The following is a condensed, transcribed conversation from LaunchPod, a NEXT Canada podcast. Our second episode features Reza Satchu Managing Partner of Alignvest and Founder of NEXT Canada in conversation with Daniel Rodic, CEO of Exact Media and Next 36 alumni.

Business building 101 — From idea spotting to capital raising

Daniel Rodic: You’ve built four very successful businesses, including Supplier Market, Storage Now, KGS and now Alignvest. How did you go about spotting opportunities while building these businesses?

Reza Satchu: There are certain key learnings from all them. I started Supplier Market with my brother and we eventually sold it for close to $1 billion. We sold Storage Now for $120 million and KGS for almost half a billion.

KGS was interesting for me because of the timing. My brother and I hired talent that was mis-priced and undervalued during the financial crisis. Suddenly, there was this moment where people were really scared. We could hire really talented people with agreements that were much more viable for a start-up.

As Buffet says, ‘Be greedy when others are fearful’. There was an opportunity to do something in fixed income because that was the market getting hit the hardest. I didn’t have the tools or experience to figure out where to go. But I knew it couldn’t be as bad as everyone was saying.

I connected with the smartest person I knew in fixed income: Levent Kahraman. He’s the K in KGS. I said, “Listen, there’s obviously this crazy world we’re living in right now. I don’t know what we should do, but I do know that you’re the person I want to do it with, and we can figure something out together.”

But we incorrectly assumed that fundraising would be easy. I had built a couple of successful businesses; we had a great partnership and a great story. Even so, people would like us enough to have 10 meetings and then turn us down.

One of the key insights about fundraising is you actually want people to either hate you or love you. You want it to be binary. ‘Like’ is the kiss of death.

Our problem was everyone thought we were really smart and that our proposition was really good, but they were scared. The single most important variable investors are looking for is who else is investing. Your business model and team are important, but you need some scarcity around the investment side, or people are going to stay on the sidelines. We assumed investors would want to dive in given the low valuation environment but, of course, that’s when there’s the most fear. It was a learning process. We had to revamp how we went about raising capital. At this point, we brought on Dan Goldman and became KGS.

There were so many blows in that first year that if the three of us hadn’t had a tremendous commitment to one another, we wouldn’t have had the tenacity and persistence to make something happen.

Daniel Rodic: Let’s focus on raising money and investment. You’ve touched on “I want you to love me or hate me.” How have you approached that since?

Reza Satchu: As a new entrepreneur, you better have people that know you be initial backers of your venture. Because they know you best, and because, ultimately, these are the folks that trust you and think you can make some money.

At KGS and certainly at Alignvest, the initial group were people who knew me well. That builds some level of credibility.

The second piece to your question around how you get from ‘like’ to “love/hate” is you have to build some sense of scarcity and urgency. Investors almost invariably would like to have more time, more information and wait to actually make a commitment. From an entrepreneur’s perspective, time is not your friend. That scarcity can either be because you’ve got other alternatives (meaning you don’t actually need the capital), or you’ve got other capital that you think is going to come in. This is the chicken or egg problem, but I will tell you: having options is the key to actually getting your raise done.

Daniel Rodic: Tactically, though, how do you do that in a in a credible way?

Reza Satchu: What you can’t do is mislead people. This is a very fine line. It’s not an easy line to walk knowing that if I slip over to the side of grey, it’s game over.

I want to be very clear: there is a difference in creating scarcity and telling people things that aren’t true. In each one of my businesses, I’ve had to walk that line.

The demo is pretty critical for an investor to trust you. It’s how you speak about your alternatives and what level of conviction you have, the process you’re in, and who you’re talking to. It’s less about misleading people and more about having them leave thinking, “This person is going to make things happen.” And that they’re not the most important way in which it’s going to happen. It’s happening with or without them.

Translating entrepreneurial education into entrepreneurial access

Daniel Rodic: After building these businesses, you decided to teach a class at the University of Toronto. Why would you go to something like that?

Reza Satchu: In the previous episode of LaunchPod, I talked about the single most important event in my family’s life being our move to Canada. I’ve always wanted to raise my kids in Canada. In 2004, my parents were getting older, so we moved back [from New York]. Shortly after, I reconnected with some of my friends from high school and from McGill. Even though they were accomplished, their successes were having a lesser impact than their counterparts in Silicon Valley or Wall Street. It wasn’t because they were less smart. So, I started thinking: why is it that their lives seem to be less impactful? It struck me that there was a core problem around expectations and exposure.

At McGill, I never met leaders other than my professors. If you went to Harvard or Stanford, you’d be inundated [with folks from different professions, politicians, etc.]. They provide exposure to something different and reset your expectations for what’s possible.

With exposure, you don’t just think you can write a book; you think you can win the Pulitzer Prize. You don’t just think you’re going to be a vice president at Royal Bank of Canada; you’re going to create the next tech bank.

One day, I was walking along St. George Street and I looked up and there’s Rotman and I decided to go in. I asked who the dean was and it was Roger Martin. I went up to see him, and he wasn’t there. So, I came out of Rotman and directly opposite Rotman was the Department of Economics. I crossed the street, went into the dean’s office and his door was open. I sort of pushed my way in to see Michael Berkowitz, introduced myself and said, “I have this idea to teach a class. I want the best kids from U of T. It’s gonna’ be a very competitive class and it’ll be different from any other class they take. It’s going to be about resetting people’s trajectories and what they might accomplish.”

This is where many of the NEXT Canada principles began. If you took the class, you know: if you’re late, if you’re unprepared, if your cell phone goes off, you’re kicked out of the class. I was actually treating people with much more respect than they initially might have thought because what I was saying was show up prepared, and I’ll make sure you have a great experience.

Creating a set of expectations where people had to come prepared made it different from every other class. If I saw someone who was struggling or who didn’t want to speak, I would do my best to make sure that I transformed their experience.

I didn’t exactly know that the U of T class was going to lead into NEXT, but there wasn’t anything like NEXT at that time.

With NEXT, I wanted an ability to actually touch the lives of individuals and hopefully have optionality around creating an entrepreneurial ecosystem. I wanted something substantive where I could have a real impact on a few people and then, those people would inspire many more over time.

Launching Canada’s first accelerator

Daniel Rodic: What made you flip from “I’m just gonna’ teach this class for the next 20 years” to building what is now a fully functioning organization?

Reza Satchu: It’s hard for me to stay focused on one thing for a very long period of time. I was getting lots of requests from students, from other universities who wanted to sit in on this class, and I thought maybe there could be a national program.

At the same time, I was constantly thinking about the entrepreneurial ecosystem. There was no MaRS then; there was no CDL. However, I knew that if I was going to create something like this, it couldn’t be a part of U of T.

David Naylor, who was the president of the University of Toronto at the time, understood that. I view him as one of NEXT’s founders. He gave me a green light and the support to go do something outside of U of T. That was the first important thing that happened in the creation of NEXT.

I had to make sure I had Naylor’s support because he was going to credibly say to Galen Weston, and all these folks, that my class was the most impactful class at U of T. Me saying it is another thing than the president of U of T saying it.

I don’t know if there is another entity like NEXT that is fully independent and not beholden to an institution. I thought that it would give us the flexibility to have a broader impact. I wanted it to be very competitive. I wanted to find right people, who could then build things of real significance that would improve the lot of many more people.

It has to be people you trust and people who have complementary skills to you, but are passionate about what you’re doing. Tim Hodgson, who was at the time CEO of Goldman Sachs, was very aware of my class. We’d been in a forum for six or seven years, so he had seen the impact that the class was having on the students and he knew my story very well. He bought into the whole Canada piece which was: how do we create more entrepreneurs and leaders, and transform their trajectory within Canada?

Whereas I was the entrepreneur, [Tim] was someone who, as CEO of Goldman, had lots of institutional credibility. I remember meeting with the Dean of Rotman, Roger Martin. I said, “I need an academic director.” And he said, “I’ve got a great person, but you’ll never get him (…). It’s Ajay Agrawal.” Just so you know, when I hear that, I’ve already got that guy or gal. It’s like, game on.

Students would review classes anonymously. For six years, two semesters, I was the top-rated professor of U of T. That was relevant to Ajay because at least I was coming at it as a so-called academic. I met with Ajay, and talked about what I wanted to do and he was in. It was remarkable. He’s been an incredible partner throughout.

The final piece was that we needed someone to actually run it. I got a call from a friend of mine, Claudia Hepburn, who built a couple of ventures in education and had a very relevant background to NEXT. I walked her through what we were thinking about and we came to an agreement for her to become the executive director. At that point, we had a team of four people who were committed to building this thing.

Daniel Rodic: Now, we’re 10 years into NEXT. What are some things that have exceeded your expectations as to what you thought you could accomplish?

Reza Satchu: There’s a few things that have exceeded expectations:

1. NEXT has played an incredibly important role creating a much broader and deeper entrepreneurship ecosystem in Canada. Because of NEXT, there are so many of these entities that learned from what we were doing and created things that look and feel like NEXT. I think that that’s terrific for NEXT. It’s even more terrific for this country.
2. The quality of people that come through NEXT. I’ve now been teaching for 15 years. I’ve done nothing in my life for anything close to 15 years. I spend so much time and energy on this program because I really enjoy interacting with the folks that are coming through it, and now the alumni.
3. Creating a charitable institution without an umbrella parent. We are 100% responsible for all of our fundraising, the people we hire and the students that come through the program. We create our own brand around it. That’s hard work without having the resources of a larger institution.

What’s outperformed is the resilience of this brand and the people who care about it. We created a very strong bond with people who really care about our mission. If I think about the next set of years — Ajay and I talk about this — we hope that when we’re in our 70s, we look out and say, “There are a bunch of people that are doing things of real significance and they’re doing them bigger, better, faster than they would have otherwise because of their experience at NEXT.”

When we first started NEXT there was no focus on the alumni network because we had none. But I’d say today and going forward, it is the most important part of NEXT.

Daniel Rodic: What’s left on your personal bucket list?

Reza Satchu: What you learn as you get older is how much of an impact your childhood has on you. I talked about my immigrant experience. One of the things I missed most when I left Kenya for Canada was that we would go on safari and it was the most wonderful thing.

Now, my family goes annually. So, what’s left on my bucket list is to create a conservation that is environmentally friendly, but still very protective of the animals there. [I want to] create something truly extraordinary in Kenya. It’s something I’m thinking hard about, and feel quite passionate about. It feels full circle.

Daniel Rodic: Thank you for building everything you’ve created and I look forward to many more interactions like this.