by Ryan Blair
That was it. I’d arrived. I was a millionaire.
That dream was one of the clearest I’d ever had, and I remember it gave me chills all over my body. I woke up out of that sleep in a cold sweat and with the greatest clarity I had ever felt. I knew that dream would become a reality.
One day, not long after my vision, a competitor of mine made an offer directly to my board to buy SkyPipeline, and I did get called into my attorney’s boardroom.
I remember I was nervous as I walked into that room, and there they were, my board members sitting around a big table, just like in my dream. But there was no celebration on their faces, no proud smirks. Their faces looked predatory—I could sense it. These people weren’t my friends, waiting for me to arrive so they could make a toast to my genius. They were there for one thing—they were going to take me for my money. They wanted to steal my milk.
We’d had multiple bidders and we were about to accept one of them on their terms. I owned 20 percent of the company, and the offer on the table was $25 million. Everyone in the room was handed a piece of paper that stated how much they would get from the sale. I took one look at the amount on the sheet in my hands and looked up.
“There must be an error,” I said.
“No,” the attorney said. “This is the way the calculation worked out. You agreed to a five-times liquidation preference and antidilution provisions in the investor agreements.”
I looked back down at the paper—the amount was zero. Thanks to these entrepreneurial vultures, I was officially in a nothing-to-lose situation.
I thought back to that dream I’d had while living my middle-class life, lying in bed in my middle-class home—a condo in Simi Valley that I’d leveraged to build my business. I thought about all the times I’d imagined the sale of my company and how I’d risked it all, but in the end of my dream my bet would pay off. This was looking more like a nightmare.
The board was silent. They were waiting to see my reaction. This was the moment they’d prepared for. They weren’t playing checkers; this was real money, and they were five moves ahead of me at this point.
I must have turned a furious shade of red, because I could feel my heartbeat in my face. I sat there thinking, I’m screwed! Who do these people think they are? After I worked twenty hours a day, sacrificed my friendships, lost my girlfriend, gained sixty pounds. I took their phone calls on Sunday nights. How dare they? They planned this. And now I was supposed to vote their way, and walk off with zero. That’s what they’d planned.
What they hadn’t planned for, though, was what I did instead.
I told the board that I would sue every one of them, blow the deal, and sink the company before I’d walk away with nothing.
California law stated that they had to have my vote. And even though they were right, the contract I’d signed did add up to zero, I wouldn’t do it. I was going to tell all the customers and employees about what they had done. I was going to call the CEO of the company that was going to buy us and tell him the deal is off. I’d tie this whole thing up in the courts forever. They weren’t getting my vote.
Only two things motivate venture capitalists: fear and greed. When I walked into that boardroom that day they were full of greed, but when I left, they were full of fear.
A day later I got a call from Scot, the nicest member on the board. A likable younger guy with long hair, who was handpicked by the board as being the only one who might be able to talk some sense into me, Scot told me that they had rediscussed the proposal and that the attorneys had made an error. They were now looking at a number for me that would be one day worth about a million dollars.
The pendulum swung back, and all that leverage I’d had suddenly no longer mattered. Good old fear versus greed now had its full effect on me. If I didn’t say yes, I’d have nothing—and that was my greatest fear. If I said yes, then I was accepting less than I was worth but far more money than I had ever had personally. That was a heavy dose of greed. I also knew this deal would build my reputation as a successful entrepreneur, and that in itself was worth millions.
I told them I’d think about it. And I did. In the end I knew that a million dollars would change my life, and having this deal on my bio would legitimize me as a start-up entrepreneur who could make his investors a great return. I started thinking that I could invest it wisely, maybe use the money to start another company and get my worth in the next venture. So the next time I walked into that boardroom, I sat down and signed my life away. I penned my signature to more than sixty documents, which head counsel witnessed. I took the fair deal, and left that room knowing that my life had completely changed. I’d made my investors a huge return, my customers had a better service provider, and my employees had better careers; and for me, my first deal was behind me.
After the sale, Nexweb, the company that had acquired us, made the Inc. 500 largely due to the revenue we handed them, and they offered me a job with some remedial title, as regional manager of sales or something. I took the job reluctantly, and I hated it. I came in late every day, and left early. I had little respect for my new bosses, and I just couldn’t get behind the engineering culture that was so different from our entrepreneurial culture at SkyPipeline. They cared about their bits and bytes too much. The only bits I cared about were the butts in the seats of my employees’ chairs.
I called Todd Goergen (one of the investors in SkyPipeline whom I liked a lot) to tell him that I was leaving. For some reason I just wanted to make sure we’d stay in touch. He was young, ambitious, and extremely smart, and I was straight with him. I said, “I’m calling you first because I want to do business with you in the future.” I also told Todd how I really felt about some of the other board members and I used a lot of unflattering descriptions.
Todd laughed and said, “OK. Call me when you have something for me to look at.”
After I left SkyPipeline, I spent the next couple of years living my dream life. I lost the sixty pounds I’d put on, and I got my health together. I moved to the beach and woke up to the sound of the ocean and watched sunrises that were the most beautiful I had ever seen. I dated girls who were previously out of my league. I bought a sports car, a new wardrobe, and jet-set the way this poor kid had always dreamed.
But my retirement wouldn’t last long; I was burning cash fast. The aforementioned girls who were out of my league? Well, truth is they were. They were accustomed to guys who had far more wealth than I had, and I was fronting as if I were Diddy. The truth was I needed to get moving on my next project; otherwise I would soon find myself back at square one.
I wanted to do something different this time around. As I’ve mentioned, I tried the motivational speaking circuit but felt it was a scam. I started a business with a few armatures (see chapter 12, “Million-Dollar Mistakes”) and it was a complete failure. I did some seminars, but it wasn’t a way to make hundreds of millions, which I needed if I wanted to compete for the girls. I started doing media and landed a gig on The Larry Elder Show along with a few other notable appearances, and I wrote some articles. Then one day a guy I knew from my SkyPipeline days called me. Rich Pala was his name. He said he was working with two young extremely ambitious entrepreneurs who were looking for investors, and would I be interested?
I was interested. But the truth was, at that time I was about to run out of money, and I needed to get back to building a real business.
Rich set up a meeting with Nick Sarnicola and his company’s CEO, Vito Terracciano. After they’d told me all about their company, ViSalus, I said, “Now that’s something I can get passionate about.” It was a company that made health products (I was into health and was taking lots of supplements back then) and it utilized independent sales representatives to sell its products. An entrepreneurial sales force that I could teach the subject I was most passionate about—entrepreneurship! It had potential to be more than my next business; it had the potential to be my lifelong passion.
It’s funny, the first person I called when I l
eft SkyPipeline was Todd, and coincidentally, the first person I called about ViSalus was Todd. The e-mail I sent is as follows:From: Ryan J. Blair
Sent: Monday, March 07, 2005 5:30 PM
To: ‘Todd Goergen’
Subject: RE: From Ryan J. Blair
Hey Todd,
Are you going to be in LA anytime soon? I want to pick your brain on direct sales models. I have completed an LBO on a wellness company called ViSalus that is using a direct sales model for distribution. The company has lots of promise. Please let me know your schedule. If you’re not in LA anytime soon, I can come see you in NY. Hope all is well.
Ryan
After a few back-and-forth e-mails, Todd asked for the details behind the company, and here’s the actual e-mail I sent him. You’ll be able to tell as you read this that I was much more verbose back then, or as I would say to receiving an e-mail like this today, I was “green.” I’m including this e-mail so that when you begin presenting your ideas to potential investors, you can use the details as a reference source.
From: Ryan J. Blair
Sent: Tuesday, March 22, 2005 7:31 AM
To: ‘Todd Goergen’
Subject: Detail
Hey Todd,
Here’s the detail behind the deal we put together. Let me know if this is something that you might be interested in. I’ll get back to you with my NY schedule. Thanks for sending me your availability. Ryan
We very recently led a leveraged buyout of a Michigan based nutritional supplement company ViSalus Sciences upon which we acquired approximately $250,000 of hard assets and roughly $2,000,000 of soft assets. In the leveraged buyout plan, we only assumed approximately $100,000 worth of liabilities.
We put in $35,000 in cash to initiate the buyout. The transaction was completed on March 4, 2005, where the company agreed to pay $30,000 to the primary shareholder,
Vitaliano Terracciano; $15,000 was paid on closing, with agreed terms to pay $5000 a month for the three following months. As part of the transaction we also agreed to pay a gross revenue pay out of up to 2.5%, but not to exceed 25k per month to the primary shareholder.
In the month of February (which was the acquisition month), ViSalus Sciences generated over $41,500 in total revenue, yielding a $4,872 net profit. Despite March being a transition month, the company projects and has month to date results that indicate a 20-25% increase in gross revenues. This will be a mild start, as the management team is expecting to grow the company substantially over the next few years and has laid the foundation for rapid scale through its direct sales distribution model currently growing by over 20% per month.
In order to provide maximum value and commitment to the company and its shareholders, the management team has agreed to also merge their other personal ventures into the holding company. These entities include an online goal setting community known as PathConnect, and a live event production company called Fusion. Fusion brings approximately $30,000 in assets and a recurring revenue stream of $100,000 annually. Moving forward, all three entities, ViSalus Sciences, PathConnect, and Fusion, will all fall under the legal umbrella of the holding company, FVA Ventures, Inc.
PathConnect and Fusion have been in partnership under a Joint Venture Agreement for approximately five months. This partnership has been building a solid foundation for events, seminars, sales aids, and PathConnect services. The activities of PathConnect/Fusion are expected to produce an additional $20,000 in revenue per month, yielding $10,000 in company earnings during the month of March.
With all three entities merged into FVA Ventures, the company expects that in the month of March alone, it will have an operational profit of approximately $20,000.
Based on our very conservative forecasts, we anticipate the company’s net profit to clear over $100,000 a month by the end of fiscal 05.
In the near future, the company will be raising $1,000,000 in equity financing to grow the scale of the company through enhanced sales and marketing resources.
As a result of the asset acquisition, we see minimum investment needed for manufacturing, product, fulfillment, software systems, or other operational infrastructure in order to greatly expand the company’s sales and product distribution.
In order to cover the assumed liabilities and complete the merger of the companies we are offering a small investment opportunity of $150,000 to serve as a bridge equity financing to cover the approximate $100,000 in assumed liabilities, and $50,000 for working capital and operational costs to consolidate the operations of the combined companies.
I anticipate that we will cover the bridge with no more than 6 friends and family members. $25K each. The bridge loan financing will convert to preferred shares upon raising the aforementioned additional equity financing. During the bridge period (estimated to be 180 days) we will pay a deferred interest in the amount of 8%. Prior to completion of the company’s Series A Preferred equity financing we will convert the bridge loans into the equity under the same terms of the financing. In addition to the 8% interest financing the company during its foundational period, we are willing to offer all bridge holders a 100% warrant to acquire an equal amount of shares at a discount of 20% from the share price established during the Series A financing for a period of 2 years (Series A Financing is estimated at $1 per share giving the combined companies a pre-money valuation of $1,000,000).
I am sending this e-mail to you because I feel that this is a great opportunity to become financially vested in three already profitable and healthy companies. With several people already interested I anticipate closing this transaction by the end of business on March 30th. The value of the company is literally growing daily. If you are interested, give me a call and we can talk further.
Thanks,
Ryan J. Blair
After rereading this, “green” is an understatement.
Todd got back to me and we set up a meeting in New York on May 5, 2005, at the Racquet Club. That’s when I had my second premonition. Todd and I had a casual meeting over tea in New York. Two things were notable about the meeting. First, Todd had a membership in the Racquet Club and that’s not an easy thing to get (for you Wall Street fans, this is where Gordon Gekko schools Bud Fox about bringing him real insider business information). Second, this was my first trip to New York and this LA punk kid was in love with the pace of business and opportunity that the city offered.
And just as Gekko had told Bud Fox in Wall Street, Todd told me to come back with something much more exciting, like when the company had $200,000 a month in sales. The only problem was, as you can see by the e-mail, we were only doing about $40,000 a month and I had sent him that e-mail in advance of flying all the way across the country. So he had asked me to travel 2,795 miles to tell me something he could have said via e-mail. My meeting with Todd lasted less than twenty minutes.
As opposed to taking this as an insult, or as a rejection, I saw it for what it was. It was a test. Todd was testing my commitment to this venture. He was thinking that if I would get on a plane for a twenty-minute meeting and then go home and build the venture up to $200,000 a month, then he’d take a hard look. In my life I may never have passed an academic test, but I never failed a test of will. And this was the ultimate test of will.
So in short, I had to improve sales fivefold so I could get Todd’s private equity fund interested. So I went home to Los Angeles and called my partners, the founders of ViSalus, Nick and Blake into a meeting. I told them that the Goergens were going to invest and that Todd had arranged for me to meet his dad, a world-renowned venture capitalist, and that if all went well, they would give us a few million dollars to build our business. Note: That’s called speaking into the future.
The only catch was that we had to get the company to $200,000 a month, and fast.
I kept Todd informed of our progress every month, and on September 6, 2005, I sent him an e-mail stating that we were on target to cross over the $200,000-per-month mark in that month.
His reply was:From: Todd Go
ergen
Sent: Tuesday, September 06, 2005 5:31 PM
To: Ryan J. Blair
Subject: RE: From Ryan J. Blair
Come meet my team in Greenwich on 9/16/05. Start around 11:00 am on Friday in Greenwich. My father and some folks from PartyLite will participate because we are in Greenwich.
Plan on having dinner in NYC that night with me and one of my partners.
TAG
I was elated. I had worked for six months to get this meeting, and even longer, because technically I had worked with Todd since early 2002. Now the real work began.
First I had to create a presentation that would motivate the Goergen team to invest. I had to package my company, convey its strategy, and persuade some of the smartest people in the world to get behind me and my team. And these smart people knew more about my business than I did. I worked every minute, from the moment I got notice of the meeting to the minute I showed up for the presentation to the Goergen family at Blyth World Headquarters.