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Guest: Ryan Lewendon, Partner at Giannuzzi Lewendon LLP.
Host: Kevin Mako, founder of Product Startup and the leading expert in hardware startup consulting. A hardware entrepreneur since 1999, Kevin has advised more than 1,500 founders and built and scaled MAKO Invent through its acquisition by TriMech in 2024.
Preparing a Hardware Startup for a Major Raise
Ryan Lewendon explains how founders can prepare for a major funding round, choose investors, understand deal structures, and deploy new capital wisely. The discussion also covers funding readiness, pitch positioning, capital planning, investor conversations, and the operating priorities that follow a raise.
What You’ll Learn in This Episode
- How to prepare for big-league funding
- Make sure you have a well-vetted product before going to production
- How to make sure you have the right investors
- Work on the right terms
- Explain why this round is so important
- SAFE agreements or Convertible notes agreements for physical consumer products
- How to raise that funding
- How to scale with those funds when you get them
- Build out your human capital, and start with the people where your weaknesses are.
- Remember, your investors are very experienced in this.
- Build out your supply chain
- Build out your distribution network and partners
- If you are going to raise more rounds, when do you start planning the next fundraising round
Episode transcript
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Read the full episode transcript
Kevin Mako: Hello, product innovators. Today we learned from one of the leading lawyers in North America for scaling product companies on how to raise your first million dollar funding round.
Narrator: You're listening to the Product Startup Podcast, the show that helps bring your product idea to life by chatting with successful inventors,
Narrator: product developers, manufacturers, and hardware industry professionals. Our goal here is to get to the bottom of what makes a product successful, from initial
Narrator: idea to getting your product on store shelves. We're taking you step by step to build a functional product and scale your product business.
Narrator: Hosted by Kevin Mako, one of North America's leading experts on hardware development for small product businesses. Now, onto the show.
Kevin Mako: Welcome back, everyone. Today, I'm very excited to introduce Ryan Lewendon to the show. Ryan is a co-founder and partner at the law firm Giannuzzi Lewendon LLP.
Kevin Mako: They have 30 lawyers, 1,500 product companies they work with, and hundreds of finance deals run by them per year.
Kevin Mako: in addition to a number of other legal and advisory services to help scale product companies.
Kevin Mako: Today, Ryan is going to share some valuable knowledge in how inventors startups and small manufacturers can raise their first big fundraising round of $1 million or more,
Kevin Mako: how to plan for it, execute on it, and then spend the money smart when it comes in. Now, on to the episode.
Kevin Mako: Hey, Ryan, welcome to the show.
Kevin Mako: Kevin, thanks so much for having me. I'm really pumped to be here. Well, we're excited today to talk about getting the big dollar financing,
Kevin Mako: talking about raising that money between a million dollars or even up to $100 million as you're starting to scale your hardware business. And it's really important for hardware
Kevin Mako: startups, even to think about this from the early phases, because so many hardware product
Kevin Mako: development companies today grow through financing and they scale through it because you've got inventory and growth and all of this sort of stuff.
Kevin Mako: All that happens after you sell your first few units. And it's really important to think about that as you plan on how you're going to not only
Kevin Mako: get your brand to market, which is the first critical step, but after that, how you actually you're going to grow it into a scalable, sizable business.
Kevin Mako: And you've got a tremendous amount of experience in that today. So first and foremost, give us a bit of insight of how did you get from where
Ryan Lewendon: you were to being a big partner at this big law firm today? Thanks, Kevin. You know what? It's an interesting pathway to get here. I went to school in New Orleans.
Ryan Lewendon: I actually ran a bar in college in New Orleans. And that's where I sort of developed a affinity for consumer goods, but also where
Ryan Lewendon: I started to notice that consumers were looking for more artisanal and sort of smaller batch, smaller made goods. This is sort of in the early 2000s.
Ryan Lewendon: I ended up sort of working at a firm with my now partner, Nick, and we ended up being the first lawyers for vitamin water together. So we were general corporate lawyers.
Ryan Lewendon: The founder's dad was a client of the firm and he said, hey, you know, can you help my son? And Nick and I ended up doing everything for vitamin water.
Ryan Lewendon: So every round of financing, every commercial lease, every broker agreement, distributor agreement, supply agreement, employee incentive plan, every celebrity agreement, I
Ryan Lewendon: think a like 50 cents deal with vitamin water where he had his own flavor and he had equity in the company was like one of the first deals I worked on out of
Ryan Lewendon: law school. And like Jennifer Aniston's deal with Smart Water, which ended up being one of the longest running sort of celebrity partnerships, I think it went on for over a decade.
Ryan Lewendon: We did everything for vitamin water until it sold in 2008 for $4.7 billion.
Ryan Lewendon: And from there, we just realized there was a big white space for people working with disruptive consumer brands, right?
Ryan Lewendon: Lots of people want to work for the conglomerates. You know, lots of people want to work for the big funds. Nobody really wanted to work for the entrepreneurs and the disruptors.
Ryan Lewendon: And we had this great playbook from vitamin water. And we, you know, we realized that we had this aptitude for working with, you know, disruptive.
Ryan Lewendon: and we liked working with people who were sort of bucking the odds.
Ryan Lewendon: And, you know, we went to our first trade show in 2008 and we just sort of had our business cards and we're like, hey, we're lawyers. Do you need lawyers?
Ryan Lewendon: And people were like, well, we're not getting sued. And I'd be like, well, that's not what we do. You know, we help you build your company. We help you raise money.
Ryan Lewendon: We help you build your infrastructure. We helped you take you through a sale. And, you know, we just realized there was such an app. People were like, oh, my God, yeah.
Ryan Lewendon: I had like six employees and I have 68 employees. And my lawyer is a trust in the states guy who's friends with my cousin.
Ryan Lewendon: and they don't know what a distributor does and they don't know what a billback is. And I just need someone with a contextual basis in this industry of consumer
Ryan Lewendon: goods. And we realized we had that. And we left the firm we were at in 2011.
Ryan Lewendon: And we took a little space in the meatpacking district in New York with, you know, Nick, myself and our partner Anthony. And, you know, we had maybe like 25 clients.
Ryan Lewendon: And we just built it out from there. You know, we built it out word of mouth, doing a great job, executing. for our clients over and over. And today we've got 30 lawyers.
Ryan Lewendon: We've got two locations. We've got
Ryan Lewendon: two floors in the meatpacking district where we started. And then we've got an office in Santa Monica, California, where I'm speaking to you from today.
Ryan Lewendon: And we've got about 1,500 companies in the space that we work with. And they run the gamut, right? They run the gamut from, you know,
Ryan Lewendon: companies like Oatley and body armor and vital proteins and fever tree. And companies are doing, you know,
Ryan Lewendon: a billion dollars in revenues to a couple hundred million dollars in revenues. And then it goes all the way back to, you know, somebody who's really just ideating their
Ryan Lewendon: product right now and is pre-revenue and is forming their entity. And we just see ourselves as like this life cycle council for companies that are being
Ryan Lewendon: disruptors in their industries and, you know, especially consumer goods industries.
Kevin Mako: Sometimes it's funny to see where we got here, but we just built it through doing a great
Kevin Mako: job for these companies that really nobody else wanted to work with when we started doing it.
Kevin Mako: And that's amazing because nowadays, you're doing well over 100 financing deals a year,
Kevin Mako: working with over 1,500 companies, and you've worked with a lot of early stage scaling companies.
Kevin Mako: So your perspective is incredible because you've got to see many different types of these deals come through. And really, you've got to see what works and what doesn't work.
Kevin Mako: So really what I want to focus on today is that life cycle of raising a bigger funding round, that let's say, million dollar and north funding round.
Kevin Mako: So you've got some sales, you're starting to grow, and now you really want to take your business into the big leagues.
Ryan Lewendon: What can you advise our folks to do that are in that position to try and prepare for getting that big league funding?
Ryan Lewendon: Well, there's a lot of things to do to prepare yourself for that big league funding. And there's even more things to do to set yourself up for success through that
Ryan Lewendon: big league funding, right? you know, funding, if you're looking at funding as the battle and, you know, selling your company
Ryan Lewendon: someday or IPOing as the war, you want to make sure that you win the war and not just the battle,
Ryan Lewendon: right? So setting that up, right sizing that round for yourself is truly, truly important. So here's a couple of things to do on the financing side, right?
Ryan Lewendon: First, you got to figure out whether this round of financing is your only round of financing or one of many, right?
Ryan Lewendon: Am I raising a million dollars to take me through profitability whereby I'm not going to be taking it any more equity anymore?
Ryan Lewendon: Or is this one of, you know, 20 rounds of financing that I'm going to need to get myself through an exit, right?
Ryan Lewendon: Do I need, or my capital needs over the next five years, a million dollars or a hundred million dollars, right?
Ryan Lewendon: And that's going to really inform who your investor is, right? Am I taking in, you know, am I raising this million dollars, but I'm going to need a ton more
Ryan Lewendon: money and I'm going to need to sort of bring in a much more sophisticated partner at a certain time. And the investor right now is kind of a stopgap.
Ryan Lewendon: Or am I bringing in this money and this partner is going to take me, this is going to be my preeminent partner all the way through an exit, right?
Ryan Lewendon: More often than not, it's going to be the former, you know, your million dollar round is going to be a predecessor to a $20 million round
Ryan Lewendon: or $100 million. So when you're starting at your million dollar round, you want to get the right investors, right? Who is the investor at that stage?
Ryan Lewendon: Well, first of all, it's someone who understands your industry, right? You want to
Ryan Lewendon: bring investors who understand your industry, who understand your growth trajectory, who understand the issues and the hurdles that you're going to need to overcome.
Ryan Lewendon: The wrong match can really lead to a lot of conflicts as things go by, right? Hey, I brought in a real estate investor into my
Ryan Lewendon: products company, they thought I'd be profitable from the next day. They're wondering why I'm not getting dividend checks.
Ryan Lewendon: I'm operating at a deficit until sort of, you know, until I get to 50 million dollars in revenues. It's a terrible match. It drags you down.
Ryan Lewendon: Operationally, it can be issues, you know, it just, it really hurt. It really stifles your growth, right? So first you find the right
Ryan Lewendon: match. Then you find the right terms. So if this is an early stage funding and you're going to need
Ryan Lewendon: lots more money and you're going to have to give away more of the partnershipy type of terms later
Ryan Lewendon: on like board seats and blocking rights and maybe even a redemption right for someone that's a real industry partner.
Ryan Lewendon: Well, you kind of want to leave the company as blank of a canvas as you can leave it now. You don't want to give away a lot of those rights if someone's not going to be your
Ryan Lewendon: long-term partner, right? You don't want to give a board seat to someone who's going to invest in this
Ryan Lewendon: round, but never invest in any other rounds you're going to need down the line. So you want to structure that round without giving away sort of a lot of the true partnership
Ryan Lewendon: rights that you would often give to a more long-term partner, right? So what does that mean, right? Well, how do I raise the money then?
Ryan Lewendon: Well, I find maybe out of that million instead of getting it from one party, I'm getting it from a number of parties, right? Instead of taking the million from one person,
Ryan Lewendon: I'm taking $100,000 from 10 people, right? I'm sort of what we call passing the hat around. And I'm doing sort of a more benign financing.
Ryan Lewendon: Maybe I'm doing a safe note or I'm doing a convertible note where I'm not having to give away a lot of these rights, right?
Ryan Lewendon: And then the third thing you can really do. And this sort of informs the other two is you've got to figure out what the story is for the company.
Ryan Lewendon: Why is this round going to be a good deal for whoever's coming in? And I tell people this all the time.
Ryan Lewendon: When you're doing a million to $5 million round of financing, you're going to have to
Ryan Lewendon: tell you're going to have to do the work to tell investors why this is a good deal at this valuation in these good terms.
Ryan Lewendon: When you start raising like, you know, $10, $20, $50 million like in equity, people are going to be more sophisticated. They're going to have a team.
Ryan Lewendon: They're going to dig into your company. They're going to tell you what you're worth, right? They're going to sort of backstop that.
Ryan Lewendon: But when you're like a million to five million, the investors want you to tell them that. They want you to tell them why, you know, coming in at a $20 million
Ryan Lewendon: valuation or a $10 million valuation is a good deal for them. They want you to be able to tell them, hey, look, once I spend this money, if you're coming
Kevin Mako: in at a $10 million valuation, the company's going to be worth $20, right? You're going to double your money in 12 or 36 months or however long that's taking you.
Kevin Mako: They want you to show, to build that mousetrap for them and present. to them and convince them why this is going to be a good investment at this time right now, right?
Kevin Mako: Not in the next round. Don't wait for the next round. You got to get on the bus now because it's leaving the station and the next stop, the ticket price is going to double.
Kevin Mako: That's powerful stuff. It's interesting hearing it from you about raising a million dollars because I know for a lot
Kevin Mako: of hardware startups, they look at the million dollar raises the holy grail. Like, this is the big lease. This is when you've truly made it.
Kevin Mako: But when you're a professional investor and you've been in the game, I mean, you've
Kevin Mako: you, especially as a lawyer, working with all these investors and hardware startups and scale-ups,
Kevin Mako: you see that this is only the first piece of usually many more rounds that come with it. As a hardware startup, it's one of these things where you really have to think long-term.
Kevin Mako: Think of your five or your 10-year plan, not just looking at that million dollars as the holy grail and then that's it.
Kevin Mako: Life is made because that really is just a stepping stone to increasingly better valuations and exponentially more money that helps you scale at such a faster rate than you would,
Ryan Lewendon: which comes back to your original decision, are you're going to raise this million and that's going to be it and you're going to grow your business off it?
Ryan Lewendon: Or is that the first of many rounds? And we certainly see it quite often, especially in the consumer electronics space, that as you
Ryan Lewendon: get your first round, subsequent rounds are right behind it. And a lot of time your investors are actually helping set that up for that next round and whatnot.
Ryan Lewendon: But I think it's really important for everybody to look at that strategic planning and looking further down the line because that
Ryan Lewendon: help address some of these issues very early on in that process. Yeah.
Ryan Lewendon: Understanding your cash needs and your trajectory for your particular product are so important
Ryan Lewendon: to building sort of a network of financings, which helps keep you in the driver's seat, right?
Ryan Lewendon: You know, you can always raise money and, you know, your investor comes in and says, oh, you didn't raise enough. You need to raise more.
Ryan Lewendon: But, you know, when you do that, oftentimes that's at the sake of sales, right?
Ryan Lewendon: undercapitalized, you start to peter off because you don't have enough money to keep the trajectory going. Or, you know, you're doing that at sort of the risk of cutting
Ryan Lewendon: the new investor a much better deal, right? So thinking about starting from where you are and thinking about the next five, seven,
Ryan Lewendon: whatever it is, 10 years, and kind of planning out, what more of my cash names realistically going to be? It's all an estimate, right? You don't have to be perfect.
Ryan Lewendon: But getting a sense of that can help you sort of architect what these rounds look like and who the best partners can be
Kevin Mako: from the get-go. And honestly, that outside of more than anything else, what I've seen, and I've raised
Kevin Mako: probably thousands of rounds of financing with my clients, I think that is one of the
Kevin Mako: biggest indicators of success long-term for people that are able to sort of plan that out and map that out and then execute on those types of financings
Kevin Mako: with finding the right partners on the right terms at the right times is sort of, it's one of probably the three biggest
Kevin Mako: things you can do to end up, you know, to get yourself to a successful exit. Let's talk a bit about those instruments that you mentioned earlier. The safe investment as well
Kevin Mako: as coupon rates, that sort of stuff. Can you just explain those different options for people who aren't familiar with the process?
Ryan Lewendon: Because those can be very helpful, especially in the early days of fundraising, when you're not exactly sure how to value your company, you may not necessarily
Ryan Lewendon: need to. The point is to get cash in the bank. You obviously have a need. You're looking to raise a million dollars. You see that there's some clear prospect.
Ryan Lewendon: Usually it's around production and sales. And that is a very attractive pitch, especially for a new innovation. So some of the
Ryan Lewendon: things that sometimes scare, especially the first time fundraiser or first time startup in the hardware space is the concept of valuations and putting it together.
Ryan Lewendon: Well, some of the instruments are very helpful with that. So from your perspective, can you just walk through those so that people understand
Ryan Lewendon: and what they are, at least just to put it on their radar. Yeah, absolutely. So look, I mean, just the base and type of financing is usually an equity financing,
Ryan Lewendon: which would usually be a preferred shares where the investors get their money back in some form or fashion before the founder participates
Ryan Lewendon: or a common round of financing where sort of everybody's treated pro rata from the get-go. The issues with those are that you have to pick a valuation for the company almost
Ryan Lewendon: always, right? And a lot of founders, especially earlier on, are very reticent to do that because,
Ryan Lewendon: you know, look, if you're taking your multiple at what you would get when you're mature and you're putting
Ryan Lewendon: it on your sales now, you're, you know, you're not worth very much, right?
Ryan Lewendon: So one way to get around that is to use some type of convertible instrument, which would usually be a safe, which stands for simple
Ryan Lewendon: agreement for future equity or a convertible note, right? Right. And both of those, what they do is they allow you to take money
Ryan Lewendon: in now. You don't pick a valuation now. What happens is the investors in this round put their money in and then
Ryan Lewendon: they convert into equity at your next financing, right? And they usually convert in at a discount to that round of financing or
Ryan Lewendon: some type of valuation count. Right. So oftentimes it will say, hey, look, I'm in a safe and I convert into your next round of financing at sort of the better.
Ryan Lewendon: of a 20% discount or some type of valuation, right? The idea being that if you take in their
Ryan Lewendon: million bucks and maybe you're worth, maybe you're worth $5 million when you take in a million
Ryan Lewendon: dollars, if you can somehow use that million dollars to get yourself to a hundred million dollar valuation, the investors converting in a 20% discount to that wouldn't be too
Ryan Lewendon: happy. So they usually ask for some type of cap on that. And theoretically, that cap should be aspirational to the value that you raise at today, right?
Kevin Mako: So if you think you're worth $5 million today and you don't want to raise money at $5 million valuation, your valuation cap on your
Kevin Mako: state for your note should be aspirational, right? Maybe it's $10 million or $20 million or something higher than you'd be able to raise equity at today.
Kevin Mako: And that's something to steer clear of, right? A lot of times people go out with the convertible instrument. The investors want to
Kevin Mako: negotiate them back to a valuation cap, which they'd raise equity at it. that anyways. And that's not a great deal for you. So convertible instruments, they're great for kicking
Kevin Mako: the evaluation down the road. And then for evaluation cap, you want that to be aspirational for what you
Kevin Mako: would get today. You want it to be above and beyond what you think you would reasonably raise money at in an equity round today.
Kevin Mako: Yeah, if it's done right, it's a great instrument, right? Because the reality is you can't value your company today. And it creates a kind of win-win for both parties.
Kevin Mako: If you're able to scale up substantially, then the investor, they do win well, but it also still leaves you
Kevin Mako: with quite a bit of equity room to sell, which will be much easier to sell at a much higher valuation down the road.
Kevin Mako: And it's a great instrument as well in the reverse for the investor so that when a professional
Kevin Mako: investor later on, let's say you do get your, you go for your now $10 million round, as you
Ryan Lewendon: mentioned before, you're going to have a very strategic, very intelligent investor at that point. They will be pegging a value to your company, most likely at that point as well.
Ryan Lewendon: So what that allows the investor prior to do is to get in at a fair rate according to what a high
Ryan Lewendon: level expert that's putting in big bucks is doing, but also at a discount because they got in early. And that's really a nice instrument.
Ryan Lewendon: So it's somewhat of a win-win for both parties. Something, obviously, you know, you need to, as a listener on the show, research more or reach out
Ryan Lewendon: to somebody like Ryan to understand these instruments more before you're going to raising that first
Ryan Lewendon: million dollars. But these are the instruments that if you're going to start Googling something,
Ryan Lewendon: just get to know them on basic principle because you can start planning ahead based on cash flow
Ryan Lewendon: needs of your company, what you actually plan to do with that money going forward or how you
Ryan Lewendon: could use that money and leverage it into thinking about multiple rounds, not just raising that million and that's the end of the road.
Ryan Lewendon: Yeah. And, you know, Kevin, if you're raising multiple rounds,
Kevin Mako: you know, what's great if you can get over the hump of the early rounds is that the dilution
Kevin Mako: starts to become less and less when you're talking about big valuations, big check sizes, the dilution starts to become pretty minimal.
Kevin Mako: So what's really important is getting those first couple rounds right, right? Not giving away too much equity. And I've seen it a lot of times,
Ryan Lewendon: like people just want the money in, they take a really low valuation. And by the time you get to a viable sort of business, the founders own so little of it.
Ryan Lewendon: You know, they're like, you know, my valuation's great. The funding's great. But I'm kind of an employee at this point because I don't have enough of an equity state.
Ryan Lewendon: And the only way you end up with a good chunk is if you get those first couple rounds right and you're able to, one, get the money on good terms.
Ryan Lewendon: But then two, really execute on that money to get yourself. over and above those valuations that you got to exceed. Let's talk about executing on that money.
Ryan Lewendon: You're telling me a story before the show about a company that did a big round, thousands of units in production, but they didn't go through all the early phase things
Ryan Lewendon: that are very necessary for a hardware company. Just talk on that experience because I think that's very relevant to,
Ryan Lewendon: especially raising your first scaling round and some of the mistakes you can make along the way. Yeah. I mean, you know, in addition to sort of actually setting the financing terms
Ryan Lewendon: and whatnot, there's a lot of things you can do to put yourself in success for a fact. financing, right?
Ryan Lewendon: And one of them is just securing and taking the right steps with your supply chain and your partners from an IP perspective, but also from an operational perspective, right?
Ryan Lewendon: And it's something I help people do sort of day in, day out through my firm. You know, you raise your money, you got to spend it to execute on your plan. We help you do that.
Ryan Lewendon: And, you know, I had, I came in contact with a client who, they had a line extension. It was a really, it was a great product.
Ryan Lewendon: They worked with a co-packer on it.
Ryan Lewendon: And, you know, they wanted to use the co-packered R&D it and create it. They ordered a couple, you know, tens of thousands of units
Ryan Lewendon: and ready for the holidays. And they all came out wrong, right? And the tough part about that is, especially when you're a younger
Ryan Lewendon: company, you don't have a ton of leverage, right? Like, in this case, the manufacturer was wrong. The supplier was wrong. It didn't come to spec. They weren't working.
Kevin Mako: And it was totally their fault. But, like, you know, the smaller company doesn't have. have a war chest to go to like a big long litigation. So you have to work with the folks,
Kevin Mako: right? And that ended up sort of delaying the orders to redo them. It was after the holidays. They missed the season. So in terms of your supply chain, a couple of things.
Kevin Mako: One, you got to get your agreements right. You got to find the right parties. But you also want to make sure that you put the right people in.
Kevin Mako: So using a design firm like someone like yourself to help do the design ahead of time before you go to the co-packer and not sort of conflating those
Kevin Mako: things to save a couple bucks, that can really just put you so far ahead in terms of your growth cycle.
Kevin Mako: And look, like you said, at a certain point, you're going to be raising money based on what you've done, not on what you should or might do.
Kevin Mako: So you want to make sure you execute and you spend that money really wisely and you make sure every dollar spent goes to put it advancing the company and not sort of to
Kevin Mako: mistakes or backtracking or redoing things. That's so powerful because keep in mind when you're going to raise funding, they're looking at the health of your business.
Kevin Mako: And as a consumer product company, really, the primary thing they look at is your product. Is it a great product and does the market like it?
Kevin Mako: You obviously are a small business in the hardware startup space. When you're in that position, you've got to think about, well, what can you show within that
Kevin Mako: limited exposure to prove that you can scale? So we're a big advocate on the show. Get your first 500 units out there.
Kevin Mako: Well, the biggest part of getting 500 units out there isn't just the fact that you show that yes, somebody bought them and you've got this revenue coming in. That is a big deal
Kevin Mako: and that's great. But the other side of it is, is it a well-oiled machine? Do those people like the
Kevin Mako: product? Do they come back to buy it again if it's a recurring revenue product? Do they refer it to a friend if it's a non-recurring revenue product?
Kevin Mako: All of these things come into the quality of the product that you put out to market.
Ryan Lewendon: Presumably, if you're a listener to the show and
Kevin Mako: you've got a hardware startup, it's because you have something innovative, which I think is the first and most important thing as the spark. You're creating something.
Kevin Mako: that is unique that the market needs.
Ryan Lewendon: It's either solving a pain point or creating an opportunity for your buyer. But in conjunction, are you doing a good job on executing on that? All of this
Ryan Lewendon: then pans into that, really, that first million dollar raise because that's kind of at the
Ryan Lewendon: point where you've shown a little bit of sales or possibly pre-revenue if you're hot enough
Ryan Lewendon: that maybe you've got a Kickstarter campaign that's generated some sales and you can use that to show interest. But really, you're probably selling your first few hundred units.
Ryan Lewendon: You've got some traction, both financially, but also with user reviews, at that point, that's when you're in a really good standpoint if things have gone well to raise that round.
Ryan Lewendon: Now, if things have gone poorly,
Ryan Lewendon: that puts you in an exponentially worse position. Because like Bryant said, you're really using
Ryan Lewendon: your past success to predict your future earnings, which is what the valuation is based off
Ryan Lewendon: of. So it's critically important that even if you're only selling a few units to start, because you're a hardware startup, you must do that well.
Ryan Lewendon: Yeah, we couldn't agree more with that. Kevin. That was awesome. So Ryan, let's talk a bit further down the path. Let's say you've sold some
Ryan Lewendon: units. You've now generated enough interest and hype to raise your million dollar plus financing round. How do you spend that money well?
Ryan Lewendon: There's a couple different things, right? First,
Ryan Lewendon: I would say you've funded your company, build out your human capital, right? Find people that fill in your experience gaps.
Ryan Lewendon: It's super simple, right? But I do find that most people usually
Ryan Lewendon: higher immediately for the things they're already good at. So if you're like, like if you are
Ryan Lewendon: naturally a marketer, they sort of build the marketing team first, right? Or if you're naturally
Ryan Lewendon: an ops person, they build more into the ops, because that's what they understand. But you got to do the other. You've got to do the opposite side.
Ryan Lewendon: Where are my weaknesses? Where are the things I don't like doing? Build into that, hire into that, shore that up so that those things are being covered, right?
Ryan Lewendon: A company that's got great marketing, but the operations are weak, is going to implode. A company that's got a great product that nobody knows about isn't going to go anywhere.
Ryan Lewendon: So you gotta build in, you gotta make a well-rounded team, you gotta put experts around yourself,
Ryan Lewendon: whether that's internal or external in terms of building out your advisory board, right?
Ryan Lewendon: You wanna put people who aren't employees, maybe you can't afford as employees, but you wanna bring them around your company, right? Someone that's done what you're looking to do.
Ryan Lewendon: Someone that's got deep experience in the things that you're, not experienced in, right?
Ryan Lewendon: The crazy thing about these industries is that when you are an entrepreneur and you are dealing with your producers or your investors
Ryan Lewendon: or your retailers, all of those parties have a lot more experience than you. The investors have invested in thousands of companies
Ryan Lewendon: and maybe you've raised a couple rounds, right? Maybe you've exited one company before and this is your second, but they've invested in thousands.
Ryan Lewendon: The retailers have done agreements with thousands of customers, right? And maybe you've sold into tens or hundreds of different accounts.
Ryan Lewendon: The distributors and the manufacturers, they've got thousands of clients. The experience is always not on your side in terms of these, in terms of these,
Ryan Lewendon: any sort of community where a lot of things are sort of outsourced. So put people around you that even that playing field a little bit, right?
Ryan Lewendon: You know, I act in that position for lots of brands because I've done hundreds and thousands of rounds of financing.
Ryan Lewendon: I've sold hundreds of companies and I've helped, you know, thousands of companies build and scale over time.
Ryan Lewendon: You know, I'm someone that serves that role with a lot of businesses, but it doesn't need to be a lawyer or it can be sort of an entrepreneur or can
Ryan Lewendon: be someone, an industry participant. But on the human capital side, put that self around you as soon as you can afford to sort
Ryan Lewendon: of hire people and build a brand and maybe issue people options to sit on your advisory board or whatnot, right? then you want to build out your supply chain, right?
Ryan Lewendon: Look, you've got the funds.
Ryan Lewendon: You've projected where you're going to go. Now you've got to be able to do that. And you've got to be able to make and move enough product in order to do that.
Ryan Lewendon: So build out your supply chain, get your agreements with, you know, your key ingredient or material suppliers, build out your distribution network if you're, you know, if you're
Ryan Lewendon: going to sort of bigger chains so that you're not sort of internalizing everything, right? know that you're sort of changing from maybe you're making
Ryan Lewendon: this in your garage to someone that's making an office or make you know commercializing these things um but build that out and
Ryan Lewendon: you know if you can build it out in sort of a strategic way right like is this supplier my
Ryan Lewendon: lifetime partner for this product or is this supplier a short-term solution for this product right
Ryan Lewendon: and set it up accordingly hey if they're a lifetime supplier i want to make sure this is
Ryan Lewendon: locked in. I've got a contract that says they'll give it to me and I'll buy it from them and it's going to be forever. It's going to be no matter what.
Ryan Lewendon: If they're a short term person, you want to be able to say, hey, look, we're going to be in this for as long as we want. If we decide that
Ryan Lewendon: we want to go somewhere else, we can move. You know, what is needed strategically in terms of those? And then look, in terms of your IP, you
Ryan Lewendon: want to sort of circle, right? Hey, do I have patents on the products that I want to file? Do I have trademarks on them? Do I have trade secrets?
Kevin Mako: that I need to protect, right? Do I need to make sure that the people who are working on it have
Kevin Mako: confidentiality obligations with respect to those, right? Whether it's outsourced supply side or internal, right?
Kevin Mako: Do I have work made for hire agreements with all the people that are contributing to that, let's say the company owns the fruits of this labor and not the other
Kevin Mako: parties, right? Does the person who's manufacturing my product and who will, by almost certainly be sort of updating bits and pieces of it as we go?
Kevin Mako: Do we have an agreement that those updates belong to the company and not the manufacturer, right? Having a line of site and owning all
Ryan Lewendon: that IP and having that IP set up in a situation where at a base, I can give it to another party, right?
Ryan Lewendon: Or at a base, if I'm going to IPO, I can tell investors that this is something that we can hold, right?
Ryan Lewendon: And then even better than that, do I have sort of a competitive moat with these parties, right? Do I have non-competes with them or do I have an exclusionary thing where, look,
Ryan Lewendon: But if I'm doing something really unique, can this producer of it or a supplier of it only give it to me or can they give it to themselves?
Ryan Lewendon: Can they give it to other parties, right? How easy can I make it for my competitors or how difficult can I make it for my
Ryan Lewendon: competitors to come out, reverse engineer it, go find my suppliers and make something similar, right?
Ryan Lewendon: Look, the better you have those sort of competitive modes built on the IP section, the more valuable a company you're going to be inherently. This is amazing advice.
Ryan Lewendon: Whether or not you're even raising an investment round, I think all this advice is very sound in any case. But of course, this comes back to the fact that if you do raise
Ryan Lewendon: that round, you've got really smart things that you can do to spend your money wisely.
Ryan Lewendon: And of course, that leads you either to A, build an incredible business off it, if that's your
Ryan Lewendon: one and done round, or B, I imagine this almost immediately gets you into starting to think about your next round as you're using these elements to show scale.
Ryan Lewendon: And if you are doing that route, If you are planning to do the next round, like how soon after you raise your first million should
Ryan Lewendon: you start thinking about planning for raising that next round? Is there any advice that you have in and around that?
Ryan Lewendon: Oh, totally, Kevin. I think you should be planning your next round before you go out to plan your current one.
Ryan Lewendon: Because what you want to be telling investors for this million dollar round is this is how long this money is going to last me, right?
Ryan Lewendon: That could be six months, could be 12 months, it could be 24, however long it is.
Kevin Mako: when I go back out to raise money, this is what the company will look like, this is how much money
Kevin Mako: I'm going to raise, and this is the terms we think we're going to raise it on, right?
Kevin Mako: You're going to want to tell investors that like, hey, if I'm raising it X, now, when we do the next round, it's going to be 2x, right?
Kevin Mako: And you want to have that sort of mapped out. And you want to understand when I'm taking in this first round, the million dollar round, right?
Kevin Mako: Hey, is this investor, you know, if they're putting in a million dollars, is that sort of,
Ryan Lewendon: are they capped out or do they want to put in five million dollars, but they're putting a million now because that's all I can afford, right?
Ryan Lewendon: You want to start building that list of that next round of investment when you're doing the current one, right? Because execution, sort of building the upswing, right?
Ryan Lewendon: That's what it's all about, building an upswing on valuation, building an upswing on sales, continuing to move forward. That takes a lot of planning, a lot of strategy.
Ryan Lewendon: and you've got to start, a lot of entrepreneurs hate fundraising, right? They like building, they like making, they like marketing, they like selling.
Ryan Lewendon: They don't love fundraising, but it's integral.
Ryan Lewendon: It's integral to your success. You have to do it. Like I said before, if you really hate it, bring someone on the team who's going to help cover that for you, right?
Ryan Lewendon: But you're almost going to be thinking about it constantly until you're very profitable, right?
Ryan Lewendon: you know break even you're still going to need to raise money to build you know so you're going to be fundraising for a couple years and it's an almost constant process
Ryan Lewendon: it just resets itself every so often when you bring the cash in yeah and i'll tell you a lot of people might not like fundraising but i haven't
Ryan Lewendon: met any hardware entrepreneur that doesn't absolutely love the day that check comes in it's almost
Ryan Lewendon: it's a pretty much one hand feeds the other right so yes it's a bit of it's a bit of work but like you said you can bring experts on board to help with this process
Ryan Lewendon: There's a lot of people out there. And Ryan, this is where I want to kind of lead into what you do at your firm.
Ryan Lewendon: Tell everybody about how you help scaling hardware brands and how they can get in touch
Ryan Lewendon: with you if they're in that position where they are looking to start scaling through financing.
Ryan Lewendon: Yeah, look, I mean, my firm, Genuze-Lewended, you know, we do four things, basically, but the biggest one is financing an NMA, right? We do more of it in CPG than anybody else.
Ryan Lewendon: We sell about 20 companies a year. we average about $2 billion to $2.5 billion in exit value. We do about $100 to $200 to $200 rounds of financing.
Ryan Lewendon: We average about $1 billion to $1,000 a billion and a half dollars in invested capital.
Ryan Lewendon: Depending on where you are in your life cycle, right, you're going to have different parties around.
Ryan Lewendon: On the later stage stuff, you're going to have someone like me who's going to help you negotiate the deal terms,
Ryan Lewendon: who's going to be an advocate for the founders in the company, who's going to help you strategize on what things to put in place now to keep you
Ryan Lewendon: in a position of power and parity and set up for success later on down the line as you bring in more participants into this company, as you bring in investors and advisors
Ryan Lewendon: and parties who, you know, weren't there from the beginning, obviously have complete alignment with you
Kevin Mako: on some issues, but on some issues don't, right? You're going to work with me and an investment banker, right, who's also going to help
Kevin Mako: sort of help you put a story together, help pitch the company to other parties, investors
Ryan Lewendon: and help sort of coach you on doing investor meetings with them and management meetings to help bring in that bigger round of financing.
Ryan Lewendon: On the earlier stage of stuff, it's much harder to find help with the fundraising. It's harder to find the investment bankers.
Kevin Mako: The checks don't really make sense in terms of what you're doing. So it's important to sort of bring in advisors. In the earlier stage stuff, we operate in both
Ryan Lewendon: those roles in some sense, where we're helping you strategize, we're helping look at your company,
Ryan Lewendon: We're helping you sort of stress test and gut check some of the terms, the valuations,
Ryan Lewendon: the financing, you know, what would be comparable against market, just from our view of doing so much work here, and then helping you sort of put in place the controls and
Ryan Lewendon: the terms that will help you get the round closed, but will help also set yourself up for success down the line and the subsequent rounds.
Ryan Lewendon: You know, how can I structure a board today to set myself up to kick. can to continue to keep board control later on through some of the
Ryan Lewendon: terms and some of the levers and some of the police, you know, those are all sort of case by case in fact specific situations,
Ryan Lewendon: but, you know, we use our sort of experience of doing hundreds of rounds of these every year to say, look, these are the different things you could use.
Ryan Lewendon: This is, these are the types of investors you're going for. These are the types of things they'll reasonably accept. And here's
Ryan Lewendon: how you put these things together to sort of get financed, but also get financed in a way that
Ryan Lewendon: continues to set yourself up for control and success later on down the line. That's super helpful. Ryan, what's the website they can go to for those that are listening
Ryan Lewendon: in? And of course, as always, I will put all the show links in the bottom of the show notes episodes. You can just click through and listen through there.
Ryan Lewendon: What's that website and how can they find out more? Yep. The firm's website is glllaw.us. So www.g.g.llaw.us. You know,
Ryan Lewendon: you can find me on LinkedIn at Ryan Lewendon. And, you know, please reach out if you have any questions. You can shoot us a note.
Ryan Lewendon: I'm happy to set up a call and talk to anybody about any of the issues they're faced. Amazing. Ryan, thanks again for all of your time and effort. Great nuggets on the
Ryan Lewendon: show today and really looking forward to talking to you again. Thanks and take care. Thanks so much
Narrator: for having me, Kevin. Bye-bye. Thanks for tuning in to this episode of the product startup podcast,
Narrator: the show that teaches you what it really takes to bring your product to market and turn it into a big success.
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Narrator: firm in North America to provide global caliber in-to-end physical consumer product development to startups, inventors, and small product business clients.
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