"I don't think we're going to be seeing a lot of IPOs again any time soon," says Early Exits author, Basil Peters (no relation), "so the old model of building companies, ... is dead". But don't despair, Basil has several exciting new developments to share.
He's busy. He's putting on an Exits workshop for the Band of Angels. He writes a blog where his most popular post is Don't Blow the Biggest Deal of Your Life. He'll be speaking in Seattle this week at the NW Regional Angel Summit hosted by the Alliance of Angels. 
If that's too short notice for you, make plans now to see him kick-off the Angel Capital Association's Annual Summit in San Francisco, May 5-7.
Show #279 (30:51) Listen
Frank: Hey Basil thanks so much for joining me a call this morning and, relatively short notice too, appreciate it.
Basil: Always happy to Frank, I think you're doing a wonderful job with the Frank Peters Show and you're making an important contribution here.
Basil: Thanks so much, and, ah boy, I have to say right back atcha pal.
Frank: You've got to be pleased Basil, with uh, the reception that um, well you and early exits have received in the angel community huh?
Basil: I've been very, very pleased. And I think you know Frank, because you've been doing something pretty similar it's, it's a labor of love. Yeah, Yeah [laugh]. I'm doing it because it, first of all it excites me it's what I'm passionate about. But I'm also hoping that I am making a bit of a difference in helping entrepreneurs, and angels find a way to build better companies and to make better returns so they'll turn around and do it again.
Basil: Um, so I guess part of is I feel that's it's not just a passion it's almost a I'm driven to trying to help property better ideas and for all of us to learn ways to do these things better.
Frank: Now it just occurs to me Basil ah, how much feedback do you get?
Basil: I.
Frank: Like on the podcast. I, I was telling somebody the other day. It's kind of a one way medium. I create the show it goes out there, people listen. I don't hear from, you know a overwhelming number of my audience. How about yourself, what kind of feedback do you get?
Basil: You know, I have been an angel since I sold my first company. You know, I got distracted a couple times along the way and started adventure funds and some other things but. Being an angel for a long time. Um. One of the things that frustrates me a little bit about our fellow Angel investors is that they're, they're not as wired into the new social media as...
Frank: Oh, there you go. You're right about that, aren't they.
Basil: As the entrepreneurs are.
Frank: Yeah.
Basil: So I get entrepreneurs coming back at me through every available port in my firewall and there, there's, you know, I'm getting messages in Email, Skype, more then I can handle quite frankly they are days when I want to turn off the monitor and read a book. But the angels I find that most of that feedback of getting that face to face it's at angel conferences it's not coming in online.
Frank: Mm-hm. Of all the social media tools out there Basil I'm curious, you've got a blog, but what's working best for you.
Basil: You know I, I kind of have uh, two audiences. And, with the angels, which are the people I relate primarly to, and that I try and communicate with. Um, I've been very surprised that the thing that seems to work best is the old model book. You know a lot of things that I put in my book Early Exits are up on my blog for free. And uh, because I'm kind of like you one of the consumers of the new media and I carry my uh, Kindle reader around with me most of the time. I didn't think that an old dead tree, Stitch-bound, hardcover book would sell very well.
Frank: Yeah.
Basil: But, to my great surprise it does [laugh].
Basil: [laugh].
Basil: That's what, you know. And again, it's one of those bifurcations again, where I think that most of the angels are buying the book, and, uh, buying hardcover rather than softcover, and most of, and most of the entrepreneurs are buying the pdf and the uh, Kindle-compatible versions.
Frank: I have one of each. So, it kinda put me, I'm straddling both categories, I guess, then. I misplaced the hardbound version, you know, uh, for a day or two and uh, you know, it was one of those panic moments where I wanted to reference something from your book, and I was delighted to be able to download it, you know, so quickly.
So speaking of conferences Basil we are going to see you in Seattle and just well one week from today.
Basil: Yes I am looking forward to that.
Frank: Yeah there is just one if I had a magic wand I wish you were coming on before 4 o clock in the afternoon on a Friday um.
Frank: It's a tough time. What happened? You and Dan on the outs?
Basil: I tend to think of it as I got the anchor shots. [laugh]
Frank: I know it. I know it.
Basil: Well, I've got to make it lively, and I've got to make it short.
Frank: Yeah, yeah, yeah.
Basil: And I'm actually heading down to Silicon Valley next week to put on a half day exhibits workshop for the Band of Angels.
Frank: Oh, really? Terrific.
Basil: They're having a second portfolio day where they're bringing all their companies in. So Beyiski asked me to come on down and put up a half day workshop for their members on how we could all.
Frank: I'll be thinking about, you know, designing exits in to our investments and exiting earlier. So, so I am really excited about that one as well.
Basil: Well lets talk about the message, uh, and not to ruin the surprise in, uh, Los Altos but, uh, how do you summarize the, uh, concepts in your book?
Frank: Book Early Exits.
Basil: I think the first thing that we're all still realizing is that the economy has changed, and we've all seen the big effects of how you know, the recent debt crisis.
Frank: This has changed our economy. But, there's something else that's been going on for the better part of a decade that I think is important. Since the equity bubble burst in 2000, we haven't seen very many IPOs. And, I don't think we're gonna be seeing a lot of IPOs again any time soon because of the.
Sarbanes-Oxley regulations. So the old model of building companies where uh, entrepreneurs started in their basement, maybe raised a little bit of friends and family money, then possibly some angels, but predominantly raised venture capital, and raised lots.
Watch the venture capital, tens of millions, all driven towards the hope that there would be a big NASDAQ IPO exit. That model, is not even, it, it's just not working.
Basil: Mm-hm.
Basil: It's, that, that business model is dead. But if.
Frank: At the same time, there's been a couple of really positive developments that I think are much more exciting. The first is that entrepreneurs can build companies for dramatically less money. You know, I commented on something that Scott Shane wrote in Business Week a while ago where he was saying that the old style VCs weren't
But they were just having a bad seasonal uh dip [indiscernible].
Basil: [laugh] Decade is more like it.
Basil: And, and I don't think it's even a cyclical thing. I think that [indiscernible] is not going to come back. And I made the point in my comment to his post. That it's not that entrepreneurs can build companies for a tenth of what they used to. Today entrepreneurs.
Frank: You know, building companies for a hundredth of what it cost back when you and I were building companies.
Basil: Right.
Basil: I mean, you remember what it was like, Frank, when we started out and it didn't matter if you were building a hardware company or a software company. All of the successful companies took tens of millions of dollars to build.
Basil: Yeah.
Basil: And...
Frank: You know, things that I remember. You know, sitting on boards and, and having entrepreneurs talk about. Just 10 years ago, you know, say you were gonna build a uh. Uh, a business model where you needed a database driven uhnt internet function.
Functionality. And those kinds of things you'd budget out at 100's and 1,000's of dollars 10 years ago.
Basil: Oh, yeah. Right.
Basil: Today with.
Frank: So much software being available online and with the cost of connectivity being so small and with [indiscernible], entrepreneurs are going out and they're building things that cost hundreds of thousands ten years ago. They're building them for tens of thousands. Sometimes they're building them for just thousands of dollars. So there's been a.
A dramatic shift in how long it takes to build and test a new business model. And that's created a phenomenal boon for the entrepreneurs. But it's also shifted the investment dynamics so today the success.
Companies that I see. The ones that I wish I had invested it.
Basil: Yeah.
Basil: Yeah.
Basil: Have off, have often only consumed a few hundred thousand dollars of capital.
Basil: Mm-hm
Basil: So there's a whole new dynamic out there where the capital that today's most [indiscernible] companies need, comes in hundreds of thousands.
Frank: Or maybe a few million dollar chunks over the entire company lifetime.
Basil: Now one of the uh, challenges for the entrepreneur maybe is that, you know, you got all the dynamics of the early stage marketplace, let's say. I observed that some of, you know, when a company comes.
Frank: Comes in and pitches to my local angel group. Expectations are that because it is so inexpensive we wanna see the companies much further down the road. We wanna see what they can do, you know, prior to getting our money. Uh, because we know it's not expensive.
And so that puts a lot of pressure on the friends and family round, ah, all that ver, really early stage, that seat stage money, you observe that too?
Basil: Absolutely.
Basil: Yeah.
Basil: It does, and I think it's healthy, and.
Basil: Yeah it's healthy.
Frank: Yeah it's uh, it is. I mean a lot of entrepreneurs, though, that are struggling to uh, boy it helps if you get some wealthy friends but that's always been the case.
Basil: It does.
Frank: I think maybe even the healthier part of this is entrepreneurs are learning to be very capital-efficient.
Basil: Yes.
Basil: They, there is something different about taking money from friends and family versus sort of an anonymous angel. And I, I like to see entrepreneurs where they've taken a little bit of friends and family money.
Frank: Money, and they've proven the model. You know, they got to the point where they're acquiring customers, they're showing how much revenue or how much value they can extract from a customer, and when they come to us angels, what they're looking for is expansion capital, and you've gotta be careful.
Terminology because, in the venture world, expansion capital is like a D-round, where it comes in 50 or 100 million dollar chunks. I'm talking about expansion capital in the 2010 model, where what we're doing is adding in hundreds of thousands to create millions of dollars worth of increased shareholder value. And I think that
[indiscernible] For us angels, it's a shorter path to an exit, and just overall a much better investment model for us.
Basil: Now Basil, the message, you started putting it out there really woke me up that what I observe.
Frank: Myself doing anyway was right a check for one of these early stage companies and then you kind of sit back and wait. And hopefully Venture Capital would come along and uh, write the next check and that might be uh, soon or it might be a year or two, but it was really.
The uh, investor as uh, passive. The early stage investor very passive about uh, moving a company towards an exit or, or securing their financial future. And you blew that concept just out of the water. That's the paradigm shift you're bringing to the party?
Well, he, he summarized that fairly nicely, Frank, and thank you for that. And yes, that is how it used to work. That's what Angels a decade ago thought our role was, that's how we worked. And, um, I don't know if it was ever a good idea.
Basil: Yeah.
Basil: I don't know if the numbers supported that as
Frank: Being a good model ever. But, I think what we've learned is that, as often happens and makes life kind of interesting, is the things we believed were wrong. And, today I think that the better Angel model is to, yes, we're going to write a check, but instead of hoping that it.
He does come along. I find myself and a lot of my friends hoping that if he, doesn't come along.
Frank: Yeah, I know it. I, I stand up now and I look like, you know. an angry old man [laugh]. A role I'm destined to become. I stand up at some of our meetings, you know, after the entrepreneur presented, we have our private discussion and I'll say did you hear him? He's talking to 3 different venture capitalists. I recommend that you take the money that you don't want to see for another 7, 8, 9 years and invest it in this company. [laugh]
If anything ya know, I've got lots of friends who are still venture capitalists. Uh, some like myself that are recovering. Um, but it's not that I'm against venture capital. Some people think that I, I'm sorta anti VC. It's not that. It's just that I wanna find investments where I can get my money back in 3 to 5 years and all of the traditional venture capital, uh, funds that I know and the people that are in that, really can't work that model, they, they just have to put to much capital to work, and, they need to wait 10 or 15.
10 or 15 years for an exit, for the model to work. So, what I hope for is um, a situation where instead of waiting for the exit, you know, I hope to find a situation where we Angels can help the entrepreneurs go through the first high growth part of the corporate life cycle and Exit before they really do need venture capital.
Frank: Basil, when I saw you in Toronto you, you boiled it down like marching orders for Active Angel Investors, the new Active Angel Investors. You described 2 things you need to know before you. You can, let's say hire an investment banker and go out to proactively sell the company. What were those two things, do you remember that?
Basil: Absolutely. Yeah. I think that if a company wants to have a good probability of an exit, even if it's not an early exit. Whatever stage the exit occurs, you need two things. One of them is you need an exit strategy. And what I mean by that is a very simple, written goal for the exit that you can then, and the second point is build alignment around. Uh, I've been surprised many. In my own career and, and was with my own first company. To get to the point where the exit was in process and then realize that the shareholders of the company weren't at all aligned on what the exit goal was.
Frank: Oh, boy.
Basil: Yeah.
Basil: That's a bad time to discover that, that unaligned.
Frank: Alignment, huh?
Basil: It can be devastating and in many times, I've seen with the exit, the hardest part isn't getting the buyer to agree, it's getting the disparate sellers to agree. And in other cases...
Basil: I gotta' pause for a second, let that sink in because I can relate to that. It makes my heart skip a beat.
Frank: The, that's so true, isn't it?
Basil: It, it is. And it, it can be, it can be a devasting realization. Now, I'm, I made the mistakes that I'm now paying my pennance to propagate in hopes that others don't follow me.
Basil: [laugh].
Frank: [laugh] In my first company I..
Basil: That was very honest. Let's pause again. That was very honest. [laugh]
Basil: And you know, just a small digression, it took me over ten years before I could admit all the things that I did wrong.
Frank: Wrong on my first exit and um, I, I actually did a talk for the, ah, the Vancouver Chapter of Entrepreneur's Organization and they asked me for a war story and, and I got started planning that talk and I decided that I would.
That I was gonna tell the whole story. And uh, it's actually. Its uh, I've got a video. It's on my website. It's called, don't blow the biggest deal of your life. And it was very cathardic[sp] for me because I, I kinda been burdened by the, the horror of watching this thing that I built and put all my life energy and blood, sweat, tears and money into almost completely fail.
Because we didn't have an exit strategy, and we certainly didn't have alignment on the exit. And for me, in my first exit, the hardest part was to fight my venture capital shareholders who wanted to not have the exit that I was working.
Working on approved. It was strictly because their business model was uh, the financial opposite of what made sense for the entrepreneurs and the Angels that we had. And it was a vicious battle, and one that I won, I can say now honestly much more by law.
By luck than by uh, any foresighter planning and uh, my life would be very different today if, if I had had a little less luck and with the benefit of hindsights I realized that you know I, the biggest mistake was not starting out ensuring that I had alignment amongst the.
Key stakeholders and that we were all trying to accomplish the same thing.
Basil: [indiscernible] you described just a minute ago how you came clean for the audience of entrepreneurs. I can picture the authenticity of how you delivered. Audiences respond to that, don't they?
Frank: Don't they.
Basil: Yeah absolutely do, it's by far the most popular of the videos on my blog.
Basil: Yeah, yeah. Well let's plug the blog Basil, how do my listeners get to your blog.
Basil: It's at angelblog dot.
Frank: ...But if you put my into google you'll get there on the first page pretty quickly so.. and I don't manage, Frank, to put as much time and energy into mine as you do in yours, you know, you're really the master of trying to help people understand how to do...
Better with the Frank Peter show, but I try, and lot of my nights and weekends, I'm sure like your's end up trying to get some of these ideas out, either into words, or increasingly what I'm finding angels are appreciating, as well as entrepreneurs, is video. And you were in a fabulous time when things like this.
Podcast and video work beautifully on the internet. It's quite a lot of fun, but it is a lot of work.
Basil: It is a lot of work.
Basil: And I hope it's helpful.
Basil: Yeah, yeah let's switch gears, and talk about Bazel Peters, the public Basil, Bazel, because you're doing a lot of.
Frank: Seen you in Toronto, you came, I think we met in person in Tuscon, a year ago at the southwest regional [indiscernible] conference, what's your schedule like now?
Basil: You know, I, I wasn't really prepared for this, and this was like a lot of things in life. Not so much a plan as.
Frank: As, is kind of me getting caught up in it.
Basil: Right.
Basil: But I've um, I've lived through three economic down cycles now, and, in the first one I was running my company.
Frank: My company and that was painful and the second one I had a portfolio of angel investments that I was trying to keep alive that was even more painful. Mm-hm and what I promised my self as I got a little bit older and hopefully wiser was when the next downturn came I wasn't going to try and fight my way through it I was going to try and [indiscernible].
Sort of try and back away and do something that was um, if not gonna create money, at least it wasn't going to cost me as much as the 2 previous experiences. So when things kinda fell apart 2 and a half years ago.
Years ago I decided to finish the book. And I always wanted to write the book, and um, I, that was a, a good way for me to spend the first half of the, the down cycle. And when the book came out I was as you said earlier I was a little surprised by how much the message resonated. And people.
People ask me to come and speak and um I think a lot of authors find that once you spend all those dark nights and those torturous editing sessions. Its kind of that you feel like you have to get the word out and with the book sales, the books, as im learning, books and speaking kinda go.
Together, and that's usually what causes somebody to buy a book as they, they hear and then they, and then they do and so, I have been accepting a lot of those, and it's been tremendous fun. I mean I really do enjoy going out interacting with fellow angels and talking about better ways to do it. I am going to be at the, the ACA summit.
San Fransisco this year and I know you'll be there. And, and I know that you're part of the organizing committee and you've been helping to uh, to put that together. So I'm really looking forward to that as well. And I'm trying to say yes as often as I can and, and get out to some of the, the regional meetings. And uh, one of.
The healthy things I'm starting to see happen now is that, we're also trying to find the models to make angel investing work, but I'm seeing lots of regional economic development money starting to find its way to supporting angel groups. I've spoken at a few, uh, conferences
I'd like the South East conference that I spoke at in Greensburough, which was officially the South East ACA meeting, but that was a big success, and it was in part because the local economic development authority, in an economy that was really driven by cotton and tobacco, you know, their municipal.
Leaders had decided they were going to put some money in to try and help foster new technologies, and I think it was working. And I, I think that's another really healthy trend. And I, I'm happy to try and help a little bit to, to make that work by being the lunch entertainment.
Basil: But back to the public speaking.
Frank: Being part Basil, what, ah, you had had experience as a Basil before, but now you're getting some pretty sizable audiences, ah, does that mean more preparation? Does that give you.
Do a bigger sense of the butterflies or how are you dealing with that, uh, the transition of being such a popular Basil?
Basil: First of all thank you for your kind words Frank. It has been a tremendous amount of fun.
Frank: I, am working hard on trying to be a more entertaining uh, Basil. You know, I sometimes uh, watch some of these truly great Basils and, and uh. And realize I've got some. Uh, distance to go until I can, get into the good category. But I'm working hard at.
At it and I'm having, ah, yeah tremendous amount of fun, I mean it's not an inexpensive thing to do.
Basil: Yeah.
Basil: You know whenever I do one [laugh] it costs, it costs me quite a bit of money that I've gotta shell out to be able to enjoy one of these events, most of the time.
Basil: The privilege of speaking has it's, yeah costs doesn't it?
Basil: It, it definately does and, and I'm, and I'm fine with it.
Frank: Done with that again. For me, I think of it in part as putting something back.
Basil: Yeah.
Basil: You know, I, I think I've had a, I've had an enjoyable career and uh, made some money and uh, I'm still you know, not finished with that part of the process, I'm still happily.
Frank: [indiscernible] working and making some money. Um, but I think that we all have an obligation to try and do what we can to help the next generation especially find ways to keep our economy healthy. And, we, it's a time when I think we do need new ideas. And, I think it's, to some degree, incumbent upon us to all.
Think about ways that we can create future economic wealth and find ways to build good jobs for our children and our grandchildren. And ah, you know, I don't think we've quite got that figured out yet in ah, in North America. I think there's some heavy lifting ahead for all of us.
To find a new way for North America to remain sort of the preeminent economy in the world. And that's you know, in my opinion, gotta be through the uh, utilization of technology and capitalizing on our post secondary education system, and getting.
Getting our children and grandchildren to, to be even more entrepreneurial than we've been.
Basil: Well Basil that's very well said and as we wrap up here this.
Frank: Mentioned the book, early exit.
You come to the blog you will find links to the book and link to Basil's appearance at the angel capital association annual summit in San Fransisco May 5 6 and 7. Must attend event, you've been.
Before Basil, right?
Basil: Absolutely. It's the highlight of my year.
Basil: Yeah, really. It is. And uh, what in particular uh, is the takeaway? What, what do you like best about the annual summit?
Basil: The thing that I like the most about what we're doing here with Angel investors is.
Frank: Truth is that angel investing, in my opinion, is still at a fairly early stage, it kind of reminds me of where venture capital was in the mid 80s, and we're all figuring this out and at those gatherings you get 500 of the.
People who are leading angel groups and leading angel investors in not just America, but in the world. Remember how many people there were from all around the world last year.
Basil: Yes.
Basil: And what we're doing is we're trying hard to find a way to finance the next generation of companies. And we're making progress. It's getting better.
Frank: To me tangibly better every year. And uh, very valuable things like the angle capital education foundation and the angle capital association. And we're all, I think making some exciting progress in, in building up the next generation of funding model with [indiscernible].
Angel investors to get that next generation of companies built and to keep our economy growing and uh maintain our lifestyle for the next hundred years.
Basil: Alright, [indiscernible]. Thank you so much for joining me on the show today and we'll see you in San Francisco.
Basil: Thank you Frank, thanks very much. Keep up the great work and I'll see you soon.
Frank: Alrighty, bye, bye.
Basil: Bye for now.
Meet me in Tucson: March 22, the SW Regional Angel Summit hosted by the Desert Angels.
Istanbul: April 15-16, EBAN's 2010 Congress. Join me as I moderate a panel on angel investing and 'animate' the Awards ceremony.
Austin: April 21, the Texas Entrepreneur Funding Symposium. Come see Austin's vibrant entrepreneurial community for yourself; I'll keynote.
According to the 2009 Angel Market Analysis released by the Center for Venture Research at the University of New Hampshire, deal size was down 11% in 2009. Other tidbits:
With a nod to Garage Venture's Guy Kawasaki and his 
