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The 3 Secret Agreements You Make When Accepting Venture Capital - YouTube
Channel: Dan Martell
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- To raise or not to
raise venture capital,
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that is the question I'm
going to address today.
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It's something that I've been talking with
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thousands and entrepreneurs.
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You know, I don't know if
you guys know my story,
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but I built five companies,
sold the last three
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and the last two were venture backed.
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I had raised capital for those companies
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and I learned a lot.
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I learned about what
to do, what not to do,
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how to think about should
raise or should you not
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and that's what I want to
share with you guys today.
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The first time, when I
moved to San Francisco
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to just kind of discover what was possible
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and then I started a
company called Flow Town
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and I realized I want to
raise venture capital.
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The big reason and motivation
for me at that time
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was I'd never done it.
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I'd built another company
prior, grew that, sold it,
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and I wanted to learn
about venture capital,
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about taking other people's
money to help fund your growth.
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That was honestly the main reason.
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I remember talking to
my co-founder, Ethan,
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and I said to him, we
had built the business to
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20,000 a month in revenue.
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We were profitable, kind
of ramen profitable,
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and we had to make that decision
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are we going to raise or not.
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I said, "You know, I
want to play a big game."
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I moved to San Francisco.
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I want to learn how this
whole structure works.
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Let's do it.
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That was the main reason for Flow Town
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raising venture capital.
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Now, with Clarity, since
I've learned a lot things
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and that's what I want to
share with you guys today,
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the main reason I raised
for Clarity is because
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I truly, honestly believed
and still believe that
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we were solving a problem
that was going to require
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scale and growth and it
was really an opportunity
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to invest capital to grow faster.
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What I want to share today is three things
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that a lot of people don't think about
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when they think about venture capital.
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They think, "Oh, I've got this great idea.
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"I want to raise money,"
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but what's the impact of that?
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How's that going to affect your business?
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How's it going to affect your life?
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What is the real outcome
of these scenarios
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because it's not always as easy
as people make it look like
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where they raise and money
and they sell their company
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and everything was grand.
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Number one I want to share with you guys
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is really the ...
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I'm going to say it this way,
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you have to kill yourself in business.
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I really shouldn't have said it that way,
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but the truth is you need to hustle
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like nothing else matters in the business
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once you raise venture capital
because here's the thing.
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Once you take money from somebody else,
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especially equity for capital,
that's VC or angel investing,
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they require you to do
everything in your physical being
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impossible to be successful.
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Some people call them, they
like to invest in killers
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or hustlers or whatever
it is, but I need you
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to understand that you
need to, essentially,
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if you have to put your
head through a brick wall,
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you are willing to do
that because investors
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only make money in their portfolio.
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They invest in 12 companies,
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every one of those entrepreneur's got to
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get up to the bat and
swing for the fences.
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Not get on base, but swing for the fences
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for their portfolio to work.
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I want to share that with you because
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I don't think a lot of
people think about the risk
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or the sacrifices they're
going to have to take
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in their business once they
raise money for their company.
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Sacrificing the travel,
maybe you've got to go
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live in another city for three months to
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build out this division or new department,
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or maybe you've got to
move your whole family
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to a better part of the world where
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it's going to allow you
to build this business,
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and those are all things
that you need to do.
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It's your obligation, it's
honestly your moral obligation
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to your investors because
that's the agreement.
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That's the, maybe
undiscussed, contract between
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venture capitalists and entrepreneurs
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that you're going to build
the biggest business possible
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with their capital.
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I don't think that's always
discussed and that's why
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I wanted to share that with
you, so that's number one.
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Number two is that essentially
you need to prepare
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for a zero based outcome.
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You need to understand
that if you take money
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from an investor, you
have to give 100,000%.
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Over the next five to
seven years, the goal is
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to build a $100 million company
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and there's a high possibility that
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most of these businesses,
95% of the businesses,
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will do nothing.
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They will fail. They will be zero.
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You will spend five to
seven years of your life.
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Yes, you will have learned a ton.
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Trust me.
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The amount of learning that
you go from beginning, zero,
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to hyper growth that kind of business,
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it's a very small percentage
of the population,
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the entrepreneurial population,
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that gets to experience that.
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Yes, there's value in the learning.
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There's value in the notoriety that
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maybe you gain for yourself,
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but in regards to a financial outcome,
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most of the time it's
zero and I don't think
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that that's well understood
by a lot of entrepreneurs
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out there and I wanted to
share that with you guys.
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Now, the third thing that, to me, is
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again not understood is that you won't
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likely be in control of your business.
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Sure, there are examples.
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Mark Zuckerberg brought
his company public,
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had complete control of the board.
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What normally happens is by your A round
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or for sure your B round,
you don't have control
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of your business anymore.
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By the time you raise your
Series A or your Series B,
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you'll have enough other
investors with board seats
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that fundamentally they
control the business.
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Sure, as a CEO, as you
should, you'll be accountable
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and responsible to hit certain KPIs,
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key performance indicators,
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and just realize that if you
aren't able to grow and learn
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with the pace of your business growth,
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if you're successful in the first place,
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there's a very high
possibility and what's happened
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many times in the past is that
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the board will find another CEO.
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Now, that don't mean that they're going to
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kick you out of your business,
although that's happened
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to a lot of friends of
mine, it just means that
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you will not be in
control of your destiny.
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I feel like that's something that's
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not discussed very often.
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There's all these horror stories,
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but many times they're not horror stories.
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They're just situations
where, as the founder,
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you were not able to
grow with the business
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and the board said,
"Look, maybe it's better
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"that we bring in another CEO,"
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or sometimes they'll call it a COO
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but really they run the
business and you're just there.
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Maybe you don't even go into work anymore.
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Every scenario will play out,
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but those three things
just quickly to recap
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that you need to understand
is you need to be willing
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to sacrifice everything in
your life to be successful
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because that is the
game of venture capital
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and that's what you're agreeing to if
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you raise venture
capital for your startup.
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Two, you need to be okay
that at the end of the day,
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it might be zero.
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You get nothing out of it,
other than the lessons learned
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and the notoriety building that business.
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Three, that you will
likely not be in control,
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if the company goes public.
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I want to give you guys a quick stat.
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Most people don't realize that a CEO,
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a founder that's still
CEO when they go public,
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owns about 5% of the company.
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Now, the company goes public
and is worth $1 billion,
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that's a lot of money, but a
lot of people don't know that
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and that's why I wanted to share it
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with you guys in this video.
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To raise or not to raise,
that is the question.
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At the end of the day, I
wanted to share with you guys
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the expectations from the
investors, from yourself,
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from the community, your employees,
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what the vision is if you take money
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because I think that
that's going to allow you
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to make the better decision.
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I want to ask you below to leave a comment
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and answer this question.
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What would you do with the money
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if you could raise the money?
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Tell me in your business,
what would you invest
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that money from the VCs in
your business to help it grow.
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Again, five to seven years,
$100 million a year business,
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what would you invest in?
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I want to challenge you guys
all to live a bigger life
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and a bigger business and
I'll see you next Monday.
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