The Ins And Outs Of Launching A Startup In Silicon Valley

These days, it seems like everybody is starting their own companies and getting rich in Sili Valley. With Wall St. throwing money hand over fist in social media land, and investors paying mind-boggling multiples, you might be crazy NOT to create a start-up and move out to the Bay Area! Plenty of people got filthy rich in the last dotcom bubble, and plenty more will get rich in this current social media bubble.

I’ve always wanted to be an entrepreneur myself, but I took the conservative route after a large company finally extended an offer the summer after I graduated.  The interview process took over 6 months and five plane rides, and by golly, I wasn’t going to turn the job offer down after going through the gauntlet!  I don’t know what would have become of me if I decided to strike it out on my own with no experience and no capital. If I failed, I’d probably just go back to business school and try again upon graduation.

Over the past couple of years, I’ve rediscovered my entrepreneurial spirit partly through Financial Samurai, and also partly after starting the Yakezie Network. Throughout the process of building a Network based on collaboration, I’ve run into a lot of questions along the way. Should I grow the community as quickly as possible, or focus on quality and culture? Should I dive in and spend $20,000 to build a technological add-on for the Network that may or may not benefit all Members, or should I wait until after there is a bigger user base?

I’ve got tons of questions, and I thought it would be best to ask a friend of mine, Jun Loayza (one of the founders of Untemplater), who quit his own six-figure job to give it a go on his own. Despite writing a previous post that stated that “Real Entrepreneurs Are Successful,” I admire all entrepreneurs who take that leap of faith and give it everything they’ve got, even if they fail. It takes guts and a relentless passion.  Here are some fantastic entrepreneurial insights from Jun and an update on his current venture, RewardMe.

AN INTERVIEW WITH JUN LOAYZA, CEO OF REWARD ME

Sam: Please describe what your company does and why people should use your company’s product?

Jun: RewardMe makes current POS (Point of Sale) systems more powerful. We are the customer engagement platform for QSR and Fast Casual franchises. Through the customer development process, we’ve found that many Marketing Directors at franchises are frustrated with their POS system: 25% of the franchises we spoke with have recently changed their POS system and an additional 30% are thinking of changing their POS system.

Additionally, POS systems cost upwards to $15,000 to replace an entire location, making it difficult for Marketing Directors to justify such a huge upfront cost to add additional capabilities to their marketing campaigns. Franchises should use our product to give their current POS system a complete and long term enhancement. Instead of investing $15,000 into a new POS system that will eventually go out of date, franchises can invest $2,000 in our product and have a solution that will grow with their franchises needs.

DECIDING WHEN TO MAKE THE LEAP

Sam: How difficult was it for you to leave Social Media Marketing making six figures? Most people under the age of 25, and even under the age of 30 don’t make $100,000+. How do you think you got there, and why do you think it was not enough in such a short amount of time?

Jun: At the time, it wasn’t a difficult decision to make at all. I was brought into an existing company to build Social Media Marketing, and was paid relatively handsomely to do so; however, I had no personal investment into the company in terms of equity or love.

My decision boiled down to the following key points:

1) I finished paying off my student loans so I had no debt and no one to take care of
2) My girlfriend was very supportive of my decision
3) I got here before the age of 25, so I’m sure I can get to this point again should I fail with my own ventures
4) I wanted to rejoin my startup team (Yu-kai, Stephen, and Joe)

6-figures was not enough because I want a BIG exit, to make a disruptive impact on an industry, and to work on something that I either love or love the people that I work with. Social Media Marketing did not provide those 3 requirements.

A BIG exit to me is around $50M – $70M; something that will allow me to provide for my family so that don’t HAVE to work again and that will provide me the capital and freedom to work on startups for the fun of it.

Sam: Is the startup capital for your company mostly from your founders, or are there also outside angel investors who backed you? Did you have a particular amount of money you wanted to save up first before you decided to go out on your own?

Jun: Before fully committing to RewardMe, I needed to have all of my debts paid; in this case, it was my student loans. Once that was all paid for, I was ready to join my team full-time.

RAISING CAPITAL

Sam: Where did your initial capital come from?

Jun: We received an initial $100K in funding from my blog readers and Yu-kai’s personal connections. You can check out the post on how we did it here: How to raise funding with your blog

After our initial seed round, it was up to us to create a product and build traction to build a solid case for our angel round. The process took about 8 months in total (from October 2010 – May 2011), but we finally built enough traction and had a good enough product to raise a $800K+ Angel round.

The funding came from multiple sources: 2 companies and 4 individual investors. Keep in mind, we accomplished the task of raising an Angel round because Yu-kai spent 40+ hours a week raising money. Stephen built the product and I got us clients, allowing Yu-kai to focus all of his effort on money.

Sam: What are the advantages and disadvantages of having outside investors in your company? If you had a choice, would you rather have completely self-funded the company if you had the money? Or would you rather spread the risk around?

Jun: One big advantage is that it’s not your money to play with, which means that you can freely invest the money into product, marketing, and people without thinking, “How much of a dent is this putting into my personal finances?” Don’t get me wrong, we are still very very lean with the money we have, but we’re able to make important business decisions with our money without having to worry about our personal finances.

If I’m building a lifestyle business, then I would completely self-fund the project. A lifestyle business is a Tim-Ferriss business that allows you to make a certain amount of income every month without spending much time on the work; this ultimately frees up your time and allows you to travel or spend time however you want.

If I’m building a Silicon Valley startup that is meant to be acquired for $50M+, then I would take outside funding:

1) A large investment capital allows you to pay for a team, pay for press, pay for marketing, and pay for product development

2) Investors will look to give you advice, connect you to the right people, and help you become successful

3) For example, although we’re SUPER lean, our burn-rate is around $40K per month right now. Even if I were a millionaire, I would not like the money to come from my personal finances.

Check out part 2 of the interview where we talk about return metrics and battling the competition!

Update on 2/10/2015 – It looks like RewardMe has dissolved with Jun leaving in 2014, and no post being published on their site since Sept, 2014.

Refinance Your Student Loan With SoFi

SoFi is a fantastic social lending company that provides rates as low as 2.6% variable with auto pay and 3.4% fixed with auto pay. The reason why they can offer lower rates than the rest is because they analyze you based on merit, quality of employment, and education besides just a credit score and financials. There is zero origination and prepayment fees. Offer terms are from 5, 10, 15, 20 years in both fixed and variable. Both private and public student loans can be refinanced.

Besides low rates, one of their best features is their unemployment benefits. If you lose your job while repaying your loans, you don’t have to pay your loan for up to 12 months while you look for a new job! Interest will still accrue, but having this cash flow break is a huge benefit. They also provide job assistance guidance as well.They also provide job assistance guidance as well. Over 500,000 users have refinanced with SoFi for an average $15,767 in lifetime savings.

Learn more and refinance or apply for a new student loan here.