i'm jordan belfort and this is sales school netsuite is the world's number one cloud business system bottom line it gives you visibility and control over your financials hr inventory e-commerce and more it's everything you need all in one place in fact over 21 000 companies using that suite right now so you'll be in great company right alongside them so let netsuite show you how they'll benefit your business with a free product tour at netsuite. com school this is going to be something that you must know and if you don't know it it's gonna hold you back in life it's certainly it's gonna really hold you back from making you know the big money it's gonna also put you in a position where it's gonna be difficult to really be a successful entrepreneur and it's also one of the reasons why many people don't become entrepreneurs they stay inside a box and it has to do with the mistaken perception that most people have that there's a shortage of money in the world that it's hard to raise money and because of that because they think there's a shortage of money there's so many people out there you might be one of the great ideas you know and yeah and you want to grow a business you want to go into business for yourself you want to do something really extraordinary you have massive value to give but you just don't have that little bit of startup capital that you need to turn the idea you have into reality because you know here's here's something that you know you hear quite often people will say you know oh you know it's it's a it's actually a limiting belief that you need to have money to make money you get it they say you don't need money to make money you can make money without having money and by the way i'm here to tell you that's a bunch of [ __ ] it's not a limiting life it's [ __ ] true you need to have money to make money seriously or you know let me just say let's say it's possible without having any money but it is much easier to make money when you already have money it's always that first chunk that's the hardest to make and once you have that you can pair it up from there so you're saying wait a second jordan that's like that that doesn't sound like something you would normally say you would say that's like you know like you're the sort of can do attitude like you know [ __ ] that money you know i'm not gonna let that stop me and that's true but the rub there is that the reason i would never let not having money stop me is because i would simply go out and raise the money there's money everywhere one thing i can promise you is that if you have a good idea that makes sense both logical sense and vitally also emotional sense to make money you can raise money it's always available people with money are always looking to deploy capital you just need to know the rules of how you go about raising money all right so this look at this by the way is you know what i decided i'm gonna sort of infuse this over time and sort of give you guys just the basic understanding of how you go out and raise venture capital how you go out and get money for the ideas you have whether it's just by the way as a sales press where you need to get money to buy leads what if you need to money for elite muscle you still just don't have any money right now just getting started as a salesperson people you work for are not supplying you with leads what do you do how do you bridge that gap if you don't have money right now because frankly as i said when you you know it's not that it's impossible to make money without money but when you have some sort of baseline amount of capital it makes it a heck of a lot easier to make money okay so what i want to do now is i'm like i want to start off and i want to give you a basic understanding of how what it's called corporate finance works how you actually go about taking an idea and building a business plan around that idea and creating value because of that and then being able to essentially divide that idea up into slices and then selling off a portion of that idea while keeping the majority for yourself that's an interesting way i like explaining vc in other words imagine you know it's because it doesn't have to be a business so to speak just imagine it being an idea people always think it's got to be some big business no it's just an idea so let me draw it out for you on the books i think this is really going to help you guys with so much right now because i bet you so many of you are struggling right now we're just taking that first chunk of money to really do the things that you want to do in life right so let me just give you the basic philosophy and then you know over the coming weeks and months i'll deal with things like negotiation how you put together a powerpoint infused always with the sales stuff right but this is a really great baseline skill that you really all should have in life because you don't have this you know just it's honestly it's like almost like you're going through life with one hand behind your back i never consider whether i'm liquid or not liquid as being a factor whether i take action or not because i always know that if i need to find access to money i can now at the end of the day one thing i want to say is let me i'll make do a couple a little bit of a list here to start the number one the fact is that raising money bottom line is the ultimate straight line sale that's that's really what raising money is the trip it's the ultimate straight line sale basically you have an idea you have to sell someone that your idea makes sense your concept makes sense that your vision for the future makes sense and then you have to understand the basic dynamics and the principles that surround how you actually take an idea and package it in a way that is incredibly attractive to someone else to just have a little slice of that idea and be able to make money from that how does that happen how do you do that right so let me work backwards here and show you the basic steps that you go through to essentially monetize an idea and raise money so it always starts off and i want you to imagine this is conceptual right so i want you to imagine this right now so you have an idea right all great businesses all great investments start off as an idea which is why by the way you hear me very often say like you know when i'm using the straight line if you have 60 seconds i'd like to share an idea with you you got a minute you notice that's a pattern i run very often because at the basis of all things it's it's just an idea now and i just imagine that you have an idea here this is a really important equation i'm going to run for you which really is governs all venture capital right and if you understand this it gives you a leg up on most of the world so you have an idea and let's say this happens to be a really really good idea you know you have an idea to make money in some way it's to start a certain type of business a niche industry you have some sort of process that makes a lot of sense you can deliver some sort of good or service to a lot of people right so that idea is worth some amount of money so let's say i was to approach you and let's say i was not the wolf of wall street i was an average guy right with you know no great track record no bad track just like an average burst right and i said hey i got this great idea you know i want to form xyz business and we're gonna take it to these people over here we're gonna marsha market partially online then we can follow up with the television and we can at the end of the year it doesn't matter what is right we can make ourselves you know millions of dollars a year what a great idea right that is just having an idea so let's say i present that idea to you it doesn't matter what it is right and you perceive it to have value you say wow that's a really great idea and let's say we were gonna go 50 50 partners like you know we're just going to be 50 50 partners right so question what is that idea worth how much are you gonna pay me for that idea good question right so the answer is it's [ __ ] arbitrary there really is no when you when it comes to ideas when there really is no business behind it and there's no predictable cash flow or no assets what is an idea worth well an idea is worth watch there's always some sort of imagine an idea is worth x right it's worth some amount of money all right multiplied well let me use y accessible it's worth y multiplied by your ability to essentially sell the idea to explain the idea in other words if i have an idea i have an idea right and we'll sort idea num idea why and then my friend sirian behind the camera has the same exact idea why we'll just call it idea idea why right i can promise you that if sirian explains idea why to you and i explain idea why to you by the time we're done you're gonna think my idea why is worth a lot more than sirians nothing he just gave me the figure okay which is cool but here's the thing the exact same idea if i explain it to you you're gonna think it's worth a lot more than syrian and siri's not a bad salesman he's just not a professional sales person it's not what he does he's a he's a you know he's more of a creative type of brilliant you know with editing and stuff cameras right the whole thing like that filming right but he's not a sales person he's not an influencer that's not what he does for us his sweet spot right that he's bad he said a sweet spot right the point is that because i have an ability to explain something to tell a story to just to make an idea known in a certain way just because of that this is a reality the idea becomes more valuable the idea becomes more valuable because an idea it's just it's just simply it has there's no real intrinsic value so just start off like that remember that so whatever your idea is it's your ability to explain it to package it how sexy is how does it sound how much of a logical case do you make how can you future pace it that's what gives the idea value this is why some people have the ability i finally i saw that this this on that documentary called the fire fyri this guy who was like this [ __ ] super slick sales type of scamster right and he took all people to the cleaners by creating some concept idea of the greatest concert ever with models and he stole the [ __ ] out of this thing there was nothing there and he raised like 38 million dollars for an idea because of his ability to explain the idea and make it real in people's minds now i don't want you to do that this is what the straight line system is about essentially doing this but in an ethical way meaning what i want you to do with the straight line system is make it the truth well told like the best truth possible so while when i said it's similar you know i would explain the same idea you're just gonna think my ideas got much more value i wouldn't have to lie it would be it is this sort of enhanced ability i have to explain things and make them sound good so that that makes sense right siri it makes it it's not a lot it's just it is what it is right the point is as i want you to understand just before we really dig into the economics of this all that this is really what's at the heart of it all it's why some people always seem to pull the rabbit out of the hat always can raise money or always starting business while other people like the great engineers of the world great [ __ ] locked in a box bill gates bill gates started microsoft you know how bill gates did it he actually sold something to ibm that he didn't even own yet he made them so sure he could deliver this software they needed and then he knew who had the actual software a prototype he convinced ibm to let him make it they paid him he then went and paid the other guy he wasn't to sell before even out you get it he middled the deal and bam microsoft was born it's what a job does for wozniak wozniak is brilliant as he is it is amazing his inventions no one's going to give him money now now they would but back in the day people would just not take him seriously because of his lack of ability to explain the ideas i want you to understand this this is because you're learning the most powerful system of persuasion ever invented and it enhances your ability to do this so this is why i'm deciding this is a really relevant topic for you because once you possess the skill the straight line it opens up a world of possibility because if it was any time in your life where you had great ideas but you were limited because you didn't know how to raise money guess what you're already halfway there because you understand the straight line now you have the ability to use it to influence now you start off vastly ahead of the game because whatever idea why you have you're able to get the highest multiple possible just based on the story that you tell so you must learn to essentially sell the idea hence the straight line so that's the lowest level of essentially going out and raising venture capital you have an idea you come up with a really great way to explain the idea and you convince someone to invest in your idea so you could sell now and i'm i'm and this is sounds pretty simplistic just trust me i'm building something really profound here okay but you need to understand the basics to really get this stuff okay so watch imagine you have 100 an idea of an idea so the basis of venture capital could be that you is that basically you can sell 50 of that idea you could sell 25 you could sell 20 you could sell 10 percent of the idea you could sell 5 of the idea you could choose what slice of the pie you want to sell to someone for a certain amount of money so how would you calculate what that amount of money is well very simple let's say the idea the entire idea is worth 100 000. that's what that the cause of your ability of a good idea and because you're really good at explaining the idea people that they people say you know that's worth a hundred grand so let's say i want you to become my 50 50 partner well then how do we do that well very simply i'd say i'll tell you what i'll do i'm going to give you a half my idea we'll form a company and we'll incorporate a partnership and i'll take my idea we'll put it into that company and we'll build a business around that right and i want you to give me 50 000 i want you to invest 50 000 okay into the company right so you you put the idea into this company now watch this is very important here so you have this let's let's let's close we'll use a corp we'll use the corporation okay so you have this corporation a right and here's you over here you have your idea and then you have your investor over here okay so what happens if you want to let's say you want to raise 50 000 or you need 50 000 right and your idea is worth one hundred thousand dollars right so what happens your investor takes fifty thousand dollars right he doesn't give you the fifty thousand dollars what happens is you put the idea into a corporation right and now you own 100 of that corporation you own the entire company right it's your company you form a company and you put your idea into this company it's legally the company has the idea right the rights to it right and then what happens is this person buys 50 of the company and puts their money into the company so their 50k goes into the company the company issues them shares so now you would have fifty percent of the shares and this person has fifty percent of the shares and your 50 50 partners in other words when someone invests money that fifty thousand dollars it doesn't go into your pocket that's not a cash out financing where you actually say hey i need 50 grand you take the 50 grand put in your pocket because what do you do now to grow the company this person's giving you the 50 grand because they want you to invest it in the company to take this idea and turn it into a reality does that make sense so when you hear about things like cash outlets oh i he raised venture capital a guy put 20 million in his pocket that's not what happens it's a very different type of situation in that situation we have a much more developed company right let's say that let's say the company is worth let's say it's this guy owns the company all right and the companies value 20 million dollars and let's say so this person owns i'll show you a different situation now watch [Applause] so let's say there's this is the company company c right and this is you here you own 100 of the company you want all the shares and let's say you've built the business now you have a business you think is worth 10 million dollars that's the value of your company right and let's say you need to raise you let's say you want to sell 10 of this company 10 right but here's the thing let's say you want only half a million dollars so if it's worth 10 million dollars right 10 would be what 1 million dollars so if you sell this guy 10 of the company what happens well what happened is essentially that you could 5 could come from the company and 5 could come from you so you would take 500 000 and put it in your pocket and 500 000 would go into the company coffers so 500 000 would go to the company 500 000 would go to you and the company would have 500 000 the bank to grow its business and you'd be personally 500 000 richer that's how you do a cash out financing where you sell a piece of your company but instead of the company issuing the shares the company issues half of some part of the shares and then you issue the rest of the shares from your because you own 100 now you sell off you only own 95 you get it so you only own 95 percent of the company so you your your ownership goes down essentially you know nine seconds you get diluted out because the company issues shares as well so you're you it ends up where you're 90 and they own 10.
that's how you get cash in your pocket okay and there's some dilution that's why it's a little bit more all right so does that make sense to you so if you want to put money in your pocket when you're raising money so only some of the shares come from the company the rest of the shares come from you okay now here's the deal often especially in these early stage companies these deals are not very doable because if you go to someone that's wealthy and has money they just say what the [ __ ] why would i give you money i'm i'll invest in your idea but i want the money that i give you to grow the company i don't want to give you money right so how would you justify saying let's say let's say syrian cakes mean syria had a great idea and siri's like hey i want you know i'd like to raise a million bucks but i want 500 a thousand that to go into my pocket okay and i'll put 500 grand so give me a million i'll give you 10 but i want i want to have 500 go to me i'm like what [ __ ] you i mean why don't i do that well if part of syrian story makes sense to me let's say siri why would i why would i agree to do that why would i give syrian money i want to use the capital question as syrian tells me this story he tells me how i started this for my bootstraps i put all my money in i borrowed against my house i borrowed against my 401k i haven't pulled a salary in 24 months and now i've turned the corner and it's starting to really make money so what i'd like is like to get the money back i invest in so at least i got my wrist off the table get my back pay pay back my mother-in-law and then the rest goes down like okay well i understand that that makes sense so what actually is this is what you need to see this is the little tricks of the trade here is that when you're raising money even if you have a small company if you know what you're doing and you're gonna frame the idea you could put a few dollars in your pocket if you legitimately have reasons why someone that's intelligent with money would say okay that makes sense i'm comfortable giving you a couple hundred thousand to put back in your pocket you deserve it for all the hard work you've done for the risk you've taken but i want most of the money going into the company so while it's not impossible to do this it is impossible if you don't know how to frame it the right way so if you want to pull money out for yourself you have to have a reason why it has to be part of the story and it's got to be because you took the risk at the beginning you put it all out there you haven't pulled the salary yeah but and then people will be saying you know what that makes sense to me you deserve to get even good for you and you have the possibility okay so that's step number one so this is just the very basics of how the mechanics of raising money work now let's talk about how you go about increasing the perceived value of your company and this is really where the magic lies in and this is called like guerrilla venture capital like for so this is like venture capital that matters to you not to like so i could teach you to become a venture capitalist or an mba because that's uh you know it works at a big bank that's not rational here but in your own life i promise you and you're gonna thank me that i've given you this skill set here because one day in a probably not so distant future you're gonna be able to tap into this skill set right now practical capital raising to take your life and your business or your career to the next level all right so let's talk about the reality now of how you take this idea and make it more valuable so remember when i said it's always about the idea multiplied by some what ability you have to tell the story so what are the aids the things that could help you tell the story so and so imagine this you have an idea and then you have which is like the sort of proposal way something's gonna happen and then you have reality i mean this is where you actually three years later you've achieved everything that you told this person your idea was you're gonna build this new type of computer company and this and it all worked and this is wow you're making 50 million a year now so this is reality so imagine this idea is worth x let's say recall an idea is worth 100 000 right because you know what idea is what well by by its very nature when we look at ideas that kind of like say well it's kind of half baked as the phrase goes meaning someone comes to you with an idea and they explained i got this great idea i'm gonna do this you're like wow it's a really interesting idea do you have a business plan because like no i don't have a business plan you're like well it's kind of [ __ ] you haven't really even thought it out yet enough to put it on paper and done a marketing analysis a risk assessment a balance sheet a pro form or a cash flow model five year projections a go to market strategy your who else is going to be part of your company you have you haven't thought the whole you haven't done that much it seems kind of half-baked so by their very nature by a very nature ideas in the eyes of investors like me are very half-baked what makes them more real is when someone takes the next step which is they write it down and form what's called a business plan there's a very simple acceptable template that people like myself who have been in venture capital we all expect to see an idea if someone has an idea they want to sell me that if someone tells me an idea you know what chance they have of getting money from me zero unless it's my my child okay and then i'm very generous but other than my own child my own children okay you're not getting money from me just by telling me an idea what i'll say to you is oh let me see the business plan and then i will look at the business plan i don't give a [ __ ] about it the business plan has no value but without it i would never give you money so the business plan that's going to be clear with you about this you're never going to raise money because you have a business plan but you can't raise money without it except for maybe your parents okay we i expect that someone has gone far enough that they've taken a half-baked idea and they've written it down they've thought it out they've projected it out they've showed me the market analysis to go to marketing strategy their balance sheet the cash flow the proceeds they need the use of proceeds what they're going to use it for who they manage with the whole thing and by doing this if you take this idea and you take the time to write it all out and come with a really great a kick-ass business plan guess what suddenly the idea is multiplied by five it becomes worth five hundred thousand 000 the perceived value to someone like myself rises by a factor of as much as 5 or 10 simply because you took the time to take the idea and write it down i'll tell you a story it's a great story because you have no part of it the story of steve madden's shoes so the movie is a complete fiction with steve madden they say steve madden was the hottest woman shoe person and we had the chance to take that's just complete fiction steve madden came to me as a dead cold startup steve was very young okay he was a wild kid brilliant which is just a wild guy all right he was he was coming out of rehab right and he sold it now for like 40 years he's sold many many years steve right he's when he's very young he's wild right like we all were right and he approached me and because he was best friends with my junior partner danny the jonah hill character movie and steve came to me with he wanted because i want to build a shoe company he had no business plan he had nothing tangible right and he just i'm going to be the biggest you know shoe guy out there all right and i'm like all right well at that point in time because i was in a situation where i i had the ability to create what's called an exit ramp for anything i would have given anybody money so there was other reasons why steve was able to raise money but here's the deal because he didn't even have a business plan drawn up he ended up giving away the store now there's many reasons why steve got a very very bad deal of me all right he got a poor deal and to my own discredit because it ended up causing me problems down the road that's a separation we'll deal we talk about negotiation okay negotiating venture capital negotiation in general but the point was that steve madden came with nothing just an idea i actually like here was this idea i can i'm a great i know what girls want to wear i want to build shoes and i want to just [ __ ] make them and i'm going to sell them and everyone's going to love my shoes i'm going to be the next sam and libby because that was a big brand back then right bankrupt now right and i was like all right and you know he goes i said how much you need he goes a million dollars so i said all right i'll give you a million dollars so watch so i gave steve she goes i need 1 million i gave steve 1 million dollars so steve formed the company and put the rights into steve madden i didn't give steve a million dollars i gave the company a million dollars and i took 85 of the stock of steve madden's shoes i took 85 leaving steve with 15. and steve was like thank you so much for this million dollars thank you i can't believe he was so grateful guess what i would have done this for 50 50 or 40 60. i mean i see steve broke all these different rules and the main one that he broke by in in this context was he had just an idea he didn't even bother taking the idea turning it into business a business plan and by doing that he could have projected it out on paper if he was right what that ideal be worth and i would have been worth you know it'd be worth 10 million dollars in three years and maybe i would have given him 50 50 for a million dollars because he missed this step he had to give away the story there's other reasons why two but those are not they're just incidental for this discussion okay i'll get to those later so again so watch now what happens so this is an important lesson here when you have an idea no matter what it might be even it's just for someone to give you money for you could so you can purchase leads or you can hire a coke or whatever it might be before you approach that person someone to give you money take the idea write it down on paper and turn it into either a short form business plan some sort of plan preferably a regular business plan and by doing that you increase the value of the idea dramatically by as much as five to ten that is a must do step when it comes to raising money now again as i said before no one is going to give you money because you write a good business plan at the end of the day it's going to come down to your ability to explain remember that x factor for you explain to sell that plan to someone that's going to be what gets you the money but this is what allows you to get a decent deal and not get your eyeballs ripped out that's part of the equation and for that matter most people won't even take you seriously without a business plan they won't even look at it because it's just it's too half to bake all right so that's the first way we are able to increase the value of what we have by essentially taking an idea and writing a plan now let's say we want to go to the next step what else could we do well the next step would be would be to create what's called a prototype the rule of thumb is anything you can do to make the business more real and by more real i mean less likely to fail or never get off the ground you increase the perceived value of the company so let's go back to steve madden ultimately what happened was is steve took some of this money that we gave him it's a million dollars and by the way just you know because steve gave me such a huge chunk of the company gave me 85 for 1 million what did i do the next day i turned around and sold off 35 of that for one million dollars and ended up with 50 of the company for free i laid off 35 of my 85 for the same thing i paid i got such a good deal because you didn't know better okay now it wasn't good for you to do that because it came back before me later because he was so angry when he got wise so i don't recommend you do these things it was a mistake i made you were young i was too good at negotiating right and you realize that in a winning negotiation both sides have to walk away feeling good it has to be fair at least okay or else it comes back to bite you in the butt okay but that being said okay what steve then did is he took some of the money and he turned and made a prototype made a shoe called the marilyn his first shoe and with that shoe he was able to go out and get it made in a local shoe shoe manufacturer like an old-fashioned cobbler he started selling it to stores okay and what happened was guess what people liked his shoe and they started selling through so what happened was the shoe guy this little shoemaker steve support like 40 pounds he put them in stores on consignment people bought them they bought more that is called getting traction traction means you don't really have a full blown business but you've actually shown that the idea you have actually will sell in the marketplace there's some demand for it you're getting traction you're showing that there's demand for it in the marketplace okay so now watch what happens here so let's say the original idea is worth i said um let's call we'll call it 500 000 right i know 100 000 right so you make it with the business plan now is worth 500k by developing a prototype that makes it more i say wow he's gotta [ __ ] you know the guy actually can make shoes wow that's pretty cool or someone shows me like the basic program they have an idea for a new app and they show me an app it's not really working wow this apple's gone it can get that far it now makes the prototype worth one million dollars so in other words at a level of prototype i'll pay more for the idea so as i was saying okay so you take an idea now right that was now worth a million dollars at the proton because i say wow it actually is real that they can do that and then imagine if in that same prototype they put it in the app store and while he hadn't had enough money to really buy any advertising but he showed that he actually got it into the app store a few people bought it he made a couple of dollars that's called having traction and when someone's get trash like oh mike wow there is actual demand for the product it now is worth 2.
