The guy who sold a company for $56M explains the secret of raising money – with Seth Goldstein

In 2002, Seth Goldstein founded Majestic Research. About 8 years later, he sold it for $56 million.

That’s one of many companies he launched and helped grow, including:

Stickybits, which enabled people to attach digital media to real-world objects using barcodes that smart phones could use.

Turntable.fm, which allowed people to listen to music together and his latest, DJZ, a new media company focused on Electronic Dance Music and DJ Culture.

We’re going to find out how he did it and about his book, The Secret of Raising Money.

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About Seth Goldstein

Seth is co-founder and CEO of DJZ, an electronic music company whose app Crossfader makes it easy for anybody to mix great music.

Raw transcript


Mixergy’s audio transcription is done by Speechpad

Andrew: Hey there, freedom fighters. My name is Andrew Warner. I am the founder of Mixergy.com, home of the ambitious upstart. And home of, almost at this point, 1,000 interviews with successful entrepreneurs, who have spent, each of them, about an hour with me, telling the stories of how they built their companies, their challenges, their successes and all that. Just so you can learn from them, build your own company, and hopefully, you’ll come back here and do an interview yourself.

Today, I’ve got an entrepreneur, who, in 2002, founded Majestic Research, and about eight years later, he sold it for $56 million dollars. His name is Seth Goldstein, and that is one of many companies that he launched and grew, including Stickybits, Turntable FM, and his latest, which is called DJZ, a new media company focused on electronic dance music and DJ culture.

I want to ask him about how he built all those companies. How he raised money for them, how he built the culture, and so much more. And about his new book, “The Secret of Raising Money.” And I can do all that, thanks to my sponsor, Scott Edward Walker of Walker Corporate Law. I’ll tell you later why, if you’re a tech entrepreneur, if you’re a startup entrepreneur, if you’re looking for a lawyer, why you want to get the experience of walkercorporatelaw.com.

But for now, I’ve got to welcome my new guest, Seth. Seth, welcome.

Seth: Thank you, Andrew. Thanks for having me.

Andrew: Seth, I held back. There’s so much more that you’ve accomplished. And I wanted to prune the intro, so that we can get right into it. But part of the reason why I held back, is because I’m worried that people won’t identify with you, because you’ve succeeded so much, at this point. So maybe you can take me back to a time when you were getting started. Was there ever a period, for example, when you couldn’t make payroll? Where you were struggling?

Seth: Yeah, absolutely. And it’s the nature of the beast. I think, a lot of people out there who seem successful on the outside, I don’t always feel successful. I’m driven . . .

Andrew: What do you mean, you “don’t feel successful?” I’m looking at an Inked magazine article about you that lists so many successes, including your house. And I don’t know how they got the value of the house. What was it, 2.6, 5.6? Some odd million of dollars. The family, the whole thing. What were you going to say? I see that you’re rubbing your face, like, maybe I interrupted you. [laughs] And I don’t want to do that.

Seth: So I think what I’ve . . .

Andrew: Yes.

Seth: . . . been consistent about in the last 20 years . . . so, I graduated college in ’92. I lived in New York. I went to Columbia University. I didn’t focus on anything that was going to advance me, career- wise. I focused on comparative literature, and dramatic theory. And I got out of school, and I started my first company when I was 23. That was focused on CD-Rom multi-media.

Andrew: Mm-hmm.

Seth: So, this was right, pre-web. And then, I didn’t know I was unmanageable. And I am unmanageable, which is one of the challenges that people have with me, as a person, as their friend, etcetera. But I think a lot of entrepreneurs who are listening to this, how do you turn a bug into a feature? And my mom was always entrepreneurial, growing up. She ran a International Homemakers Nanny Service, outside of Boston.

Andrew: Okay.

Seth: I was beta-testing all those different nannies, as I was growing up. And she hustled. And I’m going back a little bit, but just to give you a sense of where I’m coming from . . .

Andrew: What kind of hustle? Do you have an example of a time that . . .

Seth: Yeah.

Andrew: . . . she helped you?

Seth: So, I was a child actor.

Andrew: Okay.

Seth: And that has probably helped me more than anything else along the way, in terms of being able to get up in front of a group of people. External investors or members of my team or at a conference. And to be able to communicate my ideas with passion, with confidence. And to be able to articulate them and connect with an audience.

Andrew: Mm-hmm.

Seth: And to channel a certain kind of emotional empathy or emotional intelligence. My mom used to work the intermissions at the concession stands in Boston, where I was doing, middling professional theater. That was her hustle. I mean, she would do all these jobs. And she was divorced. And it’s all I knew. And that’s something I’ve taken with me, is just . . .

Andrew: When you say “she worked the events,” what do you mean?

Seth: Literally, she bought two liter bottles of Coke at the supermarket, and then, poured them in glasses and resold the glasses at 3X what she paid for the bottle. Right?

Andrew: I see.

Seth: That’s her hustle, right?

Andrew: I see.

Seth: And it was always something. It was always, at times, profoundly embarrassing, but I look back on it now, I’m, like, “Wow.” She didn’t care what she looked like doing it. It was about providing me and enabling me to pursue my dreams, which at the time was theater. I think I’ve definitely taken that. When I think about my team, it’s like the metaphor of the bird and the nest.

I go out, and for me, raising capital or getting great talent or getting relationships with other companies is bringing something back to the next. Right? My nest now is, I’ve got eight developers who are working away, building an iPhone application, a platform for creating music together. I’m out there hustling.

Andrew: What’s an example of a hustle that you have today? The equivalent of you going out to the supermarket and bringing two liter bottles of coke, so you can sell them by the cup.

Seth: It’s paying for people’s salary. You want to build a culture that is transparent, and you want to build a culture that is empowering, but you also don’t want to make people neurotic. You don’t want to make people worried about where their next paycheck is going to come from. So, it’s a very fine balance, I find, where I live with risk. Right?

I can look at you in the face when I have a day left of payroll and ask you for $1 million, and be willing to walk away from the table. At least, I can tell you I can do that right now, even though I can’t. But, that’s the idea. Right? I have to create an environment internally that allows my team to focus and to relax and to be creative. We put a huge premium on creativity, on innovation, on invention.

I mean, you see how ruthless it is, whether you’re building an iPhone app or an Android app or a web service or some kind of infrastructure play or now hardware. All these different types of companies, and all the other companies are right on their heels. So, if you bring the stress of the hustle to your team or to your company, it’s just very distracting. That’s what I balance. To go back early in my career, I started my first internet company in 1995.

Andrew: Okay. This is the one that was a CD-ROM business or just after?

Seth: Okay. So, ’93-’94, I started a CD-ROM business. What did that do for me? It taught me multimedia. It taught me how to connect words and pictures and video.

Andrew: How’d you get the idea for that business?

Seth: I was working for a very important avant-garde theater and opera director named Robert Wilson.

Andrew: Okay.

Seth: He famously did “Ice Down the Beach” with Phillip Glass in ’76 and was part of the New York avant-garde. I said to myself, “It’s so frustrating because I’ve seen all of his archives. It’s impossible to communicate just the art and the beauty of his work in a book with pictures or just in a video.” What’s magical about him is the way he connects a picture he sees of a chair in a newspaper article, and then is able to kind of design that on stage. Then, you see that in rehearsal, and you see that in performance. Things connect over time.

Andrew: Yep.

Seth: So CD-ROM had just come out. It was the only way I thought of creating an interactive exploration. It was great. It wasn’t a business per se, but it was an idea, and it was a passion. I felt like it was new, and it was different. It was a contribution. I went to Germany. There was a lot of support for arts and technology there. I came back to New York at the end of ’94.

Right before the web was really taking off, I was 24. I had no money. I was staying on a friend’s sofa. I joined one company. That was Agency.com. That ended up going public. I got fired after three weeks because I was insubordinate. Right?

Andrew: What do you mean? What did you do?

Seth: I wanted to meet with the clients. I wanted to talk about ideas, and they just wanted me to program HTML, and what were they called? Trains? You know, TD backslash. I was getting $75 programming HTML.

Andrew: Okay.

Seth: I got fired after three weeks. I licked my wounds. I went to another company that had done guidebooks for the internet, called Net Guides, because there was no Yahoo. The only way of learning about the best travel sites was… Yeah. There was no Yahoo. This was late ’94, and if you wanted to know the best travel sites, you would buy one of these books, and it would have a list of links.

That was an opportunity to meet with Joe Kraus [SP] and Graham from Architects, which became Excite. [??] that stands for WDU which was Yahoo’s. It was really early. My best friend at the time was Scott Heiferman. He was a great entrepreneur who started MeetUp.com. He had high traffic. And that community was growing in New York City like it was out in San Francisco.

And I went to Conde Nast to work for Epicurious.com, programming HTML. And along the way as I was going to somebody’s mixers and meeting and networking in the community I came across someone who knew the marketing manager of Duracell. And he said, “You know what? Duracell has an interactive agency although it didn’t matter. They weren’t really happy with them. They’re open to a new interactive agency of record.”

Andrew: Mm-hmm.

Seth: And so myself, I organized moonlighting a bunch of friends who were designers and programmers, and we built on spec a website for Duracell. I took off work one day from Conde Nast. We pitched Duracell. It went well. I came back, and the next day I was fired because somebody apparently had seen that I had printed out some color copies of a comp that I was bringing to Duracell in Connecticut.

Andrew: I see.

Seth: And there were about three or four weeks there where I had been fired, I had no work. I was hoping I was going to get this gig. It was pretty harrowing. We ended up getting the project. We took out of the $240,000 contract I was able to get back, I think, 30 or 40% upfront. I bought computers. I incorporated, and that’s how I started my first business.

Clay Shirky was my CTO at the time, and Clay’s a wonderful pundit now.

Andrew: Yep.

Seth: And it was really a glorious era of the late ’90s in New York when online advertising could be anything, right? It wasn’t reduced to a banner, a button, a link, and a click through rate. I found that liberating. I found the opportunity to invent a new medium, really inspiring and something I believed in. And that company was my first company.

Andrew: It’s called SiteSpecific.

Seth: SiteSpecific. It was one of the first online advertising companies in New York. We were…

Andrew: What happened to it?

Seth: I sold it in ’97 to a public company called CKS Group [sp]. I think it was $12 million in cash and stock.

Andrew: How did your life change after that? I mean, personally.

Seth: I had money for the first time.

Andrew: Okay.

Seth: You’d look at my bank account like “Wow.” That’s… I’d given a lot of the company away so I didn’t… It wasn’t like it was all mine, but I hadn’t raised really any venture capital. I took some money from a Texas direct marketing company called Harte Hanks. I was the subject of a front page Wall Street Journal cover story about these sort of combatting cultures, sort of the new upstart. Seth Goldstein is 26, and he books his own travel. Larry Franken, the CEO of Harte Hanks is 56 and doesn’t know the difference between java and a cup of coffee.

Andrew: Mm-hmm.

Seth: One of those articles about old versus new which to this day I still relish, not that article but this idea that we do have to invent new ways of creating companies and of connecting with employees and of raising capital to support it.

Andrew: Your next stop was to be an entrepreneur in residence at Flat Iron Partners, Fred Wilson’s previous venture fund, right?

Seth: Yeah. Between these two successes are inevitable failures that I don’t talk about as much.

Andrew: What are they?

Seth: I started a company… This is why it’s dangerous sometimes to back an entrepreneur’s company after they’re successful which is they think their shit doesn’t smell. Right? So I made some money and I spent almost half of it with another startup that was called Root.net that was a task grab it meets an online travel agent circa 1997.

Andrew: Okay.

Seth: And the idea was to give people a single stop for managing all of their online travel, e-commerce calendaring, etc. needs. This was the era of the Palm Pilot.

Andrew: Mm-hmm.

Seth: I funded it entirely myself and when someone didn’t agree with me I said, “Fuck ‘em. I know what I’m doing. I’ll show you.”

Andrew: Mm-hmm.

Seth: At a certain point it was like, you know what? I might as well take the tax loss from my previous gain and shut this down and just claim all that as a loss. And I shut that down.

Andrew: When you take a tax loss it means what? That you can get back some of the taxes that you paid in the past because you lost money now.

Seth: Yeah. It was sort of the same tax year of when I got the gains from my previous sale. And so I could use some losses to offset that. Anyway, it was an elegant way of accepting defeat and moving on.

Andrew: I’m looking at a screen shot of what that site looked like. Root.net is a new membership service for busy connected professionals. Our goal is to save you time by integrating great services with convenient methods of access. Why didn’t it work? It seems to make so much sense, especially since we now know that variations of this have worked out.

Seth: So it was literally 15 years right? It was a long time ago.

Andrew: 1998. It says from July 15, 1998 and you continued from there.

Seth: It didn’t scale, the systems weren’t in place to really enable the kind of frictionless mobile commerce connectivity. All we had were these palm pilots and they weren’t really wireless. It was the right idea. It was just early.

Andrew: Okay.

Seth: My hope is as I’ve gotten older, I’ve gotten slower and my ideas won’t be quite as far ahead as they have been in the past.

Andrew: I see. Okay, and so because it wasn’t connected online, you couldn’t really request a service. Was it that you had to plug it into your computer before it can take the action that you wanted it to take?

Seth: Well, I think it was actually even simpler which was the model was and it’s, I think you take for granted [inaudible 1:34] these services work and they make sense. And you have executive assistance online. And you have all sorts of things you can outsource to the cloud and to third parties through APIs. For the time, this was literally, we had a root rep, we had a customer service rep in the office in New York, wired up with a headset at his computer.

And then we had, it was kind of like a Truman show. It was a great Business Week article that I can share with you or you can find it about sort of this trial where we had five people who were following this one guy where ever he was. And when he wanted flowers for his wife, he wanted to book a trip somewhere, he wanted to find the laptop that he left behind in a hotel room, we were there at his beck and call.

Andrew: I see.

Seth: [??] charge a hundred dollars or two hundred dollars a month per subscription. And with unlimited capital, it probably would have worked. But at the time, it was very labor intensive. One funny tidbit is if you, are you a fan of Wes Anderson movies?

Andrew: Yeah, I love them.

Seth: You know [Woris Allowalia] is the Indian Sikh. He’s filming [zizo] right? He’s the Indian dude in a lot of them. He was our original root rep. He was our original root rep. He’s my brother’s best friend. And he more than anybody went on to bigger and better things. But I learned from it. It was painful. But I was able to kind of move from there. Fred and Jerry [Colona] were really the only two internet focus VCs in New York at the time.

It was at the beginning of this crazy explosion of hype and paper wealth. And for some, real wealth. And for other people, fake wealth. From 1998 through 2001. And I had a front row seat as an entrepreneur in residence, and ultimately as an investment principle during that time where I started companies. I probably put in a hundred million dollars to work across a series of other companies.

Andrew: This was in Flat Irons. You were investing.

Seth: [??] subset of Chase Capital Partners.

Andrew: Okay.

Seth: So Flat Iron was in a way, funded by Chase and South Bank. Flat Irons first deal, one of the first deals was Geo Cities. And so Geo Cities, they put in, I want to say five million dollars and Flat Iron ended up with 300 in the span in a year or two when Geo Cities went public and ultimately got sold. And I was 28 or 29 years old, just married, just had a kid. I was like wow this is awesome. I’m a great VC. I love this. I’m getting checks about deals that I had nothing to do with. And it was a very heavy time. And then it became a miserable time.

And when the capital markets shut, in mid-2000, a lot of these companies that I had worked really hard on, that had done really well in terms of hitting their milestones, couldn’t for the life of them continue because the capital market had turned its eye. And nobody wanted to fund this internet dream anymore.

Andrew: [??] Jerry Colona talks today about the monster in your head that, internal doubt, that internal critic that entrepreneurs especially face. At period where everything was just falling down around you, we’re talking about the early 2000s, did you have a monster in your head?

Seth: [??] lots of monsters.

Andrew: So what is that like for you? I want to understand what it’s like for an entrepreneur who’s had success when that goes crazy? What is it images in your head? Is it voices? Is it regrets?

Seth: That’s a deep question. So let me take some time with it.

Andrew: Take some time.

Seth: I’d like to say that my job as a founding CEO…

Andrew: Mm-hmm.

Seth: …is to be kind of a shock absorber. And when things are too good, maybe it’s been erratic between you and me, wait a minute something’s bad is going to happen.

Andrew: Mm-hmm.

Seth: And if things are horrible, I need to make light of it. And I do think that’s part of what I do. I think that’s part of what any entrepreneur does. It’s to provide that kind of ligament in an organization. So all that being said, 1999 and 2000 was such an anomaly. Never in our life are we going to experience that craziness.

And people may talk today about a bubble. They have no fucking idea. That was a bubble, right? But because it was a bubble and a very successful bubble that you didn’t realize you were inside of it.

Now I look back, Cosmo was one of the deals I did. I was very proud of Cosmo.com, and Cosmo was anything you want in an hour.

Andrew: Delivered free, including a candy bar. No delivery fee, but there was the cost of the candy bar.

Seth: True. I didn’t think of it as a free candy bar, but one of the issues was people would order Coca-Cola…

Andrew: I would order Ben & Jerrys just because I felt like Ben & Jerrys, but I would order a DVD just because I felt like watching a movie. Yeah.

Seth: Which was exactly the idea, and the business worked really, really well. It was scaling like crazy. It was a great set of entrepreneurs. It started in New York San Francisco, and Boston. And I’ll never forget I got the deal. I got down to take $12 million of our money at 50 pre. I was the boss. That was awesome.

I was showing myself as a great VC because I convinced them to take my money at that price, and that was the mentality. It was a very hot deal. Yeah. It could have been the next Uber. It was kind of a logistics platform. It wasn’t a Korean grocery store online. I went there.

I saw, “Wow, someone orders online, but something comes out of the printer. Somebody else takes that slip of paper. They go to the freezer. They get your Ben & Jerrys. They go to the DVD rack. They give it to some guy on a motorcycle, some little orange moped. Boom, and there you go within an hour.”

To get the deal done we had to get approval from Chase Capital Partners. So every Monday morning eight of us would [??] and talk about the deals, and every Monday afternoon at lunch we’d go from 21st Street and Park to 45th and Park to Chase Capital Partners office building. There would be 100 people in this conference room.

Here’s what I thought, here’s what I’m going to do to really grease this and make sure there’s no issues before I left Flat Iron that day with all eight of us I ordered a dozen pints of Ben & Jerry to be delivered to Chase right around the time lunch was over. Sure enough people went to their deals. It was our turn.

We went through a couple of deals, and right before I got up with Fred to kind of talk about Cosmo, this Cosmo delivery guy shows up on cue a dozen ice creams and, of course, you get your deal approved, right? Everybody loved it.

Then I remember sitting with my one year old, and I’m getting very anecdotal. I’m sitting with my one year old in the car. I’m having a call with the bankers. I’m listening in with Cosmo and Amazon, Starbucks, Cliner [??]. SoftBank had just put money in it at 900 pre, right? It was $100 million.

I remember going to DLJ, which was one of the Internet banks. Jamie Keegan was the Internet analyst. I remember sitting down with him and him telling us, “When you go and this was probably February of 2000, late February, when you go public here’s how it’s going to trade. You can probably start out at a $4 billion market cap. It might trade up a little bit, and that was the world.

And then suddenly it was over. It wasn’t over in one fell swoop, but that IPO got pushed a week and then a week. And then everything else started getting pushed. And pretty soon you started grasping at straws. And then there was no certainty and then the doubt came.

And it got really negative and then, you know, my job went from being the idea kid finding trends and throwing money at them to oh, wait a minute, I have to wind these companies down. I got to go in and look at these entrepreneurs who’ve done everything they said they were going to do and tell them there’s no more money and get them to lay off half of their staff or fire them.

And it left a pretty nasty taste. It was very healthy for me to know that this is a cycle. You can’t take any of this too seriously and that it’s very easy to confuse luck with skill and I thought I was a great [??] early on and then I felt horrible that I was such a bad [?]. The reality is the macro environment was much bigger than I was. But it’s clearly a formative experience for me and something that again forms the way I look at investment and the way I look at opportunities.

Andrew: So how do you bounce back from that when it’s not just trying to get your head back on but also unwind everyone else and deal with them and face an environment that’s really stacked against you which is what it was on the early 2000s.

How do you with all that against you get back on the game?

Seth: I don’t know what the broader lesson is. I know what I did.

Andrew: What did you do?

Seth: Yes, I went catatonic for a while. I think everybody deals with stress and depression, macro depression and financial hardships differently.

Andrew: Does that literally mean staying home, staying in bed, watching TV. Is that what you mean by catatonic?

Seth: I think there were moments of that. When your identity gets wrapped into this thing and this world and this momentum and it’s gone, it’s a really empty place because you built your identity, and some people have some, I think there were some really stories about entrepreneurs and about investors that bought a [??] and sunk her. And it’s a very complicated time and you see what people are made of.

I mean, for me I thought about, I applied to business school. I’ve always felt, more in the past, insecure about not having a proper finance background, not understanding economics properly. I wanted a business school education beyond networking. I feel I know a lot of people but I like school, I like studying, I like theory.

So I made my application to Columbia while at the same time one of the companies that Flat Iron had funded was a company called Comsworth and Comsworth is now a very large measurement publicly traded company. Ironic, the CEO or chairman of Comsworth just came as an angel investor in [??] last week. But Comsworth was a Flat Iron deal and I learned late in 2001 that there was some really interesting data at Comsworth about potentially correlated with revenue of publicly traded companies like Amazon.

Andrew: Okay.

Seth: You saw a million people what they were doing online and you could extrapolate as to how Amazon was doing. And in a world where regulations and fear of disclosure rules and companies can’t say anything during the [?], what I realized in New York is, you know, when in Rome, right? Like, New York is good for a couple key verticals, you know? Media advertising, finance, etc., all these hedge funds and hedge funds were the one guys making money while everything else was going to shit because they could bet on things going down.

And so as the internet market and the startup market imploded in 2001, you saw the sort of corresponding explosion of hedge funds, 2002, 2003, 4, 5 and being a good entrepreneur I said hum, that’s interesting. That’s growing. Can I, what’s the Woody Allen movie, can I [??] into that? right? Put on a suit and I found a great co-founder who came out of Carnegie Mellon Computational Finance, and had this idea well, what if I were able to take Comsworth data and package it as research for hedge funds?

And I was at the same time contemplating going to business school and my son was 1 or 2 years old, I lived on the Upper West Side. An incredibly supportive wife who was working. And I went on a couple of early customer calls, as they’re called, and people bought it. And I walked into a hedge fund and said, “Hey, I’ve got some data. I think it can indicate – like I’ll take it.They’ll take anything once, and I had enough different funds to agree to spend $3-4,000 a month.

So, okay, I got to Columbia Business School, 30 whatever, 31, 32 years old. If I don’t go now, I’m probably not going to go. I’ve got this opportunity to run a startup. It looks great now, but who knows what’s going to happen. It was a startup. I raised a little bit of angel money, and that became [??] research. It was named after the building I lived in.

Andrew: I see.

Seth: And that was how I pivoted myself from online advertising to Wall Street research which seemed to have nothing to do with each other, but it makes total sense when I think about it right now.

Andrew: The way you describe it now makes total sense, but I was in here with my researcher in preparation for our conversation, I said, “What happened here? Maybe he’s much more of a finance guy and we didn’t recognize it before because he packages finance understanding as software companies, as Internet companies.

And then is that what became Root Markets?

Seth: No, it was different. So what I learned in the case of Majestic is there’s so much noise out there, right? And there’s a sort of ritual where a public market investor will listen to the earnings report of a company and the analyst will listen to the earnings, and all just talk about the same thing because they all have a spreadsheet with 500 fields of data. And 499 of them are commodities.

Andrew: Mm-hmm.

Seth: But if I could provide that one cell of information that was unique and proprietary, I didn’t have to do everything else, right? And these funds more and more, they have huge positions. So a fund like Lone Pine or Tudor or Maverick or Zip, they had a $300 million position in eBay.

At the time nobody in Wall Street knew how to do something that’s pretty basic now, which is to count all the transactions worldwide for eBay listings. You can write a bot or a spider to do that, right?

Andrew: Yeah.

Seth: Nobody was doing that on Wall Street. Well, I’ve got a program here. We did that. We packaged that up, and that’s research. That’s valuable.

Andrew: I see. Yeah.

Seth: And so I think what’s that done for me over time is to just… I had a similar conversation with my team at DJs a couple of weeks ago. We’re working on a new feature that was more of a radio kind of lean back experience, and they were doing it in a way where there was nothing really proprietary about what we were doing. It was something that anybody else could do.

It’s like, wait a minute. Let’s focus = there were eight people – let’s only focus our energies on something that we can do uniquely well.

Andrew: Mm-hmm.

Seth: Right? I think that’s definitely a through line for any successful business is in a world of lean startups it’s great so long as you’re working on something that’s differentiated.

Andrew: And so you couldn’t do that. So maybe that explains why I play music on DJs it’s SoundCloud that’s serving up the music, right?

Seth: Yeah. So forget DJs. Focus on Crossfader or the app. And if you have Crossfader or FM, you’ll see what DJs is becoming which is we’re moving from a top down kind of media site focusing on professional DJs and big name DJs to becoming what I think of as sort of an Instagram for music. It’s a creative community for people to create and share their own electronic music.

Andrew: I see.

Seth: If you go to the app and you go to Crossfader.FM now you’ll see that it’s what getting surfaced are people’s favorite crosses.

Andrew: Crossfader.

Seth: Crossfader.

Andrew: Okay. So now I understand how you got into research and the connection to what you did before. The next thing I wonder is music. [??] was here in the office. She was looking up all these articles about turntable FM and also DJs. She kept saying, “A lot of these articles” – and by the way no one’s ever made money on music. She said we have to ask Seth and with all the things stacked against when you’re going to music, back to turntable FM. The record industry told you that you can’t allow people outside the U. S. to play their music, and suddenly you had to lose a lot of traffic.

So with all that against you, why go into music?

Seth: You get an idea, or you get… My ideas are always more powerful than any rational thought. I get so connected to a vision and to a reality that I think is inevitable that I just can’t imagine doing anything else. And I think the case with moving into music… First of all, I learned a lot from Majestic in terms of understanding how public marketing investors work.

Andrew: Mm-hmm.

Seth: And I think for any startup entrepreneur it’s a great lesson to understand how the public market, how the hedge fund, how tier row price, how Fidelity thinks about the stock market trickles down to your startup. And even if you’re two people or three people raising $50,000 or $500,000 knowing at what point did tier row come into Twitter and which hedge fund just bought a big slug of Uber. You know TPG did it, right.

So these are names that probably don’t matter to a lot of young entrepreneurs, but it just give you a sense of the food chain and you realize that on some level there are notable exceptions like Google and Facebook who manage to kind of write their own rules, but it’s the exception not the rule. There’s this dance towards the public markets and being looked at in a certain way with certain growth expectations, right?

Andrew: So how did these big financial institutions play into someone’s decision to back DJs or not? Can you make it more concrete so I can understand because I’ve never heard anyone, at least, not on Mixergy, talk about it this way? Or maybe you want to talk about it another time?

Seth: I mean, I apologize if this is going to seem a little schizoid. I think there is a connection here.

Andrew: Mm-hmm.

Seth: So Yahoo buys Tumblr.

Andrew: Mm-hmm.

Seth: Does Tumblr have any revenue?

Andrew: No, not really.

Seth: Facebook buys Instagram.

Andrew: Zero.

Seth: Google buys YouTube, right? None of them had any revenue.

Andrew: Mm-hmm.

Seth: And yet the acquirer’s stock price really went up over time.

Andrew: Mm-hmm.

Seth: Right? You can look now and say thank God Facebook buys Instagram because if it didn’t that mobile store would suck for Facebook, right? The jury is out on Yahoo and Tumblr, but the point is clearly the investors in Yahoo, right? And the investors in Yahoo they need something to feel good about their investment. They need a certain kind of growth. If you look at what happened with Twitter, the stock got laundered [??] a couple of weeks ago, two weeks ago. It lost about 25% of its value. The revenue is great. They beat expectations, but the growth was slowing, okay?

Andrew: Mm-hmm.

Seth: So we are in a “what have you done for me lately” world. Silicon Valley is all about growth. Get big fast, grow or die, whatever you call it. It’s different depending on enterprise or you’re in different times in the markets. I don’t want to make a blanket statement, but there is this need to keep growing at the expense of others, right? I want more users, and I want my users to be spending more time with me.

Andrew: Mm-hmm.

Seth: I’m not going to worry about sticking ads in their face yet. If I charge them, if I charge for that app, I’m going to have fewer users. I’d better not charge for that app. And so this just happens, and you think well, it’s going to go out fashion, but it goes back to the beginning of the Internet.

There’s always a premium on one’s ability to grow and engage an audience. And whether that’s Reddit, whether that’s Tumblr, whether that’s SnapChat, whether that’s Secret, we see these phenomena happening where there’s a seemingly organic community that is engaging a younger audience and they’re spending more and more of their time there.

And that flows all the way up the food chain from the first money they get from first round capital or from Angel List, all the way through the secondary six months after they’ve gone public, or they’ve been acquired.

Andrew: I see.

Seth: That’s what I think about. Now, we talk about music. Well [??]. There’s a part of me as an entrepreneur that just loves the challenge of people saying, “I don’t do music deals.” I’m like, “Fuck you. You will after this is done.” Right? I love that challenge. Right? I love to prove somebody wrong. I think that’s what a lot of entrepreneurs have on their shoulder, but I make it hard on myself. The people that I know that have made by and large the most money are not necessarily those that start their own companies and sell them.

It’s those that go into a company as employee number 20 in biz-dev and ride that through an IPO and walk away with 30, 50, $100 million. Right? They’re not taking the same kind of risk, but they’re very calculated about kind of how they optimize their own earning potential. I don’t think that way. I don’t think a lot of entrepreneurs think that way.

I love building a brand. I love creating something that doesn’t exist or hasn’t existed. I love getting people to rally around kind of a vision for the future. I’m going to get back to the music, making money in music, but just to give you an example of what really turns me on is for Crossfader.

We enable people to grab two loops and mix them together on their iPhone, just by moving the iPhone. It’s beautifully simple. It really radically simplifies electronic music. Right? You can blog really easy within Tumblr. You can make digital photographs and share them using Instagram. If you want to make music, it’s still really hard. Now, we’re trying to make it easier. [??]

Andrew: Your co-author showed me an early version of the software. He showed it actually here. He was at Scotch Night at the office, and he showed it off. Everyone was able to instantly grasp it. It wasn’t until they touched it, though, that they got it. He had to put his phone in their hands, and then they fully got it.

Seth: Yeah.

Andrew: Because it doesn’t seem like it’s going to be easy until you see it. By the way, you said you want to really show them that they’re wrong. “Fuck you. I got it.” Is this the same attitude that you had at root? Which, you earlier in the interview said, “I regret walking in and feeling like I was right, even when everything around me said ‘No. There’s something different here today.’”

Seth: I think what you… Let me just… I think I can answer to that obliquely by this.

Andrew: Yeah.

Seth: By what I experienced last week. A year ago, I had the guy who’s now our product manager write sort of a vision piece of what is our remix community? We were just djz.com, and it was a top-down website. I said, “Look. If we release Crossfader, and X and Y and Z happens, then we build this on top of it, we’re going to have this world where people are going to be remixing each other’s stuff.” Right?

Andrew: Yeah.

Seth: We’re in the mash-up world already. People mash-up images. They mash- up text, and they add captions. It’s just the world we live in. People’s attention spans are getting shorter and shorter. We used to listen to albums. Now, we only listen to songs. I think in the future, our kids are going to listen to loops. Right? I said, “I want you to write a kind of narrative of this fictional remix community.”

In it, he talks about this hypothetical kid in Wisconsin. He comes across this app, and next thing he knows, he’s getting popular. He’s not just a nerd anymore. He mixes “Harlem Shake” and The Cure: “Boys Don’t Cry.” So, it’s about a page or two.

A couple weeks ago, I saw where we were. We were hustling to get ready for South By Southwest, with a very big release. We released 3.0. It dawned on me that we were there, that we put our heads down for a year, and I recirculated this note that he had written. I uploaded “Boys Don’t Cry”, so we could all mix it together with “Harlem Shake.” That made me so happy. It didn’t make me happy because I proved something. It made me happy because I think I was able to give my team the confidence to trust their imagination.

Andrew: I see.

Seth: And to be able to realize that we can invent things that seem fictional now, but we can achieve, right? And that’s the most powerful thing that I can do as a leader of the company is to endow people with that confidence, that together we can imagine something, we can set the course, and then we can achieve it.

Now going back to music, music is tricky, but it’s fascinating. People listen to more music than ever. Unlike video, if you’re on the video and I’m paying attention to you, that’s the only thing I can do, right? And the minute I start checking Gmail or I start looking at Techme [??] or whatever I do day to day, you’ll feel that.

Andrew: Mm-hmm.

Seth: Whereas if there’s music on, it’s more ambient.

Andrew: Mm-hmm.

Seth: Right? I think that has… Music has become something we bring our soundtrack with us, right? I walk into my house. I turn on Sonos. I listen to songs. I leave my house. I had a cleaning woman come once a week. I actually had to make sure to leave the songs, the station on for her to listen to. My car, on my iPhone.

It’s totally everywhere, and yet there are these rights holders that own the content, and it’s changing. You have Sound Clouding. You have Spotify. You have streaming. You have downloading, and you have all of the mobile experiences. And there’s so much usage.

People love music. It’s so emotional, and I realize that from Turntable. I haven’t figured out yet how to make it a billion dollar business. I think I have a couple of pretty powerful ideas. I don’t want to just simply distribute music differently. I want to change the way people experience it, and I think that’s possible. And I think in a way because music has such a bad name it’s scaring away a lot of competition.

And so it’s just a more opportune place to innovate. It’s also easier to get great talent because they’re passionate about it as well.

Andrew: There are two other things I want to ask you about before we end. I want to talk about the book.

Seth: We didn’t talk about raising money.

Andrew: Yeah. And I also want to ask you, if we have time, a little bit about culture and the way that you get the people that you’re working with fired, but first I have to thank, as I said at the top of the interview, Scott Edward Walker of Walker Corporate Law. This is the period where I should be doing the commercial for Scott.

Instead what I’ll do is just ask you, Seth, do you have any advice for an entrepreneur who is looking for a lawyer. You don’t have to say “Go to Scott.” I was just thinking, any advice if you’re looking for a lawyer from someone who’s done it a few times?

Seth: Yeah. I don’t think it’s about the firm.

Andrew: Mm-hmm.

Seth: I think that it’s not about the… You can get the documents you need from seed finance documents. You can get the convertible notes you need. You can incorporate very, very quickly.

Andrew: Mm-hmm.

Seth: But the lawyer to me is the person that’s there between the cracks to help you deal with things that you don’t anticipate…

Andrew: You mean legal issues or also other advice that you need as well?

Seth: I think a lawyer helps you find points of leverage, right? It’s lonely being a CEO. There are inevitable legal issues that you have to deal with, but a good lawyer is constantly there. And there are times when you don’t want to talk to your investors about something. You don’t want to talk to your employees about something. You need somebody to talk to you can trust. Having that privileged relationship, I think is very helpful and well worth it.

Andrew: Alright. And if you out there are looking for a lawyer and you want to see if you’ve got this kind of connection with Scott, I’ll give you his email address which is Scott@WalkerCorporateLaw.com.

And if you’re looking for a lawyer, he’s the person who basically will be there for you when you’re looking to raise money, when you’re looking to sell your company. The relationship doesn’t start the day that you’re doing either of those two. It starts earlier on, so if you’re someone who is just starting with a company looking for a lawyer or in the early stage looking for a lawyer, hit him up, send him an email. Find out how he can help you get going and then get a sense of him so you see if he’s someone you can work with long-term, WalkerCorporateLaw.com. I hold up his mug for a reason to keep reminding you guys.

Seth: Another thing lawyers do is they don’t give you a sense of best practices.

Andrew: Because they see so many…

Seth: People want to know, hey, how big of an option pool do I need to leave? Or do I really have to give this investor, you know, their pro ratum the next round. I mean, a lawyer will say “Hey, I’ve done x deals and this is what’s market.” Or, you know what, “Maybe you shouldn’t give this amount to…” You don’t have to give a board observer right if you don’t need to, right? ” So lawyers are really good at helping you understand what the market rate is as it were.

Andrew: Speaking of that, the book isn’t fully released yet, but I’ve got a couple of chapters through Michael, your co-author, and one of the things that I like about it is you’ve gone through this process from so many different angles, you know? Helping to find entrepreneurs to invest in and making those decisions to being on the other side of the table where you’re trying to raise money.

So you have the credibility. You have the experience. You have the knowledge. But you also, don’t just give me big ideas, you give me specific tactics. Like, if I’m trying to raise two million dollars, I might want to tell people I’m raising a million. Why?

Seth: Fundraising is about creating deal heat. And about getting investors to respond to you on your timeframe and getting them to chase you. And the basic psychological tools that we have, you know, perceived scarcity, right, are very very important. And all the psychological jujitsu moves…

Again, I think I take them for granted, but I think working with Michael he’s sort of been able to sort of isolate them and say hey, “Yes, if you’re looking for X say you’re only looking for half of X because then it’s going to make it feel like you’re oversubscribed. Right?

So many things can bite you, but you know Michael and I we’ll do things, like, I’ll get someone to say, “Yeah they’re in,” you know, they want to invest. And rather than me following up with them, I”ll have him, in the past, I’ve had him send them a note saying, “Hey I heard you had that great meeting. Here are the investment documents. Here’s our bank wire information.”

Then he can also follow up and say, couple of days later, “Can you get that confirmation number of the wire? I haven’t seen it hit our account yet. I’m just checking.”

Those are little things, but you need to know this stuff. Because it’s not about getting someone interested in your deal. You got to get the money in the fucking bank.

Andrew: And what’s the difference if he follows up versus you following up? It looks more desperate if it comes from you and much more transactional if it come from him?

Seth: I have more important things to do. Like talk to you on this interview.

Andrew: I see.

Seth: You just subtlely…it’s like the wingman in the Rules or whatever or dating. Any of these being chased versus chasing. Like, I knew with Turntable, for example, we grew so fast that summer of 2011. Went from zero to 500,000 users in the span of two months. It’s like, wow! I’ve got the tiger by the tail. It’s time to raise some capital.

And I tried to really condense that window to the point where there was one day I did five meetings on Sandhill Road and I ended each one of them 15 minutes early and ran out literally to the point where the investors, “Wait a minute!” Because you want the investors to chase you because we spend all of our time being interesting to death. “Oh that’s interesting. Let me get back to you. Let me talk to my partners and circle back to you. That’s really interesting.” And we get nowhere.

And so the whole challenge here and what we’re trying to do with the book is turn around a little bit. You can’t fake it. Investors are investing, you know, they write off tons off investments that aren’t the next Facebook even though all they’re talking about is they’re winners.

And I think everybody should have the opportunity to raise money to build their vision. And it doesn’t mean you’ll always do it but you should have the where-with-all to do so if you’ve got the gut, and you’ve got the instinct and you’ve got the hustle in you and you’ve got the basic ingredients of being a good entrepreneur.

Andrew: And that is, from what I can see from the little bit that I’ve gotten to read ahead of the release of it, that’s what this book is about. It’s those kind of tactics. That kind of approach to raising money.

Seth: Yeah, absolutely. And investors, they don’t want to admit the fact that they’re lemmings, just like everybody is in some capacity. And they will have all the criteria of what they look for and what they don’t look for in the themes, but the minute there’s a hot deal, and it starts getting away from them, they will chase. There’s very few investors that can avoid that, sort of, seduction. And it’s hard to manufacture it, but if you have a little bit of it, I think this book can help you amplify it and get the most out of it.

Andrew: Alright. If people want to check it out…Is the same section that I’ve got here…? Actually, I’ve got multiple sections. I think if they want it they can go to the Secret of Fundrais…

Seth:: No. Thesecretofraisingmoney.com.

Andrew: Thank you. Thesecretofraisingmoney.com. And if they do that then they’ll get these tactics. Thank you so much for doing this interview.

Seth: Absolutely.

Andrew: Alright. Thank you all for being a part of it. Bye guys!

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  • http://eriktrautman.com/ Erik Trautman

    Andrew, I really enjoyed this one. I liked how Seth covered the other (financial) side of the industry in addition to the typical entrepreneurial arc because it really is important to understand the bigger picture if you’ll be seeking funding. Even if exit isn’t on your mind now, it’s certainly on that of your potential investors. This interview struck the right mix of interesting stories, useful tips, and real human struggle. Thanks Andrew and Seth!

  • lksugarman

    The delivery company was Kosmo.com. We loved it. Bike messengers loved it because they were making 3-4X the money for the same work. The founders were great guys, excited by the momentum of their start-up. Then, Ross Stevens who’d been approached to fund Kozmo, instead launched a competing business with an identical business model. Their Dotcom 1.0 story of success and failure is great (http://en.wikipedia.org/wiki/Kozmo.com), especially for the lessons to be learned that are still valid today.