Okay, so we should be good to go now. Okay. Rolling. Please do a clap for me.
Awesome. This helps us in syncing the audio and video later on, in case there's any gaps. Awesome. So hey, Seth. Welcome to the show. Appreciate the time. How are you doing today?
Seth Yakatan (00:19.436)
Seth Yakatan (00:23.39)
It just went out on me. Okay.
Can you hear me?
Seth Yakatan (00:30.058)
I got you now. Yeah, you just went a little fuzzy when we started. So looks like we had a Looks like you had a Wi-Fi spike. No problem. Before we get started, how do I pronounce your first name?
Okay, let me do it again. Yeah, let me do it again.
Give it a try, and I'll tell you if that's... So you know Spanish, I think. So it's a silent D, the way that Spanish is pronounced, so it's mudacer. Yeah, perfectly fine. Okay, awesome. So, hey Seth, welcome to the show. How are you doing today?
Seth Yakatan (00:43.818)
Seth Yakatan (00:56.489)
Seth Yakatan (01:03.626)
I'm great, thank you. Thanks for asking.
Amazing. So I usually, whoever the guest is on the show, so I usually begin with the context of their life. Because I think we just look to all the successes and whoever we are today, but there's so much more history, there's so much more that has happened in the past that kind of shape whoever we are today. So give us the earliest context of your life that you can remember. And how did you become whoever you are today?
Seth Yakatan (01:19.542)
Seth Yakatan (01:25.814)
Seth Yakatan (01:36.238)
I don't know that we have enough time for that, quite honestly. But what I like to tell people is that I'm a dumb corporate finance guy. I didn't go to an Ivy League school, and I didn't work for Goldman Sachs. But I apparently know what most of those people know. My story is pretty simple. It's just a lot of hard work and failure. My dad was an orphan.
He grew up in an orphanage until he was about 14 or 15 years old. He was then a criminal for a couple of years And he became a great salesperson and he used his sales abilities to really Put himself in a position to become a fairly successful serial entrepreneur in the biotech industry and was kind of in the right place at the right time a few times and Sold a company or two and became a VC
So, you know, my world as a child was watching someone work constantly. And I think I had my first job when I was nine years old. And I don't think I've ever had less than two jobs. So my path was a little bit different. I knew.
There seems to be a lot of pressure in society in understanding what you're going to quote, do what you're going to quote become. For a lot of people, I'm not sure they ever know what they're going to do. For me, that was very obvious that I was going to be doing exactly this what I'm doing now. And I knew that when I was 16 or 17 years old. So, I went to college. I
worked for a patent attorney for a few years. It gave me a good kind of fundamental training and understanding technology. I went to work for several years for a very large venture capital fund in California. I then went back to school and got an MBA in finance and statistics at UC Irvine. And I then went to work for what is now US Bank, what was then Union Bank of California, inside of a group, inside of the bank where we actively invested $5 billion.
Seth Yakatan (04:03.578)
into private equity transactions. So from that kind of 10, 12 year run, maybe 13 year run, I really kind of understood how to invest in companies from an early stage to get a liquidity event and then once you have a quote you know quotes private equity platform, how to then stack things on to that and build them.
And not only that, I think I really understood how to model the layers of returns for each of those different investor bases, understand what the constraints and requirements of those investor bases. Because of my time at the bank, I really understood how, for lack of a better description, different classes of investors or different classes of creditors are going to enmesh to look at an asset.
Seth Yakatan (05:02.03)
good, classic, fundamental training around capital markets. I then went in 2001 and founded a firm called Kate & Associates, which is still around today, which is an advisory firm, really focused on more life sciences than anything else. So we do therapeutics, diagnostics, devices, research products, human health and wellness there. Somehow, and I don't know how I got involved in
in cannabis from a pharmaceutical perspective in 2012. That shifted into me being involved in cannabis in a recreational perspective, starting really in 2019. And I've also gotten involved in 2017, 2018 in the direct consumer marketing space. Several of the products that we span can be sold on the internet and a couple of the companies that we're involved with.
do that very well.
That's a very great intro, I would say. You mentioned a couple of things that you kind of honed in the process of investing early on, taking that company to exits, potentially IPA or PX or something like that. In your experience of all the companies that you've seen making those big exits, what's the common denominator? What companies make it there and which companies make it, which companies don't?
Seth Yakatan (06:46.794)
I think I need to answer your question with more of a question.
Seth Yakatan (06:52.738)
So the through line for most of the companies that I've seen that get to a liquidity event
Seth Yakatan (07:02.102)
whether that's a trade sale or an IPO, is usually timing and some form of product market fit. Are you going to the market at the right time and does the market, a buyer, a seller, or investor have demand for what you're selling? It really doesn't matter how good it is, to be quite honest with you. So the through line, most of it is
Seth Yakatan (07:32.006)
have you just hit the timing right and is there demand for it? And then who are the people that are involved on both sides and they can they get a transaction done?
The second part of that question is, I think, what are the elements of success post that event? And that's a whole different set of variables. So, if you're a private or if you're a company that's undertaking an M&A and you're selling to someone else, there's a lot of factors that could handle success. What's the performance level of your company?
What's the integration like? What does the buyer do with you? I'm sure you've heard of numerous stories where X bought Y and they destroyed Y by buying it. Some of it also has to do with what the broader markets do. If you look at the biotech equity capital markets now and the cannabis equity capital markets now, it doesn't matter how good you are or what you're doing. Your value is depressed by 50% to 75%.
Some of it just has to do with luck and timing, I think, more than anything. And it's kind of, I kind of alluded to it before. I think a lot of the process, which we talked about before we came on, is that people have to accept the fact that it's repeated blunt force trauma to get to market. It's repeated blunt force trauma to have an exit.
How many Tom Cruises are there? Three? Well, maybe you got Tom Cruise, you got Harrison Ford, and I don't know, pick a third. When you hear about the young people that are 30, and well, I had my first exit and everything worked out, that's the Tom Cruise kind of situation. They don't happen all the time. For every company like that, and for every Tom Cruise, I live in Los Angeles, there's thousands of people that are waiting tables and living check to check.
Thanks for listening.
Seth Yakatan (09:44.694)
So not every company works. Not every company works.
So to just rewind it back, it is like, timing is pretty important. Some kind of a market where that's pretty important. It's like, it takes multiple iterations. It's not like you did something, yeah, maybe once in a while some company will hit it off. They'll just go and have a very good liquidity event. But it's not like, that's not going to happen for everybody, right? You mentioned something interesting, which is, even if you're good, even if the idea is good, the execution is good, and you're in
Fortunately or unfortunately, biotech space and cannabis space, your value has been depressed by 50%, if not more. I think there's like more than 50%. Like why do you think so? Like why that is happening?
Seth Yakatan (10:39.914)
Markets are cyclical. I'm 53 years old. I've been observing the US equity capital markets for 20 years. You've probably had three or four cycles. In biotech, you've probably had five to eight cycles. And it just goes like a sine wave. Things go up and things go down.
Seth Yakatan (11:08.73)
why there's been a broad sell-off in cannabis since the third or fourth quarter of last year. I can't tell you, cannabis is not an exceptionally liquid public equity capital market. I've articulated that on several other conversations that I've had. When safe banking did not pass at the end of Q3, early Q4 last year, you saw a 50 to 80% reduction in public equity.
valuations for no reason. If you look at the results of CuraLeave, TruLeave, and GTI and a company that I'm involved with in California called Glasshouse last week, the numbers are pretty good. So cannabis equities do not unfortunately behave like large cap market stocks. I can't tell you why Biotech has had the sell-off that it has. I don't know.
Biotech seems to go in cycles, and we seem to be in a down market cycle. I think it probably has to do with the fact that companies aren't necessarily quote working the way people want them to do. And I think the biotech equity capital model is very challenged and has been very challenged in the last 10 to 15 years because you have a large number of early stage venture funds.
that have amassed an incredible amount of capital and are starting companies at a very, very early stage with a lot more capital than ever. In the early 90s, if I licensed a drug from a university and it was at the very inception of clinical development, you'd maybe get four, six, $10 million to get that to an IND. Now you have people like Third Rob.
and flagship that are throwing $100 or $200 million in a company at the same stage. And I think that model in which the investor community has raised an incredible amount of capital requires that they deploy a large amount of capital. And I think it's probably been harder for them to get exits as the number of seats in the Titanic are dwindling.
Seth Yakatan (13:37.407)
I don't have a better explanation for you as to why, you know, biotech equities are trading at the level that they are. I think there's a decent amount of public investor fatigue there. So.
Yeah, yeah. Okay. Coming back to more amateur stuff, so to speak, I think like, you know, when the team were doing some research, we came across a very interesting, you know, set of figures that was something like you sold 22 companies, bought, I think, 11 of them or 10 of them, and then you started like probably 15 of them. So before I come to them, how many did you fail actually in between all these?
Seth Yakatan (14:01.326)
Thanks for watching.
Seth Yakatan (14:23.95)
10 times that, five times that. You know, I've run a practice where I professionally invested for a long time. We've been advisors for a long time and I've been principals for a long time. So when I worked at Union Bank, there were 13 investment professionals in that institution. And at any point in time, each of us was probably working on about six deals.
Seth Yakatan (14:54.814)
In that environment, we funded a company a week every week for the nine years that I was there. So, my personal capacity to take things on is that I have to have a lot of them going. I would probably say that I've personally, in the projects that I've taken on, had about a 60% success
Seth Yakatan (15:24.758)
you know, maybe my failure rate is lower, but...
Seth Yakatan (15:32.006)
I seem to be able to find a through line, and I seem to be able to take things on that fit into a box that I think I can get done. But the failure is massive. And I think honestly, to be candid, it's only...
the complete and total mind-numbing, embarrassing failures that I've had, and there have been several of them, that have informed the successes.
What do you learn from them?
Seth Yakatan (16:19.106)
For me, the through line for things is very, very simple. I told you, I'm a dumb person. I'm not that smart. I didn't go to Harvard. So.
For me, the through line in what I've learned is rather simple. It's under promise and over deliver.
It's allow, don't force.
Seth Yakatan (16:52.718)
And you never know what's going to happen, so take the meeting.
Like always, like be open to those meetings all the time. Right? You never know, right? Yeah. Okay.
Seth Yakatan (17:11.586)
Being involved in companies is like falling in love. You just don't know how it's going to happen. But sometimes it happens.
Yeah. It kind of becomes a volume game at some point. It's like you start as many, and then you learn with the passage of time. Yeah, go ahead, please.
Seth Yakatan (17:29.622)
There's screening involved. I mean, you certainly have to screen some things, but I'll probably take, and it drives my team crazy, I'll probably take 25 or 30 cold meetings a week, every week. After our podcast today, I'm literally on 15 minute back-to-backs till 4.30 this afternoon with a bunch of people I've never really talked to before.
Seth Yakatan (18:04.407)
Seth Yakatan (18:08.674)
Thank you, muted.
Yeah, sorry about that. Yeah, so just mute just to avoid overlap, because I'm not cutting you off.
Seth Yakatan (18:12.43)
You were there for like nine years in Union Bank. You did like institutional investment. You were like an investor for a lot of the time after that as well. When you invest in any particular startup, what is your criteria? What do you look for? Beyond the certain, it's like, yeah, okay, the founder, multiple time entrepreneur, cool, okay, good product, okay, cool. Can they execute? Yes, they can. What exactly do you look for apart from the obvious?
Seth Yakatan (19:01.118)
Is the person who's in charge committed to this fully, completely? Is there a side hustle? Is there extenuating familial circumstances which is going to inhibit their time? Is their LinkedIn profile say that they're the CEO of the company? Usually,
one of the most rate limiting factors for me, just given how I'm oriented, is I'm doing nine things at once. If I'm investing into a company and you're the CEO of that company, that better be the only thing that you're doing. Because being the CEO, and I've been CEO of three companies and I hate it, it's like raising six children. It's just, it's a completely full-time, thankless, hateful job that...
you better be committed to. So that's one thing.
Seth Yakatan (20:05.25)
A factor overweight for me in most situations is your money down on the table as well. Even if it's nominal. Do you have some level of skin in the game?
Seth Yakatan (20:21.026)
that I'm involved in two or three companies that are rather successful, that are led by very strong CEO chairman, and those two CEO chairman pretty much write a 20 to 25, and they can, a 20 to 25% check into any financing that either of the companies do. That's a pretty strong signal.
Seth Yakatan (20:51.742)
coming pari-passu with me, that's another thing. And I have to like it. I have to like the people. At this point, the biggest commodity that you have is time. I'm very selective about how I choose to invest it. And I'm not gonna work with people that I don't enjoy like, or just too difficult.
Okay, that makes all the sense. Do you think, do you guys invest like really early on? Or you just wait for like maybe it's a pre-seed, maybe it's like a CDCA.
Seth Yakatan (21:32.786)
Honestly, personally, I don't do a lot of investing. I'm really not a good investor. Most of the investments that I've made have sucked, to be quite honest with you. So if I personally invest in the company, it's usually not a great signal. What I tend to invest more in is yield-oriented transactions. So some type of...
some type of debt instrument or some type of instrument that gives me a current cash coupon, either on a secured basis or otherwise. I invested a decent amount of money in three of the therapeutics companies that we did. Those turned out okay. I was in management for two of them. One of them didn't turn out as well as I wanted them to.
There's one or two groups that I will personally invest with who are doing companies and have been very, very successful. There's one that's doing a public offering now for themselves that I will invest in because every deal that I've invested in with them is a four to six bagger. So I'm kind of taking the pain out of it.
You know, the three or four early stage companies that I've invested the most money in have all failed. The most recent was I wrote maybe a quarter of a million dollar check, which for me is a very meaningful. It's a big, it's like it's a lot of money check into a synthetic biocatalysis system for cannabinoids. And we could never get it to work. Not even close.
We whiteboarded it, we breadboarded it, it was great. We did it in a simple scale. We tried to scale it up, you couldn't scale it. So, as you can see on the wall behind me, I like cars, I'm a much better investor in cars than I am in companies. So...
Seth Yakatan (23:47.338)
I don't know if that answers your question, but.
Okay. No, it does, it does. I was under the impression that, you know, through your current company, Catan Associates, you guys are making a whole lot of investment. Like that was the impression that I had.
Seth Yakatan (24:01.578)
Well, that's I mean, I own equity in a lot of companies and I own equity in a lot of companies in a lot of different ways. So, you know, we actively advise three funds in cannabis. I actively advise another 10 family offices in cannabis. You know, my model there is that I have a piece of the fund and, you know, I have a piece of I'm not going to say every investment, but a lot of the investments that the investors make. So a lot of times what I will do.
Seth Yakatan (24:31.666)
is I'll follow someone who's much, much bigger than me. So through that network as well, I've been able to.
That's why it's here.
Seth Yakatan (24:45.678)
claw equity into a lot of companies through a variety of different mechanisms. So, you know, my ownership portfolio of companies is probably...
Seth Yakatan (25:00.438)
18, I probably have an equity in 18 companies at this point and not of it is all through, you know, some of it's worthless, right? So, you know, it's a great, it's a great number. So the other thing is that, you know, I facilitated a lot, so of the 22 companies that I've sold, you know, most every one of those was a transaction that I helped an entrepreneur to facilitate, right? So it
They just have to be. Yeah, they just have to be. Some of them have to be.
Seth Yakatan (25:30.234)
In those instances, I've also been able to figure out ways to remain in the game by maybe be trading equity for services or by saying, hey, I've helped you facilitate this. Why don't we leave some money behind to invest in things in the future? One of the things that I have done very successfully, and I almost got killed by my partner for
The first two sell-side M&A transactions that we did as Catan were in the early 2000s, and the aggregate total transaction size across those two deals was about $21 million. So let's just say our fee was three points, so it's $600,000. And one of them was a single entrepreneur who we had a major liquidity event for. And what I did was I left.
about 25% of our fee behind with the investor, because what I wanted is I said, I'm gonna put down my money now as a future call option for you to match. So I'm gonna call you one day and I'm gonna say, we're investing in this company right here, right now. Send me my money and send me your money. So over the years, that's worked really well as a callable syndication feature for me.
And I've been able to leverage that into a lot of money For the right situation. So that's a something else I've done
That's like the first time that I've heard that in my life and that I like that a lot, yeah. Okay, so we do have, as I mentioned before the call, we do have this audience. Most of them are aspiring entrepreneurs. Some of them are like first-time founders. Some of them are like second-time founders, but they failed the first-time company that they built. So what we do is before the podcast, we just like run.
like who's coming onto the platform, and in case you guys have any questions for us. So there's tons of questions, but we just meant to pick the few top, top ones, okay? So the first question that we have for you is, after starting 15 companies, and then you obviously learned a lot, and then you recently, you also mentioned that you started, I think, DTC brands. So if you were to start one DTC brand today, which is not cannabis,
and one tech startup today, which again is not biotech, how would you start them? Knowing what you know now, like okay, so I'll do this thing, this thing, this thing, and I know this is how I'm gonna take it, I'm gonna grow it, so yeah.
Seth Yakatan (28:21.84)
So for the D to C startup, what I would do, and it goes back to one of my lessons about allowing rather than forcing, I would figure out a way to build community.
And I would use that community to tell me what they wanted. And then I would create a product based upon what they wanted. Now, that doesn't sound like a business. Remember, it might not be. There's a girl that I work with out of Brazil who has a company called Nowadays. And she's a cultural activist for
human rights and gender equality and the legalization of cannabis in Brazil. And she has a community of 100,000 followers on Instagram and other socials.
So we built a product for that community. She's built community. She said, these people keep asking me for things. So we started to do limited drops and the community created the product. But I think the most important thing that you can do now is build community because my opinions of
Seth Yakatan (29:44.77)
the commercial streams that have come out of social media are not probably popular because I don't think they're sustainable. So that's probably what I would do on the DTC side.
Seth Yakatan (30:03.19)
I don't know that I have a great idea on the tech side. Honestly, I...
I think there's a lot of opportunity in logistics.
Mm-hmm. Yeah, suppose you just happen to start one, like any startup, doesn't really need to be your idea. Just assume that you have a great idea, but what's the process going to look like? Like you mentioned for DTC, you're not going to just go start a product and just start spending marketing spend on that. You're much more like, OK, let me build a community first. Let me hit the pin point. OK, that's the pin point. That's the community. Let's launch a product for them.
Seth Yakatan (30:15.895)
there seems to be.
So that's a process, right? How would you do that in tech?
Seth Yakatan (30:53.294)
I think I'd probably have to go to the highest level of unmet need. In tech, and I've been not going to profess to be a software expert or a SaaS expert, but much like in biotech, I see 17 companies that are all trying to do the same thing. So, you know, as an example, if we just look at tech in cannabis for a moment.
Seth Yakatan (31:22.97)
There's probably 18 point of sale inventory management systems, Dutchie and Trees and Surfside are probably like maybe the three biggest. But they're all doing the exact same thing. So I think if I'm going to do something in tech, I really want to be way out there.
and doing something that no one else is doing because as a classically trained fundamental analyst, what I wanna do with every single company is I wanna put you in a comparable box. And if I can't put you in a comparable box, that's either a hard no or that makes me look harder. One of the two, it's either I'm gonna be like, you're done or yes, let's go there. And I think in tech, not making a clone,
and having something be extremely unique and extremely differentiated is probably where I would begin and I would look at what you talked about before. What's the pain point and how you solve it. Going back to the DTC, remember the difference between forcing and allowing is I'm not trying to find a pain point.
I'm creating a community and that community is so bought into what I'm doing, they're going to tell me what they want. It's a Jedi mind trick. I'm going to sell you something and you're not even going to know I'm selling you something because you're going to tell me that you want me to sell it to you.
How are you gonna do that?
Seth Yakatan (32:58.102)
Well, that's the trick, but that's that I can't give away for free. It's taken me 35 years to do that. I'm going to give everybody on your podcast a freebie.
Let's do it.
Seth Yakatan (33:15.054)
get the order. My second year of grad, the whole reason that I went to graduate school was to get a job working in an investment bank on Wall Street. That was the only reason. By my second year, I had two firm job offers in hand. So I went there with one mission, and it was to get a job. The second half of my senior year,
I was not, or the second half of my second year of grad school, I was not well liked because I was not a good interviewer. I was extremely arrogant. I was extremely pushy. I was extremely demanding. I was forcing. And what I was doing was I was going on as many job interviews as I could that were offered by the university because I wanted to get every job offer.
I wanted to get jobs. I wanted to get written offer letters for jobs that I had no intention of taking.
So by the end of that year, in addition to the two standing job offers that I walked in with, I had another eight job offers in writing. So I had a total of ten job offers.
But why? Like why? Why accumulate all those?
Seth Yakatan (34:32.29)
Well, it gets back to the point of starting the company.
Seth Yakatan (34:38.154)
you need to understand how to ask for the order and how to get the offer. You need to understand how to do that. You need to understand how to have that level of drive because it's going to take. Because once you understand how to pitch one investor and get success, just like getting a job offer, you're probably going to understand how to pitch another investor and pitch another investor. So getting back to the Jedi mind trick,
I'm going to get what I want from you, and I'm not even going to ask you for it, and you're not even going to know that I'm asking you for it. You're just going to give it to me. So I became so good at interviewing, so good that I could walk into an interview and come out of it, and pretty much with 60% or 70% precision, understand, am I going to get that? Am I going to get that offer? And it's understanding that interplay that I think is a huge differentiator in.
my personal success and failure, quite honestly.
Okay, awesome, thank you for sharing that. The next one is kind of a funny one. So this is coming from a founder who recently had an exit. $12 million exit, okay. He asked not to say the name. Yeah, and the question is like, should we always have an exit in mind when we start a business? Because he's been told to do so. What about if it's a...
Seth Yakatan (35:56.782)
Okay. Call me.
bootstrap business. Like why, like people need to have an exit in mind all the time.
Seth Yakatan (36:18.614)
I don't think you have to have an exit in mind all the time. I think it depends what your agenda and expectation is. There seems to be a lot of pressure in the entrepreneurial and investment community to continually go up and to the right. Constant eternal growth. It's what they, if you ever taken, corporate finance 101, growth is an infinite assumption. So,
I think as a species of entrepreneurs, you've collectively been conditioned to believe that you need to get an exit. There's rules. Part of the rules is that an investor is going to require a return. In the early stage venture, because you don't have any physical asset to collateralize, that return usually has to be an exit.
I certainly think it's acceptable in the context of the question that you could go start a lifestyle business and be very, very happy doing that. There's no reason that you have to exit it. In some instances, that liquidity event can buy some level of freedom or some level of benefit sometimes for generations. So I think the...
the rules of the game have constrained our thinking that you must have an exit. And at the earliest stage, I think that's the quid pro quo for capital.
Okay, the next one is, so you've been on the both side of the M&A table, the merge and acquisition. What mistakes do startups commonly make when negotiating acquisition deals? And how can they avoid making the same mistakes over and over again?
Seth Yakatan (38:20.53)
One of the biggest problems that I see in most companies across the spectrum of anyone that I I'm with is What I call valuation inflation If I talk to 30 companies in a week Doesn't really matter what the market is. I would say that 60% of the CEOs don't believe that they're valued correctly Okay so
You know, I think the very first thing that you can do in a buy or a sell side M&A, and I think we're really kind of focusing on the sellers here, is do your research and do your due diligence and talk to several people to find out what you think market will bear. I'm a car guy, right? What I think my car is worth may not be market.
There's research that I can do very, very simply. There's a bunch of auctions going on right now in Pebble Beach. I can tell you by the end of today what market is for a matching numbers, 1953, 356. I can tell you what market is. You can get the same kind of information for companies. So I'd say the first thing is, modulate your expectations relative to what market is. That's probably the very first thing that you can do because most, 60 to 80% of the people are gonna be
greater than market. I think the second thing is to get yourself a sherpa, whether that is someone like me or an investment banker or someone on your board or a lawyer or an accountant or someone in your universe that's had an exit. Get a sherpa. Because selling a company.
is really unlike any other transaction I've ever done. It's not easy and it's also not, it doesn't end when the transaction ends. So the way that the contract law has shaped up around me buying a company is that you're gonna be responsible as the seller for most of the things that go wrong ever in the future in the company or at least for a period of time. And that's not a concept that
Seth Yakatan (40:43.118)
plays into selling a house or selling a car or selling any other asset. It's kind of like if you own a piece of property that you had a gas station on, and for years you're responsible for whatever comes out of there, that kind of exists in contract law for companies. So I think the second most important thing you can do is have someone on-site that you trust that knows how the process works and can...
say to you, well, this is posturing from the other side or this is market from the other side. So I think those two things are probably the most valuable. Understanding what's the bid-ask spread between what you think you're worth and what market is and have someone on your team that you trust that has done it two or three times before because it's not, it's just not a simple process. Yeah.
Easy. Yeah, this is complicated. Yeah, totally agree to that. Next one is, what are the pros and cons of bootstrapping versus taking VC money early on? What's the right time for each?
Seth Yakatan (42:00.814)
Well, I think the pros of bootstrapping are that you have a lot of freedom, you probably don't have any constraints and you're able to most likely be very flexible in your design. You know, I think the cons of bootstrapping are that if you're successful, you're probably growing quicker than you have the human capacity to scale.
or the capital to be able to scale. So I think if bootstrapping can inhibit scale.
Seth Yakatan (42:45.245)
Seth Yakatan (42:49.206)
Anytime you take other people's money or OPM, you're working for somebody else. It doesn't really matter how you wanna trade that. There's very, 30% of the cases that I've seen in an early stage deal do founders not have a lot of control or adult supervision. 70% of those deals, usually the VC has put the money in and it's the VC's company, whether you wanna believe that or not.
Seth Yakatan (43:21.294)
investors are not friendly in terms of generating their return. They've worked their butt off to get a deck chair on the Titanic, and they are going to do whatever they can to preserve their seat in that deck chair once they've gotten into a fund. It's very rare that someone becomes, again, empirically test me, it's very rare that someone becomes a partner level person in a VC and they leave.
have a falling out or they start their own fund or they decide like they need to go live in a tree or something but once you've achieved that level you're not going anywhere so
Yeah, you stay there. Yep.
Okay, that's helpful. Do you think, that's a question you know, personally adding on top of that. Do you think most companies, or like some companies, they raise money without knowing should they raise money or not?
Seth Yakatan (44:19.662)
Right? But why do you think so?
Seth Yakatan (44:23.063)
It goes back to the whole thing of timing.
When I was a banker and I was investing money into companies and I was actively advising those companies, I used to tell people to strike while the iron is hot, take as much money as you possibly can at the best pricing, because you never know when the spigot's going to turn off. So, I do think that there are plenty of companies who take money because it's there. And sometimes that works and sometimes it doesn't.
Seth Yakatan (45:01.986)
I think sometimes taking money when it's there.
allows companies to fail in a way that they can't fail when they're bootstrapped and the converse is true as well. And so I've seen several companies in the last six, eight years, several of which are specifically in cannabis that have successfully raised a lot of money and they just really haven't used it wisely. So
You know, I think one of the problems that you have in that is a bolus of capital can make things go stupid. There's a pretty famous biotech company called Bluebird that was amazing, amazing. They raised a bunch of money. They didn't tell anybody they changed their product from phase two to phase three. Whoops. So, you know, you see that even at a large scale, but I think that's probably how I'd answer that for you.
Okay, speaking, I don't want to go into that rabbit hole in particular, because that... Do you think raising money is often seen as a symbol of success for founders? I raised like 10 million bucks or something like that from, say, XYZ, big hot chart VC or something like that, and that built his personal profile. Okay.
Seth Yakatan (46:15.158)
Go into whatever rabbit hole you want.
A lot of people associate, so he's successful already, which he's not in my opinion. So what do you think about this entire social aura of founders who are just raising a lot of money and a lot of people thinking that success, this is what we have to do? People are not thinking about what's next because they probably have to work their butt off from there onward to return that. Yeah.
Seth Yakatan (47:03.886)
Can I ask a question? How old are you?
Seth Yakatan (47:08.278)
Okay, I'm 53, all right? Very well preserved, but I'm 53. Living in California, it's pickling, green juice and formaldehyde. But what I was gonna say to answer your question, I don't think about it that way. To be totally blunt, I don't care how much money you've raised, really. I think about it differently, okay?
Seth Yakatan (47:36.426)
What I think about is that raising money is a skill set.
and you're either good at it or you're not. And when we talked about what's one of the things that I look at if I'm going to invest in a company.
Seth Yakatan (47:56.658)
What I kind of look at is, is the CEO one of those people that can raise money or not? If they're not, I'm probably not investing unless there is someone that I believe can really, really raise money that's either inside the tent or around that tent. Because I think the notion of raising money itself is the skill set. And some people either have it or they don't.
Seth Yakatan (48:26.402)
The people, the biggest problem that I see is the people who don't have it can't recognize it.
Can they learn it?
Seth Yakatan (48:41.514)
Yeah, they can.
Seth Yakatan (48:45.622)
but it's kind of like me telling you I'm a black belt in kung fu.
Sure, okay. Well, we're gonna fight to figure that out. We're not, but if... Yeah, you can learn it, but you have to be willing to accept the fact that you're really not a black belt in kung fu. And most people don't want to accept that. People are caught up in the importance of their idea and their own ego on their company. They don't want to be told the truth. So...
Seth Yakatan (49:18.91)
you know, what I do oftentimes, which I think is why people enjoy me or talking to me, is that I'm just going to tell you the truth. I'm going to tell you, here's what I think, and here's what your problems are, and here's where they can be fixed, or you don't have any problems, and you're fine. But that's kind of how I look at those situations. But back to your point, I don't believe that the fact that someone has raised money is a success.
Seth Yakatan (49:49.918)
you know, moniker or badge. I think it's part of what you have to do if you want to be in this vertical of entrepreneurial ventures. And I think you just have to understand that you might not be able to do that. And if you can, then that might be your skill set. And I mean, I can give you an example of that if you want.
Yeah, please do it.
Seth Yakatan (50:18.286)
I hope he's still alive. When I was coming up, there was a guy in San Diego, his name was David Hale, who's now a pretty well-known VC. And in the 90s and in the 2000s, he was pretty famously involved in three companies, all of which he took public, all of which failed in the clinic to ever commercialize or get a drug approved.
So he went to the first company, failed, took it public, went to the second company, raised a bunch of money, took it public, failed, went to the third company, raised a bunch of money, took it public, failed.
Seth Yakatan (51:00.858)
He can raise money, man. I mean, a guy can raise money like nobody I've ever seen. Another person who's had a wild success and can now do whatever he wants is Ari Beldergren with Kite Pharmaceuticals. In biotech, unlike any other industry I've seen, one major exit is rewarded with irrational exuberance as well. So there are some people who just raise money by virtue of the fact that they've had an exit. And...
Seth Yakatan (51:29.41)
they might not really have done anything to effectuate the exit. It just kind of happened. So anyway, we can go on to another topic. But to your point, the fact that someone has raised money as an early stage entrepreneur doesn't really mean anything to me. It's not how I measure what they can do.
Exactly. Success or anything. Yeah. Okay. Okay, so the next one is...
Seth Yakatan (51:54.878)
What what before we get back to that comment? one more point on that a lot of people are so very
Seth Yakatan (52:06.55)
focus on who they've raised money from.
Oh absolutely, so I kinda missed that one, so I'll chime in on that.
Seth Yakatan (52:13.473)
Okay, we can answer that question with two words. Elizabeth Holmes.
I know. Yeah, I know. Who was the investor behind that, by the way? So I know the whole story of the whole startup, like what you did and yeah.
Seth Yakatan (52:28.95)
There were several. There was two or three extremely large VCs. I want to say Larry Ellison was an investor. Several people in government had invested. I believe Henry Kissinger was on our board. So I mean.
Okay. Yeah. Okay.
Seth Yakatan (52:47.874)
funny story about that.
Seth Yakatan (52:51.942)
My dad was my partner for 14 years until he passed in 2014. The notion of doing a microfluidic-based lab on a chip kind of test that she tried to do has been around for years. We tried to do it on a CD-ROM back in the 90s. There's several companies other than hers that have tried to do it on.
Seth Yakatan (53:18.286)
Think about like a credit card with wells in it that you'd put a drop of blood in.
I can't remember the venture fund that led her Series A, but we looked at it. It came across our desk. I'll never forget because my dad looked at it and he was like, this is total bullshit. There's no way this is going to work. He's just like, no chance. And I never really thought about it until the end. And I was like, yeah, well, you called that. So interesting.
Yeah, you know, when we get to, you know, we're still studying and didn't know jack shit about venture capital or anything like that. And then, you know, when there was a rise, we used to think, oh yeah, okay, so this is gonna be like world changing. Obviously did not have enough wisdom, so to speak, like, okay, just to see what they're doing, what they're not doing, all that kind of stuff. But yeah, but yeah, it's funny, like, how did that unfold? Did you hear that?
V-Work story? You know, yeah. What's your opinion on that?
Seth Yakatan (54:20.694)
Yeah, same thing we said earlier, too much money, not enough adult supervision. Could tell you the same story with 30 other companies.
Seth Yakatan (54:38.282)
Yeah, how about MedMen?
I don't know about them.
Seth Yakatan (54:44.274)
Again, a darling of the industry, giant IPO, squandered all the money. I don't want to speak ill about the CEO, but I do believe he's being sued by multiple groups to follow that chain downwards.
Wow. You know, you made an interesting point before we started talking about Theranos and all that, which was like, you know, who you raised money from. So if you go to the LinkedIn, so there's like two sides to things. So let's hear both with you. When, so I started my career in oil and gas. That was Halliburton. So that's where I started my career. At that point in time, obviously the connections, obviously the people, the circle that I was around with, like everybody was doing a corporate job.
Right? That's what we knew. So people used to have inside, the title of their LinkedIn would go something like ex-Google, you know, ex-Microsoft, I don't know, ex-Neslay, ex-PNG, ex-Unilever or something like that. Like the big, big companies, ex-Coke or something. I was like, okay, cool. So just saw that for like years and years. And then we, fortunately enough, I get into the startup space.
Now I don't get to see X startup or something like that, because startup doesn't mean anything. So now they would go something like, so I don't want to name him, he's the guy that I met on Twitter actually, and he's like, I'm a founder backed by A16Z, Anderson Horowitz, right? So I'm a founder backed by SQL or something like that. I'm a founder backed by something like this.
Seth Yakatan (56:13.758)
I am bash 21 of Y combinator or something like that. So that has become part of the profile, right? Like who did you raise money from?
Seth Yakatan (56:41.578)
you want. Is there a question in there?
I just wanna leave it open ended to hear what you have to say about it.
Seth Yakatan (56:50.056)
You know, you could have the people that have to throw the Forbes 30 under 30 or 40 under 40 on their profiles as well. You want to put them in there?
Oh, absolutely, absolutely. Yeah, absolutely. There's another thing on Forbes. So Forbes is pretty well known. So you know, Forbes 30 and 30, 40 and 40. There are a few other publications or companies or whatever. So now they're doing it on, I don't know, Middle Eastern region. They're doing it on European region or something. So people are now putting that as well. So it's just like Forbes 30 and 30, EU 25 and 25 or something like that.
but I'll just leave you a second, then I'm up as well.
Seth Yakatan (57:33.486)
I would I would I will respond to that question by you know by saying is that in for me I usually do not want to be a member of a club that wants to grant me admission.
and I'll probably leave it there.
Okay, that was one sentence, two enough for that. Going back to that audience question, thanks. What types of marketing distribution strategies have you seen work best for startups launching new cannabis consumer products?
Seth Yakatan (58:12.381)
Wow. Specifically in cannabis...
Seth Yakatan (58:19.63)
Again, I'm going to probably come down to community and some level of on-site activations and having an intensely high quality, if not differentiated product. So there's...
Seth Yakatan (58:41.106)
Those are probably the three things that I would that I would tell you we're deeply involved myself and my partner in a low-dose THC beverage company called can C-A-N-N which depending upon who you talk to is probably the number one or the number two THC beverage in the United States and You know that was a product that in 2019 had zero revenue
Seth Yakatan (59:11.234)
So we've seen how creating an audience and having an extremely differentiated product that relied heavily on on-site activation and convincing and winning hearts and minds to buy it, that seems to be a pretty decent way to go. I think it's very hard at this point, depending upon the
Seth Yakatan (59:40.97)
state that you're in to start a cannabis brand unless you have some extremely deep-rooted understanding of the industry or some deep-rooted supply chain advantage.
Do you think that's because lack of capital? Or like something else? Or just like saturation maybe?
Seth Yakatan (01:00:06.45)
It starts with lack of capital.
it moves into saturation. It then goes into depending upon the model that you have unless you have some aspect of the biomass or processing or manufacturing you know or some process of that supply chain. You're just giving up margin so it's really hard to make money. So if you're in it already it's a lot easier so that's why you see a lot of people that are
to do it without one of those components or a deep knowledge of the industry is exceptionally difficult. It's exceptionally, exceptionally difficult. So capital is also extremely constrained. And you've also in California, you know, almost had, I don't want to say a complete systemic failure, but it is difficult for brands to make money.
Seth Yakatan (01:01:09.206)
The payment cycle is messy. The retailer kind of controls the relationship. The retailers are constrained with the new tax situation. So it's a very difficult situation. Other states are easier. States that are coming online usually are easier. But you still, for example, if you wanted to start an asset light brand in New Jersey and you didn't have either, you know,
Seth Yakatan (01:01:36.818)
a biomass relationship, an extraction relationship, or a manufacturing relationship, or you knew how to sell to the 33 stores that are there, I don't care who you are, that's a really, really hard challenge.
Got it, okay. Okay. As a first time founder, one big struggle for me is hiring. So this is a startup founder that directly asked me, so we didn't change that. So first time founder, struggling with hiring the right team, what advice would you give to someone like me who has been new to this thing? How did you build the team, how did you crack that?
What advice would you have for us?
Seth Yakatan (01:02:21.43)
There's probably three things. The first thing is that depending upon the vertical that you are in, irrespective of the vertical, whether you're in SaaS or whether you're in cannabis, whether you're in biotech or whether you're in DTC marketing or whether you're in nutrition, there's usually probably an executive retained search firm or an executive search firm that focuses exclusively on your vertical.
They're in SAS. Yeah.
Seth Yakatan (01:02:50.73)
And there's usually probably two or three of them. So I'd find them. They're gonna be at a conference. They're probably gonna solicit like public relation and investor relation firms and accounting firms and lawyers, your business. I'd find whoever the one or two most important people are in that industry and start to talk to them. That's the first thing I would do. The second thing I would do and I do it now to this day is,
Seth Yakatan (01:03:22.274)
Find people that you want to work with. It doesn't matter where they are. I have a network of 30 people that I constantly talk to and mentor and I'm in front of. It might be once or twice a year, but I've worked in a large institutional investment banking environment. I know who I want to go to war with. I can pretty much tell.
Seth Yakatan (01:03:49.918)
If I've been on a project with someone for more than a week, whether there's somebody that I'm going to work with and is going to work well with me, find those people. And tell them, hey, at some point, I'm going to come and ask you to come to work with me. So be your own HR person. You know what? And trust your instincts. I think I have good instincts. I think I've honed really good instincts about people.
If your instinct is wrong, if your instinct is that this is not the right thing to do, then go with your instinct because we are an animal, we are an evolved species on the planet. Go with your animal instincts sometimes. That's done very well for me in the end.
Okay, that's very helpful. Personal question, how do you actually evaluate anybody? Like personally, individual, people? Like how do you evaluate a person?
Seth Yakatan (01:04:46.674)
in terms of a professional capacity.
In terms of professional capacity, like, okay, is this person is the right, I don't know, CEO for my company or not? Is this the right person to go with Warwick or not? Like, a lot of that comes down to, again, you know, do you like somebody or not? But if it has to be professional, how would you evaluate somebody?
Seth Yakatan (01:05:06.85)
Uh, things for me again are pretty simple. Um, and I don't think I'm the ultimate arbiter of what these criteria should be. Uh, but for me, I find professionally and in life, it's usually the tiniest, littlest things that matter to me. Are you on time?
Seth Yakatan (01:05:31.29)
Uh, are you early?
Are you consistently late?
Seth Yakatan (01:05:42.794)
I tend not to enjoy people professionally that have to tell me all the things that they've ever done, usually as a prelude to a conversation. I don't want to say that that's a non-starter, but I'm...
It doesn't, it's like, okay, I don't know that I need that at this point.
Seth Yakatan (01:06:12.918)
There's also some people who just don't want to listen.
And oftentimes, what I tend to try to do in most of my conversations is see if there's some level of optionality that I can create relative to the path that they're on. If I can't, I'm just going to say I can't. If I can, I'm going to say here's four or five things that you can do. A lot of times when you talk to someone, usually with something that is pretty good, they're just laser focused on what they can do.
They don't want to hear about options. And if I'm not as in agreement with what their laser focus is, that's usually not a good sign for me. I think the other thing, and this is really esoteric, but
Seth Yakatan (01:07:08.574)
Yeah, irregardless of what religious or cultural modality you're from, there's a belief that there's different types of human beings. So there's 12 signs of the zodiac and there's 12 signs of the Chinese calendar and there's 16 different types of Myers-Briggs personality people. And there's another much more esoteric belief called human design, which is based upon, which is a deep horoscope.
kind of thing. I think you have to understand also who the person is that you're dealing with and how they're wired from a personality perspective. And some people don't want to understand that. Some people can't identify it. I've gotten to the point, I think, again, where I've met so many different people and I've interacted with so many different projects that
I can tell, not that I can predict their personality type, but I can just tell what kind of person they are. And sometimes I just know that there's people that I'm just gonna avoid. If it's too much effort, it's too much effort, it's gotta just kinda happen. So I think the other thing to that point is understanding
my initial knowledge of the person and understanding of their personality type. Is that a personality type that I'm going to mesh with and want to work with? Because there's some that I'm just not going to. Prima facie. They could have the greatest idea in the world. I'm just, it's not for me.
Yeah. Okay, awesome. Yeah, thank you for that, like really appreciate it. So a few things that we do is again, so one thing I try to learn from everybody that I am having a pleasure with talking to. So, and I still consider myself as a student, will always consider that. So one thing is that I wanted to learn was the same question, like how do you actually evaluate people? So thank you for that, like I really appreciate that. So, Seth, we have this.
Seth Yakatan (01:09:01.934)
Thanks for watching!
Ritual on the podcast since episode one. This is probably 30th. So what we do is we talk, we ask all our guests a question for our next guest without knowing who the guest is gonna be. Okay, so we have a question for you, the last guest left, and then we obviously gonna take a question from you for our next guest. Don't share the name, don't tell them anything about it. The question that we have for you is, what's the most anti-climactic victory you had in your career?
Seth Yakatan (01:10:02.587)
Gosh, I probably had two.
Give us both.
Seth Yakatan (01:10:12.542)
I was involved, I've done a lot of transactions for bio-pharmaceutical companies where I have taken a royalty stream that they're guaranteed and sold it. So if you understand the present value of a lottery ticket, it's kind of the same concept.
One day in, I don't know, six or eight, 10 years ago, after a battle, we had sold royalty to a, what's effectively a private equity royalty fund that just buys them. And we were gonna close the transaction on a Friday morning, and they needed to get final board approval. I was at my desk at about seven o'clock Pacific time.
because the board meeting was supposed to happen at about 8.30 Eastern and should have ended by about nine Eastern, so 9.30, 10 Eastern. So I was kind of waiting to call. Maybe I was there at six. And the CFO called me and he goes, great news. And I said, what's the great, he said, I have good news and I have bad news. I said, I always want the bad news first. And he said, the bad news is the board didn't approve the deal.
I said, what's the good news is? He said, the good news is that, you know, we're gonna continue to hire you. And I was like, okay, I was gonna make a million three on that trade, on that deal personally. So it was rather anti-climactic to be told that our, you know, $100,000 a year consulting contract was gonna be extended. So that was a pretty rough one.
Seth Yakatan (01:11:58.05)
I had another one which was very similar.
Seth Yakatan (01:12:04.926)
You know, probably my third was that I founded a company, I raised it $42 million, took it public, decided for a number of reasons, including the fact that I had lost my mom three months earlier, that I was gonna step down as the CEO and I was gonna bring in another CEO, who within six weeks terminated me from the board, terminated all of my option plan.
took the entire business plan of a public company, closed it for a bunch of products that were his, that he owned, that he wanted to develop on his own.
So after reaching the peak of K2 and being worth about $12 or $15 million with a public paper that I was ready to get out of and never work again, I saw pure biblical, satanic, otherworldly evil that I had never experienced before. So I've had a few.
How did you hire that person? That CEO.
Seth Yakatan (01:13:27.754)
It was a process.
I'm going to tell you what it takes to be an entrepreneur.
Seth Yakatan (01:13:36.458)
My mom was dying of cancer. My sister and I were her primary caregivers. I took care of my mom with my sister around the clock for six months.
Investors in the company said we need you to talk to the CEO. We don't want to do the job We don't want to transfer the job unless you think that it's okay
Seth Yakatan (01:14:02.39)
I flew to Israel and I was in Israel for 24 hours. So I think I flew to Israel on a Saturday night. I was in country for 24 hours. I came home on a flight out of Israel, which I think was like either Sunday night or Monday night in Israel. I made it back to LA Monday morning because I had to take my mom for her first chemo treatment on Monday afternoon. So I literally did a 24 hour trip to Israel. To sit with the guy.
to make a determination of whether or not I can trust him. And you know what? I thought this guy was the greatest guy in the world. And I had met him and knew him for years and thought he was gonna take the company to a completely different level that I was unable to take the company to. So I trusted my instincts. And sometimes even you do everything right and you can't.
predict how somebody's going to react. And I mean, like what this guy did was, although I don't believe we prosecuted him, like what he did was criminal. So, you know, they brought me back in the eighth week and like we had to reboot the whole company. It was a nightmare.
Seth Yakatan (01:15:25.366)
But ultimately, I made the decision and I made the choice, and I could have stayed in the seat. So it's one of those, when we talk about failure, right? It's only through making extremely drastic mistakes as an entrepreneur and in business that I've learned my lessons. That's the only way.
100%. I think even in like generally speaking, you only learn from the mistake, probably more than anything else. Like advice and all these things are like okay, but unless you get down that path, you probably not learn a whole lot. That's what I think.
Seth Yakatan (01:16:14.322)
Look, that's my thesis. A couple months ago, about two years ago, I hired an analyst. He was on my desk for a month. And we did a transaction for a group that we're part of in Maine, where we bought a small cannabis grow and dispensary and helped them to do that.
Literally, we closed and funded the deal from the time it went out to talk to the first person to the time that we got money in 30 days. It's probably one of the quickest deals I've ever done in my career, like ever. Documentation, the whole thing.
Seth Yakatan (01:16:55.81)
So the young guy who started to work for me is like, great, let's do another one. I was like, Nate, you don't understand, man. That's not how it happens, right? Like the only thing that you learned is like, you know, it's like you made a shot from half court at NBA game, like at halftime, right? Like you just got lucky, bro. Like there was no learnings there. You know, we went through another deal for a similar thing for a group in Michigan.
Seth Yakatan (01:17:26.55)
last summer and into the beginning of this year, where we went to their credit committee three times. And every time, the first time they came back and said, we'll do this and we'll fund the deal. Okay, the second time they came back and said, do this and we'll fund the deal. The third time we came back, they said, we just don't feel like funding the deal. So he was like, well, how does that? I was like, okay, well, that's where you learn, right? Like it's that kind of a situation where you can understand what's gonna happen and you're gonna build.
Seth Yakatan (01:17:53.634)
your kind of transaction sense.
Got it. Question for our next guest.
Seth Yakatan (01:18:15.166)
What's your favorite public equity investment right now? And why?
What's your favorite private equity? Public private equity. Yeah.
Seth Yakatan (01:18:24.002)
Public, what's your favorite public equity, public stock, right now, and why?
Yeah. And why? Okay. Appreciate it. Thank you so much, Seth. Appreciate the time. Lovely talking to you. Thank you for the candor as well. Yeah. Appreciate it again.
Seth Yakatan (01:18:42.929)
Awesome. We good?
Okay, yeah, just give me a second. Let me end this thing. And then, wait a second, let me stop the recording.