Great. Eric we're really thrilled that you're here in my dad's office at Caltech. Thanks for for coming on the pod.

It's my pleasure. I'm always thrilled to go to Caltech.

Great. So Eric is the president of tech Coast angels and also formerly the president CEO of the 99 Cents Only stores. Did I get that right? Perfect. Great. So I'm having to ask you both about tech coast angels but also some about 99 cents only stores because being part of your background and so on. I know very little about. Okay great. Go right ahead. Okay.

I'd love for you to start with just a little background on who you are and DCA.

Sure. So I was I started out as an engineer got an MBA got into venture capital and was transferred to L.A. back in 1987. So was a V.C. out here for several years and V.C. then was a lot different than it is now. Fact we used to have to travel away from L.A. to go to visit almost all the companies anyway. I met my wife on a bland blind date and why that has anything to do with my career is that her parents started ninety nine cents only stores with one little store back in 1982 and in 1991 they were nice enough to give me a job so I joined nine different it's only stores then we had a small number of stores and we just had a great great growth story we went public in the New York Stock Exchange in 1996 we were.

And I became president and CEO and we took the company private in 2012 with a. Well-known private equity firm stayed on for a year and then in 2013 I left the whole family left. So it was truly a family business but we obviously had great growth and so we had the fun of like how to scale a business and we learned a lot. In fact that's one of my main interests as I think I told you before and we talked on the phone is how to scale a business because we made every mistake that you think possible can make and we learned from them and it was a great great success.

You know growth story 2013 when I left got back into venture capital except this time as an angel and so and in addition I do some other things like real estate and some consulting for companies that sell into retail and a little bit of this little bit that. But I joined tech Coast angels in about five years ago became the president tech Coast Angels a couple of years ago and TVA has five chapters. L.A. is one of the biggest ones and there's several hundred members throughout the throughout Southern California. It's been around for 20 something years and you know they invest a lot of money each member puts in a check and each chapter kind of has kind of a different area of expertise I would say in L.A. We have a lot of folks with consumer and entertainment and experience and aerospace and experience and now e-commerce experience San Diego has a lot of biotech experience and we share deals among ourselves and the interest.

The other interesting thing I'll say about TCI is that in addition to getting a lot of investors who can add value to the specific areas of expertise we are in the process of creating our own fund as well like a V.C. fund and we had our first closing yesterday. And yes we raised enough that we don't have to give back money so we were very happy and we hope to hit a million dollars. And then our goal is to raise the fund each year from members so we can write a big check in addition to members writing their own checks.

So that's my story.

So I want to make sure we had a little of that. Just hit the basics of Texas angels like what size checks you're writing because entrepreneurial audience wants to know how much money they can get.

But then I wanted like peppered with questions on 9 9 Centrelink OK everything you want to know about 99 cent Only Stores but was afraid to ask. Yes okay. So like where do we get the merchandise 70 people have been writing in with questions about 9.

Okay so yeah we'll get to that. So really quickly it's possibly similar to other angel groups.

I imagine I'm a member of a couple other angel groups and but tech coast is very active and we see three or four companies twice a month. So you know it's almost 100 companies a year that we will we will screen at our meetings and of course the prescreening we screen out a lot. So we see lots of deals but only only a certain number get funded like any V.C. ranger group would be. Usually members writes checks I would say on average about 25000 each for someone to write their own check. There are some members who are capable and have written checks that are six figures and there are some members on the other side who prefer to write maybe 15000.

But I would say 25000 at least on average. And in any deal it can vary you can have four members so you might have a hundred thousand dollars or you could have a lot more folks putting in and we've done rounds of one and a half to two million I think. But in general I would say it's more several hundred thousand dollars would be typical if someone was to approach TCI and just have members and to get a sense of what they would look for and the only other difference is now with this fund we can perhaps move a little quicker because you don't have to.

You know herd the cats so to speak maybe on vacation and you're saying get signed the docs and so on but we will fund you can go really quickly and maybe get a you know a check between several hundred to half a million dollars you know pretty quickly and do the investors come in as individuals or as their vehicle for each fund. So the way it's always traditionally we wrote our own checks. So it's individuals but with the fund it comes the investors are it's an LLC in the fund and investors are and we're an investor in the fund and the fund will write one check.

So there'll be one name on the cap table whether it's called TCI L.A. fund number one I'm not quite sure the name of the fund but that's that's how would work. And you know we don't have a paid staff so we're all volunteers we have one person actually name out a shout out to a Ross Sahni who is our director executive director and does everything for us and we would not exist without him but we do our own due diligence and so we get really involved and if someone's raising like turning 50 get you guys let's say what is the total size of the round and what sort of valuation are they seeing or is it a note and it's a cap.

So we're open we obviously prefer equity but I note today we all know today that companies love to do you know thanks to Y Combinator they love to do safes and convertible notes so the market is what the market is. So we prefer equity but we're happy to do the others and you know since we're angels we get it we're very comfortable getting in at the and seed level so we're used to companies with no revenue or very little traction. But we would prefer the valuations reflect that.

So you know valuations can vary but you know typically we'll see companies coming in with pretty much pretty little traction maybe with a convertible note with a cap of you know somewhere between 3 to 5 million or something like that. But we just we heard we had a meeting this morning actually out here at Caltech and we saw a company with a pretty money of 1 was 2 million which was really interesting and slightly like above that and one was 27 million but they had a lot of traction. So we're flexible if a company can show that they really deserve that valuation got it and how much.

Just out of curiosity was the 27 million dollar company raising they were raising a total.

It was the safe note they're raising a total of. They've raised three already and they're open to take another one million. And then they're getting ready to do this series A. Got it.

So not a giant round not a giant round one of our listeners wrote in with question which is when we talk about one on four like that might be a typical sort of thing that you'd see something like someone raising a million on a four million pre money. Say what do you talking about when you say 1 on 4 2 on 8. It's just the amount the raising and the pre money valuation.

Right. I would just say watch Shark Tank and they explained it very well for everyone. But I know when I first joined and TCI and when others come in that's it always gets a little confusing with the pre and the post and doing the math. But you know it's pretty straightforward.

So if you want to be a savvy entrepreneur just watch more shark tank. No I'm not.

Well the only thing I'll say about Shark Tank is that you need to know your numbers. You need to know a lot about your business you can walk in and say well I have an accountant that does my numbers right. And it really is a turn off and you shouldn't ramble you can watch Shark Tank you see people avoid questions you see them ramble or not and you see the expressions. Yeah sometimes they're very vocal about what they don't like about the company. So I think it's a good primer for understanding but I'll say a tech Coast angels.

We're not shark tank we're dolphin. We're looking at a town country where dolphin take because we know a lot of us are entrepreneurs and have worked with entrepreneurs and we know it's extreme it's really tough to start a company and there's no sense in tearing somebody down and you know we can choose whether to invest or not but we want to be constructive with our comments and helpful.

I don't actually watch Shark Tank but I imagine tearing people down makes for good television probably not necessarily for a great investing relationship.

No but it is always crazy to me when I'm like well what was your revenue last year or seven.

Pretty obvious question If you're like well I'm not exactly sure. Yeah that's good.

When we work on Shark Tank that's not I'm desperate to know more about the the dollar. Yeah okay great. Dollar only store now ninety nine seventy nine cents whatever dollar I ran up in my head.

I read up a little like one cent makes a big difference if you're doing low margin businesses right or if you're selling something for a dollar and you know every penny is one percent of your revenue all right I apologize.

That's all right. Good you.

So you've made it clear that we should say 99 cents only is there a ninety nine cents not only store that you compete with.

No but I think that 99 cent store is just like a generic term or the dollar store in our name was 99 Cents Only Stores. Believe me it was tough to enforce. I find myself saying it and we you know it's this hard to enforce but that's just when you're there that many years you know you get used to saying it so.

And how how big was it when you joined when you became an employee there.

So when I joined in late 91 we had about 20 stores. I mean I've been 22 and they were all within very close to doubt all in L.A.. I think the father's store was Ontario and that's Ontario California of course. And we thought boy that is so far it's like 40 miles from from here. But over time we added stores in four states. And I think that's gets to scaling a business. When we had 20 something stores all within like a one to two hour drive our family and the key members of our management team we could run out to fix any problem and we could be there.

And so we had a model I think with you know we had the family which was my father in law Dave Gold who was a retail genius. So it's kind of like a genius with a thousand helpers kind of management structure and we had to evolve because you know when you have stores in many states and the logistics and and wanting to run and be a profitable business we had to change a lot. How we did it and we had to learn how to bring people in from the outside who were professionals or at a lot of experience and to bring in these folks without losing our entrepreneurial spirit so to speak.

This sounds I'm sorry. It sounds very analogous to what we see in startups in tech startups as they grow. How do you go from a sort of one genius million helpers to a structure without breaking things.

Well it's I've never seen a really great book on it. You know or are like a roadmap on it but there are certain things that you have to you have to be sensitive to it. I think the people coming in and the the folks that are there have to be willing to communicate and listen to each other because a lot of the problems I see is miscommunication where someone says this and you heard you know you heard that and and then you go off in your own direction and then you come back and you're like What did you do.

And then there's really a lot of problems. So it really requires both sides to really kind of understand that they're going to be speaking different languages at first and they have to slow down and they have to really kind of. I mean it's almost like OK I heard you. It's like someone that doesn't really speak English that well and you say something to them and you want to make sure they understood what you said. So you say please tell me what you heard me say as opposed to just yes I'm going to do it.

And they repeat it back and you're like oh no that's not what I said. So it's almost like you're speaking two different languages. And also I think you really have to understand what the core values are of your business and understand what are the nice to have things you have and what are the must have things. So not everyone's in a come in. Most people that come in are not going to hit all your values but you have certain core values you can't give up on you know. So if one of your values is doing more with less.

For example if that's what you've decided that's has to be. If you add someone that comes in from a big company have used to having a really big budget used to having a big staff they may be brilliant but they just don't want to get involved in that doing more with less kind of thing. They may be as I said really competent but they could be a disaster at your company if it kind of takes away from that part of your culture that you think is important.

Yeah. So when we're talking about scale here like how many stores. I don't have a good concept of what a big retail chain. How many stores. That is.

So just for our stores are so typical Dollar Store that you may have seen probably does about a million dollars a unit. And if you see little rest little retail chains that are restaurants and so on they probably do about a million dollars a grocery store probably does 25 to 50 million just to give you a sense of Home Depot is problem and target is probably a hundred million two hundred million in revenue per store. A big successful one. So. So ninety nine cents only stores. We average five million dollars a store and our average size store is a little under 20000 square feet.

So. So much smaller than a supermarket but much bigger than like a little well a little like fast food restaurant thing. And so. Which at the time we were doing more per more per revenue more per square foot than any other dollar store. You know that was around as much as many deep discount stores. So that that's just give you an idea in terms of the size of the store we had when I left we had three hundred and thirty around the region 30 stores we were doing about one point six billion in sales roughly.

And when we did our buyout we did the buyout for one point six billion. So it worked out that it was about one time sales. The buyout about it and our eBay store was one hundred and fifty something million. So it was about nine times EBITDA roughly a little over nine times EBITDA. So that those are 2012 prices. I don't know what happens now but that just to give you a sense of scale.

Now I'm super interested in like in a store. How many brands or how do you like that would be how I would think about it. How many brands right and how many is used but I count how much is in a store.

So it really again depends on the type of retail outfit. So for 99 cents only stores one thing that made us very unique versus almost all of the retailers even discount retailers is that we bought closeouts one time special buys so you could think of like a new and improved item that didn't make it or the item that it replaced that the manufacturer or the CPG company is getting rid of or it could be a seasonal type item. You know it could be an item that's close to its expiration date but has not hit it.

So let's just say it's got you know two months to go and the supermarkets don't want to buy it unless it has five months to go. There could be many reasons why sometimes manufacturers want to make their quarterly numbers their big public companies so they just say OK. We have to hit a billion dollars in sales by the end of December. So let's go with some special promotions. But the deal is we have to find a company that can take it in right now and so we were the ultimate in flexibility when we bought from manufacturers we were whatever they wanted to do we would do it as long as we could get a low net price.

And there's many other things that grocery stores and other things do to bring the prices up for the consumer. But we are what's called a like a dead net dead net customer where we didn't charged any any any allowances getting into too much detail. No it's interests but grocery stores will charge man you're so small. So if you're an investor an angel investor in a consumer goods company someone's coming up with a new kind of energy bar and they want to get on the shelves of Ralph's the supermarkets will charge a slotting allowance and you'll have to pay them to put your product on their shelf or they may say you have to pay us in advertising allowances when they were the only game in town they could completely get away with it.

And it was really expensive to get shelf space it still is but now there's some other markets that you know a deep discount operation won't charge. We just want to get the lowest price. And you know maybe a whole foods I don't know if they charge they may now but it used to be they didn't and they would give breaks to smaller companies but I don't know what they do now but so those are the kind of things that happen in our business and it makes it hard for a new brand to get started.

That's all I think totally I'm interested in but if I am a new brand can I get onto your shelves and what do you look for. Do you look for me being in the mom and pop stores or how. How do I. Or is it just a relationship business or what.

No if you if you're new brand you would want to get directly onto the 99 Cents Only store shelves because we're healthy. We're only paying a certain amount of we could sell it for 99 cents but we did work with a number of companies to help them level out their production.

So if you're producing a tremendous amount in these months of the year or this time of the month and you want to keep the line moving it just you know you can produce for a lot left less. We could say whenever you produce it whatever month of the year we will take it as long as we can buy it for say 65 cents and we're going to sell it for ninety nine and you know it may sell for a dollar fifty nine somewhere else but will what we're completely flexible so it's when one thinks of or when I think of a ninety nine cents store.

I don't think high tech in the in the front they don't look very techie in the back of the operation when you're figuring out how to manage all these margins where you're using a lot of tech.

When we started out we were not using a lot of tech. In fact my brother in law. He kind of brought tech with me graduated from Berkeley and other brother in law was a math major at UCLA and those two guys understood computers. They built. They brought the first program we used. They used a RadioShack computer which we got rid of those we threw him off the roof of the building but they built the first system. It was a little bit of kind of like an allocation system and how do you allocate product to stores because if you think about a company that is buying closeouts and we never know what we're gonna get.

So manufacture a retailer that doesn't buy close outs knows what they're gonna buy and they have a planned out and they have planners and allocators and they say OK we know we're going to get 2000 cases of this and we know this and they know weeks in advance if not more so they'll say this is how much it's going to go to everyone you know get ready and this is this is exactly how we want the shelf to look in the store and they'll do a plan a gram. It's all really nicely done in person the store gets the picture that arrives in this day and it's all done.

Now they don't know how fast things are going to sell and so on and you have to replenish and that's a different issue but for us 50 percent of our merchandise for these special deals that we never knew when we're gonna get and when we got them if they especially if they were short coded. In other words they got a month or two months ago to expiration like salad dressing that's going to be expiring next month. We got to you know we're now become the Kraft French dressing store.

So we just we've had the managers would have to figure out how to where to put it. Well where does dressing go. It goes in the section with other dressings and.

And so they they come out and like here's a section it's completely full. Now they have to work this into it and move bottles around and the next day another dressing appears they didn't know about. And also we have to decide how much to send them. So when we had a small number of stores we could figure it out and we could do it. We had a system. It was kind of rudimentary it was it was and then we automated it and it was still rudimentary from that point of view but it worked for us.

And then we kind of forced it to work put bandaids on it. And then when we opened up stores in other states what we had did not work at all. And we learned the hard way. So we talked about scaling. We opened for retail business and I imagine other businesses go through this. The issues the key issues you have to figure out to be able to successfully scale for us in retail when you have one distribution center. And that's one distribution center. One distribution point that's supplying all the stores like a hub with many spokes.

That's one model. But when you have stores that are now and say for us in Texas which for thousands of miles away from California it was too expensive descended from California because the truck driver can't get there in one day. And there's many other issues that make it cost prohibitive. So we had a separate distribution center. And so it's kind of going for family for people that have kids going from one kid to two kids who can't parent the same way. And so now you have two kids so now you have to really do it a different way and so the logistics we needed were different in the processes we needed.

We had to improve and so we had a you know we really became much more sophisticated and we as I said we made many mistakes and and we learned the hard way we'd have stores that looked empty they just didn't get replenished that right because even though that warehouse was close by in Texas to the Texas stores that warehouse was out of the product because of a stick we allocated it wrong too because we bought it. We had to send some to California some to Texas and then we had to replenish. So anyways too much detail but yes we became quite sophisticated from from a tech point of view and that happened over the years I was there with our my brothers in law and and the rest of our team and we had some very strong people in I.T. and you know it worked well for us.

I think it's such an important lesson that that with a business that sounds very different than the tech startups that we talked to most of the time culture was still such a key issue. When did you start even thinking about that. And did you when you came to the company was there already a culture that was enshrined somehow.

So you know I had an engineering background so when people talked about OK the culture so important and then I was kind of finance background I was like yeah OK you know I just didn't give it much credence until until I needed to until we grew to a point where we kind of lost our culture.

And I always just assumed that if the leaders of the organizer of the organization you know demonstrate the culture in their actions they walk the walk then it would. It would translate to the rest of the organization. And it worked that way in the beginning when we had a small number of stores and everyone knew us and and we did have a culture and it was set for my father in law as I said Dave Gold who started the company and he he had certain things that he deeply believe and I'll give an example of one he would say run your business your department like you'd run your household.

So when you leave your house the lights on you're going away you're leaving for work you're gonna turn the lights off. No one has to really teach you that or maybe your mom taught you when you were five years old. But there's certain basic things you know this is your business. This is your household. So we'd have had a lot of basic things like that you know and he would say that he was you know our original CEO and he was that I'm not the CEO the customer is the CEO. It's just basic things that drilled into us and how you know we should we should act at the company we worked hard.

We did more with less. And so as we grew the point of this story is that as we grew we found that we'd go to stores and they didn't really know what our culture was the stores that were thousands of miles away. And managers that didn't understand they didn't. It's impossible for me as the CEO and the rest of our team to get to every store even in one year would be very difficult to do it it wouldn't have any time do anything else. And so we had a point where our results started to go downhill.

As a public company which by the way is very embarrassing and you're very public is your giant fish ball and you're getting yelled at on conference calls and but they were right and we made our mistakes. But I was very public and so we pulled back in the sense that we brought the management team together and we talked about the company's core values.

So you just let me interrupt you for a second. So the first sign you had that the culture was breaking was actually with the bottom line. Did you see it coming before that before the business started breaking I saw it in the sense that just behaviors going.

When I would visit stores I would always do surprise visits. I didn't announce I was coming to some retailers where when the boss comes everyone knows it. Then you don't see reality. So I would always you know whenever I was I take surprise visits and go in it and I would see things I didn't like. But you know at first I attributed to OK this is probably a poor manager or poor. But then I would see it in other parts of the company. They weren't really acting the way I would act.

And but. But our company was doing great. Then over time the results started to slip. Whether is it whether it was we weren't fighting for the best price as much as we used to with the manufacturers or shrinkage was going up which is theft or sales were not increasing as much as we like. Just a number of things we started to see it. And it also was combined it was kind of a perfect storm because it worked with our growth. And we also had issues where we made mistakes as we expanded to this thing where we had stores in other states and two distribution centers and didn't have as strong a process and systems so at first I thought well we got to improve our process our attack our systems.

But I really didn't focus on the culture as much as I should have and because I just said I'm I'm a perfect example of the good part of our culture. I walked the walk and everyone here that I'm working with here in this small group we're walking the walk but they didn't see us.

And what I learned is that if you have any person if you have a chain of command if there's one weak link in that if someone is not reflecting that culture it doesn't matter of six people above them or their direct boss reflects perfectly that person everyone below them just sees their boss and says well this is how the company is so.

So it was really a lesson for me and it was it took a while week we got together we went through our what are our core values we worked and we finally came up with them and we put them on the back of our business cards I may still have an old business card in my wallet I don't know that still has them but we put them up. We we we had to make changes and some senior manager positions because they didn't they didn't really reflect the core values. And but for most people we gave them a chance to to really embrace them.

And I knew it was right when I walked around after it was up and a few people came up to me and I mean this is gonna sound so hokey guys but you know people came up that had been the company a while that were good good good employees and strong competent people and they had like tears in their eyes and they said this is exactly what the company means to me. You know literally and so. So I knew we hit it right. And I credit that I mean we put good systems in place we made sure we know we changed out if it was people that been there a long time or new people just people in the wrong positions we made changes.

But I think those core values helped us tremendously by really codifying them and really making people aware of them and making people believe that if someone didn't reflect the core values I mean they could do whatever they want at home. But at our company they needed to to act out these core values. Sorry but way you ask the question that resonated with me I took it.

No it's good. So without sounding negative when you got bought so a b by out Did any of that stay in place or do you have lessons on it.

So we we did a buy out and we partnered with the p firm so it wasn't that they. So you know during the process of the buyout which was in 2000 January 2012 closed our family sold about 80 percent of our equity and 20 percent we rolled into the new company.

So we were an equity partner with the private equity firm on the company and I stayed on the CEO as I said for about a year. And my brothers in law were there and my wife was one of the one of the most experienced buyers in there. And my father in law had long he had retired. The end of 2004. But he still was very active in that he would come in all the time and so on and was on our board. But the core values were something that I felt was very important and I think many members of our team since I've been gone they are on their.

I think six CEO since I left. But some of them are interim US and they they seem to have someone who seems pretty good right now and I hope that that that that this person does great. I that I said that we had rolled our 20 percent into the company and so after we left within a year of that leaving by the by late 2013 we sold our remaining piece back to the private equity firm. So for six six years now we haven't been involved. We have no equity. The only thing is I still shop there.

So I love the stores and I think the stores are still a lot of fun. Look everyone likes to get a bargain. Right. Everyone likes this great deal I got. So the best thing was with someone who gets a great deal they go home they tell their neighbors or friends. Look what I got in that. Word of mouth is fantastic and it helps this helps the business too.

So to sort of bring it back to TVA. Yeah how do you impart some of these lessons about culture and about growth and and scaling to young founders who were here maybe doing their first time well you know I actually learn a lot from the young founders because the energy they bring is infectious.

I love I think many members of TCI really get a lot of working with the founders when they want to interact. They're obviously extremely busy. They don't need to have people calling them all the time but we're there to be helpful. If if there's some things I can be used as a sounding board if they have questions I'm happy to to try to be helpful. And it's my pleasure. So there's sometimes I think I've been helpful sometimes and you know I don't I don't know if I'm always helpful but you know I try to bring my experience to the table there.

How about as an investor when you look at consumer goods.

Do you. What are you looking out for there in terms of. Like I ask you how could I get on the shelves and you said no. Like you probably want to be on my on the shelves if you're trying to make bigger revenue bigger margins. But what do you look for it like. How do you coach. How do you coach people who are just getting into this space.

Well I'll say that 50 percent of what we bought were regularly available stuff. So if you can make it for the right price point then that's great. But if it's like a new kind of high end item that then you want to sell it into Whole Foods I guess. So what are the things I would look at is what I would say if you look at any package just think about just put yourself in the eyes of a consumer or customer. You walk down an aisle of a store. How much time you going to spend looking at every single package.

I mean you just see it very briefly. So the call outs which is you know what's on the label like what does this say.

He's being humble water it says lately death. Just kidding just kidding. Yes sir.

Yeah. It says I mean the only thing I see I see natural I see spring water. But you know but maybe that's a bad example but that's what they choose to call out. Right. And so the call it's in the package are really important. You can only only have so much space on your label. And so sometimes you see companies that are you know maybe they have high protein and they think that's really important but you have to look on the back to see that they have a lot of protein and they don't say it on the front.

Maybe that's important to say it's vegan maybe it's important to say non GMO. Maybe the calories are important you know or the or the fact that you have low calorie. So but it's. And then also it's the color of the label and how it looks and how appetizing and and you know many aspects and how we'll look on the shelf. So if it's something that lies on its side and you put the label on the part that customers can't see. So. So we we just see so many mistakes because we bought close outs so we became very good at saying oh that that we've seen that before that won't work.

And so and it's also the name of the products like there is there was a face cream called facelift. It's a great name for like a lotion for you I think was for women and it was called facelift. Now it wasn't really a facelift but it was a super name for a product. So you think about the names and then what I try to do with entrepreneurs is when they choose a name that you know obviously sometimes you hear a naming Oh that's what a great name. Sometimes the name is doesn't make sense.

I to understand why they chose that or why they made decisions on certain call outs on the label I want to hear their logic. Many times they'll tell me and you know I'll learn something from them that I didn't really understand. I remember talking to an entrepreneur and I think the product was called repurpose or something like that and it was I didn't really know what. I didn't. This is years ago like 2000 13 or 14 and she was explaining to me what it meant to repurpose and how Millennials want to reuse things and I was like I didn't really get it and I thought the name was kind of weird.

And then the more I looked into it like wow it's a great name you know and so you learn from entrepreneurs. But you wouldn't understand their judgment.

What about distribution like how do I if I'm trying to get something onto shelves where do I start do I start with the mom and pop like relationships like the small corner store or how do I depending I guess on what I'm selling but how do I start to get people buying my stuff.

Well you've got to go to the retailers and you've got to make appointments you have to be aggressive in a good way. You can't be intimidated. You need to go in there. Most men most retailers the buyers at these retail companies they like it when the CEO or founder of a company comes in. You know it's a they feel a little bit you know they like that it's it's it's it's a good thing. And if you come in and you have passion about your product and you cans and you can convince them that's a way to at least get get a trial and you may say look whole foods.

I mean obviously you're not going to I love you. Put it me in all your stores. But let me try out and in a couple stores let's see how it does. Now if they happen to say OK we'll try out in a couple of stores you better make sure that you go to those stores and make sure that someone didn't like accidentally put like another display a floor display in front or that it looks nice. They don't eat the whole foods buyer doesn't need to know that you're going in and fixing it up now or you can go in and buy all the products off the shelf and to tell the whole foods buyer Look it's sold like crazy.

I'm not saying to do that but.

But you know you really need to be aggressive and if you're more the product visionary and you're not a great salesperson you need to know your own strengths and weaknesses as well. So you may need a partner that can go in and help you sell.

Have things changed with the prevalence of direct consumer CPG.

Yes. Change retail a 100 percent so certain items people just would rather buy online certain you know I think deep discount stores still have an advantage in that the pricing brings people to the stores there are stores. I wouldn't call them deep discount but there are stores that have a certain and intangible element where it's it's not a chore to go to the store. It's more fun like a trader joe's or some people love Costco where it may be a chore to get there and find parking and a trader Joe's parking lot but once you're in the store it's an enjoyable experience but nobody says I love to go to CBS.

So so fortunately CBS isn't a sponsor but when I was sort of more asking was for a CPG menu CPG company is it. Has it become a necessity for them to prove themselves out in a direct way before they come to retailers do retailers expect to see it must be an easier conversation I imagine to come in and say this thing that I've got the soap it's selling like hotcakes online. We'd like to put it in your store rather than something that's never seen a sale before.

Yeah I don't. I think you can go either way I don't think it's a necessity to be able to say that I can show I got some traction online or out and think it's incest say I sell it online I mean certain retailers might be delighted that they're selling something in the store that someone can buy online. The other hand I do think that I don't think there's any retailers out there at this point anymore say I'm not going to buy it if it's online only if I can have it in my store.

So I think it can go both ways. I don't think it's a necessity.

I don't think it's I think it would probably just be viewed as a positive if you can show you know it's really selling great and you want to get it to your stores. I do think that with many kind of products it's difficult for somebody to get to all the retailers so many times they hire a distributor or broker. Depends on which line and different brokers out there are manufacturer's reps that you can hire. The thing you've got to make sure though when you hire them is that are they carrying any can beat any lines that are competing lines and then you have to understand what incentive is there for them to sell your product when they're coming in and they have 50 other items that they're in front of the buyer from Ralph's and they say I carry these 50 items.

Got to realize the buyer from Ralph's only got to spend so much time in front of that with that person. So you may be the 30th item they bring up. So it's it's. So that's why I always would say make sure you go with the broker.

In other words make sure the founder or the co-founder or the head of sales goes goes with the broker on some trips and you can see them see how they see what they do watch how they do it. And then of course it's good to have you there as a backup to say here's the founder with me.

I mean we have to get off his boat. If I go to a buyer let's say I'm not with a broker right now what am I selling the buyer on. They care about the costs they care about how well it fits in with their the rest of their imagery or like what am I what do I need to pitch them on.

Well yes and yes to both things. They do care about the costs. They care about how it fits in with what they carry and they care about how it's going to sell. Probably most of all along with the cost. So those are all things but you know when you. It's very helpful before you go to a potential customer which would be a retail chain for example you walk their stores and so you can come in and say you know I see that you really have a strong section in this area.

And I think my product will bring this into that section or will highlight this or you're trying to appear to millennials my product really hits that target market so I mean that's very helpful I think.

Great. Okay. We've gotta talk some more about DEA. What else do we need to keep our eye on DEA. Because it's you know how do people approach DEA. Do they contact us. I guess there's the website they go to the website they say I'm great. You should you know they go through your final.

So the best. So there's two ways. So first of all one is I'll just kind of on a side how many people how we get members maybe there's a different kind of thing is usually from members of referring other folks. We have a big push to increase the diversity from ethnic point of view from a gender point of view of our TSA chapter and that's being a part of my most important initiative and I know with our new pride I'm still the president till December thirty first I've been president two years Bryan Horner will be taking over I know he feels as strongly if not more stronger than me about increasing the diversity and so some one of the things we try to do is recently started holding events.

So we just had a event this week about an angel one to one workshop that we had an expert Dojo. They were nice enough to let us use their facility and we're going to be having an event for a female angel investors who are interested in that and we're going to probably have that probably the beginning of next year and we find about that's on your Web site.

It's on our Web site and you know obviously key thing is how do you get the word out about it so maybe we can let you know and you can see it on your podcast.

But so but in terms of terms of companies they can come through the Web site but as you know from being sees herself that the best way to get to get referred to a V.C. or an angel group is to be referred by someone that they know. So I think that holds true for angels as much as B.C.. So yes we see companies that come and go over the transom but it's really great if you know we they come in through someone you know from before they get referred from you know a local accelerator incubator or from a professor that you may know from the universities or many different ways.

Is there a list on your Web site of who the DEA who the Texas the angels are so you can find whether you might know or have a connection into.

Well that's a very good question and I know I can do that but I have a special log in so I do not know the answer we can test it out now and go the tech go stands a website. Now don't do that but that's a good question. I don't know.

But yeah that's a good question.

I mean I did have basic questions that I keep that keep coming up that I was just going to pepper you with because David you know things like in a prized seed round so you know you're looking at these rounds.

What do you think is is dilution for the founders that they should be expecting to have before their series A or and related that is option pools like what do you think is a good option pool for a seed round.

So I think the first part of your question about dilution I think many founders first time founders especially are very nervous about going below 50 percent and losing control and you know that that absolutely can happen especially as you get to a series A round and so on and I think I think that that's it's going to happen.

So I think founders have to rich be prepared for that mentally and they may try to they may avoid a really value add investor and go with an investor that maybe doesn't bring as much value only because they don't want to get below 50 percent. And I think that is not the wisest thing to do if you can find investors that really can add value and can help you raise money for you know upcoming rounds.

So to be clear do you think it's okay for founders to go into an a round having already sold over 50 percent of the company.

It really depends. You know if they're gonna need a b and c and in Benz How much money how much money they're going to need to raise and being realistic. How much money they're going to need to raise. We saw a company recently where it was seed round and they're raising a million dollars and it's a 2 million pre money valuation. So right away they're giving up one third and not to mention option pool. I'd even ask about the option pool. But yeah there's the option pool and then they said they are going to need to raise 10 million dollars down the road so nobody wants to invest in a company where you know the people doing the actual work and the visionaries behind it have very little equity.

So it's so I think founders have to be very careful not to give away too much to begin and I think as investors you don't you're You're deceiving yourself if you think I've got a great deal I own so much of this company and you have founders that at some point will wake up and say I already own any of this company. So I think that's that is a critical thing that you really bad for investors to get greedy from that point of view would just hurt themselves.

Yeah and if the founders don't come to that conclusion maybe a downstream investor will and will make corrections to the capital well before they even write.

But there might make corrections to the cap tables if the Angels have decided we've put enough money in. We're happy to have this visa come in and the V.C. says the founders don't have enough equity they're not going to say OK founders give us some of your equity to get more equity. No they're gonna take it from the existing investors. And you know I'm pretty many angels have seen that happen and it makes sense why so and in terms of the option pool I know a lot of folks say 10 percent but I like to see 15 or maybe even 20.

You know it again depends on the company it depends on the town level of the founding team if you have four people and they really are town and they complement each other. Maybe you don't meet need to bring in that many high level folks but when you have one founder and you could see that they're a tech visionary they're going to definitely need a top sales marketing person they're going gonna need you know a strong person in some other areas.

I think having 15 to 20 percent is good to have and that should get you the 10 20 percent option pool whatever it is should get you your next 10 to 20 hires should get you. How how do you sort of. How far do you think about then when you're bringing in your top sales exact. How do you think about how much equity that person is getting.

Well you pick the one position where it's not clear for salespeople how much they value equity and of course they'll ask for it by the end of the day. They want cash. That's maybe the one position where they really care about cash and that's also something entrepreneurs and founders have to learn that you know they may think equity but they have to understand what these if everyone you hire what they really value. So I think on that person you're first.

I don't know senior business hire or you know Director of Engineering or some.

Yeah I don't think you really I don't think you need to give away as much for certain positions. And but I do think that if somebody so I think that you know numbers all over the board but I think like one to three percent is a lot of equity to give up you know. But of course if you're bringing in a someone who's gonna be kind of at the same level as the founder that's a different story.

I still want to say I'm usually less than 1 percent. But interesting.

OK other things that we really need to cover because we are running out of time. So quick think hard. Really important thoughts from you.

Oh OK. That's the question here. That's the question. Well if we're talking about angel investing. Yeah. I would say so this is more for people who are doing angel investing or considering it maybe a lot of people seem very interested in doing angel investing. I would not invest if you're doing it personally obviously as an angel does any more at the most 5 percent of your net worth than I would think probably less is more is probably less makes sense. I would try to understand.

You know realize that it's going to be seven to 10 years before many of the companies you know have good good exits if you're lucky and many and most won't.

And I know and I think you also have to look at you know have a framework and be rigorous. And so you don't get too influenced by someone who you really like. They make a great impression. The idea really really gets you excited. I think you still need to have some framework. So you go through your checklist and go through it. And so you don't kind of get too carried away emotionally because they're doing so wonderful in one area. And I think that's just something I think anything like when you make I am a big believer in checklists on anything so that so don't get me started on that but I think that's really important.

How you do.

No I'm not that not it. OK.

So I think also for entrepreneurs I think when the big messages is they can go to the tech Coast angels Web site. Also I think it just searching LinkedIn you can find a lot of people who put tech Coast angels down on their LinkedIn you know as an interesting way of finding people who may be connected to because I really like to direct more more entrepreneurs getting funding in L.A.. So yeah.

So I think you know if I'm coming through the Web site it's we look at every company that comes through.

And so you know Rosh Sahni is our executive director. They can reach out to him and if they want to see who some of the members are we're not hidden. I mean if there's no reason why we wouldn't allow people to see our membership it just because maybe our Web site doesn't do it. But if they really want I'm sure Rob would say shorting you know as long as he's not giving away our cell phone numbers. But here's some of the folks that are in it and if they happen to know anyone that's great.

And you know I would just say that that if they come in they should be prepared to have like they just need to have the basics will tell. Actually we'll tell anyone presenting. We'll give them a sample template of what the pitch deck should look like. So we try to be very helpful with entrepreneurs so they when they come in they can be ready for our prescreening committee and so on. I can I can give you a sense how quick the process goes for entrepreneurs if you want and how fast they can expect funding or no.

Sure. So from the time they present to our meeting so they go through they play online. Then if then we'll prescreened them in like a ten minute kind of webinar type thing with a prescreening committee. If they pass that then they'll come to what we call a screening mentee meeting which is the meeting where three or four companies present. And if if they pass that then we'll go to a due diligence meeting and then the timing from when they present to us at the screening meeting to when they can expect the check.

We try to get that done within five weeks. That's our goal within five weeks from when they first present to when a check comes in. So that's about five weeks.

It sounds great. Well I hope you keep. Keep it up keep funding great entrepreneurs. And we really appreciate that you took the time to come visit us here today and be on the podcast.

It's my pleasure and good luck with the podcast. And look forward to listening to people who are more interesting than me.

Know this is really great. You're super interesting. Thank you so much. Thank you guys. Thank you.

A lot about 19 centimeters. I'm sorry I spent our time at it because when I push it back to 215 I have a 315.

Well no we're also at 50 minutes. OK. Well that's good because we cut them down to 30 minutes OK. Or.

You know growth story 2013 when I left got back into venture capital except this time as an angel and so and in addition I do some other things like real estate and some consulting for companies that sell into retail and a little bit of this little bit that. But I joined tech Coast angels in about five years ago became the president tech Coast Angels a couple of years ago and TVA has five chapters. L.A. is one of the biggest ones and there's several hundred members throughout the throughout Southern California. It's been around for 20 something years and you know they invest a lot of money each member puts in a check and each chapter kind of has kind of a different area of expertise I would say in L.A. We have a lot of folks with consumer and entertainment and experience and aerospace and experience and now e-commerce experience San Diego has a lot of biotech experience and we share deals among ourselves and the interest.

The other interesting thing I'll say about TCI is that in addition to getting a lot of investors who can add value to the specific areas of expertise we are in the process of creating our own fund as well like a V.C. fund and we had our first closing yesterday. And yes we raised enough that we don't have to give back money so we were very happy and we hope to hit a million dollars. And then our goal is to raise the fund each year from members so we can write a big check in addition to members writing their own checks.

So that's my story.

So I want to make sure we had a little of that. Just hit the basics of Texas angels like what size checks you're writing because entrepreneurial audience wants to know how much money they can get.

But then I wanted like peppered with questions on 9 9 Centrelink OK everything you want to know about 99 cent Only Stores but was afraid to ask. Yes okay. So like where do we get the merchandise 70 people have been writing in with questions about 9.

Okay so yeah we'll get to that. So really quickly it's possibly similar to other angel groups.

I imagine I'm a member of a couple other angel groups and but tech coast is very active and we see three or four companies twice a month. So you know it's almost 100 companies a year that we will we will screen at our meetings and of course the prescreening we screen out a lot. So we see lots of deals but only only a certain number get funded like any V.C. ranger group would be. Usually members writes checks I would say on average about 25000 each for someone to write their own check. There are some members who are capable and have written checks that are six figures and there are some members on the other side who prefer to write maybe 15000.

But I would say 25000 at least on average. And in any deal it can vary you can have four members so you might have a hundred thousand dollars or you could have a lot more folks putting in and we've done rounds of one and a half to two million I think. But in general I would say it's more several hundred thousand dollars would be typical if someone was to approach TCI and just have members and to get a sense of what they would look for and the only other difference is now with this fund we can perhaps move a little quicker because you don't have to.

You know herd the cats so to speak maybe on vacation and you're saying get signed the docs and so on but we will fund you can go really quickly and maybe get a you know a check between several hundred to half a million dollars you know pretty quickly and do the investors come in as individuals or as their vehicle for each fund. So the way it's always traditionally we wrote our own checks. So it's individuals but with the fund it comes the investors are it's an LLC in the fund and investors are and we're an investor in the fund and the fund will write one check.

So there'll be one name on the cap table whether it's called TCI L.A. fund number one I'm not quite sure the name of the fund but that's that's how would work. And you know we don't have a paid staff so we're all volunteers we have one person actually name out a shout out to a Ross Sahni who is our director executive director and does everything for us and we would not exist without him but we do our own due diligence and so we get really involved and if someone's raising like turning 50 get you guys let's say what is the total size of the round and what sort of valuation are they seeing or is it a note and it's a cap.

So we're open we obviously prefer equity but I note today we all know today that companies love to do you know thanks to Y Combinator they love to do safes and convertible notes so the market is what the market is. So we prefer equity but we're happy to do the others and you know since we're angels we get it we're very comfortable getting in at the and seed level so we're used to companies with no revenue or very little traction. But we would prefer the valuations reflect that.

So you know valuations can vary but you know typically we'll see companies coming in with pretty much pretty little traction maybe with a convertible note with a cap of you know somewhere between 3 to 5 million or something like that. But we just we heard we had a meeting this morning actually out here at Caltech and we saw a company with a pretty money of 1 was 2 million which was really interesting and slightly like above that and one was 27 million but they had a lot of traction. So we're flexible if a company can show that they really deserve that valuation got it and how much.

Just out of curiosity was the 27 million dollar company raising they were raising a total.

It was the safe note they're raising a total of. They've raised three already and they're open to take another one million. And then they're getting ready to do this series A. Got it.

So not a giant round not a giant round one of our listeners wrote in with question which is when we talk about one on four like that might be a typical sort of thing that you'd see something like someone raising a million on a four million pre money. Say what do you talking about when you say 1 on 4 2 on 8. It's just the amount the raising and the pre money valuation.

Right. I would just say watch Shark Tank and they explained it very well for everyone. But I know when I first joined and TCI and when others come in that's it always gets a little confusing with the pre and the post and doing the math. But you know it's pretty straightforward.

So if you want to be a savvy entrepreneur just watch more shark tank. No I'm not.

Well the only thing I'll say about Shark Tank is that you need to know your numbers. You need to know a lot about your business you can walk in and say well I have an accountant that does my numbers right. And it really is a turn off and you shouldn't ramble you can watch Shark Tank you see people avoid questions you see them ramble or not and you see the expressions. Yeah sometimes they're very vocal about what they don't like about the company. So I think it's a good primer for understanding but I'll say a tech Coast angels.

We're not shark tank we're dolphin. We're looking at a town country where dolphin take because we know a lot of us are entrepreneurs and have worked with entrepreneurs and we know it's extreme it's really tough to start a company and there's no sense in tearing somebody down and you know we can choose whether to invest or not but we want to be constructive with our comments and helpful.

I don't actually watch Shark Tank but I imagine tearing people down makes for good television probably not necessarily for a great investing relationship.

No but it is always crazy to me when I'm like well what was your revenue last year or seven.

Pretty obvious question If you're like well I'm not exactly sure. Yeah that's good.

When we work on Shark Tank that's not I'm desperate to know more about the the dollar. Yeah okay great. Dollar only store now ninety nine seventy nine cents whatever dollar I ran up in my head.

I read up a little like one cent makes a big difference if you're doing low margin businesses right or if you're selling something for a dollar and you know every penny is one percent of your revenue all right I apologize.

That's all right. Good you.

So you've made it clear that we should say 99 cents only is there a ninety nine cents not only store that you compete with.

No but I think that 99 cent store is just like a generic term or the dollar store in our name was 99 Cents Only Stores. Believe me it was tough to enforce. I find myself saying it and we you know it's this hard to enforce but that's just when you're there that many years you know you get used to saying it so.

And how how big was it when you joined when you became an employee there.

So when I joined in late 91 we had about 20 stores. I mean I've been 22 and they were all within very close to doubt all in L.A.. I think the father's store was Ontario and that's Ontario California of course. And we thought boy that is so far it's like 40 miles from from here. But over time we added stores in four states. And I think that's gets to scaling a business. When we had 20 something stores all within like a one to two hour drive our family and the key members of our management team we could run out to fix any problem and we could be there.

And so we had a model I think with you know we had the family which was my father in law Dave Gold who was a retail genius. So it's kind of like a genius with a thousand helpers kind of management structure and we had to evolve because you know when you have stores in many states and the logistics and and wanting to run and be a profitable business we had to change a lot. How we did it and we had to learn how to bring people in from the outside who were professionals or at a lot of experience and to bring in these folks without losing our entrepreneurial spirit so to speak.

This sounds I'm sorry. It sounds very analogous to what we see in startups in tech startups as they grow. How do you go from a sort of one genius million helpers to a structure without breaking things.

Well it's I've never seen a really great book on it. You know or are like a roadmap on it but there are certain things that you have to you have to be sensitive to it. I think the people coming in and the the folks that are there have to be willing to communicate and listen to each other because a lot of the problems I see is miscommunication where someone says this and you heard you know you heard that and and then you go off in your own direction and then you come back and you're like What did you do.

And then there's really a lot of problems. So it really requires both sides to really kind of understand that they're going to be speaking different languages at first and they have to slow down and they have to really kind of. I mean it's almost like OK I heard you. It's like someone that doesn't really speak English that well and you say something to them and you want to make sure they understood what you said. So you say please tell me what you heard me say as opposed to just yes I'm going to do it.

And they repeat it back and you're like oh no that's not what I said. So it's almost like you're speaking two different languages. And also I think you really have to understand what the core values are of your business and understand what are the nice to have things you have and what are the must have things. So not everyone's in a come in. Most people that come in are not going to hit all your values but you have certain core values you can't give up on you know. So if one of your values is doing more with less.

For example if that's what you've decided that's has to be. If you add someone that comes in from a big company have used to having a really big budget used to having a big staff they may be brilliant but they just don't want to get involved in that doing more with less kind of thing. They may be as I said really competent but they could be a disaster at your company if it kind of takes away from that part of your culture that you think is important.

Yeah. So when we're talking about scale here like how many stores. I don't have a good concept of what a big retail chain. How many stores. That is.

So just for our stores are so typical Dollar Store that you may have seen probably does about a million dollars a unit. And if you see little rest little retail chains that are restaurants and so on they probably do about a million dollars a grocery store probably does 25 to 50 million just to give you a sense of Home Depot is problem and target is probably a hundred million two hundred million in revenue per store. A big successful one. So. So ninety nine cents only stores. We average five million dollars a store and our average size store is a little under 20000 square feet.

So. So much smaller than a supermarket but much bigger than like a little well a little like fast food restaurant thing. And so. Which at the time we were doing more per more per revenue more per square foot than any other dollar store. You know that was around as much as many deep discount stores. So that that's just give you an idea in terms of the size of the store we had when I left we had three hundred and thirty around the region 30 stores we were doing about one point six billion in sales roughly.

And when we did our buyout we did the buyout for one point six billion. So it worked out that it was about one time sales. The buyout about it and our eBay store was one hundred and fifty something million. So it was about nine times EBITDA roughly a little over nine times EBITDA. So that those are 2012 prices. I don't know what happens now but that just to give you a sense of scale.

Now I'm super interested in like in a store. How many brands or how do you like that would be how I would think about it. How many brands right and how many is used but I count how much is in a store.

So it really again depends on the type of retail outfit. So for 99 cents only stores one thing that made us very unique versus almost all of the retailers even discount retailers is that we bought closeouts one time special buys so you could think of like a new and improved item that didn't make it or the item that it replaced that the manufacturer or the CPG company is getting rid of or it could be a seasonal type item. You know it could be an item that's close to its expiration date but has not hit it.

So let's just say it's got you know two months to go and the supermarkets don't want to buy it unless it has five months to go. There could be many reasons why sometimes manufacturers want to make their quarterly numbers their big public companies so they just say OK. We have to hit a billion dollars in sales by the end of December. So let's go with some special promotions. But the deal is we have to find a company that can take it in right now and so we were the ultimate in flexibility when we bought from manufacturers we were whatever they wanted to do we would do it as long as we could get a low net price.

And there's many other things that grocery stores and other things do to bring the prices up for the consumer. But we are what's called a like a dead net dead net customer where we didn't charged any any any allowances getting into too much detail. No it's interests but grocery stores will charge man you're so small. So if you're an investor an angel investor in a consumer goods company someone's coming up with a new kind of energy bar and they want to get on the shelves of Ralph's the supermarkets will charge a slotting allowance and you'll have to pay them to put your product on their shelf or they may say you have to pay us in advertising allowances when they were the only game in town they could completely get away with it.

And it was really expensive to get shelf space it still is but now there's some other markets that you know a deep discount operation won't charge. We just want to get the lowest price. And you know maybe a whole foods I don't know if they charge they may now but it used to be they didn't and they would give breaks to smaller companies but I don't know what they do now but so those are the kind of things that happen in our business and it makes it hard for a new brand to get started.

That's all I think totally I'm interested in but if I am a new brand can I get onto your shelves and what do you look for. Do you look for me being in the mom and pop stores or how. How do I. Or is it just a relationship business or what.

No if you if you're new brand you would want to get directly onto the 99 Cents Only store shelves because we're healthy. We're only paying a certain amount of we could sell it for 99 cents but we did work with a number of companies to help them level out their production.

So if you're producing a tremendous amount in these months of the year or this time of the month and you want to keep the line moving it just you know you can produce for a lot left less. We could say whenever you produce it whatever month of the year we will take it as long as we can buy it for say 65 cents and we're going to sell it for ninety nine and you know it may sell for a dollar fifty nine somewhere else but will what we're completely flexible so it's when one thinks of or when I think of a ninety nine cents store.

I don't think high tech in the in the front they don't look very techie in the back of the operation when you're figuring out how to manage all these margins where you're using a lot of tech.

When we started out we were not using a lot of tech. In fact my brother in law. He kind of brought tech with me graduated from Berkeley and other brother in law was a math major at UCLA and those two guys understood computers. They built. They brought the first program we used. They used a RadioShack computer which we got rid of those we threw him off the roof of the building but they built the first system. It was a little bit of kind of like an allocation system and how do you allocate product to stores because if you think about a company that is buying closeouts and we never know what we're gonna get.

So manufacture a retailer that doesn't buy close outs knows what they're gonna buy and they have a planned out and they have planners and allocators and they say OK we know we're going to get 2000 cases of this and we know this and they know weeks in advance if not more so they'll say this is how much it's going to go to everyone you know get ready and this is this is exactly how we want the shelf to look in the store and they'll do a plan a gram. It's all really nicely done in person the store gets the picture that arrives in this day and it's all done.

Now they don't know how fast things are going to sell and so on and you have to replenish and that's a different issue but for us 50 percent of our merchandise for these special deals that we never knew when we're gonna get and when we got them if they especially if they were short coded. In other words they got a month or two months ago to expiration like salad dressing that's going to be expiring next month. We got to you know we're now become the Kraft French dressing store.

So we just we've had the managers would have to figure out how to where to put it. Well where does dressing go. It goes in the section with other dressings and.

And so they they come out and like here's a section it's completely full. Now they have to work this into it and move bottles around and the next day another dressing appears they didn't know about. And also we have to decide how much to send them. So when we had a small number of stores we could figure it out and we could do it. We had a system. It was kind of rudimentary it was it was and then we automated it and it was still rudimentary from that point of view but it worked for us.

And then we kind of forced it to work put bandaids on it. And then when we opened up stores in other states what we had did not work at all. And we learned the hard way. So we talked about scaling. We opened for retail business and I imagine other businesses go through this. The issues the key issues you have to figure out to be able to successfully scale for us in retail when you have one distribution center. And that's one distribution center. One distribution point that's supplying all the stores like a hub with many spokes.

That's one model. But when you have stores that are now and say for us in Texas which for thousands of miles away from California it was too expensive descended from California because the truck driver can't get there in one day. And there's many other issues that make it cost prohibitive. So we had a separate distribution center. And so it's kind of going for family for people that have kids going from one kid to two kids who can't parent the same way. And so now you have two kids so now you have to really do it a different way and so the logistics we needed were different in the processes we needed.

We had to improve and so we had a you know we really became much more sophisticated and we as I said we made many mistakes and and we learned the hard way we'd have stores that looked empty they just didn't get replenished that right because even though that warehouse was close by in Texas to the Texas stores that warehouse was out of the product because of a stick we allocated it wrong too because we bought it. We had to send some to California some to Texas and then we had to replenish. So anyways too much detail but yes we became quite sophisticated from from a tech point of view and that happened over the years I was there with our my brothers in law and and the rest of our team and we had some very strong people in I.T. and you know it worked well for us.

I think it's such an important lesson that that with a business that sounds very different than the tech startups that we talked to most of the time culture was still such a key issue. When did you start even thinking about that. And did you when you came to the company was there already a culture that was enshrined somehow.

So you know I had an engineering background so when people talked about OK the culture so important and then I was kind of finance background I was like yeah OK you know I just didn't give it much credence until until I needed to until we grew to a point where we kind of lost our culture.

And I always just assumed that if the leaders of the organizer of the organization you know demonstrate the culture in their actions they walk the walk then it would. It would translate to the rest of the organization. And it worked that way in the beginning when we had a small number of stores and everyone knew us and and we did have a culture and it was set for my father in law as I said Dave Gold who started the company and he he had certain things that he deeply believe and I'll give an example of one he would say run your business your department like you'd run your household.

So when you leave your house the lights on you're going away you're leaving for work you're gonna turn the lights off. No one has to really teach you that or maybe your mom taught you when you were five years old. But there's certain basic things you know this is your business. This is your household. So we'd have had a lot of basic things like that you know and he would say that he was you know our original CEO and he was that I'm not the CEO the customer is the CEO. It's just basic things that drilled into us and how you know we should we should act at the company we worked hard.

We did more with less. And so as we grew the point of this story is that as we grew we found that we'd go to stores and they didn't really know what our culture was the stores that were thousands of miles away. And managers that didn't understand they didn't. It's impossible for me as the CEO and the rest of our team to get to every store even in one year would be very difficult to do it it wouldn't have any time do anything else. And so we had a point where our results started to go downhill.

As a public company which by the way is very embarrassing and you're very public is your giant fish ball and you're getting yelled at on conference calls and but they were right and we made our mistakes. But I was very public and so we pulled back in the sense that we brought the management team together and we talked about the company's core values.

So you just let me interrupt you for a second. So the first sign you had that the culture was breaking was actually with the bottom line. Did you see it coming before that before the business started breaking I saw it in the sense that just behaviors going.

When I would visit stores I would always do surprise visits. I didn't announce I was coming to some retailers where when the boss comes everyone knows it. Then you don't see reality. So I would always you know whenever I was I take surprise visits and go in it and I would see things I didn't like. But you know at first I attributed to OK this is probably a poor manager or poor. But then I would see it in other parts of the company. They weren't really acting the way I would act.

And but. But our company was doing great. Then over time the results started to slip. Whether is it whether it was we weren't fighting for the best price as much as we used to with the manufacturers or shrinkage was going up which is theft or sales were not increasing as much as we like. Just a number of things we started to see it. And it also was combined it was kind of a perfect storm because it worked with our growth. And we also had issues where we made mistakes as we expanded to this thing where we had stores in other states and two distribution centers and didn't have as strong a process and systems so at first I thought well we got to improve our process our attack our systems.

But I really didn't focus on the culture as much as I should have and because I just said I'm I'm a perfect example of the good part of our culture. I walked the walk and everyone here that I'm working with here in this small group we're walking the walk but they didn't see us.

And what I learned is that if you have any person if you have a chain of command if there's one weak link in that if someone is not reflecting that culture it doesn't matter of six people above them or their direct boss reflects perfectly that person everyone below them just sees their boss and says well this is how the company is so.

So it was really a lesson for me and it was it took a while week we got together we went through our what are our core values we worked and we finally came up with them and we put them on the back of our business cards I may still have an old business card in my wallet I don't know that still has them but we put them up. We we we had to make changes and some senior manager positions because they didn't they didn't really reflect the core values. And but for most people we gave them a chance to to really embrace them.

And I knew it was right when I walked around after it was up and a few people came up to me and I mean this is gonna sound so hokey guys but you know people came up that had been the company a while that were good good good employees and strong competent people and they had like tears in their eyes and they said this is exactly what the company means to me. You know literally and so. So I knew we hit it right. And I credit that I mean we put good systems in place we made sure we know we changed out if it was people that been there a long time or new people just people in the wrong positions we made changes.

But I think those core values helped us tremendously by really codifying them and really making people aware of them and making people believe that if someone didn't reflect the core values I mean they could do whatever they want at home. But at our company they needed to to act out these core values. Sorry but way you ask the question that resonated with me I took it.

No it's good. So without sounding negative when you got bought so a b by out Did any of that stay in place or do you have lessons on it.

So we we did a buy out and we partnered with the p firm so it wasn't that they. So you know during the process of the buyout which was in 2000 January 2012 closed our family sold about 80 percent of our equity and 20 percent we rolled into the new company.

So we were an equity partner with the private equity firm on the company and I stayed on the CEO as I said for about a year. And my brothers in law were there and my wife was one of the one of the most experienced buyers in there. And my father in law had long he had retired. The end of 2004. But he still was very active in that he would come in all the time and so on and was on our board. But the core values were something that I felt was very important and I think many members of our team since I've been gone they are on their.

I think six CEO since I left. But some of them are interim US and they they seem to have someone who seems pretty good right now and I hope that that that that this person does great. I that I said that we had rolled our 20 percent into the company and so after we left within a year of that leaving by the by late 2013 we sold our remaining piece back to the private equity firm. So for six six years now we haven't been involved. We have no equity. The only thing is I still shop there.

So I love the stores and I think the stores are still a lot of fun. Look everyone likes to get a bargain. Right. Everyone likes this great deal I got. So the best thing was with someone who gets a great deal they go home they tell their neighbors or friends. Look what I got in that. Word of mouth is fantastic and it helps this helps the business too.

So to sort of bring it back to TVA. Yeah how do you impart some of these lessons about culture and about growth and and scaling to young founders who were here maybe doing their first time well you know I actually learn a lot from the young founders because the energy they bring is infectious.

I love I think many members of TCI really get a lot of working with the founders when they want to interact. They're obviously extremely busy. They don't need to have people calling them all the time but we're there to be helpful. If if there's some things I can be used as a sounding board if they have questions I'm happy to to try to be helpful. And it's my pleasure. So there's sometimes I think I've been helpful sometimes and you know I don't I don't know if I'm always helpful but you know I try to bring my experience to the table there.

How about as an investor when you look at consumer goods.

Do you. What are you looking out for there in terms of. Like I ask you how could I get on the shelves and you said no. Like you probably want to be on my on the shelves if you're trying to make bigger revenue bigger margins. But what do you look for it like. How do you coach. How do you coach people who are just getting into this space.

Well I'll say that 50 percent of what we bought were regularly available stuff. So if you can make it for the right price point then that's great. But if it's like a new kind of high end item that then you want to sell it into Whole Foods I guess. So what are the things I would look at is what I would say if you look at any package just think about just put yourself in the eyes of a consumer or customer. You walk down an aisle of a store. How much time you going to spend looking at every single package.

I mean you just see it very briefly. So the call outs which is you know what's on the label like what does this say.

He's being humble water it says lately death. Just kidding just kidding. Yes sir.

Yeah. It says I mean the only thing I see I see natural I see spring water. But you know but maybe that's a bad example but that's what they choose to call out. Right. And so the call it's in the package are really important. You can only only have so much space on your label. And so sometimes you see companies that are you know maybe they have high protein and they think that's really important but you have to look on the back to see that they have a lot of protein and they don't say it on the front.

Maybe that's important to say it's vegan maybe it's important to say non GMO. Maybe the calories are important you know or the or the fact that you have low calorie. So but it's. And then also it's the color of the label and how it looks and how appetizing and and you know many aspects and how we'll look on the shelf. So if it's something that lies on its side and you put the label on the part that customers can't see. So. So we we just see so many mistakes because we bought close outs so we became very good at saying oh that that we've seen that before that won't work.

And so and it's also the name of the products like there is there was a face cream called facelift. It's a great name for like a lotion for you I think was for women and it was called facelift. Now it wasn't really a facelift but it was a super name for a product. So you think about the names and then what I try to do with entrepreneurs is when they choose a name that you know obviously sometimes you hear a naming Oh that's what a great name. Sometimes the name is doesn't make sense.

I to understand why they chose that or why they made decisions on certain call outs on the label I want to hear their logic. Many times they'll tell me and you know I'll learn something from them that I didn't really understand. I remember talking to an entrepreneur and I think the product was called repurpose or something like that and it was I didn't really know what. I didn't. This is years ago like 2000 13 or 14 and she was explaining to me what it meant to repurpose and how Millennials want to reuse things and I was like I didn't really get it and I thought the name was kind of weird.

And then the more I looked into it like wow it's a great name you know and so you learn from entrepreneurs. But you wouldn't understand their judgment.

What about distribution like how do I if I'm trying to get something onto shelves where do I start do I start with the mom and pop like relationships like the small corner store or how do I depending I guess on what I'm selling but how do I start to get people buying my stuff.

Well you've got to go to the retailers and you've got to make appointments you have to be aggressive in a good way. You can't be intimidated. You need to go in there. Most men most retailers the buyers at these retail companies they like it when the CEO or founder of a company comes in. You know it's a they feel a little bit you know they like that it's it's it's it's a good thing. And if you come in and you have passion about your product and you cans and you can convince them that's a way to at least get get a trial and you may say look whole foods.

I mean obviously you're not going to I love you. Put it me in all your stores. But let me try out and in a couple stores let's see how it does. Now if they happen to say OK we'll try out in a couple of stores you better make sure that you go to those stores and make sure that someone didn't like accidentally put like another display a floor display in front or that it looks nice. They don't eat the whole foods buyer doesn't need to know that you're going in and fixing it up now or you can go in and buy all the products off the shelf and to tell the whole foods buyer Look it's sold like crazy.

I'm not saying to do that but.

But you know you really need to be aggressive and if you're more the product visionary and you're not a great salesperson you need to know your own strengths and weaknesses as well. So you may need a partner that can go in and help you sell.

Have things changed with the prevalence of direct consumer CPG.

Yes. Change retail a 100 percent so certain items people just would rather buy online certain you know I think deep discount stores still have an advantage in that the pricing brings people to the stores there are stores. I wouldn't call them deep discount but there are stores that have a certain and intangible element where it's it's not a chore to go to the store. It's more fun like a trader joe's or some people love Costco where it may be a chore to get there and find parking and a trader Joe's parking lot but once you're in the store it's an enjoyable experience but nobody says I love to go to CBS.

So so fortunately CBS isn't a sponsor but when I was sort of more asking was for a CPG menu CPG company is it. Has it become a necessity for them to prove themselves out in a direct way before they come to retailers do retailers expect to see it must be an easier conversation I imagine to come in and say this thing that I've got the soap it's selling like hotcakes online. We'd like to put it in your store rather than something that's never seen a sale before.

Yeah I don't. I think you can go either way I don't think it's a necessity to be able to say that I can show I got some traction online or out and think it's incest say I sell it online I mean certain retailers might be delighted that they're selling something in the store that someone can buy online. The other hand I do think that I don't think there's any retailers out there at this point anymore say I'm not going to buy it if it's online only if I can have it in my store.

So I think it can go both ways. I don't think it's a necessity.

I don't think it's I think it would probably just be viewed as a positive if you can show you know it's really selling great and you want to get it to your stores. I do think that with many kind of products it's difficult for somebody to get to all the retailers so many times they hire a distributor or broker. Depends on which line and different brokers out there are manufacturer's reps that you can hire. The thing you've got to make sure though when you hire them is that are they carrying any can beat any lines that are competing lines and then you have to understand what incentive is there for them to sell your product when they're coming in and they have 50 other items that they're in front of the buyer from Ralph's and they say I carry these 50 items.

Got to realize the buyer from Ralph's only got to spend so much time in front of that with that person. So you may be the 30th item they bring up. So it's it's. So that's why I always would say make sure you go with the broker.

In other words make sure the founder or the co-founder or the head of sales goes goes with the broker on some trips and you can see them see how they see what they do watch how they do it. And then of course it's good to have you there as a backup to say here's the founder with me.

I mean we have to get off his boat. If I go to a buyer let's say I'm not with a broker right now what am I selling the buyer on. They care about the costs they care about how well it fits in with their the rest of their imagery or like what am I what do I need to pitch them on.

Well yes and yes to both things. They do care about the costs. They care about how it fits in with what they carry and they care about how it's going to sell. Probably most of all along with the cost. So those are all things but you know when you. It's very helpful before you go to a potential customer which would be a retail chain for example you walk their stores and so you can come in and say you know I see that you really have a strong section in this area.

And I think my product will bring this into that section or will highlight this or you're trying to appear to millennials my product really hits that target market so I mean that's very helpful I think.

Great. Okay. We've gotta talk some more about DEA. What else do we need to keep our eye on DEA. Because it's you know how do people approach DEA. Do they contact us. I guess there's the website they go to the website they say I'm great. You should you know they go through your final.

So the best. So there's two ways. So first of all one is I'll just kind of on a side how many people how we get members maybe there's a different kind of thing is usually from members of referring other folks. We have a big push to increase the diversity from ethnic point of view from a gender point of view of our TSA chapter and that's being a part of my most important initiative and I know with our new pride I'm still the president till December thirty first I've been president two years Bryan Horner will be taking over I know he feels as strongly if not more stronger than me about increasing the diversity and so some one of the things we try to do is recently started holding events.

So we just had a event this week about an angel one to one workshop that we had an expert Dojo. They were nice enough to let us use their facility and we're going to be having an event for a female angel investors who are interested in that and we're going to probably have that probably the beginning of next year and we find about that's on your Web site.

It's on our Web site and you know obviously key thing is how do you get the word out about it so maybe we can let you know and you can see it on your podcast.

But so but in terms of terms of companies they can come through the Web site but as you know from being sees herself that the best way to get to get referred to a V.C. or an angel group is to be referred by someone that they know. So I think that holds true for angels as much as B.C.. So yes we see companies that come and go over the transom but it's really great if you know we they come in through someone you know from before they get referred from you know a local accelerator incubator or from a professor that you may know from the universities or many different ways.

Is there a list on your Web site of who the DEA who the Texas the angels are so you can find whether you might know or have a connection into.

Well that's a very good question and I know I can do that but I have a special log in so I do not know the answer we can test it out now and go the tech go stands a website. Now don't do that but that's a good question. I don't know.

But yeah that's a good question.

I mean I did have basic questions that I keep that keep coming up that I was just going to pepper you with because David you know things like in a prized seed round so you know you're looking at these rounds.

What do you think is is dilution for the founders that they should be expecting to have before their series A or and related that is option pools like what do you think is a good option pool for a seed round.

So I think the first part of your question about dilution I think many founders first time founders especially are very nervous about going below 50 percent and losing control and you know that that absolutely can happen especially as you get to a series A round and so on and I think I think that that's it's going to happen.

So I think founders have to rich be prepared for that mentally and they may try to they may avoid a really value add investor and go with an investor that maybe doesn't bring as much value only because they don't want to get below 50 percent. And I think that is not the wisest thing to do if you can find investors that really can add value and can help you raise money for you know upcoming rounds.

So to be clear do you think it's okay for founders to go into an a round having already sold over 50 percent of the company.

It really depends. You know if they're gonna need a b and c and in Benz How much money how much money they're going to need to raise and being realistic. How much money they're going to need to raise. We saw a company recently where it was seed round and they're raising a million dollars and it's a 2 million pre money valuation. So right away they're giving up one third and not to mention option pool. I'd even ask about the option pool. But yeah there's the option pool and then they said they are going to need to raise 10 million dollars down the road so nobody wants to invest in a company where you know the people doing the actual work and the visionaries behind it have very little equity.

So it's so I think founders have to be very careful not to give away too much to begin and I think as investors you don't you're You're deceiving yourself if you think I've got a great deal I own so much of this company and you have founders that at some point will wake up and say I already own any of this company. So I think that's that is a critical thing that you really bad for investors to get greedy from that point of view would just hurt themselves.

Yeah and if the founders don't come to that conclusion maybe a downstream investor will and will make corrections to the capital well before they even write.

But there might make corrections to the cap tables if the Angels have decided we've put enough money in. We're happy to have this visa come in and the V.C. says the founders don't have enough equity they're not going to say OK founders give us some of your equity to get more equity. No they're gonna take it from the existing investors. And you know I'm pretty many angels have seen that happen and it makes sense why so and in terms of the option pool I know a lot of folks say 10 percent but I like to see 15 or maybe even 20.

You know it again depends on the company it depends on the town level of the founding team if you have four people and they really are town and they complement each other. Maybe you don't meet need to bring in that many high level folks but when you have one founder and you could see that they're a tech visionary they're going to definitely need a top sales marketing person they're going gonna need you know a strong person in some other areas.

I think having 15 to 20 percent is good to have and that should get you the 10 20 percent option pool whatever it is should get you your next 10 to 20 hires should get you. How how do you sort of. How far do you think about then when you're bringing in your top sales exact. How do you think about how much equity that person is getting.

Well you pick the one position where it's not clear for salespeople how much they value equity and of course they'll ask for it by the end of the day. They want cash. That's maybe the one position where they really care about cash and that's also something entrepreneurs and founders have to learn that you know they may think equity but they have to understand what these if everyone you hire what they really value. So I think on that person you're first.

I don't know senior business hire or you know Director of Engineering or some.

Yeah I don't think you really I don't think you need to give away as much for certain positions. And but I do think that if somebody so I think that you know numbers all over the board but I think like one to three percent is a lot of equity to give up you know. But of course if you're bringing in a someone who's gonna be kind of at the same level as the founder that's a different story.

I still want to say I'm usually less than 1 percent. But interesting.

OK other things that we really need to cover because we are running out of time. So quick think hard. Really important thoughts from you.

Oh OK. That's the question here. That's the question. Well if we're talking about angel investing. Yeah. I would say so this is more for people who are doing angel investing or considering it maybe a lot of people seem very interested in doing angel investing. I would not invest if you're doing it personally obviously as an angel does any more at the most 5 percent of your net worth than I would think probably less is more is probably less makes sense. I would try to understand.

You know realize that it's going to be seven to 10 years before many of the companies you know have good good exits if you're lucky and many and most won't.

And I know and I think you also have to look at you know have a framework and be rigorous. And so you don't get too influenced by someone who you really like. They make a great impression. The idea really really gets you excited. I think you still need to have some framework. So you go through your checklist and go through it. And so you don't kind of get too carried away emotionally because they're doing so wonderful in one area. And I think that's just something I think anything like when you make I am a big believer in checklists on anything so that so don't get me started on that but I think that's really important.

How you do.

No I'm not that not it. OK.

So I think also for entrepreneurs I think when the big messages is they can go to the tech Coast angels Web site. Also I think it just searching LinkedIn you can find a lot of people who put tech Coast angels down on their LinkedIn you know as an interesting way of finding people who may be connected to because I really like to direct more more entrepreneurs getting funding in L.A.. So yeah.

So I think you know if I'm coming through the Web site it's we look at every company that comes through.

And so you know Rosh Sahni is our executive director. They can reach out to him and if they want to see who some of the members are we're not hidden. I mean if there's no reason why we wouldn't allow people to see our membership it just because maybe our Web site doesn't do it. But if they really want I'm sure Rob would say shorting you know as long as he's not giving away our cell phone numbers. But here's some of the folks that are in it and if they happen to know anyone that's great.

And you know I would just say that that if they come in they should be prepared to have like they just need to have the basics will tell. Actually we'll tell anyone presenting. We'll give them a sample template of what the pitch deck should look like. So we try to be very helpful with entrepreneurs so they when they come in they can be ready for our prescreening committee and so on. I can I can give you a sense how quick the process goes for entrepreneurs if you want and how fast they can expect funding or no.

Sure. So from the time they present to our meeting so they go through they play online. Then if then we'll prescreened them in like a ten minute kind of webinar type thing with a prescreening committee. If they pass that then they'll come to what we call a screening mentee meeting which is the meeting where three or four companies present. And if if they pass that then we'll go to a due diligence meeting and then the timing from when they present to us at the screening meeting to when they can expect the check.

We try to get that done within five weeks. That's our goal within five weeks from when they first present to when a check comes in. So that's about five weeks.

It sounds great. Well I hope you keep. Keep it up keep funding great entrepreneurs. And we really appreciate that you took the time to come visit us here today and be on the podcast.

It's my pleasure and good luck with the podcast. And look forward to listening to people who are more interesting than me.

Know this is really great. You're super interesting. Thank you so much. Thank you guys. Thank you.

A lot about 19 centimeters. I'm sorry I spent our time at it because when I push it back to 215 I have a 315.

Well no we're also at 50 minutes. OK. Well that's good because we cut them down to 30 minutes OK. Or.

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