Custom menswear, a darling of VC over the last few years before the contraction, is challenged.

In short, as a former private equity guy, I loved the investment case. No working capital (buy shirt today, get in weeks, pay supplier in months) and an obvious value proposition (why buy off-the-rack when can go custom for a little more). I mean c’mon this is the Thomas Friedman The World Is Flat stuff they teach us in school.

On a personal level, this dynamic reduced my risk profile as I could “lean startup” without raising capital. What I learned was that this just made me lucky. I didn’t end up raising in an industry where barriers to entry and differentiation are too low to build equity value. I didn’t end up fired or working primarily to simply try and make my investors whole.

As I’ve watched our competitors lose founders, have down rounds and raise with goals that don’t return 10x. These include raising to “open more showrooms along the East Coast, invest in marketing and improve its website.” I have to wonder if anyone outside of Trunk Club (purchased by Nordstrom, tip of hat to them) has delivered real returns.

Having built hundreds of store models in private equity, I know store returns top around 3-4x over five years, even without the drag on working capital (custom has no inventory). We’re not trying to call out Alton Lane for the above objectives, but I have friends with Virginia degrees that know $12mm is a lot of capital to have raised for a few stores and a website (degree placement in photo a little much, bachelors not doctorate). I know interest rates are low and finding returns are hard, but custom shops come and go all the time, risk is high. Ask these customers about Clifton Charles (now this is a call out), get em’ ABC.

Investors wear dress shirts, they get it. Bankers wear dress shirts, so like me, they quit their jobs to open online custom shops. But then they raise money and put ads on TV. Like I see TV ads for MTailor when I am home visiting my grandparents in Indiana. This brings me to my last point. Dollar in. Dollar out.

Every startup wants to tell their investors that $1 in, means $1.75 out in 6 months or something like this. Well shipping “quality” custom shirts across the country is hard to do for $70 with a reasonable margin. My guess everyone is playing the market share game, which is great for consumers, but given no one has monetized this strategy, bad for business.

Bloomberg asked this in November 2014 headline “The $100 Custom Shirt Is Here. Does It Have Room for Profit?” And that’s at $100. We’re at $83 through verifying our clients fit up front to acheive zero returns down the road.

I love this industry because our clients are smart, they don’t fall for gimmicks, but are willing to reward differentiation with their dollar. Where will the next phase of companies find differentiation? I look forward to finding out and working with my team to position us to be it.

When I accepted my offer at Deutsche Bank in 2007, it was a no brainer. I had sipped the syrup. NYC analyst was the only career move on my mind.

Next week, I head back to Indiana University to speak with the investment banking workshop about this choice. Pretty much everyone has offers lined up, so it’s their choice to make.

Given I left a comfortable position at a co-invest fund in NYC to become an entrepreneur, most assume I’m anti-banking. Otherwise, why would I have left. I made it out of DB M&A to a firm I liked.

Truth is, I tell 99% of college students to take their banking offer. Here’s why [a few quick thoughts that come to mind].

1) Odds are your startup will fail, getting some experience, learning how “the real world” works and if you go to PE, learning how to look at companies will improve your odds. Most new grads are naive, they think “if you build it, they will come”, but in reality that’s unlikely.

ConnectLAX started as a private lessons business, not only did not a lot of people come, but once they got together for lessons, they cut my out. I was naive to think 1) people to change (ie use my over Craigslist bc ‘better’ and 2) they’d accept my payment framework.

Now this part of ConnectLAX is free as a lead generator and the money is made in recruiting and video. CoachUp, a huge private lessons site for all sports I learned about a month after quitting [0/10 day for me], is stuck because same problems but raised money so can’t just up and completely pivot like we did.

I was visiting the professor who runs the workshop last year, he told me about a student, bright guy, who turned down a banking offer to launch a similar connection platform. But it suffered from the same issues and was slow going. I heard about it and knew the landmines he’d hit, ones where raising money likely can’t solve it.

2) Money, I bootstrapped my businesses to profitability thanks to four years of work; 2 in banking, 2 in PE. I don’t know of another career track that gives you that option. Time spent not fundraising is time spent learning, pivoting or building your business.

3) Greedy, I wanted to majority own my businesses, not work for someone else. Bootstrapping allowed that. I have no investors, which positions me well against my competitors in niche industries where 10x returns aren’t likely. See raising money <> making money.

4) Conservative, despite quitting my job to be an entrepreneur with no experience, I’m still a Hoosier at heart, so I’m conservative. Succeeding on Wall Street gave me optionality in case I sucked at startups for 3 years instead of 1.5. 3 year runway was clutch.

5) Time, assuming you don’t repeat the same mistakes twice, the longer a startup exists, the less risky it is. I had time to research other startups, learn from their mistakes and prepare for my transition. I started my first startup while in PE [I shut it down].

6) Lifestyle, the person you are at 26 is not the same as 22 [more dreams have burst, kidding, but probably]. 22 I had a big ego, by 26 I learned that ego mostly made life more difficult. I realized I valued time and freedom more than just money [common banking result]. Obviously I had an ego if a quit to launch a startup, but my goals were more attainable. It was more aim small, miss small.

I could always change directions or ramp it up once I had a base. A lot of the inspiration came from the operating partners I worked with in PE. We got along well, they knew I was going through the motions but my head and heart were somewhere else. When they said something, I was like dude don’t tell my boss you think that.

They said not to worry, but that if I’d come this far without being passionate about my job, then to think about what I could do in a job I was passionate about. Anyway, I realized the I looked up to them because I thought they were more passionate than my bosses. I could better imagine myself in their role than my bosses, so that’s when I realized it was time to carve my own path.

<> is excel syntax for “does not equal”.

Creating a business is about choices. Whether or not to pivot, whether or not to raise. In 2014 and 2015, money was the commodity, so “Uber” for anything raised money.

Businesses are not commodities. And while I am the other side having chose not to raise, I feel some solid businesses that just aren’t 10x startups will be forced to make difficult decisions that will likely increase prices for customers and decrease compensation for the workers that “Ubers” depend on.

For example, Instacart has raised its delivery charge from $4 to $6 for many items while lowering its pay for some of its workers 40%.

The company has raised $275 million from people expecting a 10x return. That’s a do or die IPO track given few strategics could afford that. Will the engagement that got it that funding continue to work with prices going up and pay going down, I am not sure?

This is not to disparage Instacart, they’ve built an impressive company. The question is could they have built that company with $27.5 million. I mean it’s a tech company right, not a lot of overhead.

Instacart, and many of the on-demand apps are great ideas, solving clear inefficiencies. But San Francisco doesn’t reflect America. So the market for many of these apps is smaller than people may want to believe.

My point, raising money and making money aren’t always correlated. Add the pressure of a 10x return, and I’d imagine it gets harder to balance returning value to investors, customers and workers.

My counterpoint.

Spoonrocket, an on-demand meal delivery service, just closed after failing to raise more money. And it had a positive contribution margin! Spoonrocket had raised $13.5 million and maybe doesn’t get to positive margin without it. But if it could have maybe got there a year or two later while raising less, then it may not of been at the risk of the fundraising game and found another path. We’ll never know, but if you’re an entrepreneur with a great idea, at least ask yourself that question.

There is a saying, “if you don’t know who the sucker is at the poker table, then its you.” This should be top of mind when entrepreneurs raise capital. But in a TechCrunch era where capital raised is used to validate both entrepreneurs and their startups, it’s easy to understand why they may be focused on valuation first, contract details last.

I started my career in finance before leaving to start my own businesses. At Deutsche M&A and then private equity, they taught us to believe we were the smartest people in the room and that’s why they hired us. In that room, maybe we were. But in another room, say marketing, project management, engineering, tech, etc… we weren’t. My point is to know your strengths and weaknesses and to be aware when you enter someone else’s area of expertise or “room”.

Why do I bring this up? Startup valuations may be entering a period of correction. This means “down rounds” [lower valuation than previous round] or sale of the startup below its last valuation. This typically means a haircut [less money] to employees and founders first, investors last. I am not an expert on capital raising. But when you raise more money than you sell for [recent example Gilt, sold for $250mm, raised $270mm], then a lot of employees and most founders go home disappointed. Investors are disappointed too, but take their money out first.

There is nothing wrong with this structure. He who holds the cash, writes the rules. But I do believe transparency about contract details should extend to employees. As I am learning from others, it doesn’t always.

As a startup CEO, raising money is often the hardest strategic decision to make. Whether to do it, when, with who… My background in finance led me to actually not want to raise money, which surprises people since it’s an area I probably knew most about when starting. And while I grew slow and missed some validation, it’s been the single smartest decision I’ve made.

See finance doesn’t prepare you to be a startup CEO, experience does. I learned on the job. And luckily I learned and pivoted quickly. Not focusing on raising capital or having to explain pivots to investors sped this up [the lean startup]. I have two profitable businesses (ShirtCycle and ConnectLAX) and while a strategic investment is always on the table, it’s not the first thing I focused on when starting.

A lot of my friends in finance think it is. I left finance to work for myself [and find a beach with no cell service], not someone else. If you raise more money than you’re valued at, then you’re working for someone else, your investors.

Just like at a poker table, you don’t want to put all your chips in on the first hand. See a few hands, get a feel for the game, get to know your competition. I’ve seen competitors put all their chips in before getting market validation. [TheLocker spending their funding on TV ads before proving their business model].

You can succeed as an entrepreneur, just remember your first hand may not be your best so don’t overplay it.