A quick stop on the way to the meeting... Chris didn't have a memory card in his
camera. Was an expensive mistake. This episode costs me now twenty five
thousand dollars and forty five dollars. Seriously?
"He who does not risk, never drinks champagne." That's what the Russians
say and today we're not drinking champagne we're talking about a company
that we invested in and lost our entire investment in a few months we invested
$75,000 in a start-up and 60 days later it's gone and we all know that the
majority of startup businesses failed so we're gonna go see Steve Gilman today
from block party and talk a little bit about what happened to his business so
I'm going to set up your tailgate you just show up you eat sausage you drink
beer and you go to a football game we invested on April 18th by July 18th the
company was going out of business don't love talking about our successes but
sometimes we learn the most from our failures what happened to this
investment really shook us so today on dumb money how did this happen where did
we go wrong and how do we make sure it never happens again
I think full disclosure and transparency is very important we posted this video
on February 12th we actually made our investment on April 18th on July 18th we
received an email with an investor update we do not see a viable path in
order to continue operations as we're on a path to sell most of our valuable
assets and close down operations when you invest in 20 to 30 early-stage
companies a year things are going to go wrong and you're going to lose money
we essentially thought investing our $75,000 would help them extend the
likelihood of becoming a successful business apparently that didn't work
what could we have done differently two things you're investing in with an early
startup company the founder and the idea if he can raise the rest of the round
will be the last investor zone so this was our very first meeting with block
party we did several follow-up meetings we got deeper into their business model
deeper into which contracts they had with which schools we thought this had a
chance of being a huge success and it really comes down to
and reward in this case they were running out of money and they have these
contracts that would pay off over two three years we're making relatively
small investments in very high-risk startup companies hoping to have a ten
times or 50 times or 100 times return on our investment trust and that's what's
not written down anywhere there's one other player in the market business
models different because they do it with Reb shares with the athletic department
we do it through sponsorship which scales quicker and it gives us marketing
assets each one of them is exclusive and that's the thing they have these
exclusive agreements with the schools with the athletic departments with the
people who actually control the real estate on college campuses to allow Tail
against to happen they were going to be the exclusive vendor they were the
exclusive vendor I wonder what we were thinking at the time the end of this
episode we better be walking away smarter the terms of this deal it was a
convertible note which is basically a loan that converts into shares of the
company at the time the company is sold or there's liquidity and our discounted
purchase price of those shares would be the lesser of 80 percent of the price
paid per share with a 15 million-dollar fully diluted cap we valued this company
at fifteen million dollars so looking at the schedule of investors at the time
they didn't raise two million dollars but they did raise one point four three
million and that was before we invest it and with that signature my fate in this
deal was sealed so today a follow-up meeting with Steve Gilman co-founder of
block party words of wisdom for us off today this was a remarkably quick
turnaround for going from doubling or tripling our money and within 60 to 90
days worth zero the second I heard that the deal was going south I instantly
thought it will be a really expensive episode the learning episode for us and
our subscribers we've got to do get something out of it but we get something
out of it do we get some learning it just we had a pay $25,000 each of
learning you guys just have to sit through a 10 minute video so far in the
past twelve months I've invested 1 million five thousand four hundred and
seventy one dollars and fifty eight cents in start-up companies I'm
rethinking this whole thing I think I might start investing more in stocks and
less than startup companies but the reality is it's all about risk and
reward startup companies give you the very very high risk good likelihood that
the startup company will go out of business but also the chance at a very
high reward the ten times 50 times 100 times your money that's very hard to
find in the stock market it's very hard to find anywhere but startup companies
is one place where that is at least possible if it the one thing that I
think everyone needs to understand about Bloc Party is that or rationale for
investing was that they had a deal on the table to essentially acquire the
company like over time and they were going to get a couple few million
dollars upfront and then as they hit performing performance metrics over the
next two years the company was essentially going to get acquired for
two to three X what we were investing on yeah so we had pretty good faith in that
team to hit those benchmarks here's one one esteemed
today and he's been great by the way this is what I love like if you're gonna
lose your money at least as a founder stand up and do the right thing and
continue to communicate with your investors and he has been so transparent
with us through this process and I really appreciate that this guy is going
to go a long way
not much of a show is it
block party part 2 final chapter very brave of you I know you're not gonna
want to do this but we're all about actually extracting value out of every
experience we have good and bad thanks for having me first of all I'm here
under my own will lessons have been learned
I can now reflect and start drawing all those lessons from an investor
standpoint what do you think we could have done differently if you were in our
shoes back then terms what to do better and I've thought about some both sides
maybe we can draw some of this stuff out a little bit I don't have a perfect
answer so the situation was this we had a vehicle for three million plus another
six on a line of credit so three million off the bat and the three million
dollars you guys got to it pretty quick so did we so did the investor that we
thought was coming in big by the way we've been with this group for the past
two years doing great work with them and now I know why I was so confident in
this because it wasn't like a random company said yeah we'll come in and give
you three million and then they find things out right they knew who you were
yeah you've already been doing this oh yes multi million dollars of business
the only reason it took till last year to start talking about investments is
because they were doing a merger with their biggest competitor I mean there's
no question that we got lambs in retrospect you don't think they ever had
the intent to complete the acquisition they were trying to get information we
don't know all the story which is the sad part I actually don't think that
it's they were trying to leverage us to do this from the beginning I think an
investor from another company stepped in and got in the way I don't know that
there's much more that we could have done yeah I think we knew the risks
doing it so that's why I'm comfortable with what happened I think it's fair to
say that even when it looks like it's a it's a lock on a deal it's a sure thing
there's really never such a thing as a short thing when it comes to mergers
acquisitions company finances closing on investments right there's just there's
so many factors at play there's more factors and you can even imagine there
are factors from outside the company an economic collapse a geopolitical issue
there are so many things that can go wrong maybe the biggest takeaway
really being honest with yourself in terms of the risk of what seems like a
short thing it's great that you voluntarily came to this and knew that
we'd have cameras rolling it's it says a lot about you as a founder and you know
just as a person I appreciate that and two months ago I was I wasn't smiling I
wasn't laughing I was trying to figure out in the moment what could I do what
could I've done and now I look back and say you don't flirt with monopolies in
the market there's strategic moves and you know maybe take care of shareholders
is signing adopted a instead of Wick you never know
well I think getting yourself into a business where like you've said where
there is a monopoly where you have a binary it's either this or nothing
because not a good place to be that's gonna do it for today's dumb money thank
you guys so much for watching we hope you learned something if you did smash
that like button if you like this episode about us losing money make sure
to watch our other money losing episode with it's called failures and if you can
think of something that we should have done differently let us know in the
comments we will fail again and if you want to see it subscribe and hit the
bell thanks for watching we'll see you next week