E345: How I Raised $10 Billion in Venture Capital w/Scott Painter

0:00So Scott, you've raised over$10 billion with a B in venture capital throughout your career, and you just raised$270 million to take True Car private. You've said that's the most difficult money you've ever had to raise. Why is that? Taking a company private is a whole combination of different skill sets. So it's not just fundraising to go build something. It's having to defend what's going wrong with what you're buying on top of, then having a plan to turn it around and then showing a vision for the future. And we happen to be just in a market that is very risk-off. There is not a lot of appetite for turnarounds.

0:31There's not a lot of capital that is flowing easily into any stage of venture. So it was both expensive, it was tricky. We ultimately had to pitch a little over 150 investors per check writer into the deal. So it took almost a year and a half to get it done. Ultimately, we did this with a syndicate of all strategic investors. We did not take a private equity lead. We went down the private equity route almost seven times. Every time we went down that route, it turned out that the terms were so awful for the team and the entrepreneur and the sponsor of this deal, in this case, me, that it just wasn't worth the effort.

1:07You end up breaking into prison. So you took 21 months to do this raise and this risk-off market with all these different partners. Talk to me about the journey. How did that develop? And what were your learnings through that journey? The word persistence is invoked a lot more often than it really should be. And I also think it's highly, highly underrated. Man, this was the hardest thing I've ever done. It fell apart a dozen times. If I look back at the different chapters of this, nothing about this transaction and how we started looks like how we finished other than me and my core team. We came in and we thought we had this thing done and in the bag at least a dozen times.

1:47And when I say in the bag, I mean ready to get down to the merger agreement, wiring money. We had firm commitments and we had to blow. And when it fell apart, it did not fall apart a little bit. We, I mean, our lead investor a dozen times completely backed out based on one thing or another, the, you know, the auto industry, interest rates, tariffs. This has been the most volatile backdrop that you could be raising money in as well. So it wasn't just a risk-off market. The auto market in particular, when hit with tariffs, the level of risk that almost anybody, and it wasn't just venture capital.

2:23I'm talking to venture capitalists, private equity funds, high net worth individuals, and strategics. Everything along the way backed out, said, no, it's not going to happen. Anytime you are selling a turnaround, there's another layer of skepticism that I had not anticipated. I tend to be a fatally optimistic entrepreneur. I believe that what I can do is based on things I've done before, sort of putting like putting on your pants, you just feel like I can do this. The level of, you know, commitment to this process for me to get up at six in the morning and hear somebody say on a Monday or a Wednesday, we've reevaluated, I think we're out is so devastating.

3:03And the level of, I think risk I had to take here was amplified by the fact that at one point we had almost 30 people that were now on my personal payroll as sponsor to keep this thing going because you have to have the tax advisors. You have got, you know, so you got PWC, you've got your law firm, you've got a whole bunch of professionals that are coming to standing meetings and the clock is ticking at $10 ,000 an hour when you start looking around the room. It is really not, I think, an activity that a solo individual sponsor takes on. It is something much more well-suited to a large private equity fund.

3:41It's exactly why they tend to be the typical take private candidate and not founders. Expert calls have always been one of the most powerful ways to build conviction. But today, investors are asked to cover more companies, move faster, and do it with leaner teams. With AlphaSense AI-led expert calls, their TGIS call service team sources experts based on your research criteria and lets the AI interviewer get to work. The magic is in the AI interviewer, purpose-built and knowledgeable-based information to conduct high-quality context-rich conversations on your behalf, acting as a trusted extension of your team.

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5:34As I go deeper and deeper into fundraising and interviewing exceptional people such as yourself who have raised$10 billion in venture capital, a lot of it does seem to rely on these momentum games. And oftentimes fundraising is a momentum game, whether it's finding the anchor for a company, finding the anchor for a fund. But you were able to close this with losing a lot of momentum along the way. How did you break this cycle of the deal almost dying and then getting buy-in from the market to back you multiple times? Entrepreneurs aren't just special. They are the glue that keeps these types of things kept together.

6:11When I would get the bad news, I never would share it until I at least sat on the bad news for 24 hours. And I mean, I would get devastating news. and I knew people were waiting for the next meeting to hear. I would compartmentalize that news and I would go into my next set of pitch meetings. And it was almost always the case that it was in that compartmentalization moment that you could begin to ideate and think about how you're going to solve this, use it as not just information, but also as power for how you're going to solve the problem because you clearly haven't gotten there yet. Keeping my team motivated was a very, very cagey thing to keep all of them coming through.

6:48I got to the point where in addition to this, I got married last year. So I entered my third marriage. I was putting every penny I had in terms of personal access to capital and my leverageable capital into this deal. I ultimately had to borrow money from friends to be able to pay for the wedding and keep things floating. I went as deep as you can go, mortgaged quite literally everything I had to be able to get through last year and pull everything off. Ultimately for me, getting married in April landed me somewhere in September around Burning Man, wondering what the fuck am I doing? There's that famous looking into the abyss and, you know, chewing on broken glass.

7:32I mean, it, that was the moment where, you know, you look over at your new wife and just say, you know, I don't even have a answer for you on when we're going to get paid, but we're definitely not taking any trips. We're definitely not going. I mean, you know, if we have to, it's if I have to go to Las Vegas for a meeting, I'm flying Southwest in convenient times. I mean, it was just that real. And I ultimately was not a pleasant person to be around. And she said, you know what? I know it doesn't seem like now's the right time, but if you do the same things, you're going to get the same result.

8:04Would you consider going into CBT, cognitive behavioral therapy? And I entered an eight week intensive CBT program in addition to fundraising that I was doing in the afternoons for eight weeks just to keep sane. I mean, I really had to have somebody check me. Is this wise? And of course, you have all of those similar conversations like, okay, if this fails, what am I going to actually do? And so I have to spend at least a double digit percentage of my day thinking about new companies. I'm not somebody who's ever going to just simply go to work for somebody else. So for me, it was, okay, if this fails, I'm going to be getting out of automotive.

8:44I'm going to be going into something AI related. And I was literally working on business plans in the late nights about what I'm going to be doing next and talking to people and formulating those ideas. I emerged out of that CBT training, recognizing some things about just me as a human that had never, my attachment theories weren't strong as a kid. If you've been considering future straightings, now might be the time to take a closer look. The futures markets has seen increased activity recently and Plus500 Futures offers a straightforward entry point. The platform provides access to major instruments including the S &P 500, NASDAQ, Bitcoin, natural gas, and other key markets across equity indices, energy, metals, forex, and crypto.

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11:15Run your business smarter with Square. Get started today. Support for today's episode comes from Square, the all-in-one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Checkout is fast, receipts are instant, and sometimes I even get loyalty rewards automatically.

11:46There's something about businesses that use Square, they just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop-ups, and everything stays synced in real time. You can track sales, manage inventory, book appointments, and see reports instantly whether you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking. They also have built-in tools like loyalty and marketing.

12:15Your best customers keep coming back. and right now you can get up to$200 off Square hardware when you sign up at square.com slash go slash how I invest. That's S-Q-U-A-R-E dot com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today. My dad was somebody who left me only with one gift in life, a chip on my shoulder that drives me and he just was not available and I've also got four kids And so I ultimately changed course in terms of the energy that I was applying, but I had to create new boundaries.

12:53And everybody in the transaction for the first year and I would say eight months knew that I wanted this so bad that I didn't see that I was getting worked, that they had the power because even though I was right about everything and even though I was passionate about everything And even though I laid out a great opportunity, they felt they could take more because I would give it. And that was what changed in me. And it took that eight week CBT therapy where I came back and I just said, you know what? I'm now willing to walk away. And it was honestly like having a completely new sort of spine where I, and everybody felt it.

13:33It literally changed within a two to three day period. I just said, you know what? We are at the end. It makes no more fucking sense. This is how it's going to roll. And as soon as I did that, everything started snapping into place. And more importantly than just snapping into place, people who had factually betrayed me along the way started coming back in and I was able to compartmentalize them and put them off to the side and navigate them and put them in places where they could no longer affect the overall transaction. That, I think, was the real inflection point in the deal. That's so fascinating.

14:06Sometimes these negotiations, in your case, it was 21 months. sometimes people could be so anchored in their positions 20 months and 30 days. And then in the last day, they can move by 50%. Once you really give them a true binary choice. I think about this heroic trade, you essentially made this heroic trade, it wasn't quite a trade and that you bet on a stock, it was a fundraise. And when I've interviewed people like Cliff Asness from AQR, who struggled when value was out of favor, or like Bill Brown, who did the big short trade within the Stern family office. One of the things that the greats really keep on doing is they're not just arbitrarily holding their position.

14:39They're saying, I'm all in no matter what. They're constantly reevaluating your priors. In your case, you have to keep on asking yourself, is this boldness or is this lunacy? Am I doing this because it's the right thing and other people can't see it? Or B, have I completely lost my mind? And sometimes those barriers are extremely thin. Sometimes it's a very thin walk between being contrarian and right and just being completely crazy. I'm an entrepreneur. I invest my time. I invest my reputation. I invest my insight into these businesses. So to me, it's the same thing. But in this particular case, I can tell you I had$14 million of my money out the fucking window.

15:13I mean, I was barely able to keep everything together. Now, in the end of this transaction, we ended up buying the company. I think we stole the company. This is a business that does$175 million of top line revenue with six or seven million unique monthly shoppers coming to buy a car. And we have a network of 11 ,500 dealers across the country that pay us a monthly fee to be on that program. I want to go back to this concept of persistence. You're very close with Elon Musk. You're kind enough to invite me to Thanksgiving with him. And you've really got to observe him from close up. Has his persistence rubbed off on you?

15:43Or is it just completely unrelated to your ability to persist through these difficult times? He's got persistence that would be hard to really describe. I think he and I relate because we're both persistent humans. Definitely persistent. And I think I'm probably persistent to a fault in a way that almost nobody I know. But he is next level. I mean, it's not even persistence with him. It is there is no alternative. I mean, he sees the path forward and there's nothing that's going to get in his way. I mean, there's two ways to think of it. either you're an unstoppable force or you're an immovable object.

16:18In many cases, he is both. And so I think that he's a unique case. Persistence would not sufficiently describe what he is. You've also raised$10 billion outside of this transaction, which is probably one of a dozen people on planet Earth could say that in the venture space. What have been some of the learnings from raising venture capital in both down and up markets? I don't measure it in how much money I've raised. That's much more of a banker type point of view. I've had 127 closings. I think closings, whether you're closing a million dollars or$10 million or$100 million, it's pretty much the same thing.

16:55You've got to understand why people write checks. One of the things I've learned, for example, is people do not write checks for the most part because they are greedy. They write checks because they don't want to miss out. Fear is by far a more powerful marketing motivator. It is exactly the same thing in fundraising. You need to create momentum. You need to create scarcity and you need to create a deadline. But being able to take money is about creating urgency around a moment where if you don't write the check, you lose the opportunity altogether. And you have to be strong enough to say that and really set that framework up.

17:30There's this cliche that sometimes the most difficult things in life really make you stronger. over the last 21 months, you've gone through this process. It threatened your marriage. It threatened you as a human being. Do you regret? Are you thankful for that 21 months? Or is it just something that you had to get through and it was a huge pain in the ass? And did it make you more anti-fragile? I certainly am more confident of what I'm capable of. I am a much more pleasant human at the moment. When you're under financial stress and it's existential, you're getting up every morning while they're trying to figure out what do you have to do to survive the day, the week, the month.

18:07That kind of pressure is the pressure that kills you. I'm now on the other side of that where I've paid off all my debts. I paid off my mortgages. I am debt-free again. And I am now in a place where I can take a breath and say, you know what? I did that. And it is extremely gratifying to have done that and to also see the benefits of how that's now affected my relationship with my wife, my children. I mean, everything around me has taken a turn because it reflects. We don't talk enough about the mental health issues facing entrepreneurs. I don't think anybody could be possibly prepared for it.

18:41I wrote about it in Inc. Magazine, sort of the, you know, the dark side of being an entrepreneur. It is a real thing, the level of depression that you have to compartmentalize in order to do what you do in this case. You know, a lot of people ask me, you know, what does it really mean to be an entrepreneur? I mean, And I meet a lot of people who say they're entrepreneurial or entrepreneurs or they're running these companies. Tell you what, you know, you're the entrepreneur when you look over at your wife and you just say, we're not getting paid for a minute. We're not taking a trip. We got to sell this asset.

19:11I got to get rid of that car that I've always loved. I put all, I have three properties here in Los Angeles, two homes. I put everything on the market and I didn't just put it on the market. I had people running through my homes and looking through my drawers and looking through everything. And my wife said, what are we doing? We're selling. I said, it's just stuff. I need to know what resources I have. And I literally went and I mean, everybody in my life saw that. I mean, all my homes were on the listing services and listing sites and everybody who came, you know, across my life said, oh, I see everything's for sale.

19:45Is everything okay? I said, sure. Everything's fine. I just thinking about selling my house, but, and, you know, And then in the middle of this, we had the Palisades fire. I almost lost another home. It was just absolute chaos. And so the ability to have survived something like that, it certainly changes you and it certainly gives you the ability. And I guess this is where, you know, a guy like Elon really does get it because the things he has seen are superhuman. I mean, he's lived one of the most extraordinary, unique lives to have survived these things and to get where he is almost makes him untouchable.

20:16I mean, it would be hard to rattle me at this point, but I'm sure if I took any of the kind of risk or leverage that he does to do what he does, I'm sure it would rattle me. In addition to being the richest man in the world, he has the largest debt facility of any human has ever had of all time. He is not without risk, even given who he is. Massive risk. Scott, I have to be honest. I was in the camp. I thought you were chasing a ghost and out of your mind through this process. I was watching from the sidelines. I was rooting for you, but I thought you had lost your mind and now have to make a new rule.

20:51Peter Thiel has this rule, don't bet against Elon Musk. My new rule is don't bet against Kyle Painter. So congrats on putting it all together. And thanks so much for sharing your journey. David, thanks for having me. It's good to see you again. And hopefully next time we talk, I'll tell you that we've turned around the product and we are raising money at pennies on the dollar. If you found this conversation valuable, please click follow how I invest so that you don't miss the next episode with the world's top investors.