Raising Capital in DTC: Why Founders Get Bad Deals & How to Avoid Them

All right, welcome back to the Operators Pod. This is a Help an Operator Out episode. We've got TJ Bongiorno from The Outgoing Company, and if you have been wanting an episode on raising capital, this is the episode. I got Mike with me. We're gonna talk focus for sure, multiple products, companies growing, but really we're gonna dig into like, what are the moves that TJ needs to make? TJ, why don't you start us off with, uh, tell us the the business. Tell us what you sell. Tell us the trailing 12, and then maybe like we can just kick into how the hell you got started and all that good stuff just for people listening, watching.

Sure. 100%. First and foremost, thank you guys. I really appreciate this. This is so cool. Uh, I, I watch every episode. I'm, I'm glad to be here. I'm happy to be here.

Wait, wait until you hear the advice before you think it. Yeah.

Yeah.

He's gonna be like, God, what a waste of my life.

Well, well, let, let's keep the rose-colored glasses on before we get into it. So as you mentioned, Matt, like the Outgoing Co is the name of the brand, actually formerly Ramp Health. I did a full rebrand last year at some point so I could own my IP. It was a trademark thing. We can get into that later. We've, I consider the founding date July 1st, 2023. That was when we shipped our first orders. Our trailing 12 right now is about $3 mil and we sell supplements and beverages. So all functional stuff as the name shows, the outgoing color, everything's meant to be used as social in the alcohol alternative space.

Very cool. And, uh, can you just like give us an outline of like which products, like, do you have a specific product as a hero? Do you have a, is it like kind of everything? 'Cause that was actually one of the first questions I had is like, why so many things?

It's a, it's a very, very straightforward story that doesn't look straightforward. So if you look over my shoulder, my left shoulder, Audi right there. That's in the bag, the white bag with the purple. That is our hero product. That is what we have a subscription play. It's like an 84% take rate on subscription. That's, in short, that's how we make our money as a business. I had the idea over a year ago, the genius idea that I was gonna get into the RTD as well because I thought it was sexier and I was so young and ignorant without realizing what this was going to entail. And that's when I started developing Yapper. We ended up launching Yapper, I believe March 16th is the first day that a sale came through for the cans online. It's very new, but we sold 100,000 cans plus in that time, D2C. So it's really ripping. And that actually kind of brings us to, you know, some of the stuff we're gonna talk about today is I'm in a situation where I have a product that is loved and it's crushing and it's ripping and it's going to pass my hero product. I know it is just from the LTV and the way that we're seeing things, but finding that balance. And then I have a third product called 3Plenic. It's a little bottle. It's right over my shoulder right there. It is a daily multivitamin and mineral replacement for people that use nicotine. So it's made specifically like if you vape, you deplete more zinc, you deplete more magnesium, et cetera. This is meant to just put that stuff back in, kind of like what Stasis does for Adderall and Cheers does for alcohol. I started that as another brand, realized that was really stupid because I'm just new to this. So then I actually shut that brand down and brought it under the umbrella because I I had all the inventory. I just relabeled everything. So that is a SKU that we actually haven't pushed on that much yet. Uh, but it fit into, because lifestyle, people are going out when you're drinking, you're also ripping zins or vapes or whatever. Uh, and it all kind of fits together and that's the brand and those are our 3 SKUs.

And you're selling beverage D2C and can you make any money selling beverage D2C?

We have over 80% gross margin on the cans right now.

Even with shipping?

Uh, well, shipping comes into the equation a little bit.

Yeah. Yeah.

'Cause I, I've always heard that's what makes beverage particularly—

62% gross is what we're doing on the cans right now. now with shipping because I got, when you use Amazon as a carrier, they're much more forgiving with weight. So we got it down to like about $10 to $12 for 12-pack, uh, of shipping. So it's, uh, digestible with the margin that we have built in as well.

Can you maybe give Mike and I just some context on like, how do you market, like what's the go-to-market on, on the brand and the products? Like what biggest channels, how are you generating demand, who the customer is too? Like I think that would also be helpful.

Yeah, funny. So I'm gonna answer that part first, the last question first, because very, very unexpected. Audi, the stick packs, millennial male skewed, very much so, which we did not expect that. But that's what it is. And then Yapper, the cans are very much female skewed, 25 to 50. So most of our affiliates are like late 30s, early 40s moms actually that are ripping it for us. It just works really well into, I don't drink as much anymore. I have kids, I'm busy. This is lower caffeine, better for you, et cetera. Whereas Audi, it's, it's kind of like appeal to the, I'm going on dates, I'm going out, I want to talk to women kind of thing because it's positioned as like a pre-workout for going out instead of going to the gym.

Like the Courage Powder is like, yeah, Courage Powder. That's the best name I think I've seen on a product in a long time. I'm like, this is so good. I would've loved this when I was like 35.

I was in a convenience store and they had a similar one, but it was THC laced. So I'm glad that we've got Something that doesn't involve marijuana to help people socialize. All right. So, but those are like 2 very, very different target markets. And I think what you're learning is like, even if you kind of drank both of these, like it's just very different, ready-to-drink and stick packs are really different. And then, you know, like the supplement idea is like, that's even, you know, a totally different universe from those 2. So, I mean, right off the bat, I think that this should be about helping you to focus because you are like, you are all of us, that you are the classic entrepreneur and that you, you see, you've got all these ideas, you know, and it's like you're going a million directions at once. The only way that you're really going to be able to scale one of these is by having more focus on one and really putting your resources towards inventory for that one and your focus towards growing that one. So I would love it if that's one of the things that we helped you to come to clarity on in this session is where should you be focusing your attention? Yeah.

Do you have a, do you have one of, one of these that you're like, oh, I, this is obviously the future of this business, or is that still a question mark?

I would say that based on what I'm seeing in terms of where the market's going, where the valuations are, where people are getting interested, the RTD seems like it is the place for the future, but I, I'm not gonna take my multimillion dollar supplement stick pack business and out back and shoot it.

No.

So I'm, I'm actually kind of torn. I, so like if, if you told me gun to my head, which one's gonna make more money in the future, I would say the cans by far. Um, but right now it's not close. It's like 90/10, 85/15.

The Oatie is like the thing that you kind of started with. That's what's carrying the business and the numbers too. Like from what you shared, like they're pretty good on retention and like people actually really like the product.

Yeah. So, um, we had, I don't know if you guys have had Thomas Lawless on, the retention guy, but, uh, we had, we had him come in and build our retention system. And in the first month we went from 42% order 2 to 67% order 2, uh, just with his system implemented. So now I'm, I'm pushing 70% for order 2 and just over 30% for order 3. There's still a drop-off that I need to fix, but it's more than enough to have a 60-day payback and, and make money on that. And then I just renegotiated with my manufacturer and I'll be at about 90% gross margin on Audi moving forward with the contract that we've negotiated. So the margins are really, really cushy as well.

Yeah, I think what Mike's hitting on, it's like both are very different supply chains, right? Like I've heard cans can be a nightmare. I've not experienced anything with can RTD drink. Like I just, I've not. But because they're so different in supply chain, it's like, and they're different in market, it's like, how do you actually just like market 2 products to 2 different customers at the same time? 2 different go-to-markets too. Like beverage is a great in-store product. And I'm sure, I think that's probably what you're experiencing. And like, my question is just, is there, is like, how do you actually think about allocating capital, energy, resources? that narrative, right? Especially if you're thinking about like investors and—

I mean, I get this, I've gotten this question from investors too, right? They're asking me, what is that? The way that I'm thinking about it is I view the powder as the way to form the beverage and the beverage is the bigger play. Now, I'm not saying that that's necessarily 100% correct, but you asked me like how I'm thinking about it at my current understanding. That's how I'm thinking about it because what I'm running into, again, it's, this is not like some fleshed out theory. This is things that I, you know, I'm building a plane as I'm flying right now, right? Like the cans work 100 times better on TikTok Shop than the powder. Like it's not even close.

Really?

Yeah, it's ripping on TikTok Shop. So that's like, that's something right there where I'm like, oh dang, because you have Bloom and you have Bum Energy paving the way on TikTok Shop already, right? And then you have Nello just came out with basically a competitor to mine and they're ripping with an RTD can and they already rip with their powder. So I have this pathway where I can kind of go in and like go in like their tailwinds. And it's working. And people, I have the trademark on the name Yapper. Everybody's talking about being a Yapper. Like, I think those are really strong too. And the branding's really strong there. But then at the same time, I spend 90% of my money on Facebook ads and my conversion rate on cans is half of what it is for powder on the website. Now that's probably an offer and landing page thing. And I'm working on that. But the point is, it's just very exemplary of what you're saying. So I'm actually very, very torn right now. I'm in a very weird place. And it's, I shouldn't say weird. It's like suffering from success. Well, they're working kind of. but I need to like figure out, like really, really flesh out what the future is and what to do. Uh, and it seems to be what I mentioned, but I would love your guys' take on it.

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When you say that, uh, drinks are the, the ready-to-drink is ripping on TikTok shops, like how would you define ripping? Let's start there.

It's purely relative when I say ripping. So it's pure, I've been on TikTok Shop for 2 and a half years and I've seen what it looks like to push the powder on TikTok Shop. And then I just started pushing it, the drinks in the last like 2 to 3 months and I just see the difference, right? Like we're having our first $1,000 day on platform with the drinks. I'm talking about just TikTok Shop GMV, obviously, right?

And what kind of like economics are you doing on that?

I mean, I don't think anybody makes money on TikTok Shop directly.

Oh, this is why I wanted to define ripping. If, you know, It's like you said, it is relative, but also like if it's negative economics, like I don't think I would not say, I would not put that in the category of ripping yet. I'd be like, well, it's more promising, but it's still a money burner. And that's kind of the point that you're making is that right now you have one business that can make money and one business that eats it. And you might've found some less, some more efficient ways to kind of eat that money, I guess, is one way of saying what you're saying. But this is the generalized problem with ready-to-drink is that it really is a physical retail product.

And it's a scale product. It needs scale.

And it's truly a zero. Well, the reason why it needs scale actually, in my opinion, Matt, is because it's a physical retail product. Because like it doesn't, you don't like necessarily need more than 10,000 people that really drink your energy drink for it to be like a great economic producer. The problem is Getting a significant number of people drinking your drink without putting it on physical shelves is almost impossible. And to get it on physical shelves, you have to take on these internationally integrated companies like Coca-Cola, and they are going to fight you tooth and nail for any physical shelf space anywhere in the world. So that's why it's a scale problem, I think. And, you know, TJ, feel free to tell me, like, if that's not been your experience. I mean, we're in the electrolyte space, which has, again, powders, And you've seen Element, you've seen Liquid IV, who are the leaders, come out with ready-to-drink. But I do not think that's been a meaningful contributor for either of them. So, and these are people that do have, you know, with like Unilever, they do have the physical distribution and they have not been able to translate that into a meaningful amount of their brand presence. And I think it's just because, man, it doesn't matter how big you are, ready-to-drink, you're going up against the best. You're going up against the Cokes and Pepsis of the world, and they have unbelievable operations and they have a lot of ways to kind of keep you out of their shelf space. So that's kind of my overall assessment is like, it's an interesting question of how did Bloom do it? How did Bloom break through?

You know, they did curate Dr Pepper.

I was going to say they took a massive amount of money. I think they took money from KDP and KDP helped them.

It was NutraBolt first, I think, right? Who's C4? I think he, I think they went C4 and then they went KDP after. Uh, I could be wrong. I watch a lot of Greg's content. I consume it because there's very, he's like, oh, an Italian American that has an energy drink brand. No way I'm gonna watch.

It's very specific. He's a, he's a very specific guy.

Him and Dom from Raw. I'm like, oh my God, 2 other bodybuilders.

Greg's a badass, man.

To address the ready-to-drink thing, right? Um, that's why, you know, I had mentioned to you both off camera that I am potentially raising money, not potentially, I am raising money right now. And it's part of the whole discussion is I don't want to go into retail and blow it, right? It's not one of those things where you can do that and then recover from it and just go right back to Walmart again 6 months later and be like, hey, we fixed it, right? Like you do that and you blow it, you're wrong. So my intention for raising money was to push past some of the things that you were mentioning, Mike, right? Like some of the economic stuff that's a little bit scary. And in my head, it's take some money, get to $20 million D2C. and online and then go for retail and potentially do a Series A or bring on a DSD or something like that, that with that can help me push through. I would say that, you know, it's weird to talk about yourself, but probably one of my best traits is that I don't think I know everything. I think probably the opposite. I probably have like too much imposter syndrome of thinking like I need people who know this business better to help me. And that's kind of what I'm looking for in a partner. And that's how I think about that as well. Because you're right, it's the biggest game, it's the greatest game. Now I will say, total opposite of what I just said about ego, I'm gonna pat myself on the back. I do think though that I have a very differentiated product that tastes amazing, works and is really clean and is branded well. So I do think though, at the same time, like I do have a real chance. I'm not like, you know, trying to make pineapple soda work or something crazy.

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What you need to understand first and foremost is I was trying to be first order profitable up until about September, October of last year of 2025. And then I really realized quickly that, um, right now with the way Meta is set up, and if I was just doing direct response ads on Meta competing against all the big boys who are funded and can spend way more than I can, I wasn't ever going to be able to get people to buy 2 bags and make money on the first order.

order.

So then I was like, okay, I need to switch to the subscription play. And, you know, now that's like everyone's, all everyone talks about, but it was like a little bit early to it, like a year plus ago. So I started making that shift that also coincided with my rebrand. I was like, okay, I'm just gonna, I need to do this. I had somebody buy in for a little bit of money. So I had the cash to do what I needed to do. I flipped everything around. I switched to the outgoing co and we went with basically like a very similar offer to what Everyday Dose offers. But I did, include the one-time purchase. I didn't remove the one-time purchase fully from it. Uh, and we went forward with that. It was a 40% discount on the front end. Uh, we were able to afford it because of the gross margin, uh, with the attempt of making a 30 to 60 day payback. I very quickly got that to about 83% take rate on the front end per subscription, just because the discount was so high. Now we can get into how that also made me lose my Amazon buy box and whatnot as well, because people were arbitraging, but we'll get to that later, uh, and what the dangers of that are. Uh, Calvin is, is yelling at me as we speak, probably. But, um, so that started working. Uh, but then I realized really quickly after I got people in the front and I was getting subscriptions in the top end that I needed to figure out retention. So I was like, oh my goodness. Yeah, I did the first part. Now I need to do the second part. You can't just let the product only do it with no flows and everything. Now, don't get me wrong, product is like a huge part of retention and perceived value is a huge part of retention, but it still makes it a lot better for somebody to stay on When you're giving them a free gift and you're asking them if they really want to quit or if they just want to skip, or if they just have too much product right now, right? Like you can do things in a way where it's none of this gray hat, black hat stuff that I really, really despise. But at the same time, like doing good business, uh, it really settled on that. Mike, you also asked about CPA. Funny enough, my conversion rate went up when I switched to this offer versus trying to just do one-time purchase. I think it's because the discount is so high. Oh, interesting.

Are you actually getting better retention with the subscription or are you just moving the numbers around? Like, because it, do you see what I'm saying? Like when you were just offering single purchase, were people rebuying at about the same rates that you functionally see by month 3 with, and how different are those?

No, it's a huge drastic increase. I was at a 21% total returning customer rate before I implemented subscriptions. I'm now at like a 47% or a 46%, something like that. of all customers buy again.

So your numbers should have gotten a ton better, right? You're saying I changed to this offer where I heavily incentivize subscriptions. My conversion rate went up, my retention went way up. So numbers got a lot better, right?

I mean, I went from $1 million done in sales in 2025 to I'll finish this year almost at $4 million. Uh, and I, you know, we quadrupled the business plus, and I, I, at one point over the summer, I was over $400K a month.

Okay, then I gotta ask you, like, why mess with the R2D stuff?

Well, first and foremost, I started that, I started that last September, right? So it's just like, it took time and this all was happening while I was doing that in the background. So I'm R&Ding that, I'm getting that SKU done. It takes time. I had to get it manufactured and co-packed and whatnot. And then it launched, like I said, in March. The subscription stuff really started pushing off in like December, January. This is all kind of happening like simultaneously at the beginning of this year. And I'm figuring things out as I go and I, I'm trying to scale. And then all of a sudden, you know, through my personal brand and whatever I was able to do, the drink starts to take off too. And then I'm like, oh my goodness, I need more money. I don't have enough money to do this. Uh, and, and it kind of got me to this place. And now, you know, what we're talking about is making a decision on like, do I kill something? Right? Do I stop focusing?

I don't know all the context yet at this point, but I'm just like hearing this man and I'm like, TJ, if you have a business growing 4x year over year and it can do it profitable, Where the metrics are improving, that is perfect for e-commerce. Like, what are you doing, man? What are you doing messing with like cans? Like, I, I, I get, I've, I've drank it.

It's good stuff.

But like, just on its face, it feels like just a lack of focus at this point. Like you said, it maybe wasn't a lack of focus to launch it because you weren't seeing the success, but now that you're seeing the success, can you really justify focusing on something other than growing the powder with how well the powder's doing?

No, it's, it's, it's the question.

It's, it's just, it's also hard to raise money, uh, with 2 competing narratives, right? Like 2, 2 different customers, uh, 2 different go-to-markets, you know, like it, it's from an investor perspective, they hate, like they typically, like in my experience with raising money, uh, they typically hate that. They're like, well, which, which one is lead horse?

You always get a discount with conglomerates and, and it happens in the public market. This is why companies will spin off divisions because like the idea is like, hey, we're just not getting credit And so putting those 2 things together is only going to make fundraising harder and it's going to lead to a discount. I mean, my guess is it would be really easy for you to raise money on Stick Packs right now because you've got improving fundamentals. You're, it's profitable.

I wasn't pushing for subscribers hard. Like I just battened down the hatch a little bit, uh, in, in expectation of trying to raise, I went to like almost 20% net. Once I just went conservative instead of pushing like a psycho.

Yeah, the margins are there to make it profitable, right?

Yeah. And even with the retention, Matt, I'm sorry to cut you off, but with the retention where it is, it's like a switch that we can just hit. And within a week or two, just reducing meta spend and just making sure that we're matching spend to what the upcoming subscriptions are for the next day, then I can operate at a 2 ROAS blended easily, almost instantly.

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Cadence as well is doing the same thing.

Yeah. And so like, and then they've sort of like, they layer in these other products as they get bigger and they get into the harder products as they get bigger and the brand is bigger and they can command shelf space and all that good stuff. But I think there's like, to me, I, I get, uh, I, I, for some reason I am stuck on the, like, this is 2 very different customers. That makes it for me, like as a marketer, that makes it hard.

Right.

Um, because if it was the same customer and one was just dragging the other one up, I could almost get on side with like, I have another product.

It's not too much different. Like it's the same angles and like it's all social energy, right? It's all meant as like, you're not drinking. There's other options available using pharmacology, using actual science. And like, you can feel good before you go somewhere. And like, even, I'm sure you both have drank a High Noon or a Surfside or something before, right? Like the can kind of looks like that on purpose. The calorie count is identical to like a White Claw or whatever on purpose. So like that was the thought process. It's the same kind of environment, but I do hear what you're saying. I don't, I'm not discrediting it. Like you guys are more—

The other way to look at this, TJ, is like, if I was kind of plotting out the next 5 years of your life, because this is the thing, when you go raise money, you do sort of have to think a little further out and say like, all right, I'm getting on a certain kind of train right now. Right? I'm going to bring in investor capital. Investors want return. So, you know, there's different types of capital that want different types of returns, but like likely you're going after more venture-ish dollars who are going to want liquidity events in the future. So, which means then like it's unlikely to be the last capital you raise. Okay. So like if those are true, then you could, I could say that like right now it's like you raise some amount of money, you bring in some cash, That money is largely gonna go to growing the powder business. It's where we have traction. The unit economics look good. Cocktail TV looks like all that stuff looks good. It has scale in front of it, right? And it's a working capital problem, not a demand or supply chain problem, right? Okay. Then it's like fast forward 2 years as that business gets to this size, we're then going to start to layer in and like allocate more capital to beverage, like to RTD. And you can sort of create like this 5-year roadmap and sort of— obviously it's going to be wrong. Like, let's just caveat this whole thing, it's going to be wrong. But investors like to see that you have— if you've thought this through, like they actually are looking to underwrite the future.

That's the only conver— like, I've had a bunch of conversations out. I guess I should, you know, be like, go me. I've had a bunch of inbound interest in investment. I think because of the size I'm at and like the space, whatever, and all conversations I'm having, they're bringing up what you guys are both bringing up, right? These are smart people. They know they're not like going to be like, they're not going to get hoodwinked by like me spinning up a story. But the conversation goes the same way. I'm like, I want to raise capital. I want to rip DTC how we are to get to $20 million top line. And then I want to do a Series A and go into retail and push on the drinks. And that's the same conversation that I'm having. So I, it's, if nothing else, I really appreciate the validation in how I've been thinking about this and how I'm kind of pitching this.

Yeah, I think the idea that one can fund the other is not fatally flawed. I just think it's like you can have anything you want, but you can't have it all at once. And that one of the things that I've really learned over the last year especially is how much the proof of work credibility that I've built up over my career really improves my odds in anything I take on from this point forward. So it's so much easier to get manufacturers to wanna work with me or to roll with me on terms. It's so much easier to get into retail. It's so much easier to talk to investors. Like you, you could take almost any vector and I can just point to, hey, I've done the thing. I've done it for 11 years or more than that really. I've 11 years on my own and I've done it for 15 or 16 with my brother. And so I think track record is underestimated by entrepreneurs, how much it matters, because you always have to be selling to somebody and convincing somebody in whatever business you're in. So for you, like being able to scale Powder and get it to profitability, getting it to $10, $15, $20 million is probably the single best way that you can then scale Ready to drink, in my opinion. And so that's the way I would do it is I wouldn't try and do them at the exact same time. I would say like, hey, I'm going to put this in kind of minimal maintenance mode. You know, I'm gonna put it on ice basically for 24 months and I'm just gonna scale powder. And then I'm hopefully at a point in 24 months where I'm doing $15 million, $20 million a year. It's profitable. And I could self-fund some from that if I want to, or also I can go and now there's a lot more interest in, in raising. And like you said, you're going to, for ready-to-drink to really make it work, you're gonna have to make a push into retail and that's gonna require some, some real money and some real scale. That, that would be my assessment 30 minutes in.

You have no argument for me. There's no, there's no pushback for me.

Okay, well let's talk about it. How would you scale if you were gonna take that plan and put it into action? How would you do it? What would be the questions?

So first and foremost, like in terms of money, I think the thing that it's working, but I need a little bit of cash to push on because it requires some is I have Tribe Ripping. I have TikTok shop going, right? Like I have this army that I'm building. I have a Discord. I have somebody contracted who her whole job is making them happy. We have weekly calls. I have my copywriter coming in and giving them angles. Like I'm doing the thing there, but that 10x, 20x to get that momentum. And keep pushing the way that we're pushing there.

That's a great thing, TJ. Like, the answer is more of what I'm doing today.

Yes. Yes.

Like, it's depth.

That's what I was getting to. Yeah, it's basically, I know what's working right now. Um, and I like another example, right? Um, I'm a solo founder. I have everything done contractor and agencies right now. Right? There's some bottlenecks that happen that really frustrate me. For example, I want 10x the landing pages and offer testing, and I cannot do it right now. I am, I am resource strapped to get that done. That's another thing because we've had some issues where we have insanely high CTRs. We're really good at direct response and getting all this UGC, but conversion rates are lower. And I would love to see what we can do testing all different offers, like looking at the way like Primal Queen thinks about things and whatnot, right? How they're so good at testing offers and how they're so good at dialing down their offers. And they like, I'm sure you guys have seen this recently, like Chucky, I think posted Um, they use their mailer with a QR code for their new SKU and offering a discount code on their bubble mailer. Like things like that. I'm like, you guys are just geniuses. But like more of that, right? More pushing into what's already working and pushing to scale. Um, that's the first thing. The second thing is I have all the numbers. I have all the modeling done. Actually, shout out Drew Fallon with Iris. Uh, I had them do a full model for me with all my real numbers. He has access to all my financials, uh, and they came through and showed me like what my CPAs can go to and how much burn we can have. So first of all, I can show that to an investor if you wanna see what I can do, but also we can plan out, like, you know, Mike, you said 24 months. I think I could do with cash, I could probably do it in less than 12 to get to like $1 to $1.5 mil a month if I am able to pour some gasoline on the subscription front end and get it the way that we know it can.

I cannot overstate this. If that is true, Like, this is such a, I mean, like, you're, you're the easiest help, uh, you know, help an operator out ever. It's like, do that. If you can scale to that kind of level, to $12 to $18 million in annual run rate from where you're at right now on the powder, you have to do that. I will, I will hunt you down if you don't do that. Uh, because there, it's like, and, and here's the other thing. The first thing is stop working on ready-to-drink. That's going to double your or triple your capacity right there because you're just thinking more deeply. And then once you've like really lived in that space for a couple months, I think you'll have more of an understanding of who you might need team-wise or like how you might need to supplement yourself. I don't even know that you know that right now because you're obviously a high motor guy because your attention's so divided. You may find that when your attention is fully focused on powder again, that Hey, you don't actually need that much additional help. I don't know, but like, that's the, the first step is even understanding what you need and you don't really have a good feeling for that right now because you haven't been giving it all of your effort.

Yeah. Yeah, that's fair. I will say though, like, um, I, I would need capital to do what I'm talking about. I don't think I can do it, uh, in my current state. I pushed a little hard here and there. I split myself a little bit. You know, the mistakes that we're talking through right now, they burned a lot of capital. that I had. So that's definitely like—

Yeah, like to scale up the powder thing, it's like you want, you want some amount of capital. Um, have you mapped all that out? Like, this is how much I think I would need. This is use of proceeds. Like, here's the actual plan. Here's how I'm gonna allocate. Yeah.

Okay.

And how much do you think that is? How much cash do you think you need?

[Sponsor Content] I am looking and asking for $3 mil to do that. And I think that that's very fair because it's, it matches my $12 And it, like, I've seen what we can do with a couple hundred thousand and that couple hundred thousand went from $1 mil to almost a $5 mil run rate just with that alone. Um, so if I can do that and 10x that, I, I think it just kind of shows right there what, what can be done with the business. Fulfill is the ERP built specifically for D2C and e-commerce brands. Inventory, purchasing, warehousing, financials, all in one system built for the way your operation actually runs. There is not an ERP on this planet, not one that has more direct 3PL integrations than Fulfill. They integrate with over 400 3PL locations globally. And most of you listening to this right now are either running your own 3PL relationship or you're about to. And the second your 3PL and your ERP aren't talking to each other in real time, you're flying blind. You don't know your true landed costs. You don't know your real margin. You're reconciling spreadsheets at 11:00 PM trying to figure out where $40,000 went. I know because I am on Fulfill. The visibility we have now versus what we had before, it's not a marginal improvement, it's a different game. Fulfill is the only ERP I've seen that was actually built from the ground up for D2C, and it's not some Vive-coded piece of crap. Believe me, those exist. Fulfill isn't one of 'em.

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[Sponsor Content] Tell 'em Sean sent you.

You're asking for 3. Have you figured out, like, has anybody given you sort of an idea on like valuation, kind of what terms would look like, anything like that?

Uh, we're getting to those stages, uh, getting to those conversations. The, the priced round that I was asking was $20 million. I know that's a negotiation point and an anchor valuation, but that's where I'm, I've anchored the conversation to.

The funny thing with raising money is you really have to think about who you're raising it from. So like if it's funds, right, then those funds have rules that they underwrite to. So like they need to own a certain percentage of the company because they invest at this stage with this risk profile and like. So a lot of the times, like, what you get from a value has to do with the fund, not necessarily like it's your category, and then it's like fund and fund stage, you know? Uh, and they, like, I've encountered this where like you get the fund who can write the check size, but they can't hit your valuation because it wouldn't get them the ownership percentage that they're required for their LPs. Like, it's basically like, this is the story I've sold to my LPs and how I How I create, I deploy capital. So that would be the thing I would watch for is like at this stage, it's like, what are these funds actually looking for in this category? Every category's different. I'll say that too. Like there is no hard and fast there.

Matt, that's been a frustration of mine too. Like I've had some conversations and people are like, you're too small. And then I've had some conversations, they're like, I didn't realize you were so big. I'm like, what do you, you know, in the comments way, what do you want? Like, I don't, yeah, yeah.

Look, like there's people out there that can write a $3 million check, no problem, obviously. Uh, it's just like, do they match the stage that you're at?

They want $20 million top line in retail velocity, but they'll write that tomorrow and they won't even think about it. Whereas then all the real seed are looking for like under a million in revenue and want a $250K check to a $500K check. So I'm actually sitting in a very weird point, uh, even though like, I think objectively speaking, I have an enticing business for an investor and I've proven, not proven, but I've done 3 years of running the ship by myself and figuring everything out to at least to a point where I can say like, there's no, like, I don't have a trust fund. There's no like sneaky thing behind the scenes. It's just me doing this. So I don't know. It's an interesting place.

I would say the most frustrating thing was always encountering somebody with appropriate check size, but wrong stage of, for where we were, right? So like, that's the work to do is to figure out, okay, like $3 million is probably not gonna be one single $3 million check writer because a single $3 million check writer is going to want you to be bigger with more traction. Um, it's gonna be like smaller check writers, which is then like what, angel seed-ish, you know, like, which then is the issue is like, how do you price it? And I would actually say, dude, by default, you always want to price lower than you want. Uh, it's, it's generally good advice. And I found that to be true in my own fundraising is like, because you have to think about the next time that you go out to get cash. So like, number one, you always want to bring in investors at a price that the investors win very easily. Okay. Otherwise, your life's going to get miserable. in the future. So like, think about a year, 2 years from now, traction-wise, like you never want investors who are like, I'm underwater on my entry price. It does, like, there's no way I can ever get that back. It just makes your life miserable as a founder. You shouldn't do that. Even though like that, that number sounds better, it's not, it's gonna make your life worse.

No, I understand. I understand completely because then like, uh, if you oversell, you know, you, you, there's a much higher chance I get it. And also the whole point of all of this is for all of us to win.

Right.

It's my first bag and you get a big bag off me.

Yeah.

It makes raising the next amount of capital harder.

Right.

So like the deal terms of the, this, like if you're going to do a $3 million, $250K checks, whatever, $500K like that, I would be far more concerned about the Series A and saying like, okay, how do I need the comp— how do I need my cap table to look today? And what are the terms of that capital today that's going to make a Series A easier. And the pro move, dude, is that you have such an attractive, um, set of terms to investors on this one that you can get the Series A investor potentials to also put smaller checks in this one so that the next, when you go out for your Series A, they're already invested. And now they'll happily lead, 'cause it's the next one. You need somebody to price it. Really hard to do Series A that's not priced by, by like a credible person. And that's like the best people I've ever seen at raising capital. Every single round they do, it's like the next check writer, the next lead is already in the company. They came in on a smaller bite. It's a little outside their fund thesis, but the deal terms were good. Uh, they trust the other people in the company and it tees up the next round.

That's really good advice. I really appreciate that.

Yeah.

Uh, now the only thing I would ask you on that, Matt, is like, so I've already started these conversations, right? I've already had some of these. Um, would it be that when I have the next conversations being like, hey, that's negotiable. Like I put that in there as a, as a con— or it's not even worth backtracking on that.

[Sponsor Content] I mean, like the thing is like all, all price is a market price issue, like with private capital raising, like, you're just— it's really hard to figure out, like, what's the market willing to pay for a company. It's funny, the— there's a lot of advice on the internet on, like, uh, especially out of Silicon Valley, on how to figure out the price of a business. I mean, most of it comes down to comps, man. So, like, the best thing for you to do would be to try to figure out, like, in powders, like, and, like, in, in whatever you want to call your company, not necessarily powder, right? But, like, I'm gonna have this product roadmap. If I was to look at the comps There's public market comps and there's private market comps. Like you want to try to find some private market comps to say like age and stage and growth rate. This is sort of what I've seen, we've seen. This is where like having like a good relationship with a fund, they have all this data. Like we founders don't have this data. These guys have like subscriptions where they can see, they can just see all these deals, right? I would really try to find that right now before I figure, before I try to establish price or terms. Like, because even how you structure the capital in, dude, like, is it coming as a SAFE, a convertible note? Is it primary capital? Like, is it, it's going to be preferred, obviously. What kind of pref stack? Like, sorry, what kind of pref multiple? So is it 1x pref, 2x, 3x, like participating, non-participating, all matters. A lot, especially when you tee up the next one. Black Friday and Cyber Monday are coming. Are you ready? Not in the normal marketing calendar offers prep sense. I'm talking measurement and attribution. Are you even going to know what winning and losing looks like when the big Q4 season hits? Reality is the businesses that win set up their measurement solution when the times are slow, not the night before the big weekend. There's a reason for this. You see, with Northbeam, you're getting a totally independent, completely new set of ad performance numbers with infinite Lookback windows. That means that the longer that the data grows, the more valuable it becomes. So when CPMs are spiking in November, you will know precisely where every dollar is coming from while your competitors are guessing. This is important. Black Friday is won in the summer, not the day before. Book a demo with Northbeam today. The link is in the description. Go check it out.

Are there any really good resources, Matt, Like, obviously we're getting in the weeds here a little bit, but th— this is the hard thing about raising money, I think, for, uh, you know, brand owners is that they've done it maybe never before. And the people that they're raising from, yeah. And you're raising from people that this is all they do.

This is all they do.

Exactly. So it's like, it's super asymmetric. It's really easy to not make a good deal. Are there any resources that you would recommend to people to be able to prepare?

I wish, Mike, I wish I had like a podcast episode. Yeah, I wish.

Send Matt a personal text. His number is—

Yeah, yeah.

Don't send me a text, but if you want to DM me or email me, I'm happy to like give you what I got. Uh, the problem I encountered, Mike, with, uh, all of the capital, 'cause like we raised capital, like we had a, like a huge CapEx on Lomi and we built factories. Like we brought in capital to do things that like weren't go buy more customers. Right. Um, and there just wasn't a lot of, like, all of the information on podcasts was all like SaaS companies. It was like listening to Travis from Uber talk about how he raised money. I'm like, well, I'm not Uber. Like, you know, like, this is not— yeah, totally. So, and, and AI, and right now, if you look at it, like, who's talking about raising money on the internet? It's all AI companies. Then you're not an AI company. So like everything they do sort of doesn't really apply. There's some basics, fund math like that you just gotta know. But no, man, honestly, I just spent a lot of time talking to people who had done it because anybody who had raised like venture or private equity was who I would, I would seek out and just get their experience, especially if they're in consumer. Um, you know, the nice thing, TJ, is there, like, there are still funds that do consumer.

100%. I've, I've already spoken to like 10. Which is cool. And I will say like, for anybody listening to this that is around my size or is looking to get to my size and do it, do you know what my single most valuable asset in this has been, guys, is my Twitter account. It sounds so silly.

Oh, for sure.

But I have 20,000 followers. That's how I know you. That's how I'm on the show right now. That's how at Beanstalk I was able to walk up to people. That's how I was able to get all these connections. It's like LinkedIn where you can say whatever you want, right? Like it's getting connected to people and having that ability. Like, yeah, there's some vanity to it, like you get like a following.

No, but Mike already hit the, Mike really hit this, TJ. Like, and I couldn't agree more with Mike. Like street cred matters a lot in most of these things. So like raising capital, retail, anything that's gonna be relationship driven, like street cred doesn't matter at all when you're gonna like try to go into TikTok shop, spend money on Meta. None of that shit matters.

Yeah. Like e-com is actually one of the industries where it's the least important, Matt. And, and this is what's, uh, it's interesting. My team just had its annual planning and we were talking about this, that we are really excellent relationally and we have a lot of credibility. And sometimes we're just not intentional enough about figuring out how to like leverage that because, you know, it is true that TikTok shops in general, like it, it doesn't matter. But, but also like, I know that when you get to a certain scale and a certain reputation with TikTok shops, there are incentives that they'll provide. There are ways that they can put their finger on the scale for you. Uh, I know that when it comes to Amazon, that there are particular opportunities that your credibility and your track record can make available when it comes to fundraising, when it comes to factories, when it comes to hiring, like when it comes to finding a co-founder, like all of these things matter. And so I think especially in an AI world, this is kind of a more generalized point, but in an AI world where the execution is becoming more and more commoditized, I think trustworthiness and credibility is going to skyrocket in its importance. And everyone listening to this, you should be thinking about how do I build my credibility profile? Because that's going to be one of the things that really helps you differentiate yourself and win going forward.

Yeah, TJ, it doesn't surprise me that the, the, like there's certain pools of capital that would look and say, oh, you've got some personal brand. You are a real, like you're a, uh, you know, an, a recognized entity, you know? Uh, 'cause what Mike is saying, like, I have a podcast too. Yeah, dude. Yeah. You've got your own, you've got the, the Down to Health podcast, right?

Yeah.

Yeah.

With Calvin and Elon from Knobs.

Yeah.

Which is like also again, like association matters. matters. Like, I, we raised our first cash in our company in 2018, no, 2019, entirely off of street cred, like entirely. Like we had a friend who was an advisor. Like we were basically like, my business partner and I were ready to fund the company ourselves because we'd both had exits. And our friend was like, why? You know that there's this thing called other people's money, right? And you got, and I'm like, what? Uh, and I'm like, no, I bootstrapped, man. And same with my business partner. And so he introduced us to the, the fund that would eventually invest in us. We didn't even run a process. I met one fund. Here's who we are. I just sold my company. Brad just sold his. This is what we're doing. Uh, here's some tra— here's the traction we have, TJ. We're probably roughly around your size. Like we were coming up on about $7 million in revenue. growing quite quickly. And they gave us $5 million inside of 90 days. They were like, we're in. I think they actually put in like $2.5 million and somebody else put in, and then they, we like raised another $2.5 million, but they priced it right. They were like, yeah, we're in. You guys are proven. Let's go. Uh, and then the people that also followed became the people who led the next chunk of cash. And that's kind of what we tried to do was just always have an eye on like, all right, if we think we're going to need to deploy more into R&D or factories or like, We need to think about how we capitalize this business more than just today. Um, so we did have some thought to the future and paid a lot of attention to, to cap table. Uh, probably I, I would say this. I will also— here's what I'll tell you where I made a mistake. I overcorrected. I went too far on minimizing dilution out of fear of losing control of the company. And I had somebody like, you know, 6, 7 years later who, again, this was a Silicon Valley thing, met somebody who had raised like hundreds and hundreds of millions over their career. And it was that person who was like, oh, you guys own way too much of your company at this stage. Like you would have an easier time raising more money today if you didn't overcorrect to ownership. We were so like proud that we still owned more than half of the business. And he's like, why? I'm like, oh, uh, control. He's like, you're always in control. He's like, investors don't run companies. He's like, you only have an— you only have a problem with control when you're like a $10 billion market cap private company. Then those investors might want to fire your ass.

Yeah, yeah, yeah.

On the way up, they don't want you to go anywhere.

100%. And I have no ego about that. Uh, uh, like even like Sean, Again, bringing up Sean, there's very few resources, right? Like, I watch all your guys' stuff. I told you that because I look for these little gems. Sean has talked about if you have your chance to make your first bag, make your first bag. Like, I am not greedy. I'm trying to make my first bag. It's very clear. And I tell everybody that I'm not like trying to pretend like I'm not here to make money. Like, I want my first bag. I want my wife to not work anymore. Like, there are like very clear things that I want to do. And like, if that means owning 20% versus the 56% I own right now, like, Okay.

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Okay, TJ, we've talked about a plan. We've talked about fundraising. Now, I want you to talk to us like we're an investor and walk through all of the risks or all of the ways that the plan could fail and how you're going to mitigate them.

I think that's a very fair question. I think it's a good question to ask. You know, I said the line earlier that like, I don't really have a big ego with this stuff. I know what I'm good at and I know what I'm not good at. And I think that that ties into this perfectly because the answer is I am not a finance guy. I am not like a deep data person. You're not going to find me making you the prettiest spreadsheet you've ever seen. I think that, you know, to stroke myself a little bit, like I'm really good at product and marketing. I was a software salesperson before this. I understand how to make somebody buy something. I understand people and I have good vision on like, you can look at the branding. I've done all the branding. I've named all my products. I've done everything for the company to this point. So I think I have a really good pulse on that. So where I think the risk is, is I need some outside, whether it's a fractional CFO or somebody that's really looking at the numbers, because I need to understand and be able to communicate to my marketing people, like this is the the exact CPA that we can hit. This is how hard we can push. This is when we can push. We can lose money for this amount of time and we can lose this much this day. We can have a negative contribution margin for XYZ days. Like, I think that is the single biggest lever that needs to be pulled because if it is, then there's no secrets anymore. I know how to get people to buy stuff and I know everything that's wrong with that. I am not the best at doing like CM1, CM2, CM3 on a percentage-based P&L, you know?

Yeah. So it's like modeling. Is there, uh, any kind of supply chain inventory management or would you of lump that into like more of that financial operations piece?

I would lump that in. I, you know, a mistake I've made 2 or 3 times was running out of inventory, so I can't pretend that I haven't done it. I lost probably $100,000 in subscribers last summer because of something like that. Granted, it was coming from overseas and there was some outside factors that affected things coming in, but still, I've made that mistake more than once, but that, I don't think that'll be made again. Yeah. Can I get better at that? Sure. Um, but, you know, a little bit of cash and a little bit of planning will help that. My biggest thing is I really, really need a better pulse on the finances. I have duct taped this together as most bootstrapped founders have to this point to get to, you know, Mike gave me a huge compliment when we were together at Beanstalk. He was like, I know how hard it is to get to the point that you're at, you know, at this scrappy, like couple million stage. Uh, and I was like, thank you, but also I'm still in it. Yeah.

Yeah. It's the worst.

It's the, literally the worst is like the million to $10 million jump.

Yeah. Because you feel real, you feel like you have a real business, but you're not at a point where OpEx doesn't matter.

Yeah.

Yeah. You still, you know, team, you know, like there's a lot of things, right? And capital definitely helps accelerate some of that. I think that there is a risk in like you raise money and that you, you're not ready for the cash. Like the business isn't ready for the cash yet and that the founder isn't ready for the cash yet. Right. This is why investors do really like to see like, oh, you've operated before. It's like, I know you're not gonna hire too far ahead. You're not gonna get out of your skis on OpEx. Like some of that, I think the fact that you, but now you can mitigate that narrative-wise by saying like, yeah, but I'm doing it basically solo founder mode right now. And like, there's really only 1 or 2 people that I think I need to make the next jump. Like, I think that narrative is gonna matter a lot to investors and that like the capital is going into like working capital. This is basically like we're bridging working capital needs, right? Like as the business grows, I gotta buy more inventory ahead of margin that's being generated. It's like a classic consumer problem.

And I'm not asking for a secondary or anything. I'm not trying to take cash out. I'm not doing any of that. Like that's not what I'm, I'm here for.

Just go back to this. Like, what do you think the exit path is for this brand? Because if I'm, if you're taking in money, right? One of the risks that I see as an investor is how do I get my money out? Like, is there buy, who's the buyers? Like, How big does this need to be to be sold before I get paid back?

I, you know, you, you made the point earlier in this episode, Matt, like we're founders, not VCs. We don't have the data. But if I could, if I could say that I think there's 2 paths. I think there's just this round of funding to get to that $20 million top line and see if we can have a quick exit right there. If somebody wants a $20 million top line business with like $2 to $4 mil EBITDA, like, does that, is that attractive to somebody to roll up? Um, and that can happen and that could probably be in the next something like that. And then the other, the alternative is, To take this round on, go to those numbers, take a seed, and then go for a big boy, go for a $200-300 million exit within the next 5 years, less than 5, to get that done. But that would be the target. 'Cause I think actually, oh, sorry. One last thing, Matt. I'm sorry to cut you off. Drew posted that data from Iris. I don't know if you saw it about like exits. It's like 7 years seems to be like the perfect point, which is 4 years from right now, 3.5 to 4 years from right now. So that could kind of work really well with seed, Series A exit in the next 3.5 to 4 years.

Yeah, there is like sort of a, the, the, the Goldilocks principle of capital is like, you never want to raise too much and you never want to raise too little. It is like, what is the perfect amount? I think Will from IQ Bar talked a lot about this in his Titans episode. Like the, like he, he kind of really dialed it down to like the dollar. He's like, this is how much money I need. And these are the things I'm gonna spend it on to get to the next sort of like milestone. And that's kind of how he built the company and he still owns a meaningful chunk of his business because he was so specific and so calculated. So I think I like you calling out the financial piece. I think it's really important, man. Um, especially in like this kind of business, like numbers matter a lot.

Yeah. And I don't, the thing is like, I think you can get, I, I've spoken to some folks, there seems to be a trend of people like leaving PE and VC to start CPG companies, which is interesting, uh, that's happening. And like those people come in and they're like, don't even have revenue yet and they have a spreadsheet with every dollar. And I'm like, yeah, that's cool. But I got to $1 million a year without a spreadsheet. It was just all in my head and my Chase bank account.

Right.

So like at the same time that there's 2 sides to every coin, but eventually that becomes really important. And right now I'm at a point where it's probably like one of the bigger bottlenecks.

Yep. I love it, dude. I think that's a great call out.

It absolutely blows my mind that there are no resources for raising money. How is this something that is done so often? We're in the hottest market right now, CPG, aside from AI, right? And there's nowhere to go to be like, how do I raise money? How do I build a deck? What, how do I structure it? How do I ask questions? How do I price things? What are all the different factors? There's literally nothing that exists. And I find that to be the most frustrating thing right now. What would you do if you were me? Granted, I understand that you don't have all the context. I understand that you don't have everything, but you've given, I've given you enough. We've talked offline a little bit. If you're me right now in this exact scenario, what are you doing?

I think the thing that you need most in your business is focus. Many people that are stuck at this stage, it's because it's unclear where the growth is going to come from. They've reached some kind of a local maximum. That isn't your case at all. I think you've got multiple different things that could scale, and it's all about picking the best thing and putting all of your attention on that. Steve Jobs once said that focus is about learning to say no, and I think you need to say no to the opportunities that the supplement and the energy drink could offer in the short term so that you can focus on the powder. And that in time you might be able to scale all 3, but this is really an order of operations situation where having wisdom about really focusing all of your effort, your thinking, your resources towards growing the most viable thing actually gives all 3 the biggest chance of succeeding in the long run. So obviously you want to raise money. And you want to get to some scale because at scale, things like physical retail and wholesale become a lot more realistic. So that would be my focus. My focus would be on how do you scale with the powder as effectively as you can while still being disciplined about 6-month paybacks. I think if you do that, the business has a really bright future. I'll be really excited to hear from you in 6 or 12 months and see if you're able to deliver on some of these really aggressive growth projections that you think you can hit. Because man, if you can hit those, future is super bright for you.

I'd raise the money. I 100% would. I don't like founders who are operating, uh, like entirely starved. I actually think, I think there's like a scrappiness that is important when you're building. It's really important, like to be willing to just eat shit for a while. Um, and like just get your fingers dirty. But I think when you have traction, I don't like it when businesses are held back by capital. Like if it's obvious that it's like just a working capital problem, I would absolutely go out and raise money. I would do it at a really attractive price. I think you should get like a bunch of smart people to invest in your company. Like most money is not helpful. So like, I don't want to say like, go get helpful money. It's not just get cash. But sometimes there is like good people you can put in that can actually be a call every now and again that can give you some better advice. So I would think to get like the best quality investors I could, individuals on my cap table. at a really attractive price so that they're gonna get an absolute slam dunk of a win. Um, and I would evaluate the next step after that.

My brain immediately went to 2 for 10 instead of 3 for 20.

Totally.

Yep. Yeah, that's where my— because 20 and 20 would be seed Series A. That's a cool—

Yep. Just like, it's a, it's like, this is a no-brainer price for this company. You know, that always, like, not always, but like, man, anytime I've seen like really good wins, like I had a, a company that we sold in March of this year. And I just got in, like, I felt so good because like the guy brought in friends and family at such an attractive price that it like, he was guaranteed to win. Now he won much larger than any of us ever anticipated, but we put the money in because I'm like, oh, it's for sure going to win, right? Like it's going to be great. Yeah, it's awesome. So I think that's where my head's at. Like just gut feel again, just don't know a lot, right? We've been jamming for an hour. We were hanging out in New York. But that's what I would do.

Well, thank you. I really appreciate that. This has been, uh, incredibly valuable.

Dude, this is fun. Congrats, man. It's awesome. Company's freaking very cool.

Thank you. Thank you. I appreciate it. And you know what? Let's pat myself on the back one last time. First rodeo is my first time doing this.

Yeah, dude.

Self-taught.

Yeah. Worked full-time a year and a half while building this. So like, uh, I'm proud of it.

Love to see it, man.