Q&A: Market Volatility, Raising Money from Investors, & Our Fav Credit Cards

25:57Anyway, I'm now starting my first business and I was hoping you can give me some tips on how to raise capital for a startup and how to best present my business to potential investors. Any advice would be greatly appreciated. Thanks again for everything you both are doing. Really good question, Aaron. So as someone who's invested hundreds of thousands of dollars into startups all across the board over the last half decade, here's what I like to see as an investor. First and foremost, I like to see product to market fit. This is essentially, I've got a good or service that I offer and it's generating me lots of revenue.

26:30And the only thing I need now is more money so I can hire more people, start doing some marketing, and make this go from$100 ,000 a month to$1 million a month in revenue or whatever that might look like in your situation. Investors like to see traction and a clear pathway to here's my money. How are you going to use my money to go make more money, right? Here is my money. You're already doing great. How are you going to take my money to expand your business and make more money? Is it hiring people? Is it marketing? Is it infrastructure? Is it operations? Like there's a bunch of different things there that you could use investor money for to build your startup and make it more profitable.

27:09So that's the first thing investors like to see. You can have like a presentation, you can make it on Canva, you can use ChatGPT to help you. Actually, I would use ChatGPT to help you sort of build this and sort of illustrate what it begins to shape up as. But investors like to see product market fit. Investors also like to see a team that has seen success before. So maybe you're the only person right now building this business, but maybe there's a world where you could bring on a partner who has a lot of success and experience building businesses in the niche that you're building a business in.

27:41If it's a tech startup, if it's a small business of sorts, maybe it's something else that you're working on. But bringing on a partner that has a clear track record of success as it relates to that specific thing is always a two thumbs up for me from an investor's perspective. And then the last point here, it's not exactly something you can do, but it's something I really encourage people not to do. And that is do not treat your friends and family like investors. I will never raise money for my friends and family. I will always go to venture capitalists. I will go to professional investors first and foremost, because if my business fails and 90%, 85 or 90 % of small businesses fail within the first five years.

28:21So statistically speaking, if your business or when your business fails, you will now have to look at your friends, your family, those people that you love and care about in the eyes and say, I lost your$30 ,000, right? That's going to suck. Professional investors are much more used to that. It's just part of the game. It's a numbers game for them. For your friends and family, this might be their first and only investment they've ever made. And so like putting them in a situation to resent you, be mad at you, hate you for losing their money is a terrible, terrible way to live life. I refuse to ever encourage anyone to raise money from like friends and family always start with the professional investors And if you're seeing some real traction and like you've raised some money and they want to get in on the action after they've You know been very clear traction with your business I've always respected founders when before I invest into their business They look me in the eye and say there's a chance you can lose money, right?

29:12This is not a guarantee return things aren't predictable Investing involves risk So if you're ever going to raise money from a friend or family after you've seen traction, make sure they understand that. I love this take, but let's go back to the beginning on this. Just starting out, how do you present it to investors? For me, it's research first. Make sure you understand your competition. You understand the total addressable market. You understand the niche that you're in fully. And then you need to be able to replicate that into what is called a pitch deck. So many people overlook the power of the pitch deck.

29:49They make it 45 pages long or they use ChatGPT to write all the copies so it's not humanized enough. Make a really awesome pitch deck that's seven to nine pages long that spells out in a very clear cut fashion what the business wants to do, what you hope to accomplish, and why people should give you the money to do that. That is the best place to start for me. I see pitches at least 30 of them a month, and I would say of that 20 of them, by the time I'm done going through the pitch deck, I don't even know what they do, how they're going to make money, and how much potential this business could have because they didn't do the research.

30:29It is more about a clear message of how you're going to go from idea to profit and growth than it is about putting in a bunch of fancy charts and all these other things that are just blue sky. I hope that helps because for me, the power of the pitch deck is real. Just make sure you do the research. So it seems, Robert, that we disagree on this. I don't think Aaron should pitch anyone on any idea. I think Aaron should go build a business that is making money and has product market fit before he goes out and says, let's go raise some money. I think that investors would much rather see Aaron has already some sort of traction with a product, a service, a good, whatever he's selling and making money on.

31:12and a clear path to growth. I don't invest in ideas. That's normally not like a thing that I do. But so do you think that Aaron should just go put an idea on a pitch deck and try and raise money? I think it's both. Most of my career, I would start the business, flush out the opportunity, get it moving, and then go find capital because then you can get a much higher valuation to get growth. But it doesn't sound like Aaron has the money to start the business right now. So if it's between not starting the business, if it's a really good idea or really good product or service versus raising the capital or building it and then raising the capital, I would say there's nothing wrong with raising a small round of funding to get the idea off the ground, especially if it's a really, really good idea.

31:56because great ideas and great opportunities don't necessarily always come from people that have a track record and experience or people that can do it on their own. For instance, one of my very wealthy friends had an idea for a construction product. He literally made three prototypes at a friend's garage that was a welder. He then grinded them down, made them look nice, spray painted them, had a four by eight banner and rented a booth at a tool show. So he had no money. He had no track record and he had never taken the product out and proved it had product market fit. He sold the product that day and he had literally no packaging, no website, no nothing.

32:40But the idea was so good. He sold it that day for$11 million and it changed his life overnight because the idea for the tool was so good, but he didn't have the money to really flush it out and build it and launch it on his own. So I think we're not on opposite sides of the fence. We're just at two different stages of what people should do when they want to start a business and they have a really good idea, but might not be able to do it without some money upfront. Just don't make the mistake of like going into debt. I think a lot of small business owners make the mistake of like taking on two, three, four,$500 ,000 of debt.

33:17I was listening to this podcast episode, Robert, it was a pet grooming service that went$400 ,000 into debt to buy all these like mobile pet grooming vans and renovate their lease office and all these crazy things. And they're doing 40 ,000 a year in revenue. It's like, what are you thinking? Why would you like even consider that? There is so much traction that you can get with just a couple hundred or a couple thousand dollars to start you off. Do not think you need to have tens of thousands or hundreds of thousands in the bank to go start a business. It is a lie. You can go build something on the internet.

33:52You can go sell something, go make something like for pennies on the dollar compared to before AI. Now that we have all these agents and all the help and your knowledge is essentially free at this point. Yeah. I'm all about bootstrapping. It doesn't work for every type of business, but in the illustration of the dog grooming, the pet grooming business, yeah, they should have started with one used van, put good graphics on it, get minimal equipment and really test the market to see if the market wants what they have to offer. Because that's the problem. A lot of people, and I've dealt with it for years and years, if not decades, somebody comes to me with an idea and asks me if I'll consult, and I'll tell them exactly what to do, and they do exactly the opposite.

34:33I had a wonderful, wonderful woman, had an idea for a product three, four years ago. I told her, let's order 1 ,000 units. Let's get the website up and running. Let's test market it. We'll get some sales. We'll buy some digital strategies and see if it works. She did the opposite. She bought a hundred thousand units of the item, spent$70 ,000 on just inventory. That's still sitting in my warehouse and did not listen to any part of what I had to say. And I've been doing this for decades. She lost money. She gave up after a year in the inventory is dead money. Whereas if she would have tested the market and bootstrapped, like I told her, she would have been in a much better situation.

35:12And also, I think Tyler Denk, I think that's his last name. He's the co-founder of Beehive. He has published his pitch decks on the internet completely for free as to how he raised like$30 million for his startup at like a, you know, I don't know what the valuation is. Hundreds of millions, I think, is what Beehive's now at. Something like that. But there's a lot of pitch decks and a lot of presentations that have gone out to become the Airbnbs, the Ubers, the beehives, these like really cool big companies that are hundreds of millions of dollars online for free that you can just go find. So I'd really encourage you, Aaron, to go find some of these pitch decks and learn from them, find their commonalities, figure out why they had this illustration, what this explanation was, how the storytelling came out to be.

35:53Really, really great way to start sort of bootstrapping the idea of presenting to investors. Robert, here's a better question now. Where does he find investors? How does Aaron find his first 10 meetings to pitch to investors? Yeah, when you're just starting out, and you and I are definitely on the opposite side of the fence on this one, friends and family. That's why it's called friends and family round. You go out and get your seed capital from people that are investors that have done it before. Like you said, I do agree with you. Don't go to friends that aren't investors because if you lose their five grand, they're going to haunt you for life.

36:24But you go out to people that you know and that know you. That's the key. people that know, like, and trust you, you know, and let's say you're starting out with a company and you're raising a hundred thousand dollars or 50 ,000 to get started. That is the way I would do it. It doesn't mean that it's your family, your immediate family. It just means it's people in your network that you can go out to. You have your pitch deck ready. You set up a meeting. You say, Hey, this is what I'm want to build. I need some startup capital. Would you be interested? Here's a valuation that I think is reasonable for what I'm trying to do.

36:56And you go that route. If you want to skip that route and do it Austin's way, that is a great way to do it as well. But either way I think is fine. It just depends on what type of mousetrap you're building. Because if you're building something online that's in AI, Austin is 100 % correct. You can build it for a few hundred dollars, get your LLC up and running, and you're off to the races. But if you're building something that's like a landscaping company or you want to open a welding shop or a restaurant, it's not that simple because you're going to need meaningful money to make it happen. I think if I were to start a business from scratch and I was someone that needed$50 ,000 or$70 ,000 of startup capital, I would just save it.

37:36I really would. Or I'd pull out of my investment portfolio or something of that nature. I don't know if I'd really want to go into borrowing right now. I think personal loans are probably like 10%, 12%, 14%. That's high interest debt. I wouldn't want to go into high interest debt to start a business. Now, if you can do some owner financing and a lower interest rate, I guess that's different. But yeah, I don't think that's a good idea. Because again, 80 to 90 % of small businesses fail within five years. And so like, if someone out there is saying, Hey, I'm going to go start a business from scratch, that's a dog grooming business, and I'm going to go take on$70 ,000 of credit card debt to do it.

38:10Like you're paying now, 20 30 ,000 a year, just an interest to carry that debt. And then like, I just, why not just save $20 ,000 in cash and then maybe take$10 ,000 out of your investment portfolio. You've got$30 ,000 and then use some of that money to go buy the used van, maybe hire your first employee for the summertime. I don't know. I feel like there's a lot of ways that you can start a business without going up to your eyeballs in debt because when it comes to businesses, debt is very much risk. If you're going into debt to start a business and your business is unpredictable and maybe you don't get dog, you know, grooming customers for a couple of weeks, or maybe you have a slow season in the wintertime or like whatever it is, you're a new business owner, you don't know any of these things.

38:51That is how people go bankrupt, lose money and find themselves in very bad situations with money. And then what sucks is like, you know, it's not business debt that just gets forgiven. It's debt on your own social security number. So like, congrats, your business failed. And now you still have 80 ,000 of debt. That might be credit card debt. So it's like something I am firmly against. I think if you want to start a business, save up, be lean in the beginning, go find professional investors that have won and lost along the way that are willing to back something that has product market fit, but only raise money when you have a clear strategy to grow the business with this new money, because people make the mistake of like just raising money to raise money.

39:33Do not do that. So before we jump into our next question, listen up folks, time could be running out to lock in a 6 % or higher yield at public.com. You can lock in a 6 % or higher yield with a bond account, but remember your yield isn't locked in until the time of purchase. So please act fast, lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.com forward slash rich habits. All right. So our next question comes from Zach M. Zach says, Hey guys, I'm a new listener and I like what I'm hearing so far. So here's the deal. I'm 38 years old.

40:12I'm single and I make$150 ,000 a year plus some money from my side projects. However, I'm living in the very expensive New York City. I got a late start on investing. So I'm trying to catch back up. My long-term goals include traveling more and setting myself up for a healthy retirement, maybe even buying a piece of property. Here's my financial situation. I have no debt. I have$35 ,000 in my emergency fund. I have$158 ,000 in my 401k that I max out every single year. I have$26 ,000 in a brokerage account with Northwestern Mutual that I contribute$600 a month toward. And I just started a backdoor Roth IRA that I maxed out last year and will max out again this year.

40:49Now, thanks to a very successful side project, I've got about$70 ,000 in cash that I need to do something with. What should I do with it. Also, I know you guys typically avoid politics and are generally really bullish on the market, but I'm not feeling inspired by what I'm seeing from this administration and would love any tips on how to protect myself against the US stock market in case of a crash or a recession. So Zach, you're 38, totally understand your apprehension as it relates to the stock market, the administration, a crash, a recession. The average bear market lasts 15 months, assuming there is no recession.

41:26So as you think about investing this money or doing anything with your investment portfolio, it's really important to have a long-term view. If you are really, really dead set on, I am going to cash out my money and I'm going to retire in the next 28 months or 15 months or whatever it might be. Yeah, it's probably going to go down. We're going to, it's volatility like that. Like I totally see that, but you're 38 years old and you're likely they're not going to retire for another 20 to 30 years. So using this volatility as an opportunity to invest in the stock market, just like we did under the Biden administration, when the markets went down by 25 % with the S &P and 38 % with the NASDAQ back in 2022, using that as an opportunity to buy the dip, invest, dollar cost average, whatever you want to call it here, is a great long-term strategy, no matter who the president is.

42:17I can't predict what the stock market's going to do. But no matter the president, the stock market does go up, down, left and right over long periods of time. And I will continue to dollar cost average throughout that. Now, what would I do with the$70 ,000? You literally said, I got a late start on investing and I'm quickly trying to catch back up, which tells me that you should take this$70 ,000 dollar cost average it over the next six months into the stock market and catch back up. You can do that with your Roth IRA. You can open up a simple brokerage account on public.com, which we call a bridge account after you've maxed out that Roth IRA and start investing into the ETFs and index funds we talk about, VOO, VTI, QQQ, things of that nature.

43:02You also mentioned you've got$600 a month going to a Northwestern mutual account. I would definitely get rid of that. They charge really high fees. They put you in some crazy things. do not do that. Close that account and then move it over to public and then deploy the$70 ,000 into that account, bringing it up to$96 ,000. And because you closed the account on Northwestern Mutual, you likely had to sell whatever mutual funds they had you in. So you'll now sit on about $95 ,000,$96 ,000 of cash in this account. So if I were you, I would take that and start deploying $10 ,000 a month,$15 ,000 a month into the stock market, into the index funds and ETFs we talk about, maybe get some REITs, maybe if you want to do some international stuff, like be my guest.

43:46But because you said, I got a late start on investing and you're trying to catch up, that's how I would deploy the money. Despite the Trump administration, the Biden administration, it doesn't matter who's in office. What matters is having a long-term investment horizon and knowing that we will see ups and downs and lefts and rights in the market throughout our lifetimes, but using them as an opportunity to build wealth over a long period of time is the way to go. Yeah, I agree with this totally. At 38 years old, I don't think you're late to anything. You might feel you started late, but you still have a long time horizon to invest and create wealth.

44:18And I agree with Austin. Everything he said is getting that money moved around. Make sure you have that bridge account. Move the money out of the Northwestern account. I think that's a good idea as well. And just really stay to the course, diversify, dollar cost average, and you will be in great shape sooner than you know, because everything is at a discount right now. We have the tariff wars. We have all of this fear and uncertainty, but it does not mean it's not a good time to buy and not a good time to start that dollar cost averaging with the extra money you have. Do you have any perspective on Zach maybe owning some property in the future, especially in such a high cost of living area like New York City?

44:56No, I think everyone should own real estate. I just don't know if Zach's ready yet to own real estate. I think he needs to get his base more secure, especially living in a high cost of living area like New York City. But once that is more secure and more diversified, then definitely he could look at tertiary markets around New York City where they're more affordable and there's better numbers that make sense for real estate and look at maybe getting a duplex, triplex, or a quadplex to get started. But it's just there's so many options in real estate that I think it should definitely come in everyone's portfolio but just not early on because there is higher risk of losing money on a first project when you're getting to understand the numbers and how to build wealth in real estate.

45:42Yeah. I think a big call out here for you, Zach, is like, we encourage everyone to be a home owner because rent normally, homeownership, however you want to think about it, housing is the largest line item in everyone's monthly budget. It's just, that's always the case. And when you're renting, that large line item tends to go up every single year throughout your life because rents always rise. But if you own a house, your mortgage payment doesn't go up every year. Maybe the insurance goes up a little bit, but you can renegotiate that, some taxes, but you can kind of figure that out. I guess I'm trying to get at here is that when you have predictability in your budget, especially as people get closer and closer to retirement, that's a really good place to be.

46:23So Zach, we really want to encourage you at some point in your life to buy some real estate. Maybe You can save the extra cash that you'll earn over the next couple of years to have a$80,$150,$200 ,000 down payment on a, you know, call it$700,$900,$1.2 million duplex or triplex in these tertiary markets of New York City, which would be a really cool way to start house hacking maybe in your early 40s, sending you up for a great position of getting some rental income as you move on to your next sort of housing relationship. But I think what's really important here at the end of the day is to get this money working for you.

47:01I don't think you're late, but you did say you want to get started and quickly catch up. So take this money out of the Northwestern Mutual account, add your 70 to it, and then start dollar cost averaging 10, maybe 15 ,000 a month over the next six or nine months. And you'll be just fine. Yeah, sounds like a great plan to me. So our last question comes from Samuel B. Samuel says, Hey Austin and Robert, seeing that the markets are all going down so much, I was comparing my weightings in both VOO and SPYI over the last three months, and they've both gone down 15%. I thought SPYI was supposed to only be a fraction of the loss.

47:37You guys always mentioned how it helps offsets the ups and downs with some of the market downturns. So I'm really not seeing that. Is it because it's paying out dividends? So in reality, I'm not actually losing the same 15%. Please help me understand this. Samuel, you're absolutely correct. So SPYI pays a 1 % monthly distribution. So over the last three months, yes, VOO is down, let's call it 15 % for round numbers. Whereas SPYI, the price is also down 15 % because the price of SPYI follows VOO. But over that same three month period, you got 3 % of income. So 15 % of a loss plus 3 % of income now means your net loss is only 12 % versus the S &P 500 is 15%.

48:22So that's sort of how you should be thinking about that. And that's with all NEOS funds, BTCI, QQQI, IYRI, all these funds pay around a 1%, maybe even 2 % in BTCI's case, monthly yield. And so when you think about the total return of the ETF versus just the price return. That's where you see the difference. Yeah, I mean, the simple breakdown, if we wanted to take year to date, is that SPYI is down 11%, whereas SPY, the S &P 500 VOO, is down 13.5%. So that's the difference, like Austin explained, is that you do have that offset balance because of the dividends causing you to lose less in a down market like right now.

49:08So that is why we love the Nios funds. I think they are great strategies. They keep coming out with just incredible products. It's a great question, and I'm glad we could clear it up for you. And another example here is QQQH. As you guys know, we talked about that with Garrett, I believe, on the show to start the year. They launched that sort of hedged NASDAQ ETF, QQQH. So the NASDAQ QQQ is down 17.5 % year to date, whereas QQQH is only down 10.5%. So that 7 % difference there is what we're talking about. Now, this is more of a hedged equity. So they're buying some puts, they're doing some other stuff to really make sure that you're preserving capital during volatility.

49:50But that 7 % difference is why you listen to this podcast, right? We've talked about those ETFs. We continue to share with you guys our favorite ways to diversify your portfolios, to have this mindset of dollar cost averaging long-term strategies. We want this market turmoil to instead be looked at as an opportunity for the long-term and not this, I say it now every single time, but mental warfare, because that's really what it is right now. We see our portfolios down tens of thousands, if not hundreds of thousands of dollars year to date, and we feel like we're doing something wrong. We should have done something different.

50:24We could have timed it. We could have, you know, whatever. That's not the case. You can't think like that. You have to look at this as an opportunity because we will always go back up. It's assuming the last 90 years of the market continue to be the next 90. Yeah, you just have to keep that mentality. What a great episode. I am so happy that we got to touch on the tariffs and all of this volatility and really try to calm people down because I know there's a lot of fear and uncertainty happening in the markets. And it's just really, really exciting to be able to cover that in the episode. As always, everyone, thank you so much for tuning in every single week to listen to our Q &A episodes of the Rich Habits podcast brought to you by public.com.

51:04We are so humbled that you continue to come back, ask us questions, participate in our Instagram comments, sign up for the Rich Habits Network, and subscribe to the Rich Habits newsletter. And speaking of the Rich Habits newsletter, we have surpassed 50 ,000 email subscribers, which is really, really exciting. And we can't wait to see that number continue to grow throughout 2025. As always, if you have a question to ask us, email it at richhabitspodcast at gmail.com, ask it via Instagram DMs at richhabitspodcast, or join the Rich Habits Network and post it in there because we definitely will get to it and answer it.

51:38Thanks everyone and have a great rest of your week.