January 6, 2024 • 34 mins
Embark on a wealth-building adventure with Patrick E. Donohue, the valuation virtuoso and Hill Capital Corporation's pioneering founder, as he lays out the roadmap to amassing riches in business and in real estate. Our shared stories of youthful business escapades set the stage, reinforcing the age-old wisdom that an asset's true worth is what a buyer is ready to fork over. Patrick's dual expertise in fundraising and investing brings a unique perspective to the art of the capital raise, advocating for the kind of simplicity in pitches that resonates with investors. You'll find yourself nodding along as we dissect the anatomy of a successful investment deal and underline the necessity of trust and emotional resonance in the business world.
It's not all dollars and deals, though; in this episode, we also shine a light on the community-centric side of entrepreneurship. Through initiatives like One Million Cups and the Entrepreneurs' Organization, we foster relationships that often bloom into fruitful partnerships, such as the one with Mercury Mosaics. Whether you're a seasoned entrepreneur or just taking the first steps in the business arena, this episode promises invaluable insights into the multifaceted world of securing investments and cultivating enduring business relations.
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Episode Transcript
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Speaker 1 (00:00):
This is the Legacy Wealth Code podcast helping you
build long-term wealth and alasting legacy through real
estate investing, tax strategiesand motivational stories from
some of the most successful andinfluential people out there.
Here are your hosts real estateinvestor and entrepreneur,
michael Notbohm, and real estateinvestor and attorney, andrew
Hoek.
Michael Notbohm (00:22):
Hey guys, welcome back to another episode
of the Legacy Wealth Codepodcast.
My name is Michael Notbohm,here with my partner and crime,
Andrew Hoek.
Hey guys.
So happy New Year to everyone.
We've got a.
We're excited to have a guesttoday Patrick E, entrepreneur
and valuation expert.
He's a chartered financialanalyst, a published author.
(00:42):
He's been a become a trustedinvestor, stock analyst, and
advisor.
The, founder of the HillCapital Corporation, supports
emerging growth companies,offering unique insights and
into the finance and businessdynamics One of the things that
I thought was super cool.
I'd love to chat, obviouslyduring the podcast today about
(01:03):
the million cups initiative thatyou're a big part of.
So excited to have you on here.
Welcome and happy New Year.
Patrick Donohue (01:09):
Thank you, Michael.
It's nice to see you and Andrewtoday, happy to share insights
with you and your audience.
Michael Notbohm (01:15):
I think your angle and your expertise is a
little different than what wetypically have on the podcast.
We're excited to chat with you.
So you've got a proven trackrecord on capital raising and
hopefully we can kind of tie itback in some way to real estate.
But tell us a little bit aboutyour background and kind of
where you are today and whatyou're doing.
Patrick Donohue (01:34):
Sure, my background and what I'm doing
today started at a very tenderage.
When I was six years old, I hada lemonade stand with my cousin
, and I always was fascinatedwith selling things and really
captivated by the idea thateverything has a value.
And so at a young age, I didprobably what a lot of kids did,
(01:56):
maybe collected, you know,baseball cards and so on and so
forth, but I always found thatfascinating and that's what took
me on my journey to helpingbuild an online brokerage firm,
getting into an investmentbanking and today running an
investment fund.
Michael Notbohm (02:13):
That's awesome.
So I remember reading that inyour bio and it was sent over to
us and I laughed.
I was like I feel like you'rekind of my brother from another
mother here, because I my firstjob or business rather was I was
in the sixth grade and we usedto go to Sam's Club.
I grew up in Wisconsin, soSam's Club was like 30 minutes
away from a small town calledO'Connor walk and I would buy
(02:36):
nuclear warheads and crybabiesand sell them to my classmates
and of course I'm buying it bulkright, the Sam's Club model and
I remember thinking I feel likeI'm so far ahead of my time.
I had a notebook with who wasbuying what and I would give
them an incentive based on howmany nuclear warheads they
bought.
And my parents have said weknew very young that you would
(02:59):
definitely be in the in thebusiness realm for the rest of
your life, and so I read thatand I thought it was pretty
funny to hear.
Patrick Donohue (03:06):
Well, that's awesome, michael, because I did
the same thing, but inelementary school we would get
in a lot of trouble if we hadcandy, so I would buy the, but
we wouldn't get in trouble if wehad cough drops.
And so, if you remember, thelungs cough drops taste more
like candy.
They don't taste like medicine.
So I'd buy the lungs coughdrops and buy the bag of 30 for
(03:29):
a buck and sell them for 10cents.
Michael Notbohm (03:31):
That's great.
So, you had a very healthyclass.
I mean, what could go wrong?
Patrick Donohue (03:36):
Exactly right.
Yep cherry lawns, those areworth the way to go.
Michael Notbohm (03:40):
Yeah, I laughed because I saw that and I was
like this is you know the sametype of thing.
I did baseball cards as well,and you know, when you talk
about value, the thing that mydad always told me because I
remember opening packs and Iwould say, dad, look at this, I
got a Cal Ripken.
You know, golden boss, blah,blah, blah, it's worth $200.
And you would say, mike, it'sworth how much somebody will pay
(04:00):
you for it.
And that was a valued belittlethat you could pretty much carry
forward for the rest of yourlife.
Patrick Donohue (04:06):
Well, that's what I think is funny.
I wrote a whole book aboutvaluation, but like, that is how
valuation really boils down to.
It's like what is somebodyactually going to really pay you
for it and what?
What's the cash that's going tochange hands for that thing?
Because we can talk aboutvaluation all day long.
It doesn't matter until ittrades hands.
Michael Notbohm (04:23):
So we'll look at cars right.
The Corvette came out 70 grandif you wait until it's ready,
but you can go to the, to thedealership, and they'll they'll
sell you one for 150 right now.
Right, you know it's then it'sworth 55 the next year, but they
don't think about that.
Patrick Donohue (04:40):
Exactly.
Michael Notbohm (04:41):
So let's chat a little bit about capital
formation, some of thestrategies that you've
implemented in your career.
I know that now you've got yourown real estate I mean your own
investment fund but you didcapital raising at some portion
of your career, so talk a littlebit about that.
Patrick Donohue (04:57):
Sure, well, my experience around capital
formation comes from all sides.
As an entrepreneur, I'vestarted a couple of businesses
and I've raised money.
I've raised money for for HillCapital Corporation to bring our
LPs together, our investorstogether for Hill Capital
Corporation, and now today, asan investor, we have
(05:18):
entrepreneurs coming to usseeking investment, and so
literally day in and day out,we're having people approach us
and pitching us to invest intheir businesses, and so that's
where my experience comes aroundcapital formation and you know
there's a lot of content outthere about like the perfect
pitch deck and so on and soforth, but I have some kind of
(05:41):
unique insights on how peoplecan think about these things to
keep it simple and be successfuland not get caught up into too
many details that I think arelargely distracting.
Andrew Hoek (05:51):
Patrick, can you touch a little bit.
I think a lot of people,especially in the real estate
industry, when they're startingout, maybe looking at
syndication style deals, arethinking capital raise through
friends and family, thinkingoutside that box a little bit.
What do you think are somesuggestions or tips to say how
do you maybe take that to thenext level, not just friends and
(06:12):
family, and now you're actuallylooking at outside sources for
capital?
Patrick Donohue (06:16):
Well, the biggest piece that all investors
really need is a magneticvision.
I call it a magnetic vision, buta vision of where it's going to
go, and the reason I put thequalifier of magnetic on there
is that it has to attract.
And so, in real estate, ifsomebody is going to go to
market and say they're puttingtogether a portfolio of, say,
(06:38):
storage units or whatever thecase may be, but they have a
vision of what this could beover time and what it's
ultimately going to be, that'swhat's going to attract people
as investors to them.
Now they can get away with airquotes, get away with being a
bit sloppy with friends andfamily, and that's always the
challenge when you go out tosources of capital, external
(07:01):
capital, outside of yourimmediate network.
That's where things really haveto be polished up and that's
where that magnetic vision hasto stand on something beyond
just the vision of the founder.
It has to have some proof inthe putting around examples of
what else is in the marketplace,of what has been done, comps,
(07:22):
and have it kind of modeled outof what it can actually look
like, because those externalsources of capital can't rely
upon just their word alone.
They're going to need some duediligence materials that are
going to really help kind ofsolidify what that vision can be
and help that investor reducehow they're thinking about the
(07:45):
risk-reward ratio, becausethey're always trying to reduce
the risk that of that visionactually happening.
Michael Notbohm (07:52):
So you're analyzing a lot of different
businesses, not just one sector,right?
So, as you're having peoplecome to you with their pitch,
what are the things that prettymuch everybody should have,
regardless of the industry?
Patrick Donohue (08:09):
What everybody needs to have is they need to
build reputation as quickly aspossible.
There are two things that movemoney it's emotion and it's the
trust.
So trust and emotion areabsolutely key.
So when somebody meets somebody, they need to establish the
emotional hook and trust asquickly as possible.
(08:31):
Now, trust takes time, butthere are things that people can
do to build trust where theymay have experience in an
industry or things that they canspeak to to start to build that
foundation of trust.
Earlier on in the conversationor when they get to meet, the
emotional hook can be a biteasier.
So I always think about like,when I see like medical devices.
(08:54):
We invested in a company calledCytotherics that's making human
liver cells.
Today, if a human being losestheir liver, they're dead.
There is no way to put them onsupport because the liver is one
organ still today we don't havea lot of solutions for.
So Cytotherics can pull onheartstrings when they're
(09:14):
talking to investors becausewhat they're literally doing
will save lives as theirtechnology builds and develops.
So that is a great example.
Now in real estate that mightbe where people are working on
affordable housing and can pullsome emotional strings around.
Hey, we're doing things thatcan really help people become
(09:35):
first time home buyers orwhatever the case may be, but
whatever people can do to havethat emotional hook and then
build and support that level oftrust, because that's the two
things that are going to movemoney at the end of the day.
Andrew Hoek (09:47):
How do people typically get to you?
Are they getting referred in orare you guys advertising out?
What does that look like?
Patrick Donohue (09:54):
Our business is nearly 100% word of mouth, and
so there are conferences that wewill sponsor, but that's more
because we're going to attendand to meet people.
But most of the time whenpeople are coming to us, it's
going to say hey, andrewsuggested that we meet each
other and I'll have an initialconversation, we'll have some
(10:16):
exchange and go from there.
So that's the vast majority ofit.
And if you think about itwithin venture capital in that
world, the vast majority of thebusiness that happens there is
word of mouth.
You're not seeing people outthere advertising and so on and
so forth.
That's really not the fit.
This is very much a people game.
Like all capital formation,it's all about the people.
(10:37):
The fintech thing, I think, iskind of overblown and overrated,
because, yes, we can use sometechnology to help with making
capital, getting theunderwriting process more
efficient, but at the end of theday, we need to build
relationships with the peoplewho are going to be executing
the business plan, and so that'sa really important element to
(11:00):
this.
Michael Notbohm (11:01):
So you don't have an AI robot that's beating
with them first.
Right now, like everybody youknow, I laugh because it's like
every time you turn the TV on,ai is doing this and AI is doing
this, and I mean, I'm anadvocate of it.
Patrick Donohue (11:15):
Yeah, a lot of ways, but I guarantee anybody
here's this podcast or you referto us we're going to have a
real conversation.
We want to communicate withpeople and get to know them,
because the other part of likewhat we do is that if it's not a
fit today that's why you guysmentioned one million cups when
(11:36):
we started we do a number ofthings to support organizations,
like one million cups in EO andwe're part of angel groups and
so forth we refer people toother sources of capital or
networks that can be supportiveto them, but we always have the
meeting because if it's a notfit for us, we help them find
where it may be a fit, becauseit may be a fit someday, a
(11:58):
mutual fit, for us.
And we've had a number ofinvestments, like a recent
investment in a custom tilemanufacturer, mercury Mosaics,
where we met Mercedes four yearsago and we stayed in touch with
her and as she built andexecuted her vision, it became a
better fit for us to be aninvestment partner with her, and
(12:18):
so we always white gloverelationships on the front end.
Michael Notbohm (12:22):
That's awesome.
I mean, it's definitely got tobe a rewarding thing.
Obviously, you know Idefinitely want to go into more
detail on the one million cupsthing, but just in general, you
know, when you meet with peoplemaybe it isn't a fit today or
they're just not ready yet.
I'm sure you know the guy, AlexHermosi, if you've ever read
any of his stuff.
Unfortunately, I haven't, I'mgoing to Okay, so he shares a
(12:46):
very similar vision in that he'swilling to give away a lot of
stuff for free where peoplewould say, why are you doing
this?
And his thought process isbecause I want to invest once.
Once I help you get to that twoto five million annual revenue,
then I can come in and reallyhelp you scale it to 50 or 100
million.
I can't help you before that,but I'll give you all the tools
(13:09):
for free to hopefully get you tothat point, and it sounds like
you guys are pretty much inalignment on that.
I think it's definitely a veryrewarding way to do it.
Patrick Donohue (13:18):
Very much.
Oh yeah, it reminds me ofGoGiver you'll give first, but
yeah, very much the mindset ofjust being a good person in the
community, being helpfulwherever we possibly can,
because even if there are a fit,I mean we just have capacity
constraints.
Anybody who runs an investmentfund does you know, for every 50
companies I look at, I canliterally only do you know four
(13:39):
or five of those deals.
There's only so much my teamand I can process either way.
So we always want to be helpfulfor wherever we can.
Michael Notbohm (13:48):
So what does that look like for you guys?
Are you basically the custodianof a fund and then you're
underwriting it and bringing itto your co-investors, or what
does that setup look like?
Patrick Donohue (14:00):
Yeah, it's all committed capital.
So all of our investors areindividuals.
So that's also an importantpoint that we like to highlight,
because we're not managinginstitutional money.
So when we invest in thesebusinesses we very much have a
vested interest because it's ourmoney and in making sure that
these businesses can grow.
(14:20):
So they definitely.
We are and see ourselves verymuch as partners with these
companies.
So those are some really keypieces to this.
When a company comes to us, whenwe give them a term sheet and
we say that we are good to putin a half a million or a million
dollars, we're good for that.
Right up through closing theydon't need to worry about
anything.
We have to get through our duediligence items and so forth.
(14:43):
But when we take that to ourinvestment committee, they're
double checking, making surethat we've done our work as the
managers.
But we're pretty much lockedand loaded to be able to close
that investment as long asthere's no red flags or any
issues, because the capital iscommitted.
So that's very different becausethere are groups like angel
(15:05):
groups like we're members of GoFor Angels, where it's a 100
people call it that are activelyinvesting in early stage
businesses.
But that's a situation wheresomebody comes in, pitches and
has to convince all theindividuals to write checks that
would go into what they calllike a special purpose vehicle
or whatever the case may be, toinvest in that business.
(15:26):
That's a very different model.
That's not Hill Capital.
Hill Capital is a dedicatedfund to is $25 million and we're
doing half a million to amillion dollars per investment.
Andrew Hoek (15:37):
Patrick, what was the name of that Gopher Angels?
Patrick Donohue (15:40):
Gopher Angels?
Yeah, because it's out of theUniversity of Minnesota, so the
Golden Gophers.
Andrew Hoek (15:45):
Oh, got you Okay.
Patrick Donohue (15:46):
The founders of it called it Gopher Angels.
It was actually.
There's a lot of angel fundsnow, but back in the day the
founders also a graduate ofThunderbird that had a similar
angel program, so that's how thename Gopher Angels.
Andrew Hoek (15:59):
Interesting.
Yeah, I was wondering wherethat came from.
But yeah, but Gopher.
Patrick Donohue (16:02):
Angels, by the way, invest all over, just not
Minnesota, but that is I got you, yeah.
Andrew Hoek (16:06):
Well, that's a.
That's such a good message, andso I have a two-part question
for you, because one of thethings that we always focus on
it's so great to hear about thesuccesses, but I think everybody
learns just as much from thefailures, right?
So tell us a little bit.
You know in your, in yourcapital raising days, what are
some things that you did at thebeginning that you look back on
(16:26):
now and you're like man, Ireally should have never done
that, or something that you'dsay I learned so much from this
experience.
You got anything that jumps outlike that.
Patrick Donohue (16:35):
Yeah, well, I'll just share one my personal
failures around fundraising andI don't know.
It was very, very painful and Idon't know if I would say I
would do it differently becausewhat came out of it is extremely
positive.
But in the early days of HillCapital Corporation we went to
market as what they call a BDC,a business development company,
(16:56):
which is an SEC registeredentity, and a lot of background
and like why and how that allcame to be.
But I spent the first two and ahalf years going out there in
raising Hill Capital as abusiness development company, as
a BDC, and drained my family'slife savings, a lot of my
personal time not being paid, soon and so forth, took a step
(17:17):
away from a very lucrativecareer, very, very difficult and
that was a failure.
But I knew going into it it wasa high risk of failure because
what I was trying to do was veryunique.
What we were doing as foundingshareholders of the BDC at the
time was very, very unique.
But it was well worth tryingand so, at the end of the day,
(17:39):
the reason, the biggest issuethere is that it's a structural
issue, because you have to filewith the SEC and, by definition,
there's time constraintsbecause all of a sudden your
filing will go stale and you gotto update it.
So there's legal costs and allsorts of professional expenses
and stuff like that that go intoit.
So very time consuming, painfulprocess but the net result was
(18:04):
very positive because we had abeautiful community put together
through that whole process.
So when we did pull togetherHill Capital Corporation in a
more traditional sense bringingjust together individuals and
not under the BDC construct wehad a built in community of
(18:25):
hundreds, if not thousands, ofpeople that already knew of us
and were supportive of us.
And that's where we got a lotof our initial deal flow,
because people knew we wereraising a fund and so when it
came time to make investments inbusinesses, we had a lot of
nice, warm referrals and theability to start looking at
deals right away.
So there's the good and the badof it and I think that's what
(18:46):
everybody at the end of the daythat's going through a capital
formation process will find,because there's going to be
failures and those are actuallyreally good because you'll learn
through that process.
You get that feedback and youkeep moving and keep moving
ahead and it's just part of thegame.
You have to get a lot of knowsto get that ultimate yes.
Andrew Hoek (19:07):
That's again what a great message.
What about stuff that you'veinvested in?
Give us a couple of favorites.
I don't know what yourconfidentiality requirements are
of anything, but give us someof your favorites that you're
invested in or have invested inthe past.
Patrick Donohue (19:22):
First off, all of our portfolio companies are
right on our website athillcapitalcorpcom, so if
anybody hears something or wantsto see the logo or click
through to see it.
The first business that I wouldlike to chat about is the
Mercury Mosaic, the customhandmade tile, because it's
something very unique anddifferent.
(19:42):
She's making tile in NortheastMinneapolis all by hand, and you
think about like tile being acommodity product.
You can go to Lowe's and HomeDepot and so forth and buy tile
for a couple bucks a square foot.
Her tile is $30 to $50 a squarefoot, but it's art, it's
beautiful.
So you've got high-end coffeeshops and high-end athletic
(20:07):
department stores that have hermosaics in their stores and
she's got some of the who's whoof clients out there.
She's doing a very largeinstallation at the Whitney
Museum right now, and so that'sa really unique investment
opportunity.
And the reason why we investedin Mercedes and in her business,
(20:30):
mercury Mosaics, is because sheis launching a new custom
handmade mosaic kit called theMosaic Candy Shop, where people
can get upcycled pieces of tileand build their own mosaics for
wall art at their home or placeof business.
And it really is her, as anartist wanting to get back to
(20:50):
her roots, about teaching others, about her love for her art,
and so that is a business thatis very unique and I like to
talk about just because it'ssomething very different than
the traditional technology,saas-based businesses, and we
have those in our portfolio aswell.
(21:12):
The other one that comes to mindbecause I just, literally
before we got on this podcast,was chatting with them is a
company called Foreverance, veryunique.
They make custom made ceramicurns and these urns have been
made for some of the who's who'sof celebrity In our hometown.
I live not too far from PaisleyPark, home of Prince.
(21:34):
When Prince passed away, therewas a lot of coverage about the
urn that Foreverance made, whichis a replica of Paisley Park
that holds Prince's Ash is nowat display at Paisley Park, and
so that's a very unique businessas well.
And Pete Sari and his team veryunique entrepreneurs where they
(21:57):
had a vision to be able to take3D printing which many years ago
was this new thing coming tomarket?
Take that technology, make 3Dprinted ceramic urns that are
high value to customers thatwant to forever memorialize what
they do.
So if you think about rockstars, they have the guitars, or
(22:18):
Stone Temple pilots had thathat made for one of the guys
that died.
A number of car affectionatemodels that have their cars that
they absolutely love.
If they have a big carcollection that they get their
favorite car made as a customurn so when they pass away.
So it's pretty neat, prettyunique company as well.
Michael Notbohm (22:41):
So it's kind of cool to hear because, you know,
just going back to when wefirst started the conversation,
you know, as you're analyzingthese businesses, one of the
things you said is have a vision, and you can clearly tell that
both of those companies had, youknow, some much bigger vision
for what they wanted it to bethan what it was right then.
But I'm sure on the on the backend, they also had the
(23:03):
fundamentals that made it asound investment for you and
your team, reducing your risks.
I think it's a balance of both,because there's a lot of people
that have great ideas andthere's no actual foundation of
how you pull this off.
So I think it's important tohave both.
Patrick Donohue (23:19):
Yeah, that's exactly right, Michael.
I mean what what Mercedes andhad at Mercury Mosaic and Pete
has at Foreverance is that theyhad an established business
that's operating and so when weinvested, we knew that they can
continue to build upon whatthey've already done well,
versus if it was a startup.
That's where we're makingreferrals to our friends that
(23:39):
run accelerator groups likeGenerator and others.
We're saying we in, we referthem to one million cups like go
and utilize more thoseaccelerators because they're
they're set up to help companiesare or entrepreneurs that have
an idea and get it through theidea phase.
We're not.
We're investing in businessesthat have a couple million of
revenue and want to take it tofive or 10 million.
Michael Notbohm (24:01):
That's our bread and butter and what a
perfect segue into what exactlyis a million cups.
Patrick Donohue (24:08):
You know, kind of give us the the nuts and
bolts of how it works and andwhat the initiative is well, I
actually have my one millioncups coffee cup right here that
Kauffman Foundation sent to mefor being an organizer.
But one million cups wasstarted by Kauffman Foundation,
which is the largest foundationin the United States, if not the
(24:28):
world dedicatedentrepreneurship, based out of
Kansas City.
And the Kauffman Foundation, asthe story goes about 12 years
ago they, they they're a couplebillion dollars.
They manage is all aboutsupporting entrepreneurs.
And so one of the employeespartners at the Kauffman
Foundation said well, if we'reall about entrepreneurs, why I
(24:51):
don't we invite a couple ofentrepreneurs in and have a cup
of coffee with them and learnabout what they're working on
and see how we can support them?
And so that's how the conceptwas born.
And so throughout the UnitedStates there's around 201
million cup groups or chapters,and each one of those are in
(25:11):
various cities and kind of havetheir own own flavor.
But we all have one thing incommon it's all volunteer.
There's really no checkbook.
It's a very simple, safe placefor entrepreneurs to come and
share their story.
Every Wednesday at 9 am, wehave one or two entrepreneurs
come in share their story aboutwhat they're working on, and we
(25:33):
ask one simple question what canwe as a community, do for you
and so, and then that allowseverybody in the room to start
talking about what can we do tosupport that entrepreneur?
And so they're typically comingto say, look at, I'm working on
this, I'm building this and, youknow, test my app, or I need
investors, or I need help onthis IP issue.
(25:55):
I don't understand.
And so then people can say I'llmeet this IP attorney or, here,
come to one, or come to go forangels, and, you know, pitch
your idea to maybe get someangel funding and we can help
them with the things that theyneed.
And so that's why I love onemillion cups and I founded one
million cups in my hometown,which is in Eaton Prairie,
minnesota.
I had exposure at other onemillion cup groups, but I got
(26:18):
one going in my backyard becauseI'm such a believer in the
model, because it's very simple,straightforward and just
helpful for entrepreneurs and,by the way, there's there's
number of them in in Florida andelsewhere too so, yeah, I was
gonna say we'll have to lookthat up, andrew.
Michael Notbohm (26:33):
It actually.
Yeah, andrew and I met in a ina B&I chapter.
I don't feel familiar with B&Ibut, um, and it was great, you
know.
I mean, obviously we have a,you know, strong partnership.
We've been investing in realestate now for the last five
years or so.
You know part of it for us waslike the you have to go and have
coffee twice a week with peoplethat you really have.
(26:55):
Like there was a hair loss ladyand it's like I don't know that
many people losing their hairand I.
But the model that you have,where it's like come to a, you
know, come to a meeting, there'snot this high pressure of how
many referrals are you bringingthis week.
I think that's what kind ofsteered us away over, you know,
over time.
It's just like I don't have.
(27:15):
I don't have a lot of peoplethat are losing their hair and
if I did, I'd feel awkwardreferring them to you because
you know it's kind of like atouchy subject.
But that, you know, the hairloss lady is just one example.
But the, the model that you'retalking about, where you're
presenting, you know, one or twofeatured other for newers every
week.
Patrick Donohue (27:33):
Is is pretty awesome right, and a number of
the people that attend onemillion cups um have or have
been, uh, members of a B&I andB&I has its place.
You know, I always think it'slike really good for like the
local owned you know salon orliquor store, whatever the case
may be where it's kind of like,hey, let's you know swap, you
know referrals and so forth.
(27:55):
But, um, but for a lot ofentrepreneurs that are starting
a, an app, you know, like onemillion cups is the best bit for
them and so you know.
So for each their own, and weneed a number of resources in
our community, and so onemillion cups is really good for
entrepreneurs that need to getplugged in and get going.
So what?
Michael Notbohm (28:14):
are the things I was gonna say.
One of the things that we teachis that you know, as you become
a real estate investor, it'simportant to, it's important to
approach it as if it's just aregular business.
Right, there's profit and loss,there's, you know, payroll,
there's all the elements that anormal business has, and I think
sometimes that gets lost intranslation, but one of the
(28:35):
things I know that you speakabout frequently is essential
knowledge for entrepreneurs in asimplified fashion.
So you know what are a coupleof those key takeaways that
every entrepreneur really should, you know, have in their
arsenal.
Patrick Donohue (28:49):
That's a big question because there's a lot
to being an entrepreneur and asuccessful business owner and in
every asset or every you knowthing that's producing income at
the end of the day is abusiness and it needs to be
properly managed.
Now some are more simple thanothers and so on and so forth,
but there do need to beprocesses in place.
(29:10):
I think I learned the hard way,like a lot of entrepreneurs
where you know, as I became anentrepreneur I thought, oh, I
know and I get this stuff and soforth.
And then I'm a member of EOEntrepreneurs Organization in EO
Minnesota and when I joined Iwas in their accelerator group
which is for sub one millionrevenue companies and it goes
(29:31):
through primarily Vern Harnish'sscaling up curriculum, but also
Gino Wickman and Traction andother EOS the entrepreneurial
operating system and otherthings.
But my personal experience beinga money person, a finance
person, I'll never forget to gointo my first money day which
was all about accounting andfinance and so forth, and I went
(29:52):
in there with the attitude oflike I know and I get of all of
this stuff, and went there andGreg Crabtree was speaking and
Greg is wonderful.
He wrote a book called SimpleNumbers, big Profits.
And I sat there and I was likethroughout the day I'm like, oh,
oh, oh, no, no, no, no, no.
Like I just realized I was thecobbler's kid, I was not doing
(30:15):
all the things I needed to do tobe a successful entrepreneur,
like invoicing.
I hate invoicing, I hateaccounting.
I hate, you know, I lovefinance.
Finance is forward-looking,accounting is backwards-looking.
And so I started realizing thisstuff.
I'm like, oh my gosh.
And so that's when I realized Ihave a lot to learn, and so
what I would encourage everybodyis to say you know, keep these
(30:38):
things simple.
You know, move forward, get thethings that you need, but you
have to keep in mind thateverything has to be a process.
You have to have these thingsdocumented and in place.
Finance is a prime example ofthat.
Every business, like realestate and so forth, you need to
have proper books and records.
(30:58):
You need to document how muchcost is going into this project
and what kind of profits can weexpect, and when is money moving
back and forth?
It needs to be documented Now.
It doesn't need to beoverwhelming, and they don't
need to get the latest andgreatest high-end accounting
software to do it, but they doneed the systems in place to be
able to track these thingsefficiently.
(31:21):
That's what I like to reallyspeak to is to help people keep
things crisp and clear, aboutmaking sure that they're focused
on the things that are going tobe the operating system that
can build their business, sothat they don't get hung up
where all of a sudden, somethingcomes out of left field and
wipes them out.
Because that's the flip side ofthis If things aren't documented
(31:44):
and things aren't donesystematically, something
someday will pop up andunfortunately, a lot of times
for entrepreneurs and thingsthat can wipe them out.
Because if they didn't properlyaccount for the cost that went
into a real estate project andall of a sudden something comes
up and a bill is due and theydon't have the cash, it could be
game over and they're all of asudden find themselves in a
bankruptcy.
That's the things I like tomake sure entrepreneurs really
(32:06):
understand is, take these thingsvery serious, make sure you got
the processes in place andyou're documenting all this type
of stuff so you can stay in thegame, because that's, at the
end of the day, the biggestvalue driver.
It's the least sexy, right, butsurvival that's the number one
thing to creating value, becauseif you can't survive, you can't
(32:29):
build something extremelyvaluable.
So you got to make sure you gotthe house in order to be able
to build.
Andrew Hoek (32:33):
That's.
I mean, it's so cool to hearyour story, patrick, and I go
back to where we started alittle bit earlier, at the
beginning of the podcast, andyou're talking about being an
entrepreneur at the age of sixyears old and you've really
found a way, I think, to harnessthat in such a cool fashion,
because you have your hands andso many different things, you're
getting to see so manydifferent entrepreneurial
(32:56):
pursuits and I mean what apassion driver and you can see
it in the way that you speakabout it.
So that's really cool.
Patrick Donohue (33:03):
I do love it because I've, as an entrepreneur
myself, I just I reallyresonate with anybody who's
taking financial risk to buildsomething, whether it's buying a
portfolio properties orlaunching a new app or making
handmade tile.
The journey of entrepreneurshipis something I just have a deep
amount of respect for, and inone is support wherever I can,
(33:27):
and that's why I'm here todaychatting with you guys.
Andrew Hoek (33:30):
Well, and it's so cool to see you giving back
through the million cups and,you know, offering, obviously,
to talk with people even ifthey're early on in their
endeavors, and I mean that'ssuch a rewarding experience to
be able to do that.
Patrick Donohue (33:42):
So yes, well, as Warren Buffett says, you know
you're doing well when you getup every morning and dance to
work, and that's what I do, yeah.
Michael Notbohm (33:51):
I can tell that about you.
So, and honestly, hopefully wecan stay in touch because, you
know, just looking at the topicsthat you sent over when we
first began chatting about doingthe podcast, there's definitely
plenty more that we can chatabout in the future, so we'd
love to have you back on at somepoint and discuss some of the
other stuff that you have toshare with everyone.
Patrick Donohue (34:11):
Yes, yes, I would enjoy that.
Yeah, because there's a lotthere.
I mean, some of these topicscan be a whole conversation onto
itself, the things like valueand valuation, how to think
about building value.
So, yeah, happy to be helpful,however I can.
Michael Notbohm (34:25):
Well, we really appreciate you coming on today
and hopefully we'll see youagain here in the future.
Patrick Donohue (34:30):
Excellent.
Thank you, Michael, Thank youAndrew.
Andrew Hoek (34:32):
Thank you, patrick.
Michael Notbohm (34:33):
All right, this has been another episode of the
Legacy Wealth Code podcast.
Until next time onward.
Speaker 1 (34:38):
Thank you for joining us for another episode of the
Legacy Wealth Code podcast.
If you enjoyed this episode,click subscribe now and never
miss an episode Until next timeonward.
This is the Legacy Wealth Code podcast helping you
build long-term wealth and alasting legacy through real
estate investing, tax strategiesand motivational stories from
some of the most successful andinfluential people out there.
Here are your hosts real estateinvestor and entrepreneur,
michael Notbohm, and real estateinvestor and attorney, andrew
Hoek.
Michael Notbohm (00:22):
Hey guys, welcome back to another episode
of the Legacy Wealth Codepodcast.
My name is Michael Notbohm,here with my partner and crime,
Andrew Hoek.
Hey guys.
So happy New Year to everyone.
We've got a.
We're excited to have a guesttoday Patrick E, entrepreneur
and valuation expert.
He's a chartered financialanalyst, a published author.
(00:42):
He's been a become a trustedinvestor, stock analyst, and
advisor.
The, founder of the HillCapital Corporation, supports
emerging growth companies,offering unique insights and
into the finance and businessdynamics One of the things that
I thought was super cool.
I'd love to chat, obviouslyduring the podcast today about
(01:03):
the million cups initiative thatyou're a big part of.
So excited to have you on here.
Welcome and happy New Year.
Patrick Donohue (01:09):
Thank you, Michael.
It's nice to see you and Andrewtoday, happy to share insights
with you and your audience.
Michael Notbohm (01:15):
I think your angle and your expertise is a
little different than what wetypically have on the podcast.
We're excited to chat with you.
So you've got a proven trackrecord on capital raising and
hopefully we can kind of tie itback in some way to real estate.
But tell us a little bit aboutyour background and kind of
where you are today and whatyou're doing.
Patrick Donohue (01:34):
Sure, my background and what I'm doing
today started at a very tenderage.
When I was six years old, I hada lemonade stand with my cousin
, and I always was fascinatedwith selling things and really
captivated by the idea thateverything has a value.
And so at a young age, I didprobably what a lot of kids did,
(01:56):
maybe collected, you know,baseball cards and so on and so
forth, but I always found thatfascinating and that's what took
me on my journey to helpingbuild an online brokerage firm,
getting into an investmentbanking and today running an
investment fund.
Michael Notbohm (02:13):
That's awesome.
So I remember reading that inyour bio and it was sent over to
us and I laughed.
I was like I feel like you'rekind of my brother from another
mother here, because I my firstjob or business rather was I was
in the sixth grade and we usedto go to Sam's Club.
I grew up in Wisconsin, soSam's Club was like 30 minutes
away from a small town calledO'Connor walk and I would buy
(02:36):
nuclear warheads and crybabiesand sell them to my classmates
and of course I'm buying it bulkright, the Sam's Club model and
I remember thinking I feel likeI'm so far ahead of my time.
I had a notebook with who wasbuying what and I would give
them an incentive based on howmany nuclear warheads they
bought.
And my parents have said weknew very young that you would
(02:59):
definitely be in the in thebusiness realm for the rest of
your life, and so I read thatand I thought it was pretty
funny to hear.
Patrick Donohue (03:06):
Well, that's awesome, michael, because I did
the same thing, but inelementary school we would get
in a lot of trouble if we hadcandy, so I would buy the, but
we wouldn't get in trouble if wehad cough drops.
And so, if you remember, thelungs cough drops taste more
like candy.
They don't taste like medicine.
So I'd buy the lungs coughdrops and buy the bag of 30 for
(03:29):
a buck and sell them for 10cents.
Michael Notbohm (03:31):
That's great.
So, you had a very healthyclass.
I mean, what could go wrong?
Patrick Donohue (03:36):
Exactly right.
Yep cherry lawns, those areworth the way to go.
Michael Notbohm (03:40):
Yeah, I laughed because I saw that and I was
like this is you know the sametype of thing.
I did baseball cards as well,and you know, when you talk
about value, the thing that mydad always told me because I
remember opening packs and Iwould say, dad, look at this, I
got a Cal Ripken.
You know, golden boss, blah,blah, blah, it's worth $200.
And you would say, mike, it'sworth how much somebody will pay
(04:00):
you for it.
And that was a valued belittlethat you could pretty much carry
forward for the rest of yourlife.
Patrick Donohue (04:06):
Well, that's what I think is funny.
I wrote a whole book aboutvaluation, but like, that is how
valuation really boils down to.
It's like what is somebodyactually going to really pay you
for it and what?
What's the cash that's going tochange hands for that thing?
Because we can talk aboutvaluation all day long.
It doesn't matter until ittrades hands.
Michael Notbohm (04:23):
So we'll look at cars right.
The Corvette came out 70 grandif you wait until it's ready,
but you can go to the, to thedealership, and they'll they'll
sell you one for 150 right now.
Right, you know it's then it'sworth 55 the next year, but they
don't think about that.
Patrick Donohue (04:40):
Exactly.
Michael Notbohm (04:41):
So let's chat a little bit about capital
formation, some of thestrategies that you've
implemented in your career.
I know that now you've got yourown real estate I mean your own
investment fund but you didcapital raising at some portion
of your career, so talk a littlebit about that.
Patrick Donohue (04:57):
Sure, well, my experience around capital
formation comes from all sides.
As an entrepreneur, I'vestarted a couple of businesses
and I've raised money.
I've raised money for for HillCapital Corporation to bring our
LPs together, our investorstogether for Hill Capital
Corporation, and now today, asan investor, we have
(05:18):
entrepreneurs coming to usseeking investment, and so
literally day in and day out,we're having people approach us
and pitching us to invest intheir businesses, and so that's
where my experience comes aroundcapital formation and you know
there's a lot of content outthere about like the perfect
pitch deck and so on and soforth, but I have some kind of
(05:41):
unique insights on how peoplecan think about these things to
keep it simple and be successfuland not get caught up into too
many details that I think arelargely distracting.
Andrew Hoek (05:51):
Patrick, can you touch a little bit.
I think a lot of people,especially in the real estate
industry, when they're startingout, maybe looking at
syndication style deals, arethinking capital raise through
friends and family, thinkingoutside that box a little bit.
What do you think are somesuggestions or tips to say how
do you maybe take that to thenext level, not just friends and
(06:12):
family, and now you're actuallylooking at outside sources for
capital?
Patrick Donohue (06:16):
Well, the biggest piece that all investors
really need is a magneticvision.
I call it a magnetic vision, buta vision of where it's going to
go, and the reason I put thequalifier of magnetic on there
is that it has to attract.
And so, in real estate, ifsomebody is going to go to
market and say they're puttingtogether a portfolio of, say,
(06:38):
storage units or whatever thecase may be, but they have a
vision of what this could beover time and what it's
ultimately going to be, that'swhat's going to attract people
as investors to them.
Now they can get away with airquotes, get away with being a
bit sloppy with friends andfamily, and that's always the
challenge when you go out tosources of capital, external
(07:01):
capital, outside of yourimmediate network.
That's where things really haveto be polished up and that's
where that magnetic vision hasto stand on something beyond
just the vision of the founder.
It has to have some proof inthe putting around examples of
what else is in the marketplace,of what has been done, comps,
(07:22):
and have it kind of modeled outof what it can actually look
like, because those externalsources of capital can't rely
upon just their word alone.
They're going to need some duediligence materials that are
going to really help kind ofsolidify what that vision can be
and help that investor reducehow they're thinking about the
(07:45):
risk-reward ratio, becausethey're always trying to reduce
the risk that of that visionactually happening.
Michael Notbohm (07:52):
So you're analyzing a lot of different
businesses, not just one sector,right?
So, as you're having peoplecome to you with their pitch,
what are the things that prettymuch everybody should have,
regardless of the industry?
Patrick Donohue (08:09):
What everybody needs to have is they need to
build reputation as quickly aspossible.
There are two things that movemoney it's emotion and it's the
trust.
So trust and emotion areabsolutely key.
So when somebody meets somebody, they need to establish the
emotional hook and trust asquickly as possible.
(08:31):
Now, trust takes time, butthere are things that people can
do to build trust where theymay have experience in an
industry or things that they canspeak to to start to build that
foundation of trust.
Earlier on in the conversationor when they get to meet, the
emotional hook can be a biteasier.
So I always think about like,when I see like medical devices.
(08:54):
We invested in a company calledCytotherics that's making human
liver cells.
Today, if a human being losestheir liver, they're dead.
There is no way to put them onsupport because the liver is one
organ still today we don't havea lot of solutions for.
So Cytotherics can pull onheartstrings when they're
(09:14):
talking to investors becausewhat they're literally doing
will save lives as theirtechnology builds and develops.
So that is a great example.
Now in real estate that mightbe where people are working on
affordable housing and can pullsome emotional strings around.
Hey, we're doing things thatcan really help people become
(09:35):
first time home buyers orwhatever the case may be, but
whatever people can do to havethat emotional hook and then
build and support that level oftrust, because that's the two
things that are going to movemoney at the end of the day.
Andrew Hoek (09:47):
How do people typically get to you?
Are they getting referred in orare you guys advertising out?
What does that look like?
Patrick Donohue (09:54):
Our business is nearly 100% word of mouth, and
so there are conferences that wewill sponsor, but that's more
because we're going to attendand to meet people.
But most of the time whenpeople are coming to us, it's
going to say hey, andrewsuggested that we meet each
other and I'll have an initialconversation, we'll have some
(10:16):
exchange and go from there.
So that's the vast majority ofit.
And if you think about itwithin venture capital in that
world, the vast majority of thebusiness that happens there is
word of mouth.
You're not seeing people outthere advertising and so on and
so forth.
That's really not the fit.
This is very much a people game.
Like all capital formation,it's all about the people.
(10:37):
The fintech thing, I think, iskind of overblown and overrated,
because, yes, we can use sometechnology to help with making
capital, getting theunderwriting process more
efficient, but at the end of theday, we need to build
relationships with the peoplewho are going to be executing
the business plan, and so that'sa really important element to
(11:00):
this.
Michael Notbohm (11:01):
So you don't have an AI robot that's beating
with them first.
Right now, like everybody youknow, I laugh because it's like
every time you turn the TV on,ai is doing this and AI is doing
this, and I mean, I'm anadvocate of it.
Patrick Donohue (11:15):
Yeah, a lot of ways, but I guarantee anybody
here's this podcast or you referto us we're going to have a
real conversation.
We want to communicate withpeople and get to know them,
because the other part of likewhat we do is that if it's not a
fit today that's why you guysmentioned one million cups when
(11:36):
we started we do a number ofthings to support organizations,
like one million cups in EO andwe're part of angel groups and
so forth we refer people toother sources of capital or
networks that can be supportiveto them, but we always have the
meeting because if it's a notfit for us, we help them find
where it may be a fit, becauseit may be a fit someday, a
(11:58):
mutual fit, for us.
And we've had a number ofinvestments, like a recent
investment in a custom tilemanufacturer, mercury Mosaics,
where we met Mercedes four yearsago and we stayed in touch with
her and as she built andexecuted her vision, it became a
better fit for us to be aninvestment partner with her, and
(12:18):
so we always white gloverelationships on the front end.
Michael Notbohm (12:22):
That's awesome.
I mean, it's definitely got tobe a rewarding thing.
Obviously, you know Idefinitely want to go into more
detail on the one million cupsthing, but just in general, you
know, when you meet with peoplemaybe it isn't a fit today or
they're just not ready yet.
I'm sure you know the guy, AlexHermosi, if you've ever read
any of his stuff.
Unfortunately, I haven't, I'mgoing to Okay, so he shares a
(12:46):
very similar vision in that he'swilling to give away a lot of
stuff for free where peoplewould say, why are you doing
this?
And his thought process isbecause I want to invest once.
Once I help you get to that twoto five million annual revenue,
then I can come in and reallyhelp you scale it to 50 or 100
million.
I can't help you before that,but I'll give you all the tools
(13:09):
for free to hopefully get you tothat point, and it sounds like
you guys are pretty much inalignment on that.
I think it's definitely a veryrewarding way to do it.
Patrick Donohue (13:18):
Very much.
Oh yeah, it reminds me ofGoGiver you'll give first, but
yeah, very much the mindset ofjust being a good person in the
community, being helpfulwherever we possibly can,
because even if there are a fit,I mean we just have capacity
constraints.
Anybody who runs an investmentfund does you know, for every 50
companies I look at, I canliterally only do you know four
(13:39):
or five of those deals.
There's only so much my teamand I can process either way.
So we always want to be helpfulfor wherever we can.
Michael Notbohm (13:48):
So what does that look like for you guys?
Are you basically the custodianof a fund and then you're
underwriting it and bringing itto your co-investors, or what
does that setup look like?
Patrick Donohue (14:00):
Yeah, it's all committed capital.
So all of our investors areindividuals.
So that's also an importantpoint that we like to highlight,
because we're not managinginstitutional money.
So when we invest in thesebusinesses we very much have a
vested interest because it's ourmoney and in making sure that
these businesses can grow.
(14:20):
So they definitely.
We are and see ourselves verymuch as partners with these
companies.
So those are some really keypieces to this.
When a company comes to us, whenwe give them a term sheet and
we say that we are good to putin a half a million or a million
dollars, we're good for that.
Right up through closing theydon't need to worry about
anything.
We have to get through our duediligence items and so forth.
(14:43):
But when we take that to ourinvestment committee, they're
double checking, making surethat we've done our work as the
managers.
But we're pretty much lockedand loaded to be able to close
that investment as long asthere's no red flags or any
issues, because the capital iscommitted.
So that's very different becausethere are groups like angel
(15:05):
groups like we're members of GoFor Angels, where it's a 100
people call it that are activelyinvesting in early stage
businesses.
But that's a situation wheresomebody comes in, pitches and
has to convince all theindividuals to write checks that
would go into what they calllike a special purpose vehicle
or whatever the case may be, toinvest in that business.
(15:26):
That's a very different model.
That's not Hill Capital.
Hill Capital is a dedicatedfund to is $25 million and we're
doing half a million to amillion dollars per investment.
Andrew Hoek (15:37):
Patrick, what was the name of that Gopher Angels?
Patrick Donohue (15:40):
Gopher Angels?
Yeah, because it's out of theUniversity of Minnesota, so the
Golden Gophers.
Andrew Hoek (15:45):
Oh, got you Okay.
Patrick Donohue (15:46):
The founders of it called it Gopher Angels.
It was actually.
There's a lot of angel fundsnow, but back in the day the
founders also a graduate ofThunderbird that had a similar
angel program, so that's how thename Gopher Angels.
Andrew Hoek (15:59):
Interesting.
Yeah, I was wondering wherethat came from.
But yeah, but Gopher.
Patrick Donohue (16:02):
Angels, by the way, invest all over, just not
Minnesota, but that is I got you, yeah.
Andrew Hoek (16:06):
Well, that's a.
That's such a good message, andso I have a two-part question
for you, because one of thethings that we always focus on
it's so great to hear about thesuccesses, but I think everybody
learns just as much from thefailures, right?
So tell us a little bit.
You know in your, in yourcapital raising days, what are
some things that you did at thebeginning that you look back on
(16:26):
now and you're like man, Ireally should have never done
that, or something that you'dsay I learned so much from this
experience.
You got anything that jumps outlike that.
Patrick Donohue (16:35):
Yeah, well, I'll just share one my personal
failures around fundraising andI don't know.
It was very, very painful and Idon't know if I would say I
would do it differently becausewhat came out of it is extremely
positive.
But in the early days of HillCapital Corporation we went to
market as what they call a BDC,a business development company,
(16:56):
which is an SEC registeredentity, and a lot of background
and like why and how that allcame to be.
But I spent the first two and ahalf years going out there in
raising Hill Capital as abusiness development company, as
a BDC, and drained my family'slife savings, a lot of my
personal time not being paid, soon and so forth, took a step
(17:17):
away from a very lucrativecareer, very, very difficult and
that was a failure.
But I knew going into it it wasa high risk of failure because
what I was trying to do was veryunique.
What we were doing as foundingshareholders of the BDC at the
time was very, very unique.
But it was well worth tryingand so, at the end of the day,
(17:39):
the reason, the biggest issuethere is that it's a structural
issue, because you have to filewith the SEC and, by definition,
there's time constraintsbecause all of a sudden your
filing will go stale and you gotto update it.
So there's legal costs and allsorts of professional expenses
and stuff like that that go intoit.
So very time consuming, painfulprocess but the net result was
(18:04):
very positive because we had abeautiful community put together
through that whole process.
So when we did pull togetherHill Capital Corporation in a
more traditional sense bringingjust together individuals and
not under the BDC construct wehad a built in community of
(18:25):
hundreds, if not thousands, ofpeople that already knew of us
and were supportive of us.
And that's where we got a lotof our initial deal flow,
because people knew we wereraising a fund and so when it
came time to make investments inbusinesses, we had a lot of
nice, warm referrals and theability to start looking at
deals right away.
So there's the good and the badof it and I think that's what
(18:46):
everybody at the end of the daythat's going through a capital
formation process will find,because there's going to be
failures and those are actuallyreally good because you'll learn
through that process.
You get that feedback and youkeep moving and keep moving
ahead and it's just part of thegame.
You have to get a lot of knowsto get that ultimate yes.
Andrew Hoek (19:07):
That's again what a great message.
What about stuff that you'veinvested in?
Give us a couple of favorites.
I don't know what yourconfidentiality requirements are
of anything, but give us someof your favorites that you're
invested in or have invested inthe past.
Patrick Donohue (19:22):
First off, all of our portfolio companies are
right on our website athillcapitalcorpcom, so if
anybody hears something or wantsto see the logo or click
through to see it.
The first business that I wouldlike to chat about is the
Mercury Mosaic, the customhandmade tile, because it's
something very unique anddifferent.
(19:42):
She's making tile in NortheastMinneapolis all by hand, and you
think about like tile being acommodity product.
You can go to Lowe's and HomeDepot and so forth and buy tile
for a couple bucks a square foot.
Her tile is $30 to $50 a squarefoot, but it's art, it's
beautiful.
So you've got high-end coffeeshops and high-end athletic
(20:07):
department stores that have hermosaics in their stores and
she's got some of the who's whoof clients out there.
She's doing a very largeinstallation at the Whitney
Museum right now, and so that'sa really unique investment
opportunity.
And the reason why we investedin Mercedes and in her business,
(20:30):
mercury Mosaics, is because sheis launching a new custom
handmade mosaic kit called theMosaic Candy Shop, where people
can get upcycled pieces of tileand build their own mosaics for
wall art at their home or placeof business.
And it really is her, as anartist wanting to get back to
(20:50):
her roots, about teaching others, about her love for her art,
and so that is a business thatis very unique and I like to
talk about just because it'ssomething very different than
the traditional technology,saas-based businesses, and we
have those in our portfolio aswell.
(21:12):
The other one that comes to mindbecause I just, literally
before we got on this podcast,was chatting with them is a
company called Foreverance, veryunique.
They make custom made ceramicurns and these urns have been
made for some of the who's who'sof celebrity In our hometown.
I live not too far from PaisleyPark, home of Prince.
(21:34):
When Prince passed away, therewas a lot of coverage about the
urn that Foreverance made, whichis a replica of Paisley Park
that holds Prince's Ash is nowat display at Paisley Park, and
so that's a very unique businessas well.
And Pete Sari and his team veryunique entrepreneurs where they
(21:57):
had a vision to be able to take3D printing which many years ago
was this new thing coming tomarket?
Take that technology, make 3Dprinted ceramic urns that are
high value to customers thatwant to forever memorialize what
they do.
So if you think about rockstars, they have the guitars, or
(22:18):
Stone Temple pilots had thathat made for one of the guys
that died.
A number of car affectionatemodels that have their cars that
they absolutely love.
If they have a big carcollection that they get their
favorite car made as a customurn so when they pass away.
So it's pretty neat, prettyunique company as well.
Michael Notbohm (22:41):
So it's kind of cool to hear because, you know,
just going back to when wefirst started the conversation,
you know, as you're analyzingthese businesses, one of the
things you said is have a vision, and you can clearly tell that
both of those companies had, youknow, some much bigger vision
for what they wanted it to bethan what it was right then.
But I'm sure on the on the backend, they also had the
(23:03):
fundamentals that made it asound investment for you and
your team, reducing your risks.
I think it's a balance of both,because there's a lot of people
that have great ideas andthere's no actual foundation of
how you pull this off.
So I think it's important tohave both.
Patrick Donohue (23:19):
Yeah, that's exactly right, Michael.
I mean what what Mercedes andhad at Mercury Mosaic and Pete
has at Foreverance is that theyhad an established business
that's operating and so when weinvested, we knew that they can
continue to build upon whatthey've already done well,
versus if it was a startup.
That's where we're makingreferrals to our friends that
(23:39):
run accelerator groups likeGenerator and others.
We're saying we in, we referthem to one million cups like go
and utilize more thoseaccelerators because they're
they're set up to help companiesare or entrepreneurs that have
an idea and get it through theidea phase.
We're not.
We're investing in businessesthat have a couple million of
revenue and want to take it tofive or 10 million.
Michael Notbohm (24:01):
That's our bread and butter and what a
perfect segue into what exactlyis a million cups.
Patrick Donohue (24:08):
You know, kind of give us the the nuts and
bolts of how it works and andwhat the initiative is well, I
actually have my one millioncups coffee cup right here that
Kauffman Foundation sent to mefor being an organizer.
But one million cups wasstarted by Kauffman Foundation,
which is the largest foundationin the United States, if not the
(24:28):
world dedicatedentrepreneurship, based out of
Kansas City.
And the Kauffman Foundation, asthe story goes about 12 years
ago they, they they're a couplebillion dollars.
They manage is all aboutsupporting entrepreneurs.
And so one of the employeespartners at the Kauffman
Foundation said well, if we'reall about entrepreneurs, why I
(24:51):
don't we invite a couple ofentrepreneurs in and have a cup
of coffee with them and learnabout what they're working on
and see how we can support them?
And so that's how the conceptwas born.
And so throughout the UnitedStates there's around 201
million cup groups or chapters,and each one of those are in
(25:11):
various cities and kind of havetheir own own flavor.
But we all have one thing incommon it's all volunteer.
There's really no checkbook.
It's a very simple, safe placefor entrepreneurs to come and
share their story.
Every Wednesday at 9 am, wehave one or two entrepreneurs
come in share their story aboutwhat they're working on, and we
(25:33):
ask one simple question what canwe as a community, do for you
and so, and then that allowseverybody in the room to start
talking about what can we do tosupport that entrepreneur?
And so they're typically comingto say, look at, I'm working on
this, I'm building this and, youknow, test my app, or I need
investors, or I need help onthis IP issue.
(25:55):
I don't understand.
And so then people can say I'llmeet this IP attorney or, here,
come to one, or come to go forangels, and, you know, pitch
your idea to maybe get someangel funding and we can help
them with the things that theyneed.
And so that's why I love onemillion cups and I founded one
million cups in my hometown,which is in Eaton Prairie,
minnesota.
I had exposure at other onemillion cup groups, but I got
(26:18):
one going in my backyard becauseI'm such a believer in the
model, because it's very simple,straightforward and just
helpful for entrepreneurs and,by the way, there's there's
number of them in in Florida andelsewhere too so, yeah, I was
gonna say we'll have to lookthat up, andrew.
Michael Notbohm (26:33):
It actually.
Yeah, andrew and I met in a ina B&I chapter.
I don't feel familiar with B&Ibut, um, and it was great, you
know.
I mean, obviously we have a,you know, strong partnership.
We've been investing in realestate now for the last five
years or so.
You know part of it for us waslike the you have to go and have
coffee twice a week with peoplethat you really have.
(26:55):
Like there was a hair loss ladyand it's like I don't know that
many people losing their hairand I.
But the model that you have,where it's like come to a, you
know, come to a meeting, there'snot this high pressure of how
many referrals are you bringingthis week.
I think that's what kind ofsteered us away over, you know,
over time.
It's just like I don't have.
(27:15):
I don't have a lot of peoplethat are losing their hair and
if I did, I'd feel awkwardreferring them to you because
you know it's kind of like atouchy subject.
But that, you know, the hairloss lady is just one example.
But the, the model that you'retalking about, where you're
presenting, you know, one or twofeatured other for newers every
week.
Patrick Donohue (27:33):
Is is pretty awesome right, and a number of
the people that attend onemillion cups um have or have
been, uh, members of a B&I andB&I has its place.
You know, I always think it'slike really good for like the
local owned you know salon orliquor store, whatever the case
may be where it's kind of like,hey, let's you know swap, you
know referrals and so forth.
(27:55):
But, um, but for a lot ofentrepreneurs that are starting
a, an app, you know, like onemillion cups is the best bit for
them and so you know.
So for each their own, and weneed a number of resources in
our community, and so onemillion cups is really good for
entrepreneurs that need to getplugged in and get going.
So what?
Michael Notbohm (28:14):
are the things I was gonna say.
One of the things that we teachis that you know, as you become
a real estate investor, it'simportant to, it's important to
approach it as if it's just aregular business.
Right, there's profit and loss,there's, you know, payroll,
there's all the elements that anormal business has, and I think
sometimes that gets lost intranslation, but one of the
(28:35):
things I know that you speakabout frequently is essential
knowledge for entrepreneurs in asimplified fashion.
So you know what are a coupleof those key takeaways that
every entrepreneur really should, you know, have in their
arsenal.
Patrick Donohue (28:49):
That's a big question because there's a lot
to being an entrepreneur and asuccessful business owner and in
every asset or every you knowthing that's producing income at
the end of the day is abusiness and it needs to be
properly managed.
Now some are more simple thanothers and so on and so forth,
but there do need to beprocesses in place.
(29:10):
I think I learned the hard way,like a lot of entrepreneurs
where you know, as I became anentrepreneur I thought, oh, I
know and I get this stuff and soforth.
And then I'm a member of EOEntrepreneurs Organization in EO
Minnesota and when I joined Iwas in their accelerator group
which is for sub one millionrevenue companies and it goes
(29:31):
through primarily Vern Harnish'sscaling up curriculum, but also
Gino Wickman and Traction andother EOS the entrepreneurial
operating system and otherthings.
But my personal experience beinga money person, a finance
person, I'll never forget to gointo my first money day which
was all about accounting andfinance and so forth, and I went
(29:52):
in there with the attitude oflike I know and I get of all of
this stuff, and went there andGreg Crabtree was speaking and
Greg is wonderful.
He wrote a book called SimpleNumbers, big Profits.
And I sat there and I was likethroughout the day I'm like, oh,
oh, oh, no, no, no, no, no.
Like I just realized I was thecobbler's kid, I was not doing
(30:15):
all the things I needed to do tobe a successful entrepreneur,
like invoicing.
I hate invoicing, I hateaccounting.
I hate, you know, I lovefinance.
Finance is forward-looking,accounting is backwards-looking.
And so I started realizing thisstuff.
I'm like, oh my gosh.
And so that's when I realized Ihave a lot to learn, and so
what I would encourage everybodyis to say you know, keep these
(30:38):
things simple.
You know, move forward, get thethings that you need, but you
have to keep in mind thateverything has to be a process.
You have to have these thingsdocumented and in place.
Finance is a prime example ofthat.
Every business, like realestate and so forth, you need to
have proper books and records.
(30:58):
You need to document how muchcost is going into this project
and what kind of profits can weexpect, and when is money moving
back and forth?
It needs to be documented Now.
It doesn't need to beoverwhelming, and they don't
need to get the latest andgreatest high-end accounting
software to do it, but they doneed the systems in place to be
able to track these thingsefficiently.
(31:21):
That's what I like to reallyspeak to is to help people keep
things crisp and clear, aboutmaking sure that they're focused
on the things that are going tobe the operating system that
can build their business, sothat they don't get hung up
where all of a sudden, somethingcomes out of left field and
wipes them out.
Because that's the flip side ofthis If things aren't documented
(31:44):
and things aren't donesystematically, something
someday will pop up andunfortunately, a lot of times
for entrepreneurs and thingsthat can wipe them out.
Because if they didn't properlyaccount for the cost that went
into a real estate project andall of a sudden something comes
up and a bill is due and theydon't have the cash, it could be
game over and they're all of asudden find themselves in a
bankruptcy.
That's the things I like tomake sure entrepreneurs really
(32:06):
understand is, take these thingsvery serious, make sure you got
the processes in place andyou're documenting all this type
of stuff so you can stay in thegame, because that's, at the
end of the day, the biggestvalue driver.
It's the least sexy, right, butsurvival that's the number one
thing to creating value, becauseif you can't survive, you can't
(32:29):
build something extremelyvaluable.
So you got to make sure you gotthe house in order to be able
to build.
Andrew Hoek (32:33):
That's.
I mean, it's so cool to hearyour story, patrick, and I go
back to where we started alittle bit earlier, at the
beginning of the podcast, andyou're talking about being an
entrepreneur at the age of sixyears old and you've really
found a way, I think, to harnessthat in such a cool fashion,
because you have your hands andso many different things, you're
getting to see so manydifferent entrepreneurial
(32:56):
pursuits and I mean what apassion driver and you can see
it in the way that you speakabout it.
So that's really cool.
Patrick Donohue (33:03):
I do love it because I've, as an entrepreneur
myself, I just I reallyresonate with anybody who's
taking financial risk to buildsomething, whether it's buying a
portfolio properties orlaunching a new app or making
handmade tile.
The journey of entrepreneurshipis something I just have a deep
amount of respect for, and inone is support wherever I can,
(33:27):
and that's why I'm here todaychatting with you guys.
Andrew Hoek (33:30):
Well, and it's so cool to see you giving back
through the million cups and,you know, offering, obviously,
to talk with people even ifthey're early on in their
endeavors, and I mean that'ssuch a rewarding experience to
be able to do that.
Patrick Donohue (33:42):
So yes, well, as Warren Buffett says, you know
you're doing well when you getup every morning and dance to
work, and that's what I do, yeah.
Michael Notbohm (33:51):
I can tell that about you.
So, and honestly, hopefully wecan stay in touch because, you
know, just looking at the topicsthat you sent over when we
first began chatting about doingthe podcast, there's definitely
plenty more that we can chatabout in the future, so we'd
love to have you back on at somepoint and discuss some of the
other stuff that you have toshare with everyone.
Patrick Donohue (34:11):
Yes, yes, I would enjoy that.
Yeah, because there's a lotthere.
I mean, some of these topicscan be a whole conversation onto
itself, the things like valueand valuation, how to think
about building value.
So, yeah, happy to be helpful,however I can.
Michael Notbohm (34:25):
Well, we really appreciate you coming on today
and hopefully we'll see youagain here in the future.
Patrick Donohue (34:30):
Excellent.
Thank you, Michael, Thank youAndrew.
Andrew Hoek (34:32):
Thank you, patrick.
Michael Notbohm (34:33):
All right, this has been another episode of the
Legacy Wealth Code podcast.
Until next time onward.
Speaker 1 (34:38):
Thank you for joining us for another episode of the
Legacy Wealth Code podcast.
If you enjoyed this episode,click subscribe now and never
miss an episode Until next timeonward.
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