Balancing Debt and Equity – Brian Parks

Brian Parks:
We, like anyone providing capital, has our own diligence process that we’ve honed over the years. And tax returns would be part of that business. Tax returns and diligence. But, you know, what we’re trying to do is, as quickly as possible, get a sense for the fundamentals of the business. The way I think about our underwriting is it’s 30% science, 70% art. It’s not really art, but it’s qualitative, because the fundamentals of these b, two b software companies at this stage are relatively straightforward. You’ve got selling software, you’re generating revenue off of it. You may have a few different revenue streams or way you monetize, and then 70% of your cost structure is.

Brian Parks:
That’s got it.

Dana Robinson:
Exit Plan is a podcast for business owners and those who want to be business owners. I’m always in search of the lesser.

Dana Robinson:
Known stories of entrepreneurship.

Dana Robinson:
In the exit Plan podcast, you’ll hear stories from startup to sale and hear from the professionals who helped business owners achieve their exit. Hosted by me, author and private equity manager Dana Robinson, along with my co hosts and guests, you’ll hear real stories, tips, and tools that will help you plan for the exit you want, whether you are still working at a day job or running a business. Let’s get started with this episode of the Exit Plan podcast.

Dana Robinson:
Hey, everybody, it’s Dana Robinson coming to you with another episode of the Exit Plan podcast. Today I have a guest, Brian Parks, who is in a world that I’m curious to explore live and in real time with him. Brian, thanks for coming on the podcast.

Brian Parks:
Thank you for having me.

Dana Robinson:
So, I don’t know if you know this, but I’m an early stage co founder with a sass.

Brian Parks:
I did see reference to that on your website. Yes. I’m blanking on what exactly it does, but yes.

Dana Robinson:
Yeah, so. So. And then. And then I’m just shuttering a sass that I helped co found, like, six years ago. So I’m a serial failure SaaS entrepreneur that desperately needs help. And there’s something about your resume that says, maybe you can tell me something that. That I’ll come away with. And.

Dana Robinson:
And maybe. Maybe some listeners out there are trying to get their SaaS or their business up and running. And I’d love to talk about anything, you know, because I don’t know enough.

Brian Parks:
Wow. All right. Where’d that begin? Yeah, that’s something. That’s something right there.

Dana Robinson:
Let’s talk about, like, just start with what you know, like, I hate introducing people, so let’s talk about what are you, who you are, what are you doing right now? And then make me your pupil.

Brian Parks:
Yeah, absolutely. So what I’m doing right now is I run a firm called Bigfoot Capital. We are a lender to b two B software companies, SaaS companies, other business models. B two B marketplace could be selling software in a transactional format, but some core concept of selling software to another business and monetizing it some way. And so we’re providing those companies with non dilutive capital in the form of loans. Some of those companies are venture backed. Some are fully bootstrapped. Some are kind of in the in between having raised some angel money, we’ve been doing that here under the Bigfoot banner since 2017.

Brian Parks:
So coming up on eight years, we’ve worked with 54 companies, and it’s gone quite well. And that’s kind of companies of all sorts, verticalized, horizontal, go to markets again, bootstrapped, venture backed enterprise software, SMB software. So we’re not thematic. For us, it’s about, hey, can we plug into a situation and a growth plan, an investment plan that we think makes sense and that we align with and can we partner with operators that are of, are grownups and that are taking the long view. They’re not just kind of super transactional and trying to make a quick buck. They’re actually committed to their businesses. So we actually tend to think of them as established companies. So for us, that’s kind of companies doing two to $15 million in revenue.

Brian Parks:
I think you probably, Dana, know how non trivial it is to get any company and software companies to a couple million bucks in revenue. Not easy. So that’s what we do. Rewind the tape. So I kind of started my career in traditional financial services, lending at a bank and then into m and A. So it’s been about five years as an m and a investment banker, not within tech, which is meaningful looking at your background. So working with real companies that had cash flow and EBITDA and oftentimes some assets, none of which had raised venture capital, many of which ended up selling for a couple hundred million bucks, whatever it was, and they didn’t do it in three years. It took 1520 years, what have you, and ultimately, there’s some really good outcome.

Brian Parks:
So that’s what I grew up in and then got sick of being an investment banker and wanted to be an operator and happened to do that within tech. So in 2010, I moved into my first kind of operating role at a technology company and did a few stints at various technology companies, including starting an enterprise software company in 2012, a company called Brand Folder, which ultimately was rather successful. It sold to a publicly traded company called Smartsheet in 2020. So it’s about an eight year run to get to that. Exit. Company didn’t raise a lot of venture. It raised some. It raised about $10 million, which is a decent chunk of change, but it’s not 50 million, and sold for about 150.

Brian Parks:
So it had a very good return on that capital and was able to have, again, in my view, a good nine figure exit that didn’t have to be a unicorn, didn’t have to be a billion dollar outcome. And it worked. It worked for the preferred equity investors. It worked for the common equity investors, it worked for the employees. Like wonderful. So I want to see more of those types of outcomes. And the exit value doesn’t have to be 150 million. It could be 30 million.

Brian Parks:
You’ve seen those types of outcomes as well. Where three guys start a company, three guys are girls, they retain 80% of that company, maybe they raise some equity and they sell for 30. Guess what? They’re getting $8 million apiece. Like, life changing money. And I think, anyways, so financial services, lending to software companies, operating software companies in the middle. So, you know, what I led me to start Bigfoot was I had raised angel money. I’d raise venture money. I had a bunch of peers that had done the same, and it just felt like a one path to be taken for these types of software companies.

Brian Parks:
That wasn’t the case in the broader world of business. Like, I sold recycling companies. I sold a little Caesars franchise for $40 million. That was printing money, putting out $5 pizzas, sold other types of businesses that weren’t venture backed software companies. It’s like, look, there’s other ways to go about doing this and building successful outcomes over time and capitalizing it along the way, be that private equity bank debt, subordinated debt, whatever it may be, or just pure bootstrapping. So I wanted to bring that to the software industry and help be able to foster outcomes that, to me, were successful ones that didn’t require ringing the bell on the Nasdaq or, you know, raising hundreds of millions of dollars to be viewed as successful.

Dana Robinson:
I love it. That’s fantastic. And the, I love the. I try not to bug everybody to buy my book, but every now and then, I got to plug my own stuff on my own podcast. I wrote a book early, published it earlier this year, called the King’s Fly Swatter. Basic thesis. It’s a parable, but told with my and my different part, business partners sort of business journeys that where you get to is a product of a lot of learning, essentially that, you know, the guy that this sort of servant swatting the flies behind the king listens to the king and then gets a mentor who applies that knowledge. And they learn very slow and incrementally all of the things that make them very wise.

Dana Robinson:
And of course once they’re very wise, then they, then they have the power and use that to create the economics. I don’t always get this on the podcast, but I love a story that’s a little circuitous. And I’ll just point out that yours is, I spent a little bit of time as an investment banker, which is like a real estate broker for businesses. Anyone listening to this, that’s an insult probably to the FINRA series. 79 holders.

Brian Parks:
Yeah, I saw. You are fender registered, aren’t you?

Dana Robinson:
Yeah, I got rid of it. It’s not worth the. Yeah, the, but you know, like reflect a little bit for me about the experiences that you gained at these things that, you know, you go from a guy who could broker little Caesars to a guy who can kind of get in and operate a business to a guy that’s now bringing capital to businesses that, you know, that that’s a long. It’s a. That 1015 year journey through all of those different life experiences, each one of which you didn’t know you’d end up eventually managing. Fun.

Brian Parks:
Not at all. Not at all. Yeah, so I’d say that, you know, it’s kind of. I graduated college in 2004, close to a 20 year journey at this point. And yeah, no idea. Moved out to Denver in 2006, didn’t know a soul. Moved out here for an investment banking job to get out of Memphis, where I was working at a bank. Just wanted something different.

Brian Parks:
And I’m still here now. I’ve got a wife and two kids. I just didn’t expect that. But the roots have grown and I’ve started two companies here at this point. So I think what I found in investment banking and I did a format of investment banking that I actually really enjoyed, that is I didn’t have to work with assholes and I didn’t have to be a monkey just stuck in a cubicle cranking spreadsheets. Cranked a lot of spreadsheets. But it wasn’t Wall street bulge bracket investment banking. It was a 25 person boutique bank in Denver doing lower middle market primarily sell side mergers and acquisitions.

Brian Parks:
I also did some buy side work. So helping companies buy it was very interesting, but I got to work with really good, fundamentally good people who were also very talented, many of whom had been trained on Wall street and said, screw this, I want to go better quality of life. But I still like doing this line of work. So as a 24 year old, that was great. It was a massive accelerant for me, kind of in my own learning curve within finance. So I used the little Caesars example that these were serious transactions, a lot of leveraged buyouts, a lot of work with private equity, a lot of whatever. So built a very solid core kind of financial acumen, I would say in deal acumen to some degree, and research acumen, getting smart on industries, what have you in that job. Moving on to the operational side.

Brian Parks:
And then I kind of felt like I hit a ceiling. Don’t know if I actually did. I was still relatively young, still 27 or whatever. 27, 28. Probably didn’t know what the hell I was doing in terms of generating business for an investment bank, whatever. I wanted to go build something. And so that’s what led me to be the first employee, along with the founders of an online travel distribution business, spent about 18 months there. That company ultimately didn’t make it.

Brian Parks:
I learned a lot there. Some of the core things I learned there were we spent way too much money, in my view, developing tech, that at the end of the day, it was kind of a content management system. We were a distribution platform for higher end, kind of hotel ish inventory. And so you had to build the supply side, which we did, which wasn’t that hard, because we were just a free distribution channel for them. Then you had to build the demand side, which was quite hard, a lot harder than building the supply side. So we never really cracked that nut of the demand side, and we spent arguably too much time, effort, brain, and money building software that at the end of the day, I just need to be able to onload inventory and show it to someone.

Dana Robinson:
Yeah, yeah. So the. Let me just pause on that, because this is like, I’ve seen this, and I’m always curious in my own business, you know, the things I’ve invested in, whether it’s, you know, we’re repeating history.

Brian Parks:
Yeah.

Dana Robinson:
You know, you can get the content or the supply of something.

Brian Parks:
Yep.

Dana Robinson:
And then you basically just need to transact that. But you get hung up with somebody’s dream of a product. Right. So you’re like, no, people will use this thing. And what you’re saying, in retrospect, is you could have almost faked the software, manualized it and just done the service and said, there’s a proof that we can completely.

Brian Parks:
Yeah, I mean, I think the sexy vision there was to disintermediate the travel agent for this type of bespoke property. So not booking a 300 square foot hotel room that you can get through over its drive, travelocity, whatever, booking a three or four bedroom property that may be tied to a hotel, maybe they’re more premium inventory than they had a hard time marketing, whatever. But at the end of the day, the hardest thing to do was to build the demand side, which is always the hardest thing to do. The tech was not the hard piece. So I did a bunch of stuff across that business, which is cool, great, awesome, scratching a niche and me learning things I didn’t know at that point in time, which was really cool, and then ultimately decided to leave. I got pretty close with our senior engineer and I was like, man, coding is really cool. This is really interesting. I’m really good at spreadsheets.

Brian Parks:
And I left and decided to go to a coding boot camp. One of the first ones is called Dev Boot Camp. Moved out to San Francisco, I thought, and it didn’t go there because I wanted to be a software developer. I went there because of what I kind of just tried to convey of, hmm, feel like if I’m going to want to start one of these software companies, I don’t want to get hoodwinked by developers and spend way too much money. I kind of want to know how to talk the game, know what’s going on, understand some of the technical aspects of products I may want to put out into the market. So went and did that, came back to Denver. Worked as a ruby on rails developer for like two months. I was terrible.

Brian Parks:
I was just learning. And then got approached to start a company, which is this company brand folder. One of my ideas, a couple of guys that were busy with their own day jobs. One guy had sold a company to Yahoo. The other guy was at a company called Matt my fitness at the time, which ultimately sold to Under Armour. So they were busy, but they had an idea which ended up being a nascent idea that turned into a really good product over a number of years and ultimately had a successful outcome. But what I was in that role was the founding CEO, built the initial team, brought on my technical co founder, still a really good friend of mine to this day. We built the initial version of the product.

Brian Parks:
We had no idea what the hell was going on, no idea. What we ultimately ended up being was a digital asset management company acronym for that is dam. It’s a pretty sizable market that’s been around for a while. We had no clue. We were like, we’re a press page. We’re going to be on everyone’s website. What it was meant to do was house digital assets, logos, font, color, files, imagery, what have you, and put them in a place where they could be not only stored but regulated and adhered to, to adhere to brand guidelines, and you can know where they were going and who was sending them out and that, you know, things weren’t being bastardized. That only matters to some subset of companies that have spent money on their brand, care about their brand, and have a lot of brand assets.

Brian Parks:
So first iteration was like, oh, we’re going to. You know, it’s a press kit. And it’s like, no, it’s not. No one cares. If they have their startup and they have a logo and no one cares, they’ll keep it in Dropbox, right? So, we’re trying this freemium model, signed up a bunch of companies, and, like, conversion was terrible. So I don’t need to go into everything, but I was basically the pre product, market fit CEO whose time ran thin ultimately and got to kind of log our heads with the board so close with some of those guys these days, many years later. But at the time, it was hyper stressful, and, you know, we were burning cash. We’d raised a smidge of money at the time, but I.

Brian Parks:
We had no idea. We didn’t know damn existed and that there were 30 competitors, which doesn’t mean you shouldn’t go to that market and out compete them and beat them, which we ultimately did, because there was a lot of legacy software. We had better product, better ui, what have you, but we had no idea. And it’s like, oh, oh, okay. Oh, and freemium doesn’t work. I guess we better go try to sell this to somebody. I remember our first deal was, like, health one, I think, who may still be a customer. I don’t know.

Brian Parks:
It was like three k, and then the next one we sold was like some swimwear company, and it’s like, so we’re cobbling together, but no sense. That was one of the challenges with that type of business is it’s such a horizontal product that verticalizing is arguably easier in some instances. Lookalike customers. You know who to go after, and there’s different ways to acquire here. It was just like blue Ocean. Everyone’s got a brand. Everyone’s got brand assets. Everyone needs a brand folder.

Brian Parks:
It’s like, no, not everyone does. Ultimately, it worked. Great ton of learnings. I wrote some about that experience. It was a very formative experience and especially very relevant to why I ultimately started Bigfoot in a lending capacity rather than being, say, an equity investor to help these companies again with growth capital, but try not to put them, try not to have the clock tick so loud and so hard and so quick, which when you raise equity capital, the clock is ticking in a rapid fashion, rapid format. The expectations are very high, you raise some capital, and the pure venture model expectation is you’re going to raise more capital in 18 months. You’re going to have grown a lot, you’re going to have tripled or doubled a lot, and then raise that next money. And you keep doing that until you’re $100 million ARR and you’re unicorn or whatever.

Brian Parks:
It’s like juxtapose that with back to my banking days of a recycling company, a healthcare company, whatever company was able to take its time and take the long view, kind of, you know, the book you just wrote, learn incrementally, improve over time, rather than just trying to race to that as quickly as possible, which I think is just unfortunately a fool’s errand for so many companies that get caught up in that. And ultimately one or two spit out the top and are wildly successful. And that’s the game within venture. But I’m not anti venture, by the way.

Dana Robinson:
Yeah, well, I mean, I don’t know if I’m anti venture or not. I think it depends on the deal. I’m appreciative of the ventures risk tolerance to get novel ideas off the ground.

Brian Parks:
Absolutely.

Dana Robinson:
So debt. Debt scares start. I’ll speak to a startup that I. Four letter word, debt is scary. We’re taking safe notes into this stage of the business because it’s pre revenue. Yeah. Why is debt scary and why does it not need to be? And how do you speak to. You must have to talk people through this to get them to understand your value proposition versus raising another round.

Brian Parks:
Yeah, absolutely. That’s scary because that has to be repaid and it’s got recourse to it. Some doesn’t. There’s unsecured debt that has no recourse. But your mortgage has recourse. Don’t pay your mortgage, someone can come take your house. It doesn’t happen all that frequently. Don’t pay us.

Brian Parks:
We’ve got a secured position on your company. We don’t take personal guarantees. We’re not coming after people personally, but we’ve got to have collateral for these loans. And that is the company and its assets. Now, it so happens that within software, there aren’t many assets, right? So buildings, there’s no equipment. It’s, you know, it’s iP, much of which is not protected. So really it’s. And there’s not cash flow either, because companies are burning.

Brian Parks:
So it’s like, okay, we got security, but like, so you know, what I say is, don’t borrow too early. We would never lend to a pre revenue company. Some lenders will pure play venture debt lenders will. It’s like, great. But they’re only going to do it if you just raised a bunch of equity. It’s great. You just raised $10 million. Here’s another three, which you don’t really need right now, but because you just raised ten, but that three should get you six months of Runway extension.

Brian Parks:
The ten is 18 months. Three, six. Now you got 24 months. Great. We would never do, this is not what we do. We would never lend pre revenue. We won’t lend below $2 million in revenue, which is still not a ton of revenue in the grand scheme of things. But most of the companies we work with that are at that scale.

Brian Parks:
Most of the companies we work with are like 5 million revenue. Got some ten, you know, ten plus, but call it five. And it’s probably taken them eight years to get there on average or median. Right?

Dana Robinson:
Yeah.

Brian Parks:
It’s not some overnight thing. They’ve raised some money along the way. They’ve made a lot of mistakes. They’ve learned a lot. There’s a lot that’s been done to establish these companies by the point we come in and that’s important to us and should give the operator confidence as well that they can take on this form of capital. So don’t do it too early and don’t do too much of it. We see folks make that mistake and say, look, we’re not going to overlever you. We’re not going to put too much debt on your company because that’s a disservice to everyone.

Brian Parks:
It doesn’t do us any good. Doesn’t do you any good. So let’s try to right size that for something that we think actually can be workable and not overly constraining to the company. Super important. So like I said earlier, we don’t want to box anyone. What I tried to say, we don’t want to box anyone into a corner with our capital. Say, hey, look, here’s some money. Let’s not heap it upon you.

Brian Parks:
We compromise your health and then you can kind of go whichever way. We’re not saying, oh, you’re a failure. If you don’t raise a venture round in twelve to 18 months, you could raise a venture round. That certainly happens with some companies we fund. You could raise a private equity round that happens. You could sell to a strategic, you could do none of those in cash flow. You could grow to a certain level of revenue. Maybe you go from five to 15, and that opens up your universe of lenders, even above us, that weren’t interested in you when you were five, and they’ll loan you 15, and we don’t write $15 million checks.

Brian Parks:
So it’s just about, like, any of those things can happen. And if we don’t over lever you, and if it, and at some point you’re like, I just don’t want this debt anymore. It’s like, okay, it’s reasonable relative to your scale that you can pay it off in some capacity. Does that make sense?

Dana Robinson:
Yeah. Talk about the sort of economic structure for anyone listening. I mean, I have a lot of, I get a lot of people that hit me up kind of in this inflection point where they’re, you know, they’re making a few million dollars a year. They can’t grow unless it’s like, look, I could buy this, you know, customer base or, you know, this content that I could in license. I need to deploy capital to get it. And immediately, you know, a good example, one of the businesses that I helped grow and take to private equity exit was audiobook production. And we took equity early on, and it turned out to be really bad for us. We lost control, you know, halfway through that business, and we.

Dana Robinson:
But debt wasn’t ready for audiobook. Slow dribble of money, you know, of course it’s grown exponentially. Well, you know that the recorded books roll up, sold to KKR, and it was part of that. Like, what’s the, how do you get debt? How do you know how much you can borrow? You know, what’s what? You people used to go into the bank and the bank says, give me your taxes. And they tell them they can’t have any money.

Brian Parks:
Yeah, I mean, look, if you’re in b two b software, you talk to me. I’ve been in this market for close to ten years, so I know the players and I know, and I’m gonna shoot you straight. Right. Of course, I’m trying to grow our portfolio. But, you know, we, as does any lender or equity investor, have our own criteria and parameters. And where we play from a check size standpoint. So I think it’s, you know, in most, you know, so it’s discovery. So if you’re an operator who has no idea about the debt universe within whichever sector you’re in, the first thing you got to try to do is understand who provides it.

Brian Parks:
Right? So, yeah, it’s like any capital formation you gotta, or sales, like raising money. You’re running a sales process. So who provides the type of thing that I’m looking for? Okay, can I go to their website and see what they actually do? Okay, cool. Bigfoot doesn’t lend to pre revenue companies, so I’m definitely not gonna talk to them. But I see that maybe they’ll start as early as 2 million in revenues. Maybe I’ll talk to them when I’m there. Right. So it’s the research exercise.

Brian Parks:
It’s reaching out to those folks and seeing if they’ll take a phone call or respond to an email. And you’re trying to learn because maybe you haven’t done it before. Maybe you have done it before, but in a different sector. Or maybe you did it before, but it was ten years ago and things have changed. I don’t know if I’m addressing your question as to how to find out about it.

Dana Robinson:
Dana Robinson here.

Dana Robinson:
Quick plug for my book, the king’s fly swatter. You can see it here behind me.

Dana Robinson:
If you’re watching this. Got it in my hand. It’s a beautiful hardcover book, printed to make it giftable. Something that you can share with a family member buy as a gift.

Dana Robinson:
So this latest book, it’s a fable about a person who has a really crappy job. Let’s just start there. This is a book that most people can relate to because we’ve all had crappy jobs.

Dana Robinson:
This is the story of Ubar, a.

Dana Robinson:
Servant in the court of a babylonian kingdom who masters his boring, monotonous job and then learns to listen to the king, hearing him rule the kingdom while quietly swatting flies behind the cane. Eventually, Hubar becomes the wisest and most successful man in the kingdom. The story is fun, and it’s easy to read, but it’s not mythology. It’s my story. And as I shared the idea with colleagues and friends, I learned that it was their story. And guess what? It’s your story if you’re at a job of any kind, one that you love, one that you hate, one that’s just enough to get by. This little book gives fresh perspective on how to leverage that job to get you something greater than a paycheck. The lessons in this parable are entrepreneurial lessons, but not what you might think from the current entrepreneurial zeitgeist.

Dana Robinson:
If you or someone you know are looking for a real pathway to entrepreneurship, here’s the secret. Your job is the way out of your job. It’s counterintuitive, but once you see how it works, you can’t unsee it. Learn the way of the fly swatter from the parable of Ubar and from the stories I share from my 30 year business journey. You can get a free copy of the King’s Fly Swatter by going to danarobinson.com.

Dana Robinson:
Yeah, I love that. No, it is the. Because I literally had this question with a client that, an old legal client of mine, and I said, well, I know a bunch of capital providers, because I’ve spent two years going to capital markets where I’m at conferences with debt and equity providers, and they all literally have business cards that says check size. You know, like I’m. You know. Cause you kind of want to know, like, what’s your check size? What’s your, you know, we loan it three to four times EBITDA. We, you know, we don’t enter the market until you have x dollars. We’re an SBIC fund, so we only loan loan in the US.

Brian Parks:
Right.

Dana Robinson:
You know, you. You basically, as the operator, can network into that, and then you start asking those questions and you learn, oh, well, I better be sure my accounting is such that I have GAAP style accounting so that I can produce an EBITDA number, because that’s what people are going to use to evaluate what they’ll loan to me, at least in private capital. Private debt.

Brian Parks:
Yeah. So, you know, we, like anyone providing capital, has our own diligence process that we’ve honed over the years. And, yeah, I mean, tax returns would be part of that business. Tax returns and diligence. But I. What we’re trying to do is, as quickly as possible, get a sense for the fundamentals of the business. So, I mean, the way I think about our underwriting is it’s 30% science, 70% art. It’s not really art, but it’s qualitative because the fundamentals of these b, two B software companies at this stage are relatively straightforward.

Brian Parks:
You’re selling software, you’re generating revenue off of it. You may have a few different revenue streams or way you monetize, and then 70% of your cost structure is headcount. That’s kind of it within your cogs. You’ve got to pay Amazon or wherever you’re hosting, maybe you have some customer success, people you put up there, but your opex is people and discretionary sales and marketing and some rent. It’s not overly complex. And then what we have to do is just dig into the underlying detail beneath all of that. Understand the projections, understand the historical capital formation. You can do that relatively quickly when you’ve looked at hundreds of these things.

Brian Parks:
But that’s the very top of funnel for us and we want to be very efficient there because we want that to be wide and we want it to run quickly. We don’t want to jerk people around. So say hey cool, I just heard you’re a us based B two B software company. You got $2 million in revenue. Just send me some stuff and we’ll very quickly I can give you a go no go. Unless I heard something on the initial 20 minutes call that just clearly made it a no go. And then if it’s a no go what I want to do is tell you why and where I think you could go. Right.

Brian Parks:
And then if it’s a go, post term sheet and confirmatory diligence, we’re going to dig quite a bit deeper before we actually fund.

Dana Robinson:
How’s debt in the. You have revenue but you’re burning from a cash flow standpoint is that still a lendable business or do you need to debt service with the cash flow?

Brian Parks:
Yeah great question. What I’ve long said is we cash flow lend to companies that don’t cash flow. And what I mean by that is there’s two primary forms of lending, asset based lending and cash flow lending. Again, these software companies are very asset light. You can’t oftentimes there’s not even. So asset based lending is against equipment or machinery or real estate or accounts receivable or inventory. Software companies dont have any of that. They may have some accounts receivable but its often minimal.

Brian Parks:
What we lend against is their revenue because its meant to be sticky and highly recurring. Thats the promise and very high margin. From a gross margin standpoint thats what we predominantly lend against. Its great if a company shows up with cash flow its just not the norm. I would love more software companies to actually generate cash and I think the interesting thing is I think a lot of these software operate and this comes back to a lot of software operators and this may get a little bit ageist have never done anything other than operate within software and the capital markets tied to software and Techcrunch and Twitter narratives and VC narratives tied to software. So they don’t know, the broader landscape of finance and that there’s this whole universe of Eva positive companies that do whatever the hell they do and that borrow money based on that cash flow. And so, like, some of the thing is, well, if I generate cash, why do I need any cash? It’s like, do you understand that in the broader universe, like, companies can only get cash if they generate cash? So it’s just like, I don’t know. It’s this one.

Brian Parks:
I’ve been battling that for damn near a decade, and I’m like, there’s still a lot of education to be done.

Dana Robinson:
Yeah, I mean, I guess for those that are learning from our conversation right now, I mean, if I each lender, a private capital provider that loans money, has basically claimed to their investors they have some expertise, and then they basically want to deploy within that expertise because it’s de risking. You can’t afford to make bad loans very often.

Brian Parks:
No, no.

Dana Robinson:
What that also means is that there’s probably 100 different versions of debt that can come into a deal, as you say, with. Obviously, I’ve heard of a broker in Southern California that pulled off a loan that had, like, five different angles to the debt because there was enough inventory for an inventory alone. There was enough equipment for an equipment loan. It seemed thin in each thing, but when you aggregate all those and then you sort of combine all of it, they were able to put together a debt stack that was adequate. And I think a lot of businesses that, I mean, I know as a buyer of businesses, you see a lot of businesses, and this is a good opportunity for buyers where the seller hasn’t done the things that, you know they need to do, and they don’t do those things. A seller who’s, like, struggling doesn’t do those things because they don’t, quote, have the money. They’re using the money to live the life they live. Right? They built a lifestyle business.

Dana Robinson:
They’re like, my business is fine. I make good money. And you go, well, look, you. If you just had a sales driver and a sales team and higher up, well, that cost me $500,000. That will erode my ability to enjoy my life this year. The reality is, if the revenue is there and they would like to continue keeping their nice lifestyle, they can borrow to have that. And, for example, using sales, they might make all of that back, all that investment back pretty quickly. And then, in theory, guys like you are experts in their niche.

Dana Robinson:
So you can look at that and go, yeah, absolutely. This investment will drive, it’ll be accretive in the amount of time we need it to be to service this debt.

Brian Parks:
That’s the exact right word, accretive. Right. So, yeah, back to you. We’re typically lending the companies that are not cash flowing, or if they are cash flowing, it’s sporadic, it’s not, it’s not what they’re optimizing for. Software companies, at least historically speaking, have not optimized for cash flow generation. It’s all growth, growth, growth. Now, the market tech has been, in my view, in a recession for the past almost two years. In a tech recession, even though we’re not in a broader recession, growth has really gotten harder to come by.

Brian Parks:
There’s been a pendulum swing to more focus on profitability, but that doesn’t even mean they’re cash flowing, which means, oh, we’re getting the p and l profitability, but still cashflow negative. We are lending to cash burning companies, but yeah, it’s about understanding what you can leverage and what it can do for you and back to accretive for us. For instance, at the end of the day, if we’re making a three year loan, we’re looking for something like 1.4 x that back. That’s what we’re looking. A million dollars. We want a million four back. If you don’t think you can generate more than that over that three year term, you shouldn’t do it. But if you can generate 1.5, maybe it’s even worth it.

Brian Parks:
Maybe it’s not because you don’t like the risk and that’s too skinny. Can you two x the money? You don’t have to ten x the money.

Dana Robinson:
Well, look, if you look at your valuation, if you increase that business only the amount that it took to repay the debt, you’re adding in your scenario, $500,000 a year to revenue. I don’t know if SaaS valuations are still ten x revenue, but to use a round number, that’s a $5 million increase in value for $400,000 in loans and interest.

Brian Parks:
That’s a great way to think about it, man. I should start saying that. Am I helping you? That’s why it’s good to have these conversations. Absolutely. But you’re right. I think back to debt is scary. Or maybe people have directly have had poor experiences with it, or just heard of, you know, maybe that’s even been poor personal experiences. You got to somewhat disassociate the personal from the business.

Brian Parks:
And again, we’re not putting you on a personal guarantee, so.

Dana Robinson:
Right, that’s where the bad word the four letter word debt comes from a lot of it is that we are afraid of personal debt and then we take that fear into our businesses. But our businesses should apply leverage whenever it’s rational.

Brian Parks:
They should probably leverage in a reasonable format when it’s available to them and if it can be accretive. Yeah, right. Agree. Like, I’m not rolling out of bed looking to sign a personal guarantee. Again, this isn’t all my money. I have to use other people’s money. And for a number of years I borrowed to lend. Now we’ve changed our format a little bit, but I’m clearly very risk on with Bigfoot Capital.

Brian Parks:
I’m the majority owner. Been doing it for a number of years. Like, I’m committed to it and I recognize that, but I don’t want to sign a PG even though I am very committed to it.

Dana Robinson:
Right.

Brian Parks:
Yeah. You know, and I get that from operator standpoint, so.

Dana Robinson:
Yeah, but anyways, so pitfalls things like whether it’s in your. I’d love to just kind of get the wisdom for a SAS wannabe, myself included. I mean they. I’m the, I’m just one of the early stage investors, but I keep getting dragged into phone calls, so I’ll call myself a co founder here. But, you know, what are the teachable moments from your experiences, both as a caste provider, but also you’ve been through operations. How do you get to these important inflection points? How do we get to 2 million in revenue? What are the pitfalls between now and then?

Brian Parks:
It’s a really good question. I’ll try to reply with something. I think it’s persistence and iteration. As silly as. I mean, it requires almost an insane amount of persistence. Right. Because again, it’s super hard to get to that much revenue. It just is like, there’s some very minuscule subset of companies that just cruise to $2 million in revenue.

Brian Parks:
Right.

Dana Robinson:
How about your experience? Because you say you were the pre product market fitness CEO, you’re the CEO that’s doing. I’ll call it brute force. Right? Brute force CEO.

Brian Parks:
Just trying. Right.

Dana Robinson:
Someone’s. And then what’s the. Did you get it to 2 million in revenue and then had. And then you. And then you have the resources to go get mister product market kind of smart guy.

Brian Parks:
No, I didn’t. I didn’t. So I can’t remember where we got. No, we were probably sub 100,000 in ARR by the time I left. So this is a story for a different day. But it just got to a point where it’s like this isn’t working mutually, which is fine. So, you know, we were still somewhat in the wilderness now. We had started to land more logos.

Brian Parks:
We had started to kind of build this outbound, you know, actually picking up the phone and dialing for sales and starting to refine our pitch and actually have some wins. But we were still very early. We weren’t anywhere near $2 million of revenue. So I think I only have some limited amount of direct operational experience, much lesser than yourself to get to that revenue threshold. But it’s a complete grind, I mean, 100% complete grind. So I think to the extent can do that as capital efficient as humanly possible. Again, back to that clock that’s ticking and ticking more quickly and ticking louder like it is the, in my view, and riskiest time for a business. And there’s risk capital, typically venture for software companies at least available for that riskiest time in the business, but it almost enhances the risk of the riskiest time of the business.

Dana Robinson:
Right.

Brian Parks:
You have to go so quick.

Dana Robinson:
Yeah. Right. And do you think that the equity providers that want the sprint are going to be basically, they want you to spend that money as hard and fast as possible because they either want that meteoric rise or they want you out of their poor. They want you done bullet in you.

Brian Parks:
Yeah. And I think that’s changed to some, I mean, put AI to the side because I think venture, like we just said, we’re not anti venture and it funds some great things that are put into the world. But I think unfortunately, what happened? Well, a couple of things happened. VC has become a little bit less risk taking. Arguably, there’s a lot more VC’s than there were a decade ago. Everyone raised a venture fund, seemingly. Now there’s a lot more software companies than were a decade ago. But that graduation rate to $100 million IPO candidate hasn’t necessarily changed, even though all these unicorns were birthed.

Brian Parks:
But now they’re still private. And who knows if they’ll ever go public or how many will fail. Hammer, nail. Like venture became such a hammer. And every trying to deploy money, every software company was a venture investment. It’s like, wait a second. No. So a lot of companies have been miscapitalized.

Brian Parks:
Unfortunately, that may ultimately be small businesses. Small businesses are fine. Again, I sold small businesses and we sold them for hundreds of millions of dollars. And people walked away very wealthy, oftentimes a lot wealthier than someone who raises a bunch of venture does. Many, many times more wealthy than that. I think there’s that it got sprinkled around way too much to too many companies. And that’s unfortunate. And number two is I think there’s fewer vc’s, again, without the exception of AI or really maybe hard tech that are funding software companies that are really on in their revenue cycle.

Brian Parks:
Even series A investors now want to see $3 million of revenue seemingly so flipside. Maybe that’s not a bad thing. Constraints aren’t necessarily bad. Right. Constraints drive creativity. They drive discipline. They drive urgency in a different way. But they also get, and they also maybe have more time and more space to figure things out if you don’t have access to that venture capital.

Brian Parks:
I’m not saying it’s easy. Right. Because people got to eat and get paid and you got to have people to help you with stuff to build these companies. So it’s always hard.

Dana Robinson:
Yeah. So is there, I mean, the business that sold to March, that was like an eight. Eight year. An eight year long.

Brian Parks:
Yeah, it was. I think it was. I always forget because I have a horrible memory, unfortunately. I think it sold in September of 2020 and we really started it October of twelve. I always forget if it was twelve or eleven, I would literally have to look at my LinkedIn.

Dana Robinson:
That’s okay. But that, but I mean, is that a story that says, look, you can, you can kind of slow play a growth business, run it like a real small business, you know, kind of iterate, keep forging ahead. You don’t, you know that maybe the story of exit in three years is, is the fallacy and that the more, more success stories might sound more like eight years to get to an exit to a big guy.

Brian Parks:
Like, I think so. And I think it’s, and I think eight years is still pretty good because ultimately it got to like 15 million in revenue in eight years. That’s pretty good. No, so it definitely hit an inflection point. Now. It hit that inflection point after I was gone. And it’s still your story. That’s, yeah, it’s still my story.

Brian Parks:
We still call that out. Yeah, yeah, you’re right.

Dana Robinson:
You’re doing. If you hadn’t been part of that journey and that wouldn’t be what part of its journey?

Brian Parks:
Yeah, no, I appreciate that. And look, the product that my partner and I built was the product that got it there and why it won because of its simplicity, frankly, which is a core anyways. I won’t go into all that. And so that’s great to know. But, yeah, like, I mean, it had lifelines, too. Companies need lifelines like it had a life, a big lifeline a few years into it that had it not had that, it may not have made it at all. And so that bought it time to keep going and then eventually hit the inflection point, eventually figure out who it really was, get the messaging around it. It wasn’t some wild product pivot.

Brian Parks:
It wasn’t that it was finding the segment in the market and the types of buyers and companies that made sense for and positioning it correctly. You know, that takes time and learning and failing and iteration and all of that. So.

Dana Robinson:
I love that. I’ll tell you this, I love it, but I don’t because it rings true. And it also means that the investments that I’ve made, that when we sold the audiobook business, I thought, I never want to have to wait 13 years from the co founding of business to the exit again. But, yeah, and I haven’t because I don’t have that. You know, I’m not going to be working this hard 13 years from now. But maybe what you’re saying is, hey, eight years ain’t bad. And maybe we should say to the entrepreneur, be ready. Be ready for the long haul or.

Brian Parks:
Absolutely.

Dana Robinson:
You know, or, you know, is it bad that to have a failure under your belt? Probably not either. I mean, so for all those kids out there that want to get their business bought in the next 24 months and they don’t, and they have to shut shutter it, they can, they can help sell and they can become an investment banker, right?

Brian Parks:
Yeah, they can do a lot of things right. I mean, look, your first, I was 30, and I was 30 when I jumped into that seat at brand folder. I was 35 when I started Bigfoot, so I was five years older. I had had the scar tissue of the brand folder experience, and I started a company that was way more aligned with what I knew, frankly, and I had to fake it less. And I was way more comfortable in my own skin and my domain through that lived experience and frankly, what I’m good at than I was ever in that brain folder seat. But again, to your point, it’s part of my story 100%. I’m glad it’s only positive that I had that experience in those trials. You know, a lot of people say you don’t learn anything from success.

Brian Parks:
You learn everything from, from your failures.

Dana Robinson:
Yeah.

Brian Parks:
And I don’t. Yeah, I don’t know if I agree with that blanket statement. You can learn from success, but, yeah.

Dana Robinson:
Yeah, yeah, but, you know, this early success, if, you know, if you come straight out of the gate in your twenties and you have a big success, you really do think that it’s you and not a lot of luck and a lot of other people’s efforts that got you there. And then often they end up going and just completely failing on whatever the second, you know, their next big thing is. So the, it’s funny. The story we’re talking about is the startups, this eight year, ten year, whatever it or 13 year iterative process of pivots and changes and finding what the business is best at. What’s your product market fit? And you just told me that’s the story of Brian Park’s career. You iterate and reiterate, and then you find yourself doing what you’re really good at. And here you are, kind of. All of that experience is coalesced into a product market fit, man.

Brian Parks:
You’re good at this. That is like, boom, done.

Dana Robinson:
Brian, it’s fantastic to get to know you. Thanks for coming on the podcast. If people want to connect with you, what’s your forum for? Hanging with people online, predominantly on LinkedIn.

Brian Parks:
So I’m Brian Parks, comma CFA. We put out a newsletter at bigfoot at bigfootcapital.substack.com. and then our domain is bigfootcap.com. Awesome, bigfootcap.com.

Dana Robinson:
And just to, just to make it clear, your open top of funnel stuff is if someone thinks that they could use your services, someone will pick up the phone and have a conversation. And if it’s not a fit, maybe send them somewhere that might be.

Brian Parks:
Yeah, that’s right.

Dana Robinson:
Good. Because you never know. People listening to a podcast might not realize, like, that someone who’s a guest on the podcast actually is inviting them to say, if you think we can be of service to you, then reach out.

Brian Parks:
Yeah, absolutely. Or message us. And we’re fairly direct in a nice way and very transparent to try to point people in the right direction. Sometimes we are that right direction, and sometimes we’re not.

Dana Robinson:
Good relationship building.

Brian Parks:
Yep.

Dana Robinson:
Awesome. For my listeners, don’t forget to email me complaints about the content, desires questions. Hello@danarobinson.com Brian Parks, thanks for coming on today.

Brian Parks:
Thanks, Dana.

Dana Robinson:
Thanks for joining me on this episode of the Exit Plan podcast. I’d love to hear from you. Feel free to hit me up with questions or comments by emailing me at hello@danarobinson.com. or leave comments and questions by calling 858-252-7785 call 858-252-7785 and leave a message.