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Students vs. Startups Ep: 53- How to Invest in a Startup

Students vs. Startups Ep: 53- How to Invest in a Startup

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Featuring Peloton Strategies Group

Read Time: 15 minutes

Welcome to Episode 53 of Students vs. Startups. This week, moderator John Gilroy talks with Charlie Bobbish who, after his long career in the defense community as well as working at many startups, spends his time mentoring and investing in the DC Tech area. Listen below for Charlie's insights.

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Transcript:

John Gilroy: Welcome to Students vs. Startups: Showdown on the Potomac. My name is John Gilroy. I'll be your moderator today. Big round of applause. Show number 53! Yeah, wow, 53!

So, ladies and gentlemen, we've had 53 startups in this studio going back and forth with our students. I thought it'd be a real switch to have someone who invests in startups maybe sit and talk about what he thinks is important to be successful in a startup, because every startup out there doesn't necessarily succeed. Some fail, in fact, this is America. You fail, you pick yourself up. You fail, you pick yourself up, and Charlie here has got a good reputation down here for knowing what horse to bet on.

So, let me talk about horse racing today. Have you talk about startups and methods for evaluating startups and maybe investing in startups.

As you know, we're at Eastern Foundry. We have taken over a conference room. We have a table here. One side of the table we have three students from Georgetown University. Other side of the table we normally have a start-up, but this time on the table we have Charlie here and we'll talk about what's going on here.

What I'd like to do is introduce the students, go back and forth a little bit. Our first student is a gentlemen by the name of Rahul. Raoul, your background please.

Rahul: Good evening everybody. Happy New Year! Raoul Bardwaj, graduate student at Georgetown University. I have a Math degree from the University of Chicago, as well. Varied history, in terms of career ... Career path started on Finance and moved into kinda Technology Management, and I look after different solutions that could potentially go into the market as well.

John Gilroy: Varied career. McDonalds?  No, no, varied career in the professional world.

Nathan, your background please.

Nathan Wallace: Yeah, I'm currently a student at Georgetown University studying Technology Management and I'm also a web developer for Georgetown University. So, we create their marketing websites.

John Gilroy: And our media star, Phil Crawford. Your background, please.

Phil Crawford: Hey everybody, my name is Phil Crawford. So, I'm a Georgetown University technology management student, fifth semester. But during the day, work for the federal government as a consultant helping federal CIOs do IT better, whether it's setting up data centers, procuring data management services, or making accessible websites.

John Gilroy: On this side of the table, we normally have a startup, but this time we have Charlie Bobbish, and he is the principle of a group called the Peloton Strategies Group.

Now, this is a small town. Everyone knows everyone, and I ask around and try to get good guests, and we have some mutual friends. We have a guy named Michael Weldman who spoke to my class. And we have a woman by the name of Georgia, who is really smart. She does penetration testing with mobile devices.

Charlie Bobbish: She is scary smart.

 

IMG_7405.JPG Charlie Bobbish, Principle- Peloton Strategies Group

 

John Gilroy: Yeah, scary smart. And that's why I asked her on, I say, "You know, I like to maybe spice things up."

What Charlie does is he evaluates startups and he decides if he is going to invest in them or not. And so, I figured he'd have a pretty good idea of what would make for a successful startup. And what about in the Washington DC area, maybe there is a characteristic for a start-up in Washington DC that might make it more successful than in Austin or San Diego, but maybe not. Maybe the same characteristics ... Would love to get someone from Silicon Valley in here with a different mindset, so that's good.

So, tell us about your company and your background please, Charlie.

Charlie Bobbish: Sure, I'm Charlie Bobbish. I had a career in the defense community, and it was sort of interesting listening to the last speaker here because one of the things that he said about the background in the intelligence community is applicable because that's where my background is. I had an opportunity as a bridesmaid in executive team of companies, small companies that grew up and were sold for several years, and finally said it was my turn.

So in 2005, I formed a company called CMX Technologies and it was a really original idea. Something that nobody in the DC area has thought of as a government services company. So, sticking my head up and realizing that I was one of probably 5,000, I had to innovate and realize that to be a services company, really a product of your people, and I had been very, very fortunate in my career. I worked for some amazing startups, and some amazing small companies that grew up. And all sets of amazing mentors. And so, when my time came I was able to apply some of the best of those experiences. One of those companies was a company called BTG. Ed Bersoff had formed in the 80s and sold that to Titan Corporation. And I was fortunate to work there and work in management as well as on the tech side. And then I worked for a company called Intelligence Data Systems, which is now ... that was sold in 2005, and the owner is running Sunset Hills Vineyard in Loudoun County.

John Gilroy: Oh! One of my favorite vineyards.

Charlie Bobbish: I had some very good mentors along the way and I was able to take some of the best experiences that they had culturally and be able to differentiate my own company. So it was my turn at the altar. I essentially wanted to build something that was not only mine, but would be lasting, and people would talk about and be able to say, "I enjoyed that. I learned something." And have the opportunity that I had, and hopefully be able to give back.

And I'm thankful to say that I did. It was a wonderful opportunity. Sold the company in 2014, and I went on to do some corporate development with purchasing companies with the company that bought mine. And it was also a wonderful experience. And so, of late, I've been both investing personally as well as aiding companies, particularly ones that would like to exit, and try to help the owners through that process, and prepare for that process.

John Gilroy: Great background. I'm really looking forward to some of your insight here.

Lots of startups in this town, and I'm just gonna turn over to Rahul, and go ahead, I mean, I got tons of questions. But you go first buddy.

Rahul: Sure, sure. I mean, congratulations on your exit and your success, and so you have kind of a dual role. You're kind of looking at your building portfolio, per se: doing different evaluations and looking at company best practices, and then you're also doing advisory from an exit side. So are you making the investment in companies that you're advising to exit? Just for clarification. Or, is it a completely separate book of business? Just out of curiosity.

 

IMG_7381 Rahul Bardwaj

 

Charlie Bobbish: That's a great question. So far, it's been completely separate. One has led into the other in both directions, but for the most part, the engagements have not been related to an investment.

John Gilroy: Nathan Wallace, please.

Nathan: Yeah, the background is widely interesting, and it sounds like you've traveled quite a ways to get to where you are. And the question I have is, what was sort of the catalyst to get you to a place where you were ready to dive in and create your own company?

Charlie Bobbish: I think it does come back to having a good set of mentors and networking, and watching businesses grow almost as if they're an organic animal. In that they have culture and they have cash flows, they have things that are very definable. But the things that are intangible about how people are treated, and learning from that, and knowing that the idea that people quit people, they don't quit jobs, and making a long term investment in folks.

So I set out saying that I always wanted to do right by people and make sure that they would have a lasting legacy of something that I was able to do. And again, coming back to very good mentors and being very fortunate to be in the right place at the right time to capitalize on that.

Phil: Yeah, so I'm assuming that the bulk of the companies that you've been working with have been in the defense base?

Charlie Bobbish: Yes.

Phil: Okay. So what are some of the biggest challenges for your customers that are trying to exit their company? Is it just, "Hey, I've got to exit this company" and that's it? Or is there specific things that they're having challenges with?

Charlie Bobbish: That's also a great question. A lot of the DNA of the companies that I'm looking at are, they're small businesses that have a really good idea. They were started by somebody who came out of government, or came out military or something like that, and this was essentially their first term. So they had a great idea, they had an opportunity, they capitalize it, they've grown it to 50, 60 people, 75 people or something like that, and they don't know what's next. And they've never done it. So the concept of what got you here doesn't necessarily get you there, and sometimes they need a little bit of a nudge. Sometimes they need to understand that the business they're running is essentially a lifestyle business and they need to look at it as an investment vehicle for the future. It really is, it's more than just something that's providing a salary, they have to look at it as a business, and that involves, sometimes, making a hire that isn't them to run it so they can stick to what they're good at doing.

 

But for the most part, the companies don't know where they wanna go. They know they want out, but they haven't defined what that is yet.

John Gilroy: So Charlie, the name of your company is Peloton, is that right?

Charlie Bobbish: That sounds good in French, I pronounce it Peloton.

John Gilroy: Peloton?

Charlie Bobbish: Yeah, doesn't matter what you call us

John Gilroy: So group? That's the whole thing, so this reflects maybe working with groups rather than individuals? Or is this your hobby?

Charlie Bobbish: No, it's a little bit of both actually. So, if you were to Peloton, the French word for platoon, it's commonly used in cycling and in road racing. The idea is that I've aggregated a number of consultants as well as a partner and among all of us together trying to move something forward for the greater good. So moving the group or the peloton for ... It just allows me to bring my hobby in to my professional life.

Rahul: So then the natural next question would be, does one of you, and you have two hats so to speak, so how do you divide your time in terms of what is it going to take you to participate in looking at my business per se and helping me exit? Where are you seeing the opportunities in the short term and medium term let's say to you know, place a bet?

Charlie Bobbish: Okay, so are you asking the question from the perspective of investment or from the perspective ...

Rahul: Both.

Charlie Bobbish: Okay.

Rahul: So first question is, what is it going to take you to motivate ... to join my team or give me some advisory or ... and then ...

Charlie Bobbish: Okay. Thank you for the clarification. I'm not a turnaround guy. So it's important to me that the company's culture, its bones, its foundation is strong. So the analogy that I would use if you compare it to real estate is that I can help a company determine whether or not to renovate the kitchen or put the company on the market. And along with that kitchen renovation, you know, you have to sell off a lot of the appliances that are dragging down and renovate the entire electrical system, because it's dragging on cash flows. And try to help the company determine who's the right broker to sell it or try to sell it themselves.

I do a lot of diligence myself and always go through a mock diligence process where I use some of the consultants we have, as well as my business partner, and we look at the company as if, "Are we going to buy it?" And "Are their problems?" And that helps the owner also find some issues if there are some, but also lets us know is this really, I mean, are there termites in the walls or not? We're fortunate that we don't have to take those on. It's not our specialty.

So for the second part of your question: To make the investment in a company, I think if I had that answer, I joked earlier that I'd be doing the interview from a castle. I'm not. But it is important to me that the founders can articulate to me who their competition is, how they are going to beat that competition, and how they are going to earn cash flows. And look at it as, if I give you that dollar, how are you going to turn that back around to ten dollars? And really understanding their market and having a team that understands that market.

 

IMG_7393.JPG Charlie Bobbish, Principal- Peloton Strategies Group

 

I haven't done any scientific analysis, but the companies that can do that, to me, tend to me a little bit more successful. They tend to be approaching things a little bit more professionally.

Rahul: I appreciate that answer. So the intent was, are you looking primarily at small businesses or startups that are targeting the public sector? Or are you casting a broader net in terms of innovative solutions in technology or what have you.

Charlie Bobbish: A little bit of both. I've done some investing in the cyber side. One of the ways that I was interested in getting involved in investing, not only through connections here at Eastern Foundry, but also mentor the Mach37 Incubator, and my network has exploded as a result of that. There's some incredibly talented people there, both on the investing and the startup side. That's held me ... Led my way towards some companies that I may not have been able to find otherwise.

The startups that are there, and also in the D.C. ecosystem are incredibly talented. We have a lot of cyber talent here. I don't claim to know that market, but I can find out about it. It's been helpful.

Rahul: That's good.

John Gilroy: So Charlie, last week I actually tried to find a sign spinner, you know like on the street they spin those signs? I had a creative way of advertising. Always thinking of new and different ways ... I wanna have someone from the convention center spin signs and ... I always wonder about advertising - how do people find you? Is it sign spinners? Is it sky writting? Hey that ... take my idea!

Charlie Bobbish: No, but I think I may take that idea! That's also a great question. Again, it comes back to, I consider myself fortunate that my network is strong.

John Gilroy: Oh it is.

Charlie Bobbish: And success leads to more success. We have a website because literally my first job out of college, somebody said, "I won't hire a company unless they have a website." And I don't know why that stuck with me for over 25 years but, in the early days of the web, but essentially that's not our marketing vehicle. It is networking, word of mouth, and do good and more good will come.

John Gilroy: So Phil, on the weekends, are you part-time jobs sign spinner downtown?

Phil Crawford: I like it. I'm open to it. Yeah, so, you know, on average from initial, sort of, being aware of a company to actually offering to invest in them ... How long does that take? Or is it something that's shorter where you guys rent some bikes down in Georgetown and you have a race and if they beat you in a cycling race then you agree to invest?

 

IMG_7390 Phil Crawford

 

Charlie Bobbish: It's ironic, because although I didn't make an investment in this company, one of the first investments I was involved with came from cycling through somebody who I had biked with and this town is a small beltway. But that said, that wasn't your question.

I think it really varies. The diligence that I do is much more personal. I want to know who knows them, and who vouches for them. And obviously, if they've done this before, they know the game and it's not going to be naïve. But I think there's some bravado and ego in investing and I look at investing as a partnership. You know, you're putting money in but obviously you'd like to get the money back, so it's not sort of a handed over the table and sit back and place stump the dummy while the company hopefully succeeds. I'd like to be able to put money in to something that either I can help out or somebody in my network can help out. It's for everybody's good that they win.

To answer your question about time - I think it really does vary, but for the most part, by the time I've made the decision to do it I will have spent several weeks doing diligence on the company personally. Not just the standard finances, but who knows them? What have they done? What has the founder done previously? And the team?

John Gilroy: In my misspent youth, I would associate with people who bet on horse races.

Charlie Bobbish: Got any tips?

John Gilroy: Well, they always look and they go, "Well this horse is a 'mudder'," and it was raining, they bet on that horse, you know? And so, there's certain keys, certain clues you know? Quarterbacks look at the defense and figure this guy is this way, so they can do a pattern. So when you're a Quarterback looking at a startup and evaluating it, are there any clues or tips? Do you look for educational background? Or years in service? What are the ... How do you know if it's a 'mudder' or not? How do you know how to identify a winner?

Charlie Bobbish: The team is really important to me. I like to know what they've done before in their careers. What it is that they ... Where they fit. Are they more than just a title? And what's going to happen, and I'll ask questions about what will happen if one of the founders is no longer in the picture.

John Gilroy: Oh. That's a good question isn't it?

Charlie Bobbish: What sort of plans do they have to take care of that? And how can they truly articulate their market? And how they can turn that in to cash flows. So again, I wish I had the winning tip but I'm not sure that I do.

John Gilroy: This town's full of charismatic individuals who start a company, and then what happens if they leave? Then, oh it's difficult. Nathan?

Nathan: Yeah so having successfully, you know, sold your business and then shifted more towards this advisory role, what are some of the challenges that you had in your path?

 

IMG_7371 Nathan Wallace

 

Charlie Bobbish: Some of it was not knowing what was out there. And again, I was lucky. The contracts that I have were all full and open. We learned along the way that that was much more valuable. I wish that was advice that was given to me early on. Frankly, had something like Eastern Foundry existed early on, I would have greatly benefited from it. Being able to separate what was really valuable in terms of advice from places like this, as well as ... there are a lot of service providers in the industry that are knocking on the door. I probably got two or three calls a week from somebody else trying to help sell the company, trying to help the company's re-registration with the government, all kinds of things. And they all are well meaning, but not knowing where to focus and how to focus on the exit. Once my eyes were on that, that was helpful.

Rahul: So one thing about the diligence that you do, you do the personal due diligence, does that also go ... Is that a criteria for you to do co-investments with other potential investors? Do you join an investment syndicate or something like that? Or is it all equity that you're managing? Or ... I'm assuming it's equity, you're not doing senior data mezzanine or anything . . .

Charlie Bobbish: No, I haven't done anything like that. I've looked at it, but those deals tend to be a lot larger than I'm comfortable with. It is all equity. I have done some consolidate investments, but for the most part it's just been myself. And my wife is a wonderful investment advisor, so if it helps passed her test then that's important as well.

John Gilroy: So I was driving here this morning and down Route 7 there was a carcass and a bunch of vultures. And you know where I'm going with this. Many people in your position are vultures. I mean they look around and they try to pick up someone, buy low sell high, get something in and so, that's not your reputation in town here. You have a better reputation that believe it or not but ... There are individuals who have that reputation and if I have a company and I'm looking for help, I'm going to be very wary about old Charlie ... I mean this is realistic, isn't it?

Charlie Bobbish: It is, and unfortunately the lawyers in town build very big buildings and in Tyson’s Corner is probably supported by them. But, you know, money breeds an ego unfortunately, and I'm not interested in that. I would like to be able to give back and to try to help out. I'm not interested in playing stump the owner and find something in diligence, I'd rather point it out and say, "Let's get that corrected," or "Here's somebody I know that could help you correct that." And then let's come back together in six months or something like that. If it's something that's a showstopper for me personally. I'd rather not capitalize on that and know that it's probably going to come and bite me down the road.

John Gilroy: Pretty mature, huh Phil? Pretty mature and sophisticated.

Phil Crawford: Absolutely.

John Gilroy: Now I'm gonna go to this side of the table.

Phil Crawford: I attended a panel on a healthcare, sort of startup panel with a bunch of companies that do investment in health space at the Georgetown Business School. It was moderated by a guy called John Drabar, who was the executive residence, in residence there. One of the people that were on the panel, they talked about you know, their investing particularly in the healthcare setup space, they are sometimes looking for startups, investment opportunities where there are certain roles that the people play. Like they are looking for a business person, but then kind of paired with a developer, or someone that has technical experience. Do you ever look for people with specific roles when you're thinking about the due diligence? Like, I need to have a technical person and a business person and a communications ... Something like that.

Charlie Bobbish: I think people that are building portfolios with a larger plan are doing that. I haven't personally. You know, they want to have something that they can aggregate together and either sell or bring ... And I haven't got to that point. And I may not, quite honestly.

John Gilroy: Here we are in Washington, D.C., and I'd be remiss if I didn't quote a President. LBJ he once said, "You gotta dance with the one that brung ya." Which is a sophisticated comment now.

If you look at a company and you do see a charismatic leader, that's the one that 'brung 'em', you know, I mean ... And if you are in a situation where the company is being sold, I mean this gets to be some ... Personality evaluations here, and what's going to happen if ... I mean I've been in situations where organizations have been sold and the charismatic leader had to leave after six or eight months. And then where does it go from there? This is more social skill than anything isn't it?

Charlie Bobbish: It is. Yeah and I think it depends on the market and what the company does and why they were acquired. Whether or not the leadership was asked to stay. In a lot of cases, particularly in services companies, they are asked to stay. It tends to be the case, even more so, if they are smaller, because the founder may have been the one that aggregated the company together. The recruiting may have been around that founder, one or two degrees away from that founder. And buyers know that, they're not going to let that person go out the door.

So they'll try to sweeten the pot, they'll try to make sure that the founder is invested in a year or two with the buyer or the leadership team. But also they're interested ... I think the company is made more valuable if the owner is clear up front what he wants to do, or he/she wants to do. So if they want to get out of it totally, I think it's helpful to say that up front and articulate what the plan is. Say that you've got company behind you, you've got a General Manager, and that's the person that will be the future of this. That doesn't necessarily have to be articulated to the staff, but I think it helps show the buyer what the art of the possible is.

John Gilroy: Nathan, any sophisticated quotes from Presidents?

Nathan: Not sophisticated ones.

John Gilroy: Phil, why don't you come up with the last question please?

Phil Crawford: Yeah, I mean in terms of the, you know are defense space, do you see yourself expanding beyond that in terms of your investments? Or, any other sectors you're interested in?

Charlie Bobbish: Ironically most of the investments I've made have been out of the space.  But the companies I'm helping have been in the space.

 

IMG_7404.JPG Charlie Bobbish, Principal- Peloton Strategies Group

 

Phil Crawford: Oh okay.

Charlie Bobbish: Some of the, you know, the DNA of my background I said, I'm a little bit more valuable to somebody in Gov Con, particularly in the Intelligence community because of what I know; the experiences that I've had. But on the investment side, government contractors I think are a good investment but they are a longer term investment.

John Gilroy: Good job, students. Good job, Charlie. And Charlie, if people are listening to this and want to get more information on your website you've had for 25 years, where would they go?

Charlie Bobbish: www.pelotonsg, as in Peloton Strategies Group.com.

John Gilroy: And because I'm a radio guy we gotta spell it out:

Charlie Bobbish: P-E-L-O-T-O-N

John Gilroy: Super. Running out of time here. If you would like show notes, links and a transcript, please visit theoakmontgroupllc.com. I'd like to thank our founding sponsor, Radiant Solutions. If you're interested in getting involved in geospatial projects, contact Radiant Solutions.

We are hosted by Eastern Foundry, a community of government contractors who are bringing innovative solutions to the government marketplace. For more information, go to Eastern-Foundry.com and

If you would like to participate as a student or startup contact me, John Gilroy, at theoakmontgroupllc.com. And thanks for listening to 'Student vs Startups showdown on the Potomac.'

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