Today's featured Cannabis Investor is Dustin Byington The Cannabis Investor Series Sponsored by TWO12 is back for the Fourth year. This year, the Series will feature eighteen of the cannabis industry's top investors, reviewing the previous 12-months and sharing their 2022 investment strategies. On today's episode Dan Humiston is joined by the CEO of TWO12, Dustin Byington Produced by PodConX TWO12 - https://www.two12.co/ Raising Cannabis Capital - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Dustin Byington - https://podconx.com/guests/dustin-byington
Today's featured Cannabis Investor is Dustin Byington
The Cannabis Investor Series Sponsored by TWO12 is back for the Fourth year. This year, the Series will feature eighteen of the cannabis industry's top investors, reviewing the previous 12-months and sharing their 2022 investment strategies. On today's episode Dan Humiston is joined by the CEO of TWO12, Dustin Byington
TWO12 - https://www.two12.co/
Raising Cannabis Capital - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Dustin Byington - https://podconx.com/guests/dustin-byington
RC CI4 TWO12
Dan Humiston: [00:00:00] today in MJ bulls, we are wrapping up this year's cannabis investor series sponsored by two 12 with the CEO of two 12. Dustin Byington, Dustin, welcome to the show.
Dustin Byington: Thanks for having me, Dan.
Dan Humiston: Well, I'm glad you could be here with us today. I mean, you're an expert on two topics that any company that's raising money must deal with cap tables and dilution.
Let's start with cap tables, which is basically a list of the company's shareholder. So let's say for example, two guys start a company in age on 50%. So the cap table will be two.
people with two 50%.
It seems simple. How does this get complicated?
Dustin Byington: It gets complicated or hurry. The issue is that cap tables, startups are evolving very rapidly. And so, you're bringing on And investors at different price points, using different vehicles. You have employees an advisors whom you're giving options to at different strike prices, with different vesting periods.
And so keeping track of all this can [00:01:00] get pretty complicated. Either most people tend to use spreadsheets and lawyers. Spreadsheets tend to be pretty inaccurate or lawyers tend to be pretty expensive and also quite slowly. so a two 12 is meant to be that sort of a replacement for your spreadsheets and and sort of help your lawyers to be able to manage a cap table or for you to do yourself very quickly and , efficiently.
Dan Humiston: Yeah, it does seem like it'd be really expensive to have your lawyer managing your cap table. , and especially like you said, it's one thing if it's just equity, but like, if you haven't a convertible note in there, or if there's preferred stock or common stock, how does two 12 actually do.
Dustin Byington: It's a SAS product. And so it's a web-based spreadsheet that is 20 bucks a month, that has a bunch of products and features built around. My core cap, table functionality. And so at the core we allow you to do is you get to, , invite people into your cap table.
These can be your lawyer for reviewing the stuff on. This can be your employees, your investors, your advisors you and [00:02:00] onboard all these folks and add them all into your cap table. You put the information on your different rounds of what price you raised them. Or if it's a note, what cap you can control the vesting.
And so it's a, just a command and control station for your cap table. Everything is just point and click super easy. So easy. A founder can do it.
Dan Humiston: We need all the help we can get because we're focused on other things. It's not just about the raising money. We got to run a company. I mentioned earlier that there are two things that I really wanted to touch on today. We talked a little bit about cap tables.
There's so much more to talk about there. Be it.
The other thing it's probably is every bit as important as dilution. And unfortunately, I talked to a lot of entrepreneurs who are desperate to raise money, and they're saying to me, I'd rather have 50% , of a company than a hundred percent of nothing.
And I'm like, Okay.
I get it. But. If, it's going to be 50%, that's one thing. But if that 50% percent turns into 45 or 40, or it could be huge if you don't [00:03:00] know exactly what's going to happen. , and so being able to model this out just seems like that would be like so essential. I know , that's part of the, what you provide.
Can you explain how that works?
Dustin Byington: Sure. Yeah. Well, so the first thing we did was give founders and investors transparency into their ownership of the cap table today. And so everybody can log in and see how much they own. And you'd be surprised how many founders just like, don't even know how much they own today. And then we said, okay, now we need to give everybody transparency about what could happen in this.
And so the same UI UX, it used to add rounds, or you can , really easily, you just hit the simulation button and now you're playing in a sandbox and you can sort of forecast what your Cathy will look like under any set of scenarios. So . If you've got a bunch of convertible notes, you can see what happens at a certain price round, how those notes convert.
You can have multiple price rounds, stock splits, bridged loans, like the list goes on and on ad nauseum. And then you can model out an exit at the end of that. [00:04:00] And so you can get a really high fidelity look at, whatever. Gets paid on the end. And so, yeah, , it's a really useful tool for founders to get a sense of how their Kathy will evolve over time, how those notes will end up converting.
And it's important to forecast your equity position for just simply to be able to raise more money in the future. And a lot of farmers don't realize if they give away too much early, if sophisticated venture folks won't back then in the future. So for like a good rule of thumb is if you delete more than 40% before your series a top tier VCs, won't touch you, they want you to have the equity to give you as a founder, the incentive to push this through all the inevitable challenges.
But also you need to use the equity for future growth. It's not. We say a lot of companies are raising, continuing to raise it to their like years. So if you give it away too much, too early, it can really have these sort of compounding effects , that can ruin businesses.
Dan Humiston: Yeah. So it's more than just 50% of something is better than a hundred percent of nothing. It's like, you got to know because.[00:05:00] What happens if , it gets all the way to the finish line and you go, oh, cool. This is how much we're selling for it. And you're like, wait a minute.
How come that check is only that size like, how did that happen?
Dustin Byington: It happens all the time. Unfortunately. As founders tend to have a lot less than they think. And then there's also liquidation preferences that VCs will sort of sneak in there too. And liquidation preferences, just a right for them to receive money. Before it gets distributed to everybody else.
And so if there's like a three X liquidation preference and they invest a million dollars right off the top, they're getting 3 million back before anybody gets another penny. So say you're exiting for 5 million year old excited. Well, actually, you're getting an exit for two because the VC's are good.
Take three. So you can help yourself upfront by using our tools to figure out how these terms will manifest in Catholic long-term. But as another general rule of thumb, usually like the liquidation preferences are now seen as somewhat predatory and a one X non-participating as is standard. If anybody's asking [00:06:00] for more than that I probably talked to her.
Dan Humiston: Yeah, that's a good point. That's a good point. But at least you'd know, for 20 bucks a month, at least you'd know.
Dustin Byington: Yeah, , you wouldn't do your taxes on a spreadsheet. Why are you managing your equity on a spreadsheet? We price us and same sort of pricing model is TurboTax and QuickBooks. We're very passionate about scaling and getting this thing.
As many founders as we can because spreadsheets there are sort of like ticking time bombs and spreadsheets, and we see it all the time. These skeletons that just emerge the worst possible time and kill deals and sick businesses.
Dan Humiston: well, I know we rushed through a bunch of information folks. So if you're looking for more detail and you even have a demo on their website, so check it out, go to the show notes. I have links in the show notes. We also have links at, at pod connects.com. Go to the two 12 website and check it out. And I'm sure if You have any questions, there are people from Dustin's team would be happy to answer.
Thanks for being on the show today, Dustin, and also thanks for sponsoring this year. Cannabis investors shares. I know a lot of our listeners really appreciate it.
Dustin Byington: You got it, Dan? Yeah, it's been fun. I [00:07:00] really liked your work. And one party thought is we do also have For a service. A lot of our companies really need that. There's, that's a requirement. If you raise money and you're giving out options we can help you figure out how to price your next round or what cap to put on your note, give you some data to go head to head with the VCs, or if you're doing a crowdfunding we're getting really active in the crowdfunding space.
Our pricing model is fixed. And so those folks that have large cap tables tend to like it because it's 240 bucks, even if you have a thousand people on your cap table. And so yeah, we're. Really just continuing to roll out more products and services with Kathy with the core to support the startup and crowdfunding industry.
Very also you're particularly interested in the cannabis industry really excited to see all the growth there and happy to be supporting that in your show.
Dan Humiston: I'm really excited about the crowdfunding aspect of it. I'm glad you brought that up because we know we have another show called cannabis crowdfunding, and that's becoming a really big method for cannabis companies to raise capital. So again, thanks for doing it.
Dustin Byington: Oh, you got a down [00:08:00] love ground funding.