an SPV and something that's taking off, that's probably less risky because that GP's probably had a lot of experience. Maybe it's not even their first fund, so they're really backing this thing for whatever reason, so that can be a little bit de-risk. If it's a secondary where the founder, you know, she's just wanting to, and I can't really say it, but one that I'm thinking of, boy, some people came into a secondary transaction with large checks and tripled their money in 18 months, that definitely happens too. Because in this case, a founder was just wanting to give some money back to the parents.

44:46So if the reason for liquidity is more of a personal reason, and you can kind of see that the endpoint is only three or so years away, then that can be a really, really good thing. And this is typically, though, more for more institutional type investors. So even as a small person, if you come in and you put in$250, Okay, well, 750 is not bad two years out. But number one, you may not have access to that opportunity because the person who's doing the secondary might just want to deal with two or three investors. But yeah, so there are signals. So we're talking about signals. So a founder who's doing really, really well, who has a personal motivation to offload a little bit of equity, that could be a real opportunity.

45:29What do you make of the idea that the founder or entrepreneur, that their incentives get changed the moment that they begin to take in outside funding? Because, let me just cue this up a little bit. I'm a small business owner that has up until now chosen to be completely bootstrapped. Great. And the reason for that is largely because I want total autonomy over all of my decision making. and I do not, A, I just don't have any desire to have an exit. Right. I'd like to be doing this until I'm 100. Right. But B, I certainly don't. If I can last beyond 100, we can come back. I might have to be quite a bit beyond 100 to make it when you're 100, but that's fine.

46:18But then B is I don't want to have financial ties with partners who would be pushing for growth that is maybe a little too big for our britches, growth that might be unwise because it wouldn't be paced out in a way in which we could do it well. Yeah. Nor would I want to have financial ties with funders who are just pushing for an exit. Right. Even in cases in which an exit might not be the right thing to do. Man, this is all the right stuff. Yeah, 100%. I always say to people sometimes, and you're like obviously very judicious about this, but with many founders, they think the first problem they have is money.

47:01I need to go out and raise money. That's actually the last thing. By the proper order, I always counsel people is, so what is the strategy and what are you trying to get done? Then who do you need beyond yourself to help you do that? And having figured out those two things first, like what amount of, what's the minimal amount of capital that you need to achieve the first two things? But oftentimes you'll see if I need to raise$5 million to, yeah, okay, but why five and not four? So you're thinking, this is the right thinking is it's like, what's the strategy? What am I trying to do? Who do I need to do?

47:33And then do I need money at all? So that's the first piece. The second piece, you're absolutely right. When you're bringing in capital, you're bringing in someone else into your ecosystem who may have a totally different objective function to you. And going back to our early conversation about funds, if I'm a typical fund person, by giving you money, I want you to be marking up that valuation as quickly as possible so I can now put you in my presentation to my LPs to show how good I am or to put you into a presentation to raise even more money for a future fund. So my motivation is for you to, on paper and in actuality, give me returns that are as high as possible as quickly as possible.

48:12And that might actually be to the detriment of your business. So again, without naming names, you could probably think of particularly consumer businesses that probably never should have been aspiring to be bigger than about a billion. That's kind of the cap, right? You're not going to have a direct to consumer sock business that's going to be worth$50 billion. You might have a platform business like Uber that might be worth north of a hundred. That makes sense. So first of all, consumer businesses should never raise too much money because there's a hard cap on how big that they can get. But if you were to take money with someone who had those two motivations, like grow as quickly as possible, give me a markup as quickly as possible, and maybe money back, you might start making decisions that don't make any sense like burning through a whole bunch of money on meta for example hiring people that you don't really need to hire making products that are outside of your core product like you think oh maybe i should start making a movie now and like you burn a bunch of money hiring like leonardo dicaprio or something so you know what i mean so that that is the thing so again it's like was having a conversation with a friend who was in town from new zealand and he's building what i think is an unbelievable business and the pet food business and his consideration is I build it all myself with my own money because he already had a big exit previously and his partners and his only reason to take money from an investor would be will that money and the expertise of the investor help me to grow more quickly than I would otherwise grow by just continuing to fund it myself and that's really the key consideration that that investor who's giving you the money if they're wanting you to grow and your valuation to be juiced, well, they should have some clear path that they should be pitching to you of exactly how that's going to be accomplished, as opposed to giving you the check and hoping that you figure it out.

50:02Right. In that case, would that relationship naturally have to end in an exit? I think, yeah, good question, Paul. I think honestly, most investors at some point need an exit because most people that you would take capital from, if they were venture capitalists, they need to also return the capital to their LPs and it becomes a little bit of a problem for them if most funds have this kind of 10-year, you can extend a bit, but call 10-year the rough thing. So if they've got to year 13 and they haven't got any money back, that's creating a bit of a problem for them with their own investors. So whereas if you took money from an individual or an entity that just was playing the long game and maybe you're giving them some sort of dividend or something like that, then it's a different story.

50:48But yeah, there's a great book that a founder posted on LinkedIn. I was just talking to her the other day. And I think it's called something like Founder Unfriendly, like it's friendly, but the word, I forget who the author is, but you'll be able to find it from AI. And I've not read it, but she posted it and she's a great founder. So there must be something to it. And I think it's getting to this root of the problem, which is the investor and the entrepreneur may have different time horizons, different objectives, different views. So the more alignment you can get before the money goes into your bank, the better.

51:22For me, that idea developed after I read a book called Lost and Founder. Oh, yeah. What a great title. I haven't read it, but I was like, man, I'm working on this other book right now. I was like, I got to come up with a good title. Yeah. Lost and Founder. Lost and Founder. Yeah. I would buy that book even if I never read it, just have it on my shelf. Yeah, it's written by Rand Fishkin, who is the founder of SEO Moz, which later became Moz.com. Well, again, coffee kicking in. Here's another great title of a book I have actually read, Andy Dunn. He wrote a book called Burn Rate. And it's in the same thing, right?

51:59Everyone knows what a burn rate is. But it was also about getting burnt out as a founder and sort of mental health issues. But yeah, Lost and Founder, Burn Rate, there's a few where the title's just right on the money. Right? Yeah. But yeah, in that book, Rand Fishkin talks at length about the different incentives that a founder has versus the founder versus the funder. Yeah. And I think that's why you've talked a lot about different asset classes, right? And if you think about just buying some stock in Apple, the good thing about that is first you could get some advice from someone who tells you whether they're good.

52:37You could read up about whether you think Apple's on the right trajectory. But also, if you didn't like it, you can sell your shares tomorrow. Right. So liquidity becomes important too. And if you invest in a venture capital fund, depending on the manager, it might take you a little while for some of that money to be recuperated, again, depending on what their philosophy is. Right. Are there any questions I haven't asked? Anything else that you'd like to cover? I guess we were having a chat earlier with Joe too, just about AI and stuff like that. I don't have a strong viewpoint on that except to say, I think it sort of behooves everybody to try and learn a little bit about how it impacts them personally, impacts their opportunity set, and also would help if they want to be an entrepreneur or business person, how it helps in that regard.

53:26And if you go back to 20 years ago, whenever the internet was first kicking off, I remember I was at an academic conference and I was there with a fellow who was my academic granddad, so my advisor's advisor, very nice fellow. His name is John Little and he's a professor at MIT, actually very renowned as an institute professor and has a law named after him, Little's Law. And I remember saying to John, we're at this conference, every frigging paper was something to do with the internet, like this late 90s, 2000. And I said to him, I said, John, why is every track of this conference, there's all something about the internet?

54:01So he says, is this going to be a big deal? And he looked at me, he's like, Dave, do you think the automobile was a big deal? And that turned out to be pretty transformative, right? But I think people are saying with AI, the transformative index or whatever you want to call it is going to be exponentially bigger. I mean, that kind of remains to be seen, but I think just staying abreast of what it is, how it works, how it can help me, I think is really, really important. Right. Well, if you think about, I mean, the internet was, for millennials, the differentiation of the millennial generation is that we are the last generation that will ever remember what life was like before the internet.

54:43Right. And that is the key defining attribute of the entire millennial generation. Right. And what they're saying is that Gen Alpha now, the key defining attribute is that that is the last generation that will ever remember what life was like before AI. Oh, this is, yeah, what a great observation. Yeah, 100%. It's funny, I'm sitting here as a Gen Xer thinking, we're like the forgotten lot. Like, you know, what do we forget? I remember, it's funny, I was talking to somebody yesterday. Oh, actually, it was on another pod. It was so fun. we're talking about like now milk vendoring is back i guess in jersey or philly or whatever you can get milk delivered by the milkman and this was a thing when i was a kid in new zealand my job i had to walk to the end of the driveway leave out the milk bottles and you put like 10 cents in each bottle like an honor system and i remember i got like in deep deep trouble with my parents because my buddy across the road and i were like six years old we decided it'd be a good idea to run around the neighborhood somehow at night.

55:47Parents, we snuck out and like steal all the milk money, upend all the bottles, and then go and buy candy the next day. So like I'm old enough to remember like milk delivery and bottles. You know, what you said is interesting. I wonder what kind of things will come back too. So I remember roughly 2000, I was in San Francisco, and I was at a buddy's house. We wanted to watch a movie and have a couple of beers. It was a Sunday night. and there was a company called Cosmo back in the day which you could go online and some dude on a bike would show up with his whatever Titanic and a six pack of beer and then I forget how you return the DVD but anyway you could and the thing went bust it was over capitalized by VCs but you think about well yeah now there's DoorDash and all these other companies that are worth multiple billion dollars and so sometimes I try and think about what what was kind of before its time so we talked about pop-up pantry shipping these pre-cooked meals i mean i think if i might be pronounced to vol or whatever it is like they've kind of done that several years later and they're killing it like they're doing several hundred million dollars a year in revenue so sometimes you're just a little bit too soon yeah too early too early and then the idea kind of comes back but yeah that's interesting they will be the last generation not to know what it's like to grow with AI.

57:10Wow. Yeah. Yeah.

57:15Well, thank you again for spending this time with us. Thank you, Paul. Where can people find you if they'd like to learn more? Oh, sure. They can just find me on LinkedIn. Probably the easiest place, David Bell, B-E-L-L. I have a personal website and it's like davidbell.co. Those are probably the best. Perfect. Best two places, yeah. Excellent. Awesome. Well, thank you. My pleasure. Thanks, Paul. Thank you, David. What are three key takeaways that we got from this conversation? Key takeaway number one, when you invest in a fund, you're not betting on the startup, you're betting on the person picking the startups.

57:54Almost anyone with a solid income or a solid net worth can become an accredited investor. You are qualified to write a check, but that says nothing about whether you can tell a great fund manager from a con artist. David's whole message here is to slow down, dig under the hood, and get suspicious when someone makes it a little too easy to hand over your money. I wouldn't be charmed by a GP. It's the Groucho Marx thing, right? You don't want to be part of a club that will let you into us you know what I mean so like if the GP will accept your money off the bat like that's not necessarily a good sign right and of course since we're here in York I mean there's been unbelievable scandals around the venture industry not that longer right you think about someone like Bernie Madoff who was just the guru who you know doing whatever he did who had these incredible returns for whatever 20 years and I don't think if remember from the documentary that the guy even made one investment.

59:01He was just printing out fake reports and sort of carrying this mystique. That is key takeaway number one. Key takeaway number two, money on paper isn't the same thing as money in the bank. What matters is who actually buys the thing and for how much because a valuation can look incredible right up until the moment that you try to sell. And that's when reality sometimes punches you in the face. David describes two founders in the same room and they had the exact same paper success, but completely opposite outcomes. One built a company that a dozen buyers wanted and the other built a company that had a single possible buyer.

59:50And that person nearly lost the whole deal when it almost fell apart. So before you chase a hot private deal, ask who's waiting on the other side when it's time to sell. I was at a consumer conference maybe a year or so ago, and there was one founder, and she was talking about a beauty brand that she had built. And she said, once I had$100 million in revenue, I had like a dozen people knocking on my door, maybe from L 'Oreal to Church and Dwight to whomever. And there was another guy on the other side of the room, and he said, I was building sort of a mattress type company with a tech angle to it.

1:00:27And I literally had one person that I could sell to. And we had one go around that fell through. And luckily, two or three years later, it came back and it got done. By the way, this concept about money on paper, I talk about this frequently in the context of real estate as well, because people get really caught up in their home value. And the reality is, your home value only matters at three points. When you buy, when you sell, when you refinance. Those are the only times, the only three distinct point in time times when the valuation actually matters. Other than that, it's purely theoretical.

1:01:07So we can take that lesson from residential real estate and apply it to the very opaque world of venture capital. It's the same concept. Don't get too caught up by what's on paper because until it becomes reality, it's all just fancy imagination. That is the second key takeaway. Finally, key takeaway number three. Money is the last problem to solve, not the first. So most founders think that step one is raising money. David flips this order completely. Step one is figure out the strategy, figure out who you need beside you, figure out what you're doing, and then ask whether or not you need outside money at all.

1:01:55Hopefully, ideally, you don't. But this is a sharp check for anyone who's tempted to throw cash at a problem before they've done the actual thinking. With many founders, they think the first problem they have is money. I need to go out and raise money. That's actually the last thing. The proper order I always counsel people is, so what is the strategy and what are you trying to get done? Then who do you need beyond yourself to help you do that? And having figured out those two things first, what's the minimal amount of capital that you need to achieve the first two things? Those are three key takeaways from this conversation with former Wharton professor and co-founder of Idea Farm Ventures, David Bell.

1:02:39Thank you so much for being part of this community. If you enjoyed today's episode, there's one thing, one and only one thing that I really want you to do. To the milkman, assuming milk delivery has come back to your neighborhood, send it to the guy on the bike who's delivering a DVD of Titanic and a six-pack of beer. Send it to Steve Cohen if you happen to run into him at a Mets game. Send it to that successful dermatologist who's never evaluated a startup. Send it to your orthodontist, especially if he's an LP. Send it to the intern who's getting paid out of the 2 % management fee. Send it to the founder who raised$5 million even though they only needed$4.

1:03:17Send it to the bogleheads you know. Send it to that 55-year-old middle school teacher with a Vanguard index fund portfolio. Send it to anyone charging$2 and$20. Send it to the founder of a DTC sock business. Send it to everyone who passed on the Alibaba SPV and still thinks about it. send it to the Gen Xers who feel forgotten, and then send it to the last Gen Alpha Kid who will remember life before AI. Send it to all of those people and more, because that is the single most important way that you spread the message that you can afford anything, but not everything. Thank you in advance for sharing this episode far and wide, and wide and far.

1:04:01thank you for being an afforder. This is the Afford Anything Podcast. My name is Paula Pant, and I'll meet you in the next episode.