👀 Behind The Scenes @ Collab Capital's Founder Retreat

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👋 Hey from Venture Atlanta

Let’s dive in…

First, let’s celebrate yesterday’s Fearless Fund decision. The article we linked was written by Mirtha Donastorg, one of our favorite journalists at AJC, so tap in if you’re not fully up to date.

One note on the decision. As Toni Morrison said in a 1975 keynote address at Portland State University, “the very serious function of racism” is distraction. Edward Blum, a conservative activist, is a distraction, and the coming appeal will be a distraction. Nevertheless, I’m proud to see us collectively use these moments to come together, organize, and build solidarity amongst us fighting for equitable change and reparative justice.

Alright, back to this week’s note. Last week we talked about bootstrapping. This week, it’s funding and the perks that come with it. As we reflect on it, while capital has been critical to our entrepreneurial journey (Shout out to 4.0 Schools, Camelback, 500 Startups, SoGal, and Collab Capital), access to community and new networks has been just as important.

If you didn’t know, I’m a professionally trained dancer. I was just schooling Bryan and our son about the difference between tendu and second position. That’s why our investors and their networks have become my “Ivy League” education in the business game.

But when you’re not a part of the funded few, how do you get access to these rooms and these conversations? What if you don’t need venture funding or you’re bootstrapping (We see you, Spencer S., from Shuddl).

Enter funds like Collab Capital.

Jewel, Justin, and Barry set out to create a new option for funding that offers more flexibility and nuance than traditional VC funding. And as a port-co, we’ve had the honor of being in privileged rooms with BIG TIME founders like Ben Chestnut from Mailchimp and Joe Thomas from Loom– all of whom have shared their war stories and victory laps. Today, we’re taking you behind the doors of Collab Capital’s 2022 Founder Retreat and sharing one of our favorite talks– Shegun Otulana, founder of TheraNest and Therapy Brands. In 2021, he exited the same company 3x with the last exit being $1.2B.

Enjoy!

💚 Amy & Bryan

Zoom out: Collab Capital & the Founder’s Retreat

Collab Capital was built by 3 former founders who wanted to be the investors they didn’t have and ultimately “transform genius into generational wealth.”

Their SPACE Agreement (Shared Profits and Collaborative Endorsement) allows them to invest differently in early-stage companies because they know that traditional venture funding is not always the best route for a company. Jewel describes it in her blog post, “At Collab Capital, we believe the binary construction of venture leaves too much value on the table and has the potential to destroy businesses that would otherwise be solid, “calm” businesses.” The SPACE agreement ultimately gives early-stage founders the space to decide which path is best for their business.

The trio closed their first fund of $50M in 2021 and are actively raising their next one. In the past 2 years, they’ve invested up to $750,000 in each of their 34 portfolio companies and will invest up to $2M in certain follow-on rounds.

2022 kicked off the inaugural founder’s retreat and conference. Over the course of 2 days, we got to connect with other portfolio companies and hear the intimate, off-the-record accounts of successful founders across industries, including Shegun Otulana.

Zoom in: Shegun Otulana

Shegun Otulana, founder of TheraNest and Therapy Brands, had a $1.2B exit back in 2021. The Nigerian native and Birmingham local has been featured in a number of publications. However, it’s not lost on me that he didn't get the “big tech founder shine” like many other unicorn exits have. It’s all gravy though, because we got permission to bring this intimate, off-the-record conversation to you and to share some of our biggest lessons and takeaways.

We don’t have the video to share; again, the convo was off-the-record, but I promise his story will help you…

1. Think about how to best leverage speed and efficiency

2. Create space when it’s time to stop and retreat (made us think of Steve Jobs and “No Time”)

3. Understand how you can exit multiple times from the same business.

Risky Business

TheraNest is practice management software for therapists, psychologists, social workers, and counselors. A major throughline of the conversation with Shegun was risk. As a founder, he makes it very clear that his objective was all about assessing risk and then de-risking those risks. Every decision he made was based on the level of perceived risk and ways he could ensure success. From running a capital-efficient business to navigating 3 exits in the same company, his steps were calculated and well-planned. Don’t worry, we’ll get to those 3 exits. First, let’s start from the beginning.

1. Know thyself: Consulting with a purpose

Shegun’s entrepreneurial journey started as a consultant. But for him, consulting was more of a testing ground to gauge which problems could be interesting enough for him to pursue. He created a set of criteria that allowed him to better discern which problems would be worthwhile for him as a founder based both on his expertise and his desire:

1. The problem needed to be able to be solved with a SaaS product

2. The product needed to be in a large market in terms of revenue but also customers. “I pretty much saw myself as a Black guy with a funny name, funny accent, and with no background. I didn't go to an Ivy League school. I'm not going to put myself in a situation where I can't even get in the door into really large companies. I needed to make it easy for myself.”

3. Needed to be in an industry and with a group of people that he could see himself serving for the next 10 years of his life

4. The problem had to be big enough that he could build a large team around it because he thrives within a team environment

5. The solution couldn’t require a large outbound sales team to be successful, at least at the beginning.

If the problem or potential solution didn’t measure up to all 5 criteria, he’d move on to the next one.

2. Speed in all the right places: It’s not just about growth

Be Quick to Learn: As a first-time tech founder in a space he knew nothing about, Shegun had to get up to speed fast. He had to learn about the industry. Then he had to learn about demand gen. He consulted other founders across industries in the area and he did in-depth research on SEO and how to drive more people to his site.

Be Quick to Fail: An expectation Shegun had for his team was for them to “go learn, think about what you learned, and apply it here.” He offered a book stipend so employees could buy books. He needed to ensure his team had the knowledge and the know-how for experimenting, failing, and trying again. “Making mistakes quickly and course-correcting gets you to positive outcomes faster.”

Be Quick to Decide: There are two types of decisions Shegun lives by – Type 1 and Type 2 decisions.

• Type 1 decisions are irreversible or very hard to reverse and should require more deliberation.

• Type 2 decisions should be all about faster iterations and learning. He believes “in the world of start-ups, if you’re 60% confident about something, you should do it.”

With this framework, he empowered his team to be able to make decisions quickly so they did not feel the need to get permission before experimenting or trying something they believed would be beneficial to the company. It also freed up his time because it was clear when he needed to be in meetings vs. not and when he needed to be informed vs. not. 

Be Quick to Grow: For Shegun, his main levers of growth were a combination of buying and growing. In 2018 he had a recapitalization of the company that allowed him to get funding for acquisitions. This was when Therapy Brands was born. When he was ready to expand into a new market or customer type (e.g., go from psychotherapists to behavioral analysts), instead of building a product, he’d buy a small behavioral analysts software company, apply TheraNest’s growth strategy to this new company and see growth catapult from there. He used this strategy for telehealth, a clearinghouse, and community mental health.

Be Quick to Fire: Trust and being 100% all in mattered most for Shegun as it relates to his employees. “We would have debates about stuff. And then we'll make a call. Once we made the call, everybody was in it. Then, let’s say we fail, and you say: “I knew that wasn't going to work.” Then you will get fired. You should have said that way earlier. Whether we agreed or disagreed with you, you should have put all your freaking energy into making sure that what you knew did not happen.”

3. Slow and consistent in all of the right places: Efficiency is key

Shegun raised $250K in angel investment 8 months after launching the company in 2013. From 2013-2017, Theranest operated on revenue and was profitable. To do that, he had to be very methodical about how, when, and where cash was or was NOT spent…

• Efficient Customer Acquisition Channels: Instead of going to tradeshows, he focused on SEO, nailing the messaging and the branding. While most of his competitors were at tradeshows, with his skillset (he did not see himself as a salesman), he could not guarantee the value he’d get from a trade show in relation to the capital needed to pull it off. “While our first year was slow growing but consistent, we found some great customer acquisition strategies that produced great results and were very capital efficient. We doubled down on them in the subsequent years leading to efficient hyper-growth.”

• Efficient Hiring: Shegun’s core metric was customer value, so his first hire was for customer success. For the first year, he only hired 3 people. After that, he hired globally and treated outsourced team members like regular employees. He didn’t spend on large or extravagant offices. But instead, built trust and a culture focused on their core metrics. “Don’t use your equity to buy fantastic snacks.” 

4. Know Thy Customer: They are the ones who pay the bills

Shegun hosted a lot of customer discovery calls and made a lot of decisions based on his close proximity to the customer and their problem. Because of what he was hearing from customers, he was able to stay focused on what they needed even when veterans and investors said otherwise. For instance, Shegun heard that his customers did not want to be sold to like they were big enterprises or hospitals. Instead, they wanted to adopt a product similar to how they could with Quikbooks. Many investors frowned on this and even passed on investing because their experience told them otherwise. But Shegun held true to his convictions because he truly knew what the customer wanted. “You can build a product that you think is amazing, innovative, and exciting, but if you’re not delivering value to customers at the end of the day, you’re likely to fail.”

5. Solo Retreat: Know when it’s time to pause

Regularly, Shegun would take solo 2-3 day retreats. At first, it was to nearby hotels, later it got more fancy. But the objectives were all the same: limited to no access to the outside world and allowing himself the space and time to reflect on the past and plan for the future. “Some of the biggest inflection points for the company have come as a result of these retreats. I usually take day one to unwind and take things out of my head into a journal. I bring prior journals and revisit past sessions on day one to see how the journey has gone. I pray and meditate to center myself on the present. Usually, I come into my retreat with a couple core areas of focus and that’s what I will typically dwell on and make decisions about.”

6. What about those exits though: The 3-for-1 special.

Let’s talk about these 3 exits right quick:

The first exit was in 2017. Shegun wanted to de-risk himself and his family in any case something were to go wrong, so he sold several of his shares to a PE group while maintaining majority ownership. This exit changed his life the most.

The second exit was in 2018. The company was growing significantly… again (it was at about 400% YoY). Shegun then came up with a strategy to maximize growth by buying smaller companies in relevant fields. TheraNest had another recapitalization. He describes it as “access to non-traditional capital” where 2 more investors came in and bought more of his shares and some shares from the initial partners. This exit catapulted growth.

The third exit was in 2021. KKR purchased TherapyBrands for $1.2B. At this point, the company had up to 700 employees. For Shegun, this is the exit that felt like he had completed the task: “The third one was meaningful because I felt like I took these people on a journey, and I gave them this final destination and I was done.”

Shegun noted that because the company was growing rapidly, each round of funding allowed him to command a 10x+ multiple on his ARR.

This is the stuff entrepreneurial dreams are made of!

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