(pictured above: Lea and Ruedger working a trade show)
Wendi McGowan-Ellis 0:02
So I have a note on here. There’s something about running out of money. Yeah. I love it. I love it….
Lea A. Ellermeier 0:15
Which every startup company has in common – chaos. Welcome to “Don’t Freak Out Today, Freak Out Tomorrow.” I’m your host Lea Ellermeier. Each week, we’re taking a deep dive into what it’s like to start a company, manage the chaos, maybe freak out, but not lose your mind.
Wendi McGowan-Ellis 0:32
So we’re back with episode two. We’re continuing the story of Lea’s startup and her journey. Is something about running out of money….
Lea A. Ellermeier 0:43
Yes. So when you’re in those early days, running out of money is just a constant thing. I had a conversation the other day with an entrepreneur and one of the investors asked him, “Where are you guys at this month?” He couldn’t answer the question. And I will tell you that I could have told you to the penny, where I was at most days. How much revenue had come in. How much had been paid. Because really, those early days, it’s just all about cash management. Yep. And getting close to running out of money is a terrible, terrible feeling. And we had a situation where we were very close to running out of money. And I had an offer from a guy that broke my heart back in the back in the day, and he had turned out to be a venture capitalist, and had worked in some companies and made a lot of money. And when he heard that I had started this company, he had said, Hey, if you ever need any help, let me know. And when I say he broke me, my heart, let me just say that. I was very surprised after being in the relationship for five years, the day his wife called me. Okay, so this was a romantic relationship, romantic. Okay, and I thought he was the one and I did not know that. He was he was basically living a double life at that point. So it was just completely, completely devastating. And the only reason I bring that up is when he offered to put money into the company. My initial reaction was no, but one of my best friends who knew the whole situation said, “You know what? He has a karmic debt to pay. Why don’t you allow him to do that?”
Wendi McGowan-Ellis 2:29
I like this friend. And I like that philosophy.
Lea A. Ellermeier 2:32
Well, the other thing he said was, “If it was a guy, do you think he’d think twice?” And I thought, “No, he probably would not.” Right? So I decided, you know what, I’m gonna go ahead and take that money and use it well and make money for him, which is what happened. So it was all good. But yes, you know, staying focused on things, moving the business forward, when there are so many competing demands coming at, you know, yeah, it’s very hard. every entrepreneur knows that. And sometimes it’s like, wow, that shiny object looks a whole lot better than my shiny object. Maybe I should go over here and do that. So all that stuff, you know, managing partners, not running out of money trying to stay focused. And of course, I have a little child, yes. Who needs attention and love? Yeah, um, I would like to say that I was present at all times as a parent, but that would not be true. Yeah, you know, so I was also beating myself up about it. Because that’s what a lot of people do. And I’m one of them I, if I, you know, can beat myself over something I will. It’s like, oh, wow, you know, I should have done that. And why didn’t I do this? While I’m trying to run this company, and keep the household running and keep my husband’s spirits up, and make sure my son doesn’t show up at the party with no juice boxes?
Wendi McGowan-Ellis 3:52
Right, exactly. So if you could go back and talk to Lea during that first year, what advice would you give her?
Lea A. Ellermeier 4:00
I would say, this business is so much more fault tolerant than you think. Don’t sweat every decision. Just keep moving. And I have given that advice to other entrepreneurs, because in the beginning, it feels like every decision I make if this goes wrong, it’s just going to kill the whole enterprise. Right? And I’ll never recover from it. Yeah. So I would tell myself, do your best. And know that if you make a decision that turns out to not be the best decision, you need to make another decision? Yeah, but truly, there are no wrong decisions, because every decision moves you forward in some direction. And assuming that Oh, if I’d only made this other decision, that path would have been clear, is wrong, right? It would have just taken you down a path and there would have been other obstacles that you don’t know about now clay so there is no like silver bullet path, right? You just choose the best one and I think every entrepreneur makes decisions with imperfect information. Absolutely, yes. You, you can’t afford expensive marketing research firms and even if you could, the information they give you is only a snapshot, right? You have to just decide this is what we’re going to do. And unless something really horrendous comes up to get me off this path, this is where I’m going to stay.
Wendi McGowan-Ellis 5:21
Right. And most of that outside research, as you’re saying, as well, is research and in formulas and concepts that are brought up due to past performances. So there’s nothing to really lead an entrepreneur better than themselves on a forward trajectory of what’s coming next, because you’ve got to be inside the business in order to, to have those, those Inklings and that intuition.
Lea A. Ellermeier 5:51
You know, I think I think you’re exactly right. I have seen so many entrepreneurs make decisions that I think, oh, wow, I would never have done that. And it turns out to be so right. Yeah. Because they’re carrying it in their heart, right. And they’re so close to it. And they’re talking to customers, and they’re, you know, hearing different things. And they’re exposing themselves to those elements that are basically feeding that intuition is sometimes that’s all it comes down to, that’s all you have. You’ve got your intuition, you’ve got your gut telling you. Alright, this is the right thing to do. Yeah, I think that’s another piece of advice I would give myself is, it’s okay to trust your instincts.
Wendi McGowan-Ellis 6:27
Yeah. Yeah, because they’re there for a reason. So how much money did you raise? And where did that money come from?
Lea A. Ellermeier 6:36
So from the beginning to the end, we raised about $5 million. Okay. And it came from a lot of different sources. Okay. Our first money actually came from a German investor, a guy by the name of Mr. Glass, our who was kind of infamous, he had run a big fund back in the late 90s. When everything was going great. He’s investing in all these small companies come 2000 2001 when things get tight, you know, there was a big bubble that burst. After September 11, the stock market went down dramatically. A lot of companies couldn’t get additional funding. And he ended up in a bad spot. He lost his fund, but he ended up he went back to court and got it and the reason I bring that up is he was kind of on the blacklist in Germany at the time, okay. He was looking for deals, he was trying to resurrect himself. He had, you know, a fund back in his hands. And he knew us from the prior company. Okay, so our very first money came from him, we did a convertible note. And for those of you who’ve never done a financing a convertible note is kind of an interesting instrument, because it’s basically a loan that says at the next financing this, this will convert into stock, okay, at a price set by somebody who knows more than what we know now. Right? So it covers the investors downside, and there’s always a discount associated with it. Yeah. Right. So for being the guy to come in early and ours was 25%. Okay, so that’s how we raised our first money. Okay. We ended up getting money from angel investors from my my friend. Yeah. We never raised money from what I would call legitimate VCs. throughout that whole process, all that money came from other sources, because we were at a time when VC money was scarce. Yeah. And the other thing is dental is at that time was not a big, hot space. Exactly. They’re looking at Tech, and they’re looking at big tech. They’re looking at, you know, bigger diseases like, oh, diabetes, and let’s cure cancer and right, you know, stuff that people felt good about. This is the other thing I always suspected. Nobody likes going to the dentist. Yeah. Nobody says, Oh, I’m so excited. I’m going to the dentist today, right? Or, oh, hey, I’m getting a root canal. It’s gonna be fabulous. It’s always a little scary to have somebody prodding around in your mouth, you’re always afraid they’re gonna find something bad. So there’s like, a, an instinctual, negative reaction to dentistry? I think. Yeah. So. And investors like to follow trends. Yeah. So if somebody is having success, doing one thing, they’re kind of going that way. Our biggest competitor at the time was a company I’m sure everyone’s heard of called Invisalign. They made those little plastic trays that move your teeth. At the time we were raising money. Invisalign was in a bad place. Lots of investors had invested in Invisalign. And the company had burned hundreds of millions of dollars and their stock was tanking. Okay, so they were sort of the company everybody looked at, like, oh, custom dental devices. Oh, like Invisalign. Yeah, you’re in that bucket. I’m in that bucket and nobody wants to go there. Right now. Of course now they’re huge. And everybody everybody wants to go there but exactly got to think back to the time when nobody did. So yeah. We but in total, we raised about $5 million. And I would also add, if you had told me at the beginning of this, that I was going to have to get a company from start to exit in medical device on $5 million. I would never have even started. Why is that? I would have told you it was impossible. Because I’d always been at companies that burned big money.
Unknown Speaker 10:20
5 million is the Post It note budget.
Lea A. Ellermeier 10:24
I mean, the company that we were at before, I think prior to them finally being acquired, they had raised well over $150 million. Today, there’s a company in that space, I saw that they just raised around a second round. The first round was like 87 million, and now they’re at 102 million. So the fact that we only had $5 million kept us lean. It made us more creative, I think. And the good part about it was, by the end, we still my partner, and I still owned a big chunk of the company. That’s great. So it worked out. That’s a success.
Wendi McGowan-Ellis 11:01
So everyone’s heard stories about nightmare investors. Do you have one? Would you like to share a story?
Lea A. Ellermeier 11:09
I definitely met some interesting people along the way. And my favorite investor story is about a guy in Shreveport, Louisiana. And I will just preface this by saying he’s currently now serving 20 years for bankruptcy fraud and money laundering in a federal facility. So if you go Google him, you’ll see him in an orange jumpsuit. But at the time, he was running a big oil and gas company in Louisiana, and he had a gaming license. So he was had putting video poker machines and truck stops. I mean, really, the truck stops were nothing more than a venue for the video poker got it, which apparently was kicking off about 16 million a year. Yeah, so his investment guys is Oh, he wants to diversify. You got to come to Louisiana. You got to check it out. And we’re thinking, Yeah, perfect. We need three or $4 million in this round. And it sounds like he’s got that money. So you know, we drive to Louisiana. Get there. And the first thing that’s weird is we can’t find the office. Right? I’ve gotten back then we didn’t have good mapping on the phone. So you had to print something out. We’re looking around going okay, where is this address? And finally, we see this little like a Quonset hut. For those of you not from farm country that’s like a metal and brick building out in the corner. like okay, that’s what it is. So we get there and I’m expecting something awful. We open the door. It looks like a New Orleans bordello inside but inside the barn inside the barn. There are very expensive rugs. The largest, most beautiful conference table I’ve ever seen in my life. Like it’s gonna seat 40 people. It’s got burlwood mother of pearl and other semi precious stone inlay. It’s fantastic. But at the end of the conference table, there is a 10 foot high painting of this guy. Oh, my, like his own personal oil portrait portrait. Like if he had been a baronial, you know, yeah, yeah, Duke. Yeah. Back in Indiana. Brown. Yeah, that would be hanging on the wall of his ancestral mansion. And so that was the first weird part. We’re like, wow, this is this is weird. The whole thing was weird. But his his business manager seemed very normal. We talked about it, we tell him about the deal. We pitch it. He’s like, that sounds great. Let’s tonight go have dinner with him. I thought he was going to be out of town, but we’ll have dinner with him. And then tomorrow, you know, you’ll have kind of gotten the awkward stuff out of the way when you meet him for the big pitch meeting. So we’re like, Yeah, great. We go have dinner with this guy. About halfway through the meal. He looks at me and says, Where are you staying? And I said, at the Holiday Inn, it was the only hotel I could find in Shreveport that didn’t have a casino attached to it. Right? Right. And probably didn’t reek of cigarette smoke, which is my overwhelming feeling about casinos. And he goes, Well, why? Why are you staying there? Watch come stay at my house. My wife’s out of town. And I’m like, No, no, we’re good. Thank you so much. I appreciate your hospitality. Oh, I insist. So now it’s weird right now it’s super, super awkward. And I said, I said, I really do appreciate your offer. I’m just gonna have to decline. He said, No, really. I insist. And at that point, my business partner router is with me, and he’s looking a little bit lost. I should say he’s German. It’s a second language. He’s not picking up all the time once and he’s about to lean in and say Sure, no problem. Yeah. And I say No, thank you. We’ve already checked in. We’re good. From that point forward, he just wanted to get out. Yeah. So we all leave the restaurant. It’s very weird in the valet line. And I’m thinking what happened, you know? So the next day, we go to the office, and instead of meeting in the conference room, the deal runner says, oh, we’re gonna meet in his office, he’s got a smaller table, but you should know, he’s on the phone with Sotheby’s, there’s a big auction of Monet paintings, and he’s a collector, and he’s going to be speaking with His representative on the auction floor. But don’t worry, he can multitask. So I give this presentation with zero feedback from this guy. He’s not even looking at me. He’s not nodding. I feel like I’m just talking to a box. Yeah, it’s it’s awful. And then at one point, I see him hit the mute button on his phone, and he looks up at me and he goes, “Did you actually go to graduate school? Or did you get your degree online?”
And I just want to scream. Yeah, at this point, I’m so and I want to cry, which I hate. Right? Yeah. And so all I did, I just sat down. We were about three quarters of the way through. And when Ricker realized that I was not going to keep talking, talking, yeah, he got up he like rushes through the presentation. Um, you know, we get out of there. Oh, right. As we’re about to leave, he said, Uh, I’m supposed to go to Dallas today, I was going to take my plane, but maybe you guys could give me a ride. We could talk a little bit more. And I’m thinking I would rather chew off my arm at this point. Right? Can I just do that instead? Yeah.
Wendi McGowan-Ellis 16:46
Can we call that even?
Unknown Speaker 16:48
Yeah, so Ruedger has the presence of mind to say, “Oh, we’re not going back to Dallas today. Thanks.” And I make a beeline for the bathroom. And I one other piece I want to mention, not only does this guy have a huge gaming business, he has a video surveillance business that he mentions to us that they’re doing you know, I guess when you have gaming, you need a lot of video surveillance. So he bought a video surveillance business. Yeah. So I go to the bathroom, and I just can’t stop myself. I cry. Yeah. And I don’t want it to show so I’m like leaning over the toilet bowl letting my tears drop and so they’re not running my mascara. Yeah. Finally think I’m okay, I stand up and I look up in the corner and there’s a red blinking light. I knew it. I knew that red blinking light. And I’m just mortified. I’m just mortified return I ended up leaving, we go to the nearest place we could stop, which was a Cracker Barrel on the highway. The big rocking chair. Yeah, you know, having an iced tea. And I just think, why am I here? What what got me to this place where I was willing to have this guy treat me this way. I was willing to sit there through the whole thing. Because clearly after the dinner, we weren’t getting any money.
Wendi McGowan-Ellis 18:07
Right? So why so why why even go?
Lea A. Ellermeier 18:12
Why did I go? Why did I subject myself to that kind of treatment? Now I will say when a friend of mine called me a few years later to point me to the Dallas Morning News article about him being convicted for money laundering and wire fraud. I did have a moment of schadenfreude. Yeah, which for those of you that don’t know that term, it’s a German expression for taking pleasure in the downfall of others. And I’m ashamed to admit that I i indulged in that, but I thought, you know, good for you. Yeah. Enjoy that prison food. That’s right. And that orange jumpsuit? Yeah, buddy. Yeah. Anyway,
Wendi McGowan-Ellis 18:50
Yeah. So get your portrait painted in that outfit!
Lea A. Ellermeier 18:54
Put it next to the other one. Yeah. So I, you know, and the reason I tell that specific story is, there’s actually a point other than the fact that it’s kind of funny, is that when you’re raising money, you have to find people whose businesses and interests align with what you’re doing, right? Not all money is good money, just because someone has money. I can’t tell you how many times after that, I would have somebody say, Oh, you should talk to so and so. He’s got money. Yeah. Having money is not enough. Having an understanding of the business that this person, you know, is in having an understanding of what the risk factors are. Just having money is not enough. So from that point forward, I really made a point of diving in when someone said, Oh, you need to go meet this guy. Because the other thing is every time you go in and pitch and you don’t get the money. It just it’s like you leave a piece of your heart on the table.
Wendi McGowan-Ellis 19:53
I was just about to say you leave a piece of yourself in the room and we can only take that so much.
Lea A. Ellermeier 20:00
So there’s much rejection that goes along with starting a company. Yeah. And you just you want to say, “Oh, I’m immune to it at certain point” that I never was. I never was.
Wendi McGowan-Ellis 20:15
Really thank you so much for today and thank you listeners for joining us. We invite you to download and subscribe to this, “Don’t Freak Out Today, Freak Out Tomorrow” with Lea Ellermeier podcast on iTunes, Google Spotify, wherever you like to listen. And please visit Lea’s website at www.DontFreakOutToday.com for links to all her social media resources for entrepreneurs, and to subscribe to her email list, and stay up to date on everything in Lea’s world. You can also there on her site, find out more about Lea’s book, “Finding The Exit,” where you can hear and read all of the details about things that we talked about today and her journey. And check it out on amazon.com where it’s available for hardcopy purchase Kindle format or as an audio book read by Lee herself!
Lea A. Ellermeier 21:14
Thank you, Wendi, and special thanks to our listeners. This is the start of a unique path where each week I’ll be sharing my lessons learned and interview other amazing women with great stories to tell. Remember everybody… Don’t freak out today, freak out tomorrow!