Are you a minority looking to start your own company? Then you definitely need capital. In this episode of Money For Lunch, Solomon Ali joins Bert Martinez in discussing the challenges minority companies face in raising capital for their company, such as the lack of connections and solid profit. That is why the Solomon RC Ali Corporation offers to arrange capital for minority companies and to help you restructure your businesses to maximize profitability. You need to have specific characteristics to increase your chances of raising capital, such as having a good track record and the ability to grow by triple digits. Listen to this episode and learn how you can strategize your way to getting the capital you need for your company.
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Minorities and Raising Capital with Bert Martinez
I’m excited to sit down and speak with Solomon RC Ali and find out about some of the stuff that he’s been doing. His company has arranged more than $250 million in structured investment capital and financing for a diverse portfolio of companies, including NDR Energy Group, one of the largest minority–owned companies in the United States. We’re going to dive deeper into that. One of the things that we hope that you guys take away from this interview is what’s available for minorities. I’m excited to dive into this and get his perspective. Solomon RC Ali, welcome to the show.
Thank you so much for having me. It’s a pleasure.
With your experience, your background, has it been difficult for minority-owned companies to get a fair shake?
Minorities have a very challenging time getting access to capital, and the difficult part is that you need access to capital. We don’t tend to get the same access to capital that other companies get. That makes it difficult.
What are some of the challenges that we face as minorities trying to get capital?
The money will not solve your problem until you understand what the problem is.
One, we like the network. We typically don’t have the network to pull around us to help us. Also, in that same network or version of that network, we don’t have the people that we can reach out to that may know someone that says, “I know Bob. He’s in private equity. He may be able to look at and point you in the right direction.” We typically don’t have exposure to that type of help and access. That’s why in Solomon RC Ali Corporation, we’re trying to help minorities and everyone do that while we arranged capital for companies and help them to restructure their businesses. We like to take them public or see that they go public so they can have access to capital that way.
Give us a little bit of your background. How did you get into this niche market of helping companies grab capital?
Through a lot of failures. I started many companies. In starting these various companies, most of them were unsuccessful. Only a handful of them was extremely successful. The thing that I learned that in each and every endeavor, I needed to go out and raise capital. Most of the time, I had to bootstrap it even after I raised capital because I was never able to raise a significant amount of capital or what I needed. A lot of people will say, “You are lucky,” because I could go to the bank like Wells Fargo or BOB or something like that. I could raise $1 million through bank and debt financing, but people didn’t understand what went into that.
What goes into something like debt financing is you have to bring three years of personal financials and business financials and then you have to bring a pro forma. They’re looking at that, “Can you debt service with your existing business of 1.25? Can your cashflow, take care of all your current responsibilities plus the new debt?” It’s what they’re looking for and that’s hard and challenging for minorities to do, especially in a startup stage.
That’s difficult for a lot of companies to do. If you look at a minority company that maybe doesn’t have the network because it is about who you know and who knows you. I talk about this all the time. You look at a company like, let’s say, Uber or Lyft. They have minimal assets or no assets in a capital type of environment. They haven’t made a profit as of yet. Their sales are questionable because of all the different things that they’re trying to do or circumvent.
They’ve had a plethora of lawsuits. California has come down and said, “If you’re a full-time driver for Lyft or Uber or Postmate, or any of these companies, they’ve got to treat you like an employee.” That may get them out of California completely. What is amazing to me, back to what you said about the network because these guys have the network, they’re able to raise millions of dollars that most of us only dream about because they have that network.
One of the companies I use when I’m speaking is Amazon. When you think about Amazon, the CEO said for the longest and it was about 14.5 to 15 years, “We’re not profitable. I don’t know when we’re going to be profitable, but the company still stayed in business.” How do you become a company that’s not profitable to stay in business for 14.5 years? Most companies would have had to file bankruptcy, go out of business. Here it is now because they had access to capital. They are the leading company, not just in the United States, but perhaps in the whole world. That’s phenomenal and that’s what I would like to try to help to bring to not just minorities, but people who look like me or people who had to start where I started to bootstrap a company together because it’s difficult.
It’s a lot of different challenges. Once you get through some of the financings, a lot of people think, “I’ve got the financing I need.” It only takes a handful of mistakes to realize that you need more financing or if everything goes well, you realize your business is scaling and doing terrific, and then all of a sudden, you go to the bank. You think they’ll be happy for you and give you some more money. They’re like, “No. You’re growing too fast.” It always changes.
Having that management team that has a background or network like yours can make the difference because that’s a valid point. Amazon has not been profitable for most of its existence, but yet they’re able to tap into capital. Also, one of the reasons that they haven’t been profitable is because they’re constantly looking at an acquisition here and there. On paper, that makes them look less profitable, but bottom line is, most companies can’t go 5, 10, 15 years without making a profit and still have access to capital without the connection. What is the process? What is the method of raising capital that has worked well for you and your companies?
The technique that we use is, first, we look for companies where the management team, starting with the CEO, has a good track record. We look at their past performance, “You’re thinking about scaling your company, whether that’s going to scale organically or through acquisitions. Can they do it?” It’s one thing to manage what you have and it’s another thing to take on multiple locations and then begin to cross state lines and try to manage all of that. It reminded me of an experience that I had when I was in the nursing home business. When I went from California to Oregon to Texas, the insurance agent came and told me, “It’s going to cost you this in Texas. It’s going to cost you this in Oregon.” I was like, “Why can’t I be on the same policy?”
He was like, “It doesn’t work that way.” We had hundreds of employees and then the next thing I know, my attorney comes and tells me, “You have to have a checking account in each of those states for payroll.” I was like, “You’ve got to be kidding.” We don’t know those things as sometimes entrepreneurs. We start growing our businesses, developing them and it gets difficult in doing so. I got a management team that understands what it is that’s before them. They’ve got to be willing to reinvest the money in the company to create value. I like to equate it to, when you build a house, you go and buy a piece of raw land. You get the land and then you have to put the house on top of the land and build to create more value and equity.
The next thing is you’ve got to understand the industry that you’re in. What is that industry doing? Why is that industry doing it? Is that industry going to grow? How is it going to grow? The last thing is, what are the capabilities of their company? Most professionals like the companies to grow by double digits. If you come to Solomon RC Ali Corporation or read my blog, MBA, we want to see your company have the ability to grow by triple digits because that’s important and that’s our way of sandbagging. That’s how we’re able to get you access to capital. Last is we look at your competition. What are the top five companies doing? What are you going to bring to the table that you make that’s different that the other top five companies within that industry are not doing?
How do you measure up as far as management? How do you measure up as far as the pro forma that you’ve put together? We act like bad old–school teachers. We’re trying to give you a grade. It’s not a pass or fail grade. We just want to know where you are. Our team then comes in and helps put a strategy together to tighten it all up, to make sure it works. Anyone that ever listened to my podcast, when we’re talking at MBA, we would talk about these different things so that you can avoid these minefields.
Good management is a no–brainer. This is important because a lot of managers know how to build value to a point, and then after that, they lose team and understanding the industry. This is so vitally important, being able to look at the landscape and see what’s happening. One of the companies that I use all the time as an example is Blockbuster. They have 4,000 or 5,000 stores. They’re the leader in their industry, but yet they failed to understand what was happening and they’re gone. Here’s a multibillion-dollar company, thousands of employees and stores gone.
It’s funny that you use Blockbuster because they also had a chance and opportunity to buy Netflix and they passed. It was like, “What are you guys doing?” The management has a tendency sometimes to get complacent and believe, “It’s been working this way. We don’t have to change things.” They’re no longer in touch with what’s going on within their industry and what the marketplace wants. That’s where we come in. When we do all our due diligence and our research, we’re not just researching and looking at the company itself. How does that company fit in the industry? What problems does that company solve for mankind? Those are very critical things. If management can’t execute, then that becomes the thing that says, “Maybe you’re not ready because we can give you a good plan, but you’ve still got to execute the plan.”
You can be the inventor of something, but you may not be the one that can take it to the marketplace.
Back to capability and this is another one that a lot of people gloss over, and that’s the competitive edge. How do you separate yourself from everybody else out there? I don’t know anybody who operates in a vacuum. You’re going to have some type of competition and you have to be able to say, “I’m different because of this.” One of my favorite industries to look at is the pizza industry. You have Papa John’s trying to differentiate themselves by saying, “Better ingredients, better pizza.” It’s not a great slogan, but at least they’re trying to come up with something. When you look at the personal injury attorney industry, there aren’t too many standouts.
One attorney can be easily replaced by another attorney because they sound and look the same. Their commercials and branding look the same. There is no competitive advantage. Maybe the consumer happened to watch on TV or on YouTube at that moment, maybe that’s who they’re going to call. I guess that’s your strategy, but these five areas are a perfect way for anybody reading this to write these down. See how they stack up because maybe you’re in the startup mode and they’re not ready for you and your services, but either way, if they want their company to scale and survive, they have to be proficient in all these areas.
Anyone that’s in a startup mode, the first thing I would tell them is, “Go buy a business. Don’t start it from scratch. Find the closest business that does what it is that you want to do and do that. Buy it and then add a different subsidiary to it and develop out what it is that you want. That’ll save you a lot of money in the long run and they’ll give you a good solid foundation as you’re trying to grow. Otherwise, what you’re going to do as a complete startup and realize you’re going to spend way more money trying to figure things out without that infrastructure. The people that are already in business, most CEOs and their management team come and say, “I need $5 million.” I say, “What do you need it for?”
They think the money will solve all their problems. They sit in front of me and my team, a whole bunch of forecasts and they tell us how great everything is. I said, “What is your competition doing?” “Why are you worried about the competition?” I’m like, “What do you mean why I’m worried about the competition?” Either you’ve got to go out and educate the consumer to get more market share that way or you’ve got to take market share from your competition. If you don’t understand what it is that your competition does extremely well and what they do poorly, you’re not going to be able to compete with them. You’re asking for money thinking money will solve your problem. Money will not solve your problem until you understand what the problem is.”
There was a company that closed called Quibi. It was short for Quick Bites. Here’s a company that raised over $2 billion. Their management’s team was David Katzenberg, Disney fame. He was also involved with Steven Spielberg in DreamWorks and then they had Meg Whitman, who was the CEO of Hewlett–Packard. Before that, she did well with eBay. They have a fairly good management team and tons of capital. It raised $2 billion out of the gate and because they did not understand their market and the challenges, they lasted 6 or 9 months. It wasn’t even a full year.
Most entrepreneurs would love to be able to have a management team with that level of experience and network to raise $2 billion. This goes back to your point about money. It isn’t going to solve your problem if you don’t know what the industry is that you’re in. If you don’t know what the competition is and how you’re going to compete against your competition. They were trying to compete with Hulu, Netflix, and all these other streaming services.
They had a niche idea, which is most people watch videos on their phones. They were tailoring their product, they were streaming to the phone, and they were doing it in 5 and 10–minute increments. They had spent $500 million acquiring content and making new movies. They had some top talent there too. They had Will Smith. They had purchased some other series. They failed because they did not truly understand their market. They didn’t know how to compete.
You have to understand what it is that you’re doing within the industry. You then have to understand the company itself. People ask, “What’s one of the first things when you put a new company together, and you’re going to go do something?” I say, “A great management team is the first thing we look for. The second thing, I’m looking for a great board of directors because the board of directors is going to bring you access to other things that you’re going to need. Maybe, attorneys in a particular area, accounting people, marketing people, industry knowledge and things of that nature. They’re going to be able to make a phone call typically to get you a handout.”
A lot of times, management companies’ teams don’t have that. They go in and start trying to execute, and even if they’ve been successful in the past, they forget what the grind looks like and how well you have to understand your competition in the business? Managing personnel is difficult because they’re humans. You can’t sit back and say, “I can manage these guys the same way we manage before in the past.” If there’s a different group of guys, one, you’ve got to understand those guys first and see what it is that made that particular culture go.
I’ve been involved in over about 200 acquisitions and a lot of times, it’s finding what blends the culture together and that’s difficult. We buy businesses and the businesses have been failing, but everyone’s happy when it was failing. It’s about to go out of business and they’re about to be out of jobs, but they were all stoked about that. We come in, save it and they hate me. I’m like, “What in the world is going on?” I had to learn in my early days. It’s not about how much money you can throw at a problem. It’s about how you treat the culture, fitting in the culture, blending in well with them, getting them to trust you and letting them know that you can trust them, vice versa in what they’re doing. You are listening and hearing their problems. That’s tough to do.
One of the things that we do at Solomon RC Ali Corporation is we go through the ABCs. A) is we arrange the capital. B) we help to build and create wealth for them and the structure and everything of that nature and C) we consult strategically what’s happening within their industry. A lot of them will tell us, “We know our industry and everything of that nature.” 9 out of 10 times, we know their industry better than they do when we’re done. They would come back and say, “I didn’t know that. I didn’t know they were doing this.” It wasn’t like they were hiding it.
If you’re an entrepreneur, you need to watch Shark Tank. Primarily, what I’ve learned from Shark Tank back to your point is how little people understand their business, their competition or their numbers. When you look at the deals that the investors, the sharks are interested in Shark Tank is because those individuals do understand their numbers. They understand what their competition is doing. They can tell the sharks, “This is how we’re different,” and they have a specific reason, “We need capital for this.” As opposed to the deals that they’re not interested in is because those people come in. “We need money to keep our business afloat,” but they don’t know their numbers.
They don’t know anything about their marketing, what it cost to acquire a consumer or a customer. They don’t know what’s happening in their industry. Those are the deals that are quickly passed on and it’s vitally important. I come across people like you’re talking about that they have this very small understanding of their business, but they don’t understand the basics. If you use your ABC analogy, they don’t know any of the basics, the cost of acquisition or the lifetime value of a customer. There is an experience that you had where you created smart home technology and you were able to get companies like Amazon and SkyBell to license this. Talk about this.
I didn’t create the technology. I was brought in as a board member and as an officer of the company. The original CEO of the company created and founded the company that created the technology. I arranged all the capital and I had a different dream. Here’s what a lot of CEOs do. I said, “The barrier to entry and just building the Rolls-Royce of a camera competing with the big companies out there is too great. Let someone else do that. We can take our technology and our intellectual property, and we can go and license it.” After about 6 or 7 years of us going back and forth, we finally decide to license. When we decide to license our intellectual property, the first thing everyone told us, including our own shareholders, was this, “You guys are crazy. That’s never going to work. It’s going to take you 5 to 7 years. You killed our stock.”
If you’re going to be in business, first, you have to go back and read history and understand what was happening in the marketplace.
The first five companies we took to litigation and in 120 days, we are all settled. We didn’t settle for the kind of monies we wanted to, but that was the first five. That began the ball rolling. Jamie, the CEO of Reign, who was on Shark Tank but didn’t get a deal on Shark Tank at that time because we held intellectual property. No one’s going to find your company and someone else over there to come back and sue you. He ended up coming to us and it was one of the first big licenses that we got, then we got SkyBell, CPI, Keith & Co, and a bunch of other companies. That’s how all the licensing and everything. Anything dealing with two–way audio or video that goes or gets downloaded to a smart device, whether it’s the pad at the house, computer, your phone, or things of that nature. That’s our technology. We’re the ones that licensed all of that.
This is a great point that I want to emphasize and that is a different point of view and way of thinking. The strategic idea that “You have this IP, the Intellectual Property, let’s license.” It reminded me of Kodak. At one point, Kodak owned all of the patents for digital photography, and they did nothing with it because they were afraid it was going to take away from their film business, which it did anyway, but they didn’t make any money off of it. The last big thing I heard from Kodak is they’ve got a bunch of money because they might have a vaccine for COVID. I’m going, “How does that happen?” “We’re not making any money off film or digital. Let’s start getting into the vaccine industry.”
This is important because you probably dealt with this. Inventors are some of the hardest people I’ve ever dealt with because they’re myopic. They only have this little vision, and when you start talking about licensing, “It’s my baby. I don’t want to license it. I want to own it all.” That’s what I call the Daffy Duck mentality. “I saw it first. I want it all. I don’t want to share it.” Most inventors are broke yet they’ve got great ideas, great patents, but they couldn’t market the way out of a paper bag because of the way they think.
You need somebody like yourself to say, “Let’s do this. Let’s license that. Here are some of the things that we can do.” My point being for everybody on the show is sometimes you have to have a different point of view to get to the same goal because the goal ultimately is to make a profit. If you’re not in it to make a profit, and as you mentioned, change the lives of other people, help your consumer, then you need to go get a job. You need to find something else to do.
It’s like what you’re saying. You can be the inventor of something and your vision is you wanted to sit and come to market, but you may not be the one that can take it to the marketplace. You may be the person that’s going to have to license that technology to someone else and allow them to take it to the marketplace because their superpower or their genius may be in the marketing or the distributing of that. A lot of them don’t understand the resources that it takes and goes in it. You’re dealing with a vendor. You built this great thing. It’s phenomenal, but now when money looks at it, money is like, “Can that person build a manufacturing plant or go ahead and oversee the project of it being manufactured and everything of that nature? Can they handle the distribution of that?” All of that costs money.
It’s not that suing people don’t cost money because every time we take someone to court, we’re looking at about $1 million. There are no guarantees that we’re going to win. If we lose, we lost $1 million-plus right off the bat. A lot of times people partner with us, especially the inventors. They partner with or say, “We’re going to do this or we’ll not try to do this,” not realizing how expensive it is to hire a firm, to take that to court and represent you. We try to make it a little bit more frugal at Solomon RC Ali Corporation. We deal with our own patent form that we have developed to work with other entrepreneurs, patent inventors and everything of that nature. We work with some of the large ones.
In working with them, we have our sweet spot. We deal with things that we know that may be $300 million or $400 million, where if we’re going to have to go to court, we’re going to spend $5 million to $6 million in going to court and helping them to defend it. We use our attorneys, our engineers, our writers and everything of that nature. Most of the time, they don’t know if they need all that. You don’t just have to have the attorneys, you have to have engineers. You have to go again, look at the whole industry, what’s out there, what came before you and what’s coming down the pipe now. One of the things we were successful to do at EyeTalk 365 was this we kept creating bridges. Every time we created a bridge, it created a toll road. People had to come across that toll road. As we kept going, then some people couldn’t pay us the money. They had to give us their patents. That way, our patent portfolio grew very quickly. That became exciting to us and being able to do that.
This is where having an expert helps you maneuver through this process because licensing is a totally different business. Intellectual property is a different business. There are many things that you can do if you partner with the right person. I want to ask you this. We just got through what a lot of people call one of the worst years ever, 2020. You mentioned that buying a business is one of your favorite things to do. In my opinion, here we are, January 2021 is going to be a great year for acquisitions because many companies are open to being acquired, partnering up and maybe licensing their IPO or their IP. What do you think about 2021?
2021 is going to be an awesome year. 2020 was an awesome year for a lot of us who understood what was happening in the marketplace. If you got to be an entrepreneur or you are going to be in business, first, you have to go back and read history. You need to go back and understand some history. What’s happened in the economy in the past when we had down markets and things were going bad? That creates a lot of opportunities. Someone’s business is struggling so they need someone that can arrange capital or a partner that has capital that can help them to go through those lean times. That’s what we do is help companies to go through those lean times. Anyone that’s reading, if they want help, we can help them and we can match them up with the partners that they need.
Go to SolomonRCAli.info and we’ll help find you the right partner. What does that partner look like? It may be someone already in your industry that you need to partner with that they have better logistics and infrastructure, but you might have a better product or service. When you partner, we can get rid of some of the duplications and everything of that nature. We develop a much stronger management team that can execute based on what strengths they have. When you feel that with the right capitalization, now you have a recipe for success.
This is one of those things where you have to, when I say you, meaning the entrepreneur, the CEO sometimes has to humble themselves and say, “I need help. In order to get from where I’m at to get to the next level, I’m going to need help. I’ve got to get different people working with me or all my business.” The most successful individuals I know are people who are constantly asking questions and they’re trying to find the next talent that they can acquire so their business consistently grows. One of my favorite thing about Google is all of their employees have this 20% time that they can spend on anything they want.
If it’s a good project, Google will fund it and they’ll put all their resources behind it. Google has 250 businesses that they have launched and closed because of that 20%. If you’ve lost 250 businesses, you’ve invested in 250 losers, you only need 5 or 6 or 10 to make up for all those losses. That’s what they consistently do. Google is coming out with a new intellectual property. They’re acquiring somebody else. They acquired YouTube many years ago. Google is constantly looking for innovation or for and how they can expand their horizon. That separates them from a lot of other people.
One of the things you said, “They acquired someone.” They acquired another legal entity that had talent and intellectual property or maybe a simple infrastructure and system that was already working very well that they could turn around, add to that and create more value. The easiest thing to do sometimes is to look and throw rocks over there and say, “I don’t want to acquire that company. I want to go build my own and we can do it better.” That’s going to be more challenging. That’s not going to be easy. You’re going to end up going broke most of the time.
It rarely is an entrepreneur or a business person going to start from scratch and be able to do what companies have done in the ‘20s, ‘30s, ‘40, ‘50s, and even in the ‘60s. That’s not available anymore. It’s rare when it does happen. That’s the unicorn when it does happen. However, it’s much easier and a lot of time save if you acquire another company and be done with it. Change and tweak everything a little bit and then make sure it’s well–capitalized. You’ve got the right people there and then let it rip.
If people wanted to find out more about your company, they would go to SolomonRCAli.info.
They can go to our show, Minority Business Access. It’s not just for minorities. It’s for everyone who wants to bootstrap their business and figure out how to do it and avoid minefields. What I try to help people understand is, it took me 34 years to figure this all out. You don’t have to do that. You don’t have to stumble–bumble, fall, and then become successful. You can go straight to being successful if you want to do the work but it is a lot.
If you’re going to start from scratch, it’s a lot of work. There’s an 80% chance of failure. If you acquire a good business with good talent, it’s still a lot of work. No matter what, there is no shortcut. There is no hack. There’s no easy street. It’s all a lot of hard work. I guarantee you that Jeff Bezos is putting in as many hours now as he was many years ago but now he does it may be out of passion, but it’s still a lot of work. Solomon, thank you so much for stopping by. I’m looking forward to catching up with you again.
Thank you so much for having me. Have a wonderful day.