From Entrepreneur to Investor: Vincent Hsieh on Bridging the Gap Between Early & Later Stage Funding

Anthony Codispoti (00:00)
Welcome to another edition of the inspired stories podcast where leaders share their experiences so we can learn from their successes and be inspired by how they’ve overcome adversity. My name is Anthony Cotaspodi and today’s guest is Vincent Shea, partner at Cypress Growth Capital. They are the largest royalty based growth capital investor in the U.S. specializing in non dilutive financing for emerging growth tech companies.

Their mission is to help entrepreneurs scale while preserving equity, offering flexible solutions that fit each company’s unique needs. As everyone at Cypress is a former entrepreneur or operator, many businesses have achieved significant milestones in revenue growth and market expansion under their guidance. Now, prior to joining Cypress in 2022, Vince spent 16 years as an entrepreneur, co-founding, building, and scaling

two industrial tech software companies that both exited to private equity acquisitions. started his career as a turnaround management consultant for eight years at Arthur Anderson and Alvarez and Marcel. At Cypress, Vince participates in all facets of the investment process and actively supports portfolio companies. Now, before we get into all that good stuff, today’s episode is brought to you by my company, Ad Back Benefits Agency.

where we offer very specific and unique employee benefits that are both great for your team and fiscally optimized for your bottom line. One recent client was able to add over $900 per employee per year in extra cashflow by implementing one of our innovative programs. Results vary for each company and some organizations may not be eligible. To find out if your company qualifies, contact us today at addbackbenefits.com. All right, back to our guest today.

Partner at Cypress Growth Capital, Vincent Shea. I appreciate you making the time to share your story today.

Vincent Hsieh (02:00)
Thanks for having me today, Anthony.

Anthony Codispoti (02:02)
Okay, so Vince, before we talk about Cypress, I’d like to hear a little bit about the work that you previously did. You spent eight years with different consulting companies like Arthur Anderson, Alvarez, and Marsalic, we mentioned in the intro, working with private equity firms to turn around distressed companies. What did you learn during those experiences that would later be helpful in the work that you do at Cypress?

Vincent Hsieh (02:29)
I would say the number one thing you learn working with distressed companies is that at the end of the day, cash truly is king. I know it sounds like a cliche, but you know, a lot of times companies focus quite a bit on more, let’s call it vanity metrics like revenue or P and L metrics like profitability. But we all know that revenue and receipts are not the same thing. There’s a money coming in the door.

We know that what it shows on your profitability, EBITDA, net income, whatever, may or may not reflect the true cash flow of the business. In fact, oftentimes, especially in growing business or a tech-heavy business or an inventory-heavy business, it doesn’t at all reflect the true cash profitability, cash flow of your business. So think the number one thing I learned working with troubled, oftentimes high-performing, high-growing, even recognizable names in the industries, in the retail industry, restaurant industry, whatever it might be.

is that cash truly is king. How that informs sort of what we do as investors at Cypress is everything from our initial discovery and diligence processes with companies like when we’re drilling in on the financials they send us or the stories they’re telling us about how they manage their business, we focus on sort of the cash management and the cash build side of it, but also even the way we structure our investments, the way we collect money from our ⁓ portfolio companies.

is tied directly to their cash receipts, not to their revenue to make it truly something they can afford tied to what they actually have incoming in the door. So I think that’s the number one thing I took from consulting.

Anthony Codispoti (03:55)
And so

the differences that you’re talking about there between their ⁓ cash and their revenue is that sometimes it takes companies a while to collect on that revenue. Is that sort of the gap there?

Vincent Hsieh (04:07)
That’s right. There could be,

you might invoice a hundred dollars and recognize a hundred dollars this month, but the actual collection of that might be over a few months ⁓ on the receipt side on the same token.

There are times when people prepay or collect in advance of services. And that sounds great, like you collected a thousand bucks upfront for a one year of service or something, but you got to make sure the company has the cash management in there to manage their expenses and manage their hiring of people and everything, knowing that they’re not going to collect money for another 11 months or 12 months ⁓ in terms of managing cash, both on the delayed collection side that you’re referring to, but also on the prepaid collection side in many cases. And also the other part of it I say is that

just understanding a lot of business that have, for instance, inventory. There’s a collection cycle involved with or conversion cycle tied to either buy the inventory ahead of time. You got to hold the inventory for a period of time. Then you got to sell the inventory. Then you got to collect cash from the inventory. That could be a multi-month, multi-quarter period of converting that cash you’re spending on inventory into actual profitable revenue for you. So wanting to make sure that business owners and entrepreneurs understand that when they’re managing the businesses so that they don’t run out of cash.

Anthony Codispoti (05:19)
And you mentioned this is a big reason why you guys at Cypress, you you look at the company’s cash receipts and we’re going to come back to that in a minute because I think it speaks to part of the kind of unique business model that you guys have. But before we get there, let’s talk about ⁓ some of the companies that ⁓ you were involved with. ⁓ There was a RFID company called Atlas that you co-founded and eventually sold to private equity. What was that company? What did you do there?

Vincent Hsieh (05:42)
That’s right.

So Atlas initially started as a consulting firm in the 2006, 2007 timeframe, providing software development and implementation services for companies in like the airport industry, manufacturing, different types of industries to implement RFID. This is 20 years ago when RFID was a relatively new thing that Walmart, DoD, people were adopting relatively quickly. So we’re there to cure.

Anthony Codispoti (06:12)
And real quick for our audience, explain

what RFID is.

Vincent Hsieh (06:15)
So RFID stands for radio frequency identification. If you ever drive your car down a toll lane and it automatically collects your money, it’s using RFID to read that. If you walk into a lot of different stores these days, they try to sell this, where you can walk in and take your goods and walk out, where it scans the RFID tag on the thing. It’s for a barcode-ish type thing, but much longer, in some cases longer read range, so you can see it from further.

It’s used primarily in places like manufacturing and warehouses and fixed locations where you can pass something through like a car through a toll lane or something down an assembly line and to scan it for information that you might need.

Anthony Codispoti (06:55)
Okay, so you, started out, Atlas started out as a consulting company and it evolved.

Vincent Hsieh (07:00)
Yeah.

So we started that way and then that’s 2006, 2007. By 2008, good and bad and mostly good is we had a ton of projects lined up with lots of people. They were paying us six or seven figures to go implement RFID in their operations. In 2008 or late 08, the recession hit, the financial crisis, all that. A bunch of our projects, almost all of our projects all dried up, all basically either canceled if they hadn’t started yet.

or decided not to further pursue just given the recession, the money was tight and RFID was still considered relatively kind of a science project or something new. They all dried up and it kind of forced a pretty hard pivot for us, pretty hard decisions we had to make in terms of laying off people, ⁓ conserving cash, things like that to live to fight other days, so to speak. That ultimately led to a good thing though, which is that we then focused down our efforts on one of the projects we had done in the industrial construction space.

turned that into a more productized offering, software offering with like bundled services and things like that, ⁓ to then go sell specifically to the one industry, in this case, industrial construction. And that’s where the company sort of ⁓ took off with that kind of new focus and productized offering.

Anthony Codispoti (08:12)
What was the specific offering?

Vincent Hsieh (08:14)
⁓ A system that allowed industrial construction managers or operators to manage all the materials on their job site. So if you’re constructing a power plant or some kind of industrial facility, the parts that need to be used are almost like Lego pieces that have to be brought in a certain time, certain order. You have to do A, then B, then C. You can’t do A, then C, then B in some sequence. And so you need to able to locate this material on very large job sites or from other job sites.

and bring them there at the right time, right place, all that kind of stuff to more quickly, more efficiently get the projects done. And so RRVD or Atlas RRVD solutions were a way to help them expedite that.

Anthony Codispoti (08:57)
Okay, and then ⁓ last one before we get to Cyprus, because I really want to talk about that, you were with GeoForce for 15 years and you led fundraising, ⁓ the establishment of overseas subsidiaries, acquired multiple companies, and eventually exited to private equity firm. It seems like you were kind of putting all facets of your skill sets to work here.

What was the most exciting part of this experience?

Vincent Hsieh (09:28)
Yeah, so honestly, all that I think you described there with &A and international expansion, fundraising, all great and great skill sets and very typical skill sets that people have in growing and building tech companies and things. I think the most exciting thing about GeoForest and Atlas for that matter was really the seeing the careers that blossomed and the people that grew. ⁓ If you never worked at a startup, it’s hard to really appreciate this, but you really…

as a professional or as a person, you grow quite a bit working at any startup, just being in the crucible of fire of the demands of being a startup, having to wear multiple hats every day, ⁓ doing this and that and everything, because you’re always resource constrained, both in financial resources, but also people resources. So everyone there learned a lot. think the most exciting thing was watching these people at GeoForce grow, ⁓ hiring them out of college or hiring them out of wherever.

and seeing them learn so much. I would say in one year they learn the same as someone learning in a big company five years of work, the stuff they saw. So think that was the most exciting thing was just watching the team grow, seeing them go out to do good things, join other startups, start other startups, ⁓ moving to increasing leadership positions in their roles, different places as well.

Anthony Codispoti (10:38)
That’s an interesting answer. do you have a particular leadership or management style that you think ⁓ contributed to each of these employees’ development process while they were with you?

Vincent Hsieh (10:50)
I think it just comes down to really treating each person as a person, as an individual person, I should say. It’s much like having kids. I have three teenagers, same parents, same upbringing, pretty close in age, completely different personalities, completely different ways of motivating and inspiring and disciplining them that work. So it’s very similar to with managing people.

⁓ There’s plenty of textbooks and podcasts and wherever you can listen about it. You should do this or this or that. But at some point, just humans relating to humans and every interaction, every interpersonal relationship can be different. It’s learning to relate to them in that personal level. Spending time building three key cornerstones, I think, which are trust, respect, and fondness for each other. ⁓ People want to work with people they trust and respect and they like in general.

And so establishing that relationship upfront, both with employees in this case that we’re talking about, but also with vendors or partners or portfolio companies as an investor, is spending time upfront getting to know them as people so they like you and they want to be with you and spend time with you. But also being almost like, again, by parenting, having that trust and respect with each other that comes from, in many cases, doing what you say you’re going to do, taking time to establish that, and never breaking those bonds of trust.

Anthony Codispoti (12:09)
And it sounds like you’re

genuinely interested in the overall personal development of these employees because you talk about how you get excited when they move on to other opportunities. A lot of folks don’t think that way. It’s like, hey, I’ve invested all this time in this person. I want them to stay here and give me more return on that investment. But you’ve got a different thought process there.

Vincent Hsieh (12:17)
Mm-hmm.

Yeah, I mean, think one of my proudest things and this guy might actually be listening to this podcast too, eventually. We had a controller at GeoForce for about four five years, did a great job with us, eventually left us to ⁓ take a higher position at another startup. And then eventually there was promoted to CFO and has since been the CFO of two different private equity back tech companies that both exited. ⁓ So imagine what he was doing with us 10, 15 years ago or whatever it was, you know, learning under GeoForce learning.

growing a company and all that, we sold the private equity and now he had his stint as CFO of two different companies that sold the private equity as well. Or sorry, we’re private equity backed and then sold to Strategics. So it’s great seeing that and kind of, I don’t want take this in a condescending way, but almost a proud dad or proud parent moment to see that happen.

Anthony Codispoti (13:19)
get it. Yeah. Okay, so now how did the Cyprus Growth Capital opportunity come about for you?

Vincent Hsieh (13:25)
So the connection is pretty direct. ⁓ Cypress was the first institutional investor in my second startup, in GeoForce. So back in 2011,

We had grown about five, six million in revenue kind of on a bootstrap friends and family basis. We were looking to grow faster. We had grown, we were profitable, we were doing fine, but there’s so much more opportunity ahead of us. As an example, a lot of our customers in oil and gas in, let’s say the US, they also had operations in international markets like Brazil and Australia and the United Kingdom.

and they wanted to use us there too, but to do that, we needed to able to expand faster and hire a team there for sales and support and operations. Our organic profits wouldn’t allow us to build that team out fast enough. Organic profits probably let us hire, I don’t know, one or two people a month or a quarter, but to take advantage of that market opportunity that our customers bring us to.

We need to do that faster and spend some money establishing an entity in Brazil, establishing an entity in Australia, things like that. ⁓ We needed to hire a true head of sales who had enterprise sales experience scaling companies from five million to way beyond five million, something that we had no real experience doing directly. So we want to attract that type of salesperson. We need to grow capital to do that, ⁓ to attract those types of people. Found Cypress through an introduction from someone who actually is at Cypress now, but wasn’t at Cypress at the time.

They invested back in 2012, helped to scale from about 5 million to 30 plus million recurring revenue, sold to private equity. I stayed on the board of the company, but then transitioned to an investor role at Cypress about three years ago. So it was a relatively seamless transition that since that I knew the team, the team that was already working here, worked with me for six, seven years, knew the investment model and the criteria what they’re looking for how they did it.

The only challenge or the big transition was going from being an operator, an entrepreneur, a doer, a problem solver, ⁓ I call it a dad of a company. Like one company, you’re the dad to being an uncle to many companies as an investor. Or you’re not the dad responsible for running the company or raising the company or disciplining the company, so to speak. You’re the uncle who’s responsible for working with lots of different nieces and nephews as a fun uncle, hopefully, but also a uncle that can provide some mentorship and guidance to the companies as well.

So that was the biggest transition was going from operator or entrepreneur to investor. But everything else was straightforward in the sense that I already knew the team had worked with them for many years. I think I would say I’m still making that transition. It’s been three plus, I guess three years now. Part of me still wants to be a dad sometimes and get in there and and quote unquote do the work with the company or roll my sleeves and drill in on problem to solve it. But the challenge obviously as an investor is our job is not to do that. Our job is to motivate and guide and

Anthony Codispoti (15:47)
How challenging was that transition?

Vincent Hsieh (16:09)
provide some perspective, but also then have them go solve the issues directly. Have them make the hiring decisions, have them make the tough decisions and all that. Again, with our guidance and our mentorship and all that, ultimately that. of it’s that, part of it’s also the transition is knowing that you’re not gonna know everything. If you’re the dad or the guy running the company, you sort know all the things about your company, your technology, your customers, your people, all that.

As investors, we’re much more, as one of our co-founders here says, above the fray. It’s a more strategic view. We understand where they’re going, where the industry’s going, where the market might be going, what the opportunities are for the company. But kind of nitty-gritty, the details, the tactics of the company, that’s not necessarily a responsibility. And so in some ways, that’s actually ⁓ intellectually stimulating and invigorating for me as well, having the ability to be challenged by seeing lots of different companies and different industries at different stages of growth.

and helping them through those challenges. Because no matter what the company is and what industry they’re in, every company at a certain scale is going through the same issues. No matter where you grew up, no matter what your race is, no matter what you are, if you’re a teenager, you’re a teenager. You’re dealing with the same stuff. Companies are the same thing. No matter what they are, they’re going through the same stuff. We’re to help them with that. But from, again, uncle perspective, not a dad perspective, trying to be the parent.

Anthony Codispoti (17:27)
I love all of these like familial references, being a dad, being an uncle, know, ⁓ references to teenagers, which you’re very experienced with now in the moment. ⁓ You know, I do the same thing with, you know, as I try to think about sort of the psychology of folks that I’m working with. I’ve got two young boys who are eight and 10. And I often reference back to what is sort of the core things that drive them because I think ⁓ deep down we’re all still sort of, you know, little kids.

⁓ inside of our brains. And so when we can understand and see sort of the raw emotions of younger groups, teenagers, know, little kids, it kind of carries on.

Vincent Hsieh (17:56)
Yes.

Your point

about eight to 10 years old, I think that that’s the funnest age for kids. Like I don’t have any adult kids yet. My kids are teenagers, but I think when they’re really young, like in diapers, they’re fully dependent on you. They’re not independent at all. When they’re teenagers, they almost want to be too independent and they don’t, you know, they dismiss a lot of what parents will say to them. And they’re kind of on their own. They start driving the kind of their own life and everything. When they’re kind of like, I don’t know, five to 10, five to 12, kind of age your kids are now.

They’re old enough to be pretty independent and have independent thoughts and have conversations with you, but not so old that they think they know everything and want to go off and do their own thing. They still like look up to dad, so to speak, look at the mom and everything. I think that’s the funnest age for kids. And I bring that back to Cyprus, which part of what I like about Cyprus is that we’re working with companies that are at that age. We’re not working with companies that are like garage startups with an idea and no revenue, i.e. a baby in diapers. We’re also not working with super mature companies that are already grown up and just need to optimize a few things.

Working with companies, still kind of like, quote unquote, five to 10 year old kids who have customers, have revenue, have real products, market fit, things are working, they’re profitable, they’re doing fine, but they’re still learning a lot in terms of how to scale and grow the company. And so that’s where we can be very impactful as uncles again. So we like working with that age of company, essentially, which is the age where your kids are now.

Anthony Codispoti (19:23)
So Cypress, you guys have a little bit of a different model as it pertains to funding. Explain that for us,

Vincent Hsieh (19:31)
Yeah, so, you know, typically people are, and I’m focused here on like call it B2B tech companies or software companies, companies are building something that requires development of hardware, software, processes, things like that, services, and things like that. So some of us may or may not apply to, you know, non-tech companies, but in general, what I would say is this, that if you’re an entrepreneur building a company, you know, highest level, you can fund things obviously with your own pocket called bootstrapping or your friends and family or people like angel investors. If you want to be your

people you know in a network or individuals. But if you want to go outside of individuals and to what’s called institutions or companies or banks or things that lend money, there’s high level kind of two buckets. There’s debt and there’s equity. Debt is the benefit is that you know what you’re to pay back. It’s going to cost you 10 % interest or whatever. You’re going to borrow a million bucks and pay back a million bucks plus interest over time, things like that.

The issue of debt is it also comes with usually covenants that say you have to have this much profitability or this much whatever that potentially restrict what you’re doing as you’re trying to grow and build a business. It oftentimes at the early stage comes with personal guarantees where you potentially put your house up or your personal type assets up to guarantee the loan. But it has a place for sure is debt or bank financing of some sort on one hand. On the other hand, there’s equity.

which typically comes from like venture capital firms or private equity firms where they give you money. You don’t need to pay back any money every month that you do with bank debt. But when you eventually sell the company or exit the company some way, you’re to give them a percentage ownership of your company. at a high level, if they bought 10 % of your company today, when you eventually sell down the road, you’re going to give them 10 % of the profits or 10 % of what you make at a high level. A lot of intricacy there, right?

So that’s equity on one side. has the benefit of you don’t have to pay anything for a long time until you sell, but it can also be very expensive if you’re growing quite a bit. So if you’re growing a lot, if you’re a tech company, you’re generally at this stage valued as a percent, not a percent, as a multiple of your revenue. Meaning if your revenue is X, you get paid five extra revenue or 10 extra revenue is what you’re worth as a company. And so you can imagine the faster you’re growing your revenue, the faster that equity value is appreciating.

And therefore, equity is the most expensive thing for a fast growing company. In the sense that if you were to 10x your business the next few years, the value of equity also 10x’d. So a million dollars will cost you $10 million when you sell the company down the road, if you’re a rapidly growing company valued on multiple revenue. So where does Cypress sit? Cypress sits between debt and equity. We’re all former entrepreneurs, former operatives, we’ve all raised money before. We know the benefits of debt and benefits of equity. We also know the cons of debt and equity.

And our hypothesis, our thesis has been proven out over 15 years, is that when you’re at an inflection point of growth, you’re rapidly growing. By far the most expensive resource, besides your time, the most expensive resource you have is your equity. Because again, if you’re going to 10X your business, your equity isn’t going to you 10X. So we set up a structure called Royalty-Based Financing that, to your point during the introduction, we’re the largest firm in the United States doing this right now, Royalty-Based Financing.

That’s sort of a hybrid of debt and equity, combines the best of both elements, allows entrepreneurs to preserve their equity for a little longer. They might eventually want to raise equity when they’re bigger, and they need to raise $20 million or $10 million or whatever. But that’s a time and place later. For now, at this inflection point of growth, our structure allows them to preserve that equity in a manner where it’s like debt because it’s non-dilutive, which we’ll talk about later maybe.

but it gives them this flexibility. They’re paying us a percentage of what they collect from customers every month, to my earlier point about cash versus revenue. They’re paying us a percentage of what they collected cash every month. They keep paying that until they eventually hit a multiple, something like one and a half to 2X in general, of what they took from us. And once they hit that multiple over time, then they’re done paying us. And the idea is that for most companies, they’ll probably pay us back, call it 2X in a few years. And the 2X is way cheaper than equity, which might’ve appreciated again by five or 10X.

and cost them five or 10 million for that million, whereas ours only cost 2x. Way cheaper than equity if they’re growing quite rapidly, but also much more flexible than debt because the payments aren’t fixed. There’s no fixed end date like with debt, or with debt, it matures in three years, you got to pay it back in three years no matter what. And there’s no covenants or personal guarantee that might come with debt. So just sort of a good hybrid solution in between equity and debt that gives ⁓ entrepreneurs a few million bucks to help grow their company, but in a nondilutive fashion.

Anthony Codispoti (23:59)
Yeah, you’ve used that word non-dilutive versus dilutive. Explain that in a little bit more detail.

Vincent Hsieh (24:02)
Thank

Yeah, so in general, dilutive means like it’s watering down your ownership. It’s where dilution comes from, right? So equity in this case, right? So dilutive capital, like equity, if you own 100 % of your company now, if you raise equity, you now only own 80 % or 50 % or whatever, just diluting your ownership down, it’s watering down your ownership. Non dilutive is the opposite like debt, where you pay back someone’s debt, but doesn’t do your ownership, you still own 100 % of the company.

So high level dilutive is equity and non dilutive is say debt. And it refers to the dilution of your equity ownership as owner of the company.

Anthony Codispoti (24:42)
So let me see if I’m kind of wrapping my head around this correctly. So ⁓ more traditional investment for equity has the potential to deliver much greater returns to the investor. ⁓ A more traditional debt structure ⁓ is going to return much smaller returns to the lender, to the investor.

Vincent Hsieh (24:52)
It does.

Yes.

But the key thing there is risk. So the equity investor could get 10x or 100x if things really take off. But the risk is if it goes to zero, they get zero. But you get zero, you either get zero or you get 10x at high level. What are the percentages? Let’s say you have a 20 % chance of getting 10x and an 80 % chance of getting 0x. It’s a more binary type outcome with equity as an equity investor.

Anthony Codispoti (25:13)
There’s no collateral on it because it’s not alone. It’s like I’m, I’m, I’m betting on you. Yeah.

Vincent Hsieh (25:28)
As a debt investor, you’re getting paid every month. You’re getting a monthly interest payment or even a monthly principal and interest amortization payment. And you’re only going to make a little bit. You’re going make a lot less. You’re going to make 1.3 on your money, not 10x on your money. you’re almost, I don’t want to say guaranteed, nothing’s guaranteed, but you have to your point collateral. You’re getting a monthly payment. You’re getting paid back no matter what in three years. So all those things I said are from the investor or the lender perspective. The flip side is for the entrepreneur, the problem with equity can be that it’s uncapped costs.

If you’re really successful, because the more successful you are, the more expensive it is. If you are not that successful and cost you zero X or one X, if you’re very successful, it might cost you 100 X as the entrepreneur. Whereas debt has the lower potential costs, but it’s not as flexible because you have to make a monthly payment. Every month you’re paying $50,000, $100,000. No matter what, in two or three years, you own a balloon payment, almost like your mortgage payments, if you will, all that. It comes with things that might tie you down like covenants.

You know, they say you must do this every month. You have to have this every you can’t go below this number. Therefore, you got to restrict your growth. You can’t hire too many more people because it costs you negative cash or whatever. We don’t mean we have no covenants, no personal guarantees, no fixed payment like debt, no fixed end date. You just keep paying the monthly royalty percentage of the cash you collect. You keep paying that to hit a cap. Well, that takes you three years or 10 years.

Anthony Codispoti (26:36)
And you don’t have those kinds of restrictions in there.

Yeah, say more about that,

because you touched on this before, Vince, about the importance of looking at cash receipts versus revenue booked. And you guys are looking at cash receipts, how much cash they’re actually taking in when calculating what it is that their payments do that.

Vincent Hsieh (26:56)
Mm-hmm.

That’s right.

So we take a small percentage of their cash collections every month, not their revenue. So you can imagine a company where their revenue is $100 every month, but maybe this month they only collected $20. Well, if they only collected $20 on 100, they’re going to pay us a percentage of $20, not a percentage of $100. But if next month they collect $200 instead of $100, they’ll pay us a higher number, right? But they can always afford the payment because there’s a percentage tied to the actual cash coming in the door. Basically, you only pay me when you get paid.

Anthony Codispoti (27:35)
That’s clever. Now you’ve got a specific set of criteria ⁓ for identifying potential entrepreneurs you want to invest in. Can you dive deeper into what you look for?

Vincent Hsieh (27:46)
Yeah, so what are we looking for in entrepreneurs here? So first of all, we’re all former entrepreneurs and operators. we generally, I’m not saying we’re perfect, but we have a better sense, I think, of what a good one is and what a bad one is, so to speak, kind of can hear it in their voice, see it in all that, know, on an introductory meeting, an introductory call and things. But a couple of things that we’re kind of looking for with most of these people, one is a growth mindset. So if you’re familiar with these terms as growth, you know, learner mindset versus like a more fixed mindset.

Like someone who wants to learn, wants to absorb more information, is constantly asking questions, doesn’t assume they know everything. We want someone who’s got that growth mindset, because the company’s only going to grow if they grow. Like the company will only grow because the entrepreneur and his or her team is growing. Otherwise, the company won’t grow, no matter what the product is. The people have to make it grow. And we want them to be able to absorb.

You know some of our thoughts and our guidance, you know, there’s some who was willing to absorb all that had the stuff and benefit from the Guidance that we can potentially provide for them. So number one is a growth mindset Number two is a sales mindset. So I don’t mean they have to be a salesperson I mean they have to understand like how to convey value and how to you know Make sure they know how to read a room so to speak and convey convey and communicate the right stuff to their audience In this case, it’s called customers. But also they have to understand that

You know, sales is the most important thing that will drive a company forward. I don’t care how good your product is. don’t know how slick your engineering is. I don’t care how nice your accounting system is or how nice your office is. What really matters is you got to sell stuff. If you don’t sell anything, you don’t have a business. So again, they don’t have to be a sales person, but they have to the mindset of how to communicate and how to generate sales, but also understand that sales is important. If they lead by showing us a product demo, or they lead by showing us their code, so to speak, that’s a pretty big turnoff. won’t lead anywhere.

But if they lead with understanding, like audience, like knowing how to read a room and have a communication skills and all that, that’s a highly valued trades, that sales mindset. A third thing I would say is resourcefulness. These are early stage companies, few million bucks in revenue. I’ve said this word a few times, but they’re generally pretty resource constrained financially on people, assets, whatever to go do things. They have to be someone who can like, a term I always use is MacGyver. MacGyver could figure things out.

You know, he’s got duct tape and a pocket knife. He can figure anything out. Well, can this person also do that at this early stage? Can they be resourceful, know, capital efficient, all that kind of stuff to drive a business forward? We don’t need this person to have like everything set up for them to be successful. This is a startup. They’re not going to have everything set up for them properly. ⁓ The last thing I would say is that, you know, we want them to able to attract and retain a good leadership team around them. They may or may not have that team yet at the early stage. It might just be a solo person with like a couple of people helping them do stuff.

But we always say that at the beginning to build a company and get maybe in the first few customers, that potentially is an individual sport. Like a sole entrepreneur, you’ll figure things out, get the first few customers, few million bucks in revenue, whatever going. But for them to get meaningful scale and really build the company out, it becomes a team sport. They have to have, you know, and a team has like, you know, think of a baseball team has like a first baseman and a catcher and an outfielder. Everyone is a part of a team. They all know the specialists at their role, their catching the ball or pitching the ball, whatever it is.

And so they need to be able to start building on a team on sales, operations, finance, marketing, whatever it is. And they have to be able to attract and retain A players to be able to do that with them. If they can’t do that, they’re not going to scale. So we want to test for that. Like have they been able to bring on people they’ve worked with before? Did their former boss invest in them? Right. Did some of their former colleagues like join their startup, things like that. When they have a meeting with their leadership team, does only the founder CEO talk or does the other people in the room talk as well? Cause the other people in the room don’t talk.

Either the CEO or founder doesn’t trust them or they’re not good enough, right? Or something in between, right? So we want to test for that kind of stuff.

Anthony Codispoti (31:42)
So let me see if I’ve got some numbers here. Correct, Vince. invested in 59 companies. There’s 35 exits, 24 active investments. Nobody has closed their doors. Even more remarkably, the equity value of your companies grows an average of 10x after your investment. you, first of all, correct me I got any of those numbers wrong, but do you attribute all of that success to

All of those criteria that you pointed out just now that you guys are looking for when you find people that check all those boxes, you feel like you’re on a pretty sure path with them as sure as you can be.

Vincent Hsieh (32:23)
Everything you said was correct, except I would slightly correct the statement that no one’s closed their doors early on. And we’re in fund five now, know, in fund one, many years ago, we did have a couple of companies that didn’t turn out too successfully. ⁓ So slight modification we said there, but everything else you said about 10 X equity appreciation and 35 exits that were very successful so far are all very, are very true. I would say that two things kind of drive that ⁓ one.

is that we are very patient. To go back to the baseball analogy, we wait for a pitch to come. We don’t like swing wildly if things are outside the strike zone. So what does patience mean? It means waiting till they’re at least a few million dollars in revenue, if not more. So we know that something’s working. It’s not just a garage startup as an idea. There’s customers that actually paid them money and paid them on a recurring basis or for a couple of years to use their product. So something’s working. We’re patiently waiting for a few million bucks in revenue. We’re patiently waiting for them to

established product market fit, meaning that the market is accepting of their product and they’re paying them, like I said earlier, paying them on a recurring basis or whatever, use it. So there’s some semblance of some proof that the product they’re offering fits a market, whether that market be a small one, big one, ideally a big one, of course. We’re also patiently waiting to see that they have some kind of scalable sales engine. Like it might be and just be the founder is the first salesperson. Oftentimes that’s the case, or they have a couple of salespeople, but potentially.

But the point is that they have some semblance of what works in sales. Like we should sell these types of people in this way. We should go to conferences. We should do this, this or that. We should market to these people. We should market this way. When they have a semblance of what that looks like and it’s starting to work, we can provide capital and counsel to help propel that more. Like it’s working in South Dakota. Let’s go do the same thing in North Dakota. Right. We don’t want to just go try North Dakota. We want to know that it worked in South Dakota, so to speak. Right. So we want to look for that kind of stuff in the entrepreneur that they’ve done that, that sort of thing.

And then everything else I said earlier about resourcefulness is true. ⁓ You know, that’s all we patiently wait for. We want tests for that kind of stuff. And then the second thing I would say is that, and this is tooting a little bit of our own horn, but we’re all former entrepreneurs, former operators. We’ve all been in this seat before. We’ve done it before. We had success. We’ve had failures as well. We sort of generally know what we’re looking for. And I think that that allows us to be much better than other investors at picking and vetting people on the front end. So we have a self-selection. We only quote unquote, emit

good companies are probably be successful anyway. And we’re trying to help them be even more successful, if you will. And that comes to the second point, which is given our backgrounds, we’ve spent a lot of time, probably I would say in my week, probably 25 to 33 % of my week is spent counseling and helping my portfolio companies. So we spent a lot of time helping them and that drives them to make sure they’re gonna make good decisions. No decisions ever perfect, but they make as best decisions that they can with some of our help. And…

if there’s initially some course correction or some steering, as things are maybe running a little bit closer to the ditch, we’re able to help them steer that way before they fall into the ditch. So I think that helps us drive some of that success as well.

Anthony Codispoti (35:26)
And how did these, ⁓ what will eventually become port codes find you or how do you find them? What’s sort of the, I don’t know, the great lever that you pull in terms of sales or marketing for yourselves.

Vincent Hsieh (35:35)
Yeah.

So right now we talk to, or sometimes they talk to, we look at 50,000 companies a year. We probably talk to, you know, of those 50,000, maybe like five or 10,000 are actually kind of good fits for what we’re doing at a high level, you know, terms of the revenue profile, the industry profile, things like that. We probably talked to just under a thousand, you know, call it eight to 900 a year. And we actually have deep conversations, maybe 50 to a hundred and invest in five or six.

So the funnel for 50,000 to 10,000, a thousand done to five or six investments is a pretty tight funnel, if you will, very process driven, you know, we’re all formal operators. know, we know how to set up processes and all that. Your question was, how do we find them? There’s kind of two primary ways we get to them. One is we spend a lot of time in our network and our ecosystems of tech companies with other investors, with, with accounting firms, law firms that work with tech companies with wealth managers.

with investment banks and banks that lend to these people. We get to spend a lot of time knowing these people in the ecosystem, the people who know a lot of entrepreneurs, and they feed us a lot of deals. They’re feeding us deals almost every day of, I came across this company I talked to, they’re too big or too small for me, or I can’t lend to them yet, or I incorporated them a few years ago, now they’re raising money, you know, if I’m a law firm, or I do their taxes, and I know that they’re 10 million revenue, and they told me they’re looking to raise capital. These types of people are kind of our business development network.

feed us deals all the time. And probably like in our last fund, three fourths of the deals that we funded, 12 out of 16, came from that network of channel people we know in certain geographies around the country, like Atlanta, Nashville, Kansas City, Denver, Phoenix, Dallas, of course. That’s half of our deal flow. The other half of our deal flow, our teams of analysts and associates, they spent a lot of time researching companies. A lot of this is now AI enabled, obviously, and AI supported to get to things faster. They researched tons of companies.

They identify good ones and then we have some systems of programmatic outreach either through warm introductions from people we know or through just pure, truly cold outreach, direct email campaigns, if you will, to these people who then respond based on the message resonating with them on growth capital help accelerate things, non-dilutive entrepreneurs and operators that can help you. That message resonates, they respond, we have meetings with them that way. So basically the channel network we have and the kind of programmatic outreach systems.

Anthony Codispoti (37:59)
You know,

with all these companies that you get to interact with, it seems to me that you’re in a, not a unique, but a special position of being able to have a front row seat to all the conversations that are going on around AI, how transformative it is now and will continue to be. I’m curious from where you sit, Vince, are, do you think there are things that the general public is missing or misunderstanding about?

the state of AI and where it’s going.

Vincent Hsieh (38:32)
So I’ll say two things on that question. The first one is sort of, this is not an original statement for me, but AI is not new at all. You can think back to like 1997, I think it was Big Blue, IBM was a Kasparov and chess, AI robot engine or whatever beat the chess master in 1997, so 30 years ago almost. And then even back, you remember Paul Kulture, one of my favorite movies growing up was Terminator. Terminator was talking about Skynet and an AI whatever.

coming to destroy the world in 1984. 40 plus years ago, AI was in the movies that we all watch, like The Terminator, Arnold Schwarzenegger, everything. So AI is not new at all. What is new is the media getting a little more focused on it, let’s call it, the hype cycle. And if one thing we all know from media hype cycles is that the media is usually a little bit of a lagging indicator. It doesn’t catch on until something’s already been happening for a little bit. So that would tell me that AI is about to really take off in terms of commercial application, everyday use.

You know, true testament that it’s not just this business using it, but that your grandma use it or does your mom use it, you know, and that’s trying to become a little bit more prevalent. All right. So I think the first thing I would say is that AI is not new. The second thing would say, the more business application side here is that a lot of the media focus recently is on like the foundational layers of AI, right? The building blocks, the infrastructure of it, like with the companies you hear them talking about, but the real value and what we’re investing in, where the real true value going forward is going to be is the business applications.

you know, of taking AI and applying it to legal tech or to healthcare or to accounting professions or whatever, or even us researching companies as an investor group here, right? Like the true applications that it’s not the infrastructure is no different than, you know, like Al Gore famously invented the internet, right? But the internet itself, which is the infrastructure, if you will, the true takeoff was once people start building applications on top of the internet, right? Websites and you e-commerce, that kind of stuff. So I think we’re probably at that part of AI now we’re making that transition into the

Going from the internet to you know apps if you will or I guess apps for mobile but like websites if you will

Anthony Codispoti (40:33)
Like almost, cause I mean, lot of services now and software are, you know, they’re starting to integrate AI capabilities into what already existed. Do you, do you see a movement towards, I don’t even know what this would look like, like AI first? Um, yeah.

Vincent Hsieh (40:42)
That’s right.

Yeah. AI native, they call it. Yeah.

So if you look at our invest, you mentioned we invest in 59 companies. Just like the last decade, we went back like in our portfolio looked at what had AI and all that. A decade ago, we were investing in companies that had AI elements in their software offering. A decade ago. I don’t even know what we called it AI. We just said we’re investing in a company that does this with their software. And then you look at the trend, like 10 years ago, there was one. A few years ago, there was like a few a year.

Last year, every investment we did has some AI component, whether it be machine learning, could be lots of different types of elements of AI in the things we did with drone detection software, medical chatting software, patient engagement software, medical records retrieval, legal tech software, and Exit-in that was using AI to do stuff with legal documents and things like that. So almost everything we’ve done recently has some AI component or AI enablement in it. More recently, like recent recently, now,

We’re starting to invest in like AI native companies, meaning they started AI native, like from the beginning, they were built, you know, on a large language model, whatever in the AI world. Very similar to, um, you go back to like Facebook. So Facebook was built in a, a web based world. Like there were a web site. You went to facebook.com on your laptop or your desktop to engage with Facebook, whatever 20 years ago, you know, when they started Facebook.

And then like late 2000s, you know, let’s call it the post iPhone era or iPhone era tied in, you start moving to mobile and Facebook had to move to mobile. Facebook was not mobile native. Facebook was web native, if you will. And they had to go through some growing pains. They’d go acquire Instagram to develop some of the capabilities to become better at that. And now they’re, you know, most everyone interacts with Facebook on a mobile device. It’s Instagram, all that stuff. I think they own WhatsApp too or something, right? So all that’s in the mobile world.

So we’re starting to invest in companies that are more like Instagram than Facebook, where they started in a, let’s call it AI world, not started in a non-AI world and transitioned into it. And that’s definitely kind of intriguing for us. And it requires a lot of paradigm shifts in how we think about companies. One, they can be a lot more capital efficient because they need fewer people to do the job. You just have 10 people in QA. Now you have two people in QA, as an example. can grow companies faster. A lot of that plays into our playbook of we want capital efficient companies anyway.

One of our partners, Cliff Centel, was a entrepreneur in the healthcare space for many years and then exited his company to strategic acquire. He has a couple of patents in AI. At his company, he was like chief technology, chief strategy officer. So he spent a lot of time working on AI in the medical world. And so a lot of times when we get into kind of AI heavy things, he becomes our subject matter expert looking into that. And obviously to my early point about growth mindset, all of us at Cypress, Cliff included, are still learning about AI every day.

and make that a point as part of our data set to do what we can to learn more about what’s happening in that world.

Anthony Codispoti (43:37)
It’s we’ve talked about a lot of successes that you’ve experienced. ⁓ Very hardworking, very bright guy. ⁓ Sometimes we don’t talk enough about the mistakes and sometimes, you know, there are mistakes that seem like a mistake at the moment that end up becoming our greatest teachers. I’m wondering if there’s an early career moment that seemed like a setback to you, but actually propelled you forward in some.

Vincent Hsieh (44:03)
There’s, there’s probably two I could talk about one sort of professional, one sort of personal that led to a professional growth as well. ⁓ if you, if you don’t mind, I can probably talk about both. The one that comes to mind my first startup, ⁓ we talked about Atlas RFID. So Atlas RFID, there’s an inventory component. You got to buy RFID tags and RFID equipment, let’s call it. And then it gets installed at a manufacturing plant or construction site. And then the user software to go consume the information and do, you know, run their business. Like the main drivers, obviously the software.

Anthony Codispoti (44:11)
Absolutely.

Vincent Hsieh (44:32)
We need hardware to enable it. So I go back to the time we were talking about earlier, we landed a bunch of projects in like call it 07, 08. And as our first two years of business was great, we had all these projects ramped up hiring to like 50, 60 people to go deliver all the projects, all that. Then the 08 recession hit and all these companies turned down all these things. And guess who was left holding the bag with cash on all the inventory that we bought. Like I’m talking about millions of dollars of inventory that we have pre-bought in advance of delivering these projects.

The hardware is going to enable the software, but now there’s no software to deliver, so there’s no hardware to deliver. So we had all this hardware. And the mistake we made was buying way in advance. We should have done better in negotiating prepayments from the customers. We should have been better about negotiating payment terms with our vendors. But we were so excited by this. We’re like, this is great. We’ve got 13 projects. Let’s just go buy all the hardware. We’re all going to get delivered in the next six months anyway, all that kind of stuff. So that was a big mistake. Almost sank the business. We almost ran out of cash. We had to pay the vendors.

We haven’t got, we’re not getting paid at all in this case from the customers because they all canceled the projects. So massive layoffs we had to make, didn’t pay ourselves, you know, the co-founders for a long time, right? Cause we’re running out of cash. What do we do? So we said to one of our operations guy said, Hey, and hope maybe he’ll listen to this podcast. So here’s story here. And this is a great story here of personal growth and professional growth for Shane. Um, we said, Hey, why don’t you go sell this inventory on eBay? was back when eBay was a big thing. He had a better idea. This is an entrepreneur name, even though it was like probably 25 years old at the time.

Why don’t I go create a little website and I’ll sell an e-commerce site if you will and I’ll eliminate the middle man and we’ll make more money. I said, whatever you sell, give you 10 % of the profits. So he was motivated to sell at a higher price or keep more money, whatever. He started this site, started selling the excess inventory he had online. It became so successful that a few years down the road, it was the number one website in the world, I think. I don’t know if it’s still true, but in the world for selling third-party RFID stuff, almost a wholesaler of RFID stuff for marathons.

Anthony Codispoti (46:25)
And what was the advantage for

the customer to buy it from you guys through the second hand?

Vincent Hsieh (46:28)
wholesale pricing

essential. Well, initially we’re just trying to get rid of inventory at a lower than cost. Initially it was like almost like a consignment shop. Yeah. Initially it was cause like it was a hundred bucks. We were selling for 20 bucks or whatever to try to get rid of stuff, like to get some cash back, right? Initially, but eventually it was cause he became a wholesaler, right? It’s just a typical wholesale model. He got enough volume going that, you know, it worked, right? So eventually that company or that’s the online site that was just supposed to be a way to liquidate some inventory, turn to a business that we sold for

Anthony Codispoti (46:32)
Right. But why does the end customer end up buying from you rather than who you bought from your supplier?

Vincent Hsieh (46:58)
you know, call it 10 figures ⁓ to another investor that we use as growth capital to fund our core software business.

Anthony Codispoti (47:05)
Just wait just to make sure 10 figures or 10 million.

Vincent Hsieh (47:10)
Hold on, I’m this right. Sorry, eight figures. I said that wrong. I meant to eight figures. Yeah, I was trying to do the numbers in my head. Yes, you’re right, eight figures. So the point is…

Anthony Codispoti (47:13)
Eight figures, okay. Yeah, okay. So rather than throwing

in the towel, you guys were like, hey, let’s see what we can do with this.

Vincent Hsieh (47:23)
Let’s

go liquidate this and I’ll give kudos to the guy I’m talking about, Shane Armstrong, if he listens to this. His idea was don’t do it on eBay. Let’s go build our own site. And I said, fine, you go do it as long as you’re your own time. He built the site that turned into the scene that we sold to go capitalize, know, growth capital for our core software business and our success there. We didn’t have to talk about non-diluted capital. That’s our own capital. We built it ourselves and raised the money. So that was a great, like, sort of like

almost feeling almost out of business, out of cash, all that didn’t pay ourselves to like, Hey, here’s what propelled that forward. The other one I want to talk about that’s a little more personal is sort of personal growth to that also professional growth. So probably a decade ago or so my wife had a major medical issue kind of suddenly, long story short, we ended up the male clinic for like six weeks. And you can imagine like, I’m the husband and all that. This is 10 plus years ago, my kids were teenagers now are probably like, I don’t know, three, four, five years old at the time. So on the home front,

big struggle way to go to the Mayo Clinic and have lot rely on a big network of people in Dallas because we don’t have any family in Dallas to help with the kids, with food, all that kind of stuff. On the professional front, this is 10 plus years ago, still building GeoForce in this case, second company. At a very early stage, almost like the company was still a baby as well. And I had my hands in lots of different things. And what I learned from this whole trial, if you will, was both on the personal front of my kids and the family let’s call it.

In a professional front with GeoForce was the power of like trust and delegation and having other people stepping up to help you. And in the professional side, at least them helping to step up and do stuff actually drove a lot of the growth in the people in GeoForce. It’s a little bit like, you know, if dad’s doing everything, the kids won’t grow. But over time, the kids have to learn to make some of their own mistakes and grow from it. And that’s how they become better. And to my earlier point, they move on to better things after they even leave your company, if you will.

But I think that sort of forced a lot of stepping up, if you will, within the company, within the household, so to speak. My kids were young, but it drove a lot of growth for them as well, being more independent with mom and dad gone for six weeks, if you will, and not in a good spot in a hospital, surgery, all that kind of stuff. A little bit like I remember, like when I was the oldest, I left my family to go to college. My younger brother became a lot more responsible because now he was the oldest. The same thing happens in a company. If the older brother or the boss, whoever leaves, then they

the non bosses, so to speak, step up. So I think I learned a lot. That was a very difficult situation. Like my wife was in a bad spot, get male clinic, all that stuff. But it sort of forced in a very sudden moment, a lot of ⁓ learning how to delegate, learning how to like build, establish trust with other people knowing, hey, they actually, can do these things without you. Like, your son can’t walk without you holding their hand, kind of ideas.

Anthony Codispoti (50:12)
Yeah, you’re sort of letting ⁓ multiple people in your life kind of spread their wings and fly the coop, so to speak. I mean, your kids, obviously, they’re not actually leaving the nest, but yeah, they learn to become a little bit more ⁓ self, you know, ⁓ sustaining because, know, mom and dad aren’t there, you know, to rely on as much and you’re in again, sort of the same like making the family comparisons to like what happens in, you know, grown up adult life like

Vincent Hsieh (50:18)
Exactly.

Anthony Codispoti (50:38)
Yeah, in a business environment, you’ve got employees who are sort of looking to you like a sort of the, don’t know if the buffer is the right word, but sort of like the buck stops with you kind of a thing. And ⁓ well, we got a question. You know, there’s a problem. You know, Vince is going to help solve this. Well, now Vince is out of pocket and like, well, now I’ve got to be the guy. I’ve got to step up into that role. And it, forces people into uncomfortable places where, you know, I think that’s where a lot of the growth takes place.

Vincent Hsieh (50:58)
Exactly.

I’ve always remember someone saying to me a long time ago like a rubber brand like has is supposed to be stretchy and that’s how you grow right but you if you just keep the rubber band tight and doesn’t ever stretch a little bit it’s never gonna grow right never stretch that rubber band out a little further and so humans grow by stretching themselves

Anthony Codispoti (51:22)
I like that. And you know, it occurred to me that we sort of skipped over something here and I don’t think we actually explained what GeoForce did.

Vincent Hsieh (51:30)
Yeah, so GeoForce ⁓ provided GPS tracking solutions for tracking field equipment in industrial companies like oil and gas, construction, mining, logistics, airports. Anywhere we had like a lot of field equipment, think of like containers, baskets, generators, light towers, things you see on the side of the freeway at a construction site, things you see in the middle of ocean, like an oil rig, things you see on construction sites in remote areas, things you see at airports.

Things you see in mining sites, like all the equipment, the physical equipment, our proprietary GPS tracking devices were bolted onto this equipment and then used our software. Again, started actually web based in 2007 timeframe, but became mobile based to my earlier point about Facebook for tracking this equipment for operational efficiency, for dispatch, for service verification, for delivery verification, for getting things to the right place at the right time, all that kind of stuff. So in the operational world, but in the industrial tech world as well.

Anthony Codispoti (52:28)
As we were talking about sort of AI and the fact that it’s been around for a while and, you know, looking back at some of the investments you made and sort of, you know, tracking their progress from several years ago. I’m curious if there are other emerging trends that you’re noticing, whether they’re tech specific related or general business trends.

Vincent Hsieh (52:50)
Yeah, I would say that ⁓ there’s a general shift in I’m talking about tech companies now away from the coast. I shouldn’t say away from the coast. ⁓ Things are still happening on the coast towards the coast as well. So one statistic like a year or two ago, something like 85 % of investments or let’s call it venture capital growth equity type investments, or in three states, California, New York and Massachusetts, within California, Massachusetts assume

It was mostly kind of San Francisco, New York and Boston, like city or geography specific, not even the state specific. right. So 85 % to three states, meaning 15 % was in the other 47 states or other, you know, percentage of the population around the world or around the country. So in the last 10 or 20 years, I’ve been in a shift towards, you know, startups and, know, investors, things investing outside of the coast. Like what we’re doing, we’re investing in the Southeast, the Southwest, the Midwest, places where they tend to be more capital efficient because it’s cheaper to get businesses going.

places where the entrepreneurs themselves might have grown up in like, know, in the agriculture sector in the Midwest or the music industry in Nashville, or, you know, oil and gas in the South, right? Somewhere like, let’s say Texas, Louisiana. They’re actually closer to the sub being sub-germany experts than someone growing from Silicon Valley in New York or Boston. If you’re in certain industries, if you want to be in FinTech, yeah, maybe you want to be in entertainment. Yeah, LA of course, you know, or now entertainment’s elsewhere as well. But we actually think that not only the more capital efficient,

in some ways they’re actually better suited to start companies. Because again, if you’re gonna start ag tech, who better than someone who grew up as a rancher in Wyoming and now lives in Kansas City or wherever. If you’re be a music tech company, why wouldn’t you invest in one that’s in Nashville versus one that’s in San Francisco or Silicon Valley down the road or something? So we actually think those companies are better at doing the things and they also tend to be able to attract people who want better quality of life, cheaper quality of life if you will at a high level, than living in the Bay Area, living in New York or whatever.

And so you can attract more, let’s call it talent, know, salespeople, software people, operations people to do the job. So I think a big shift in the industry is like this move towards the, the, the non-coastal markets for building tech companies and growing them. And the entrepreneurs are there now, the tech, the tech investors are starting to get there. You know, we’ve been doing for 15 years, but people are starting to get into this industry as well in these spaces. Um, it’s starting to accelerate quite a bit. And I think that’s something, if you want to be successful as an investor or an entrepreneur,

to think long and hard about, I need to really be in Silicon Valley to do that? Maybe I could be somewhere else on both the startup and the investing side.

Anthony Codispoti (55:22)
Vince, do you traditionally find a lot of competition in the deals that you guys are interested in with other investors? And if so, do you find less competition when you’re targeting companies that are in the South and Southeast because maybe they’re not getting as many eyeballs?

Vincent Hsieh (55:38)
That so we don’t even look at companies in California and New York and Massachusetts. We just don’t even we just don’t even waste. I don’t say waste time. We don’t even invest any time looking into those. So we don’t ever compete with people who trying to raise money in Silicon Valley. ⁓ We don’t want to talk to companies that like are not very capital efficient. They need to spend a million dollars a month a burn on software engineers. They want to see you have Bono with their Christmas party because that’s what you do in Silicon Valley. We want them to spend the money building the company, building the product, building customer base, all that kind of stuff. In of your question on competition.

We have competition, of course, like anybody does, anyone who says they don’t is lying, obviously, right? But it tends to be little less because people invest in the seed stage before us quite a bit. This is people who might write checks of like a few hundred thousand to a million bucks to companies that are pre-revenue or very limited revenue. There’s lots of people who do that at the early stage. There’s lots of companies that write like $10 million plus checks and the companies are 10 million plus in revenue. To my earlier analogy, write checks to teenagers or write checks to babies.

Right too small for us too big for us But that sweet spot we have is like to use the kid analogy five to ten year old kid Companies are like five to ten million in revenue They only want to raise a couple million bucks because they know they can use it very efficiently to my earlier point about they know their model words They have product market fit is the a little bit more capital to go accelerate things in a certain direction, right? So they’re in that sweet spot where like the bigger firms only want to write bigger checks in a bigger companies The C stage guys want to write smaller checks in the smaller companies

There’s sort of a chasm that’s existed for 15 years that we’re trying to fill, where the companies that are a few million plus in revenue want to raise just a few million bucks in capital. That’s where we play. So our combination tends to be like the bigger companies want to write bigger checks, and entrepreneurs are I’m not quite sure I would spend 10 million. I only want to raise 3 million. Or the C-stage investors want to write a half a million dollar check, and that’s not really going to move the needle for me. I need a few million. So we’re sort of in that middle there, and we do it in this non-dilutive fashion that’s pretty unique.

So usually our competition is like, I could go raise bigger equity or I could do Cypress. Like when I was taking money from Cypress, my other options were six term sheets from equity, right? And $10 million plus checks. We ended up doing $5 million from Cypress, right? And then eventually doing equity down the road. So a lot of times our competition is an equity firm and they’ll say no to that. They’ll use Cypress. They’ll use Cypress to grow from like $5 million to like $12 million revenue. And then they’ll go raise big equity from someone, right? So.

That’s what our competition usually is. Usually an equity firm running a bigger check or they cobble together like some friends and family money or C stage type investments. But the key word there is they have to cobble it together, which is kind of a one stop shop with that.

Anthony Codispoti (58:11)
So you’re typically

not bumping up against other royalty-based financers. It’s still a very ⁓ unusual model.

Vincent Hsieh (58:15)
No. No.

That’s right.

Anthony Codispoti (58:21)
⁓ Vince, if you had to recommend a particular resource, a course, a podcast, a book that you think would be really instructive to ⁓ founders of young companies, what would that be?

Vincent Hsieh (58:36)
Have you heard of the five dysfunctions of a team from Patrick Lincione? Sure. So it’s like a parable, it’s written like a parable, and Patrick Lincione is like a management consultant, written a bunch of books. It talks about the five dysfunctions of a team. So earlier we said that starting a company might be individual sport.

Anthony Codispoti (58:40)
I’m not.

Vincent Hsieh (58:53)
If you’re to scale a company in a meaningful way, it becomes a team sport. You have to have a team around you. you know, in sports, people care about like team building and is that good as a team player, all that stuff. Well, same thing in business, business, like a sport, you’re trying to, you’re trying to win. So you’re trying to grow, trying to win a championship or whatever. Right. And so five disfunction of the team talks about the common disfunctions within a team around like, you know, not being candid enough with each other to collaboration in terms of collaborating and feedback, things like that as as a very pointed one.

And I think that’s one that everybody should read and understand. It’s a very short book. It probably takes like, I don’t know, 45 minutes to read in one sitting. Again, written like a parable, not a textbook. It’s like telling a story, a fictional story of a company and all that. Every team, I would say, suffers from at least one, if not all five of the dysfunctions. So the better you can get at overcoming those and becoming a better well-oiled team, the better you will perform as a company. Because ultimately, the company will only grow as fast as the team grows.

And more specifically, as fast as the leadership team can grow, that everyone else follows.

Anthony Codispoti (59:53)
I have to put that one on my reading list that hasn’t hit my radar before. Vince, I’ve just got one more question for you. But before I ask it, I want to do two things. First, I’m going to invite all of our listeners to go ahead and hit the follow button on your favorite podcast app. We’ve had a great interview today with Vince Shea from Cypress, and you want to continue to get more wonderful interviews like this. Vince, I also want to let people know the best way to either get in touch with you or Cypress or to follow your story directly. What would that

Vincent Hsieh (1:00:20)
So Cypress, we’re on cypressgrowthcapital.com. So Cypress like the tree, like every investment firm is a tree or a number or something, right? Cypressgrowthcapital.com is our website. To get in touch with me directly, the best way to find me is LinkedIn, Vincent Shea, H-S-I-E-H. I’ll respond to the LinkedIn message as long as you actually type a real message, not just a connection request.

kind of explain like, hey, why you think we would benefit kind of mutually, mutually benefit from connecting. And I like to set up an actual call with the person before I connect with them. So actually, you know the person I connect with on LinkedIn. It’s probably the best way to reach out to me.

Anthony Codispoti (1:01:00)
That’s great. We’ll include links to both your LinkedIn profile and your website in the show notes. But last question for you Vince, let’s say you and I stay in touch and we reconnect in a year from now and you’re celebrating one thing. What’s that one thing?

Vincent Hsieh (1:01:15)
So the one thing to celebrate besides obviously my son graduating from high school, which is supposed to be happening almost exactly a year from now, ⁓ is ⁓ we at Cypress are now launching a growth equity fund. So earlier I mentioned that we invested this like kind of, know, five to 10 year old kid or five to 10 million in our revenue stage. Many of our companies, we mentioned 35 exits.

Many of them exit us to a growth equity round where like we invested, say $5 million to help accelerate them from 5 million to 15 million revenue. Now that there’s next stage and they want to raise 10 million plus to kind of do even more acceleration on different aspects. Oftentimes they go somewhere else to go do that because we don’t have that kind of fun. We’re in the middle of raising a fund that will be those types of checks and those types of companies. Very similar profile to what we’re doing now, know, capital efficient, B2B software, tech enabled services type companies, not on the coast.

really good entrepreneurs, they’re just at the next stage of growth. So right now we’re their elementary school teacher, we would like to also now be their middle school or high school teacher, if you will. So we’re launching this growth equity fund later this year. So a year from now when we talk, hopefully we’re talking about our first few investments out of that fund. Really exciting time for Cypress as we’re growing in that direction into larger checks into larger companies. So that’s something we would really love to be celebrating here.

Anthony Codispoti (1:02:32)
And so that new fund

will be structured more like a traditional ⁓ equity investment as opposed to the model that you guys use now.

Vincent Hsieh (1:02:36)
That’s right. At that

point, they can afford it and they’re bigger, right? We’ve helped them use a non-deleted mechanism to get from, five-ish to like 10-ish, 20 million-ish in revenue. Now they can, I won’t say afford, but it’s definitely a little more palatable when you’re a little bigger and you have a lot more growth ahead you still.

Anthony Codispoti (1:02:57)
Vincent Shea from Cypress Growth Capital. want to be the first to thank you for sharing both your time and your story with us today. I really appreciate it.

Vincent Hsieh (1:03:05)
I enjoyed it. Thanks a lot, Anthony.

Anthony Codispoti (1:03:07)
Folks, that’s a wrap on another episode of the Inspired Stories podcast. Thanks for learning with us today.