Money Rehab with Nicole Lapin
How to Build Wealth by Founding Companies and Angel Investing with Jaclyn Johnson
Fri, 06 Dec 2024
This week, Money Rehab is guest-hosted by investor and entrepreneur Tracy DiNunzio, who built and sold the luxury resale company Tradesy. Today, Tracy is talking to Jaclyn Johnson, who founded, sold and then bought back her company Create & Cultivate. Jacyln shares how she created wealth through building businesses and angel investing— and how you can too! Plus, Tracy and Jaclyn talk about managing the personal side of having an ambitious career and how they deal with money and beauty standards. Read about Jaclyn here, and learn more about Create & Cultivate here.
Chapter 1: What is Create & Cultivate and how did it start?
Amazing. And I have heard you say, so we've known each other a long time from back when we were both in the trenches. And what I always remember is that when you were building Create and Cultivate, you said, I'm building it to sell it. And you don't hear that all the time. A lot of founders say, I just love my business. But you said you were building it to sell it. Why?
I had sold my first company. So I had a company before Create and Cultivate. It was a marketing events and influencer agency. And I, again, when I started that company, I had no idea about selling companies. I had no idea that company would even be sellable. And so essentially when an offer came through to acquire that business, it was a whole new world for me.
I was trying to figure out what does this look like? What is the financial piece of it? What's due diligence? So I was basically a masterclass in selling a company and kind of doing it on my own. And after I sold that company, I realized like, oh, this is how you make real money as a founder, obviously creating something that someone wants that's valuable to that person. So I got a taste for it.
So when I was launching Create and Cultivate, which had already existed pre the acquisition of that company, I realized like, wow, this is something that has real opportunity to sell. At the time, most women's media companies were about Beauty, fashion, lifestyle with a sprinkling of career, whereas we were all careers.
So we had this big opportunity, I thought, to create something that would be very much acquirable.
And around what year was this that you started it? You had sold your last company.
Yes. Okay. So the timeline is crazy. So the first Create and Cultivate actually happened in 2011. So early, early days, but so small. Truly, I knew everyone that was there. It was maybe 25 women. And it grew organically year over year, I would say, as sort of a new business vehicle for that marketing agency. Like I really didn't treat it like a business.
It was really like selfishly to meet cool women and throw cool events. But I would say the turning point was, I would say, 2015 for Create and Cultivate, where it got big enough that I brought on a partner into that company, invested my own capital into it, and was like, this is a serious thing.
And then the other business was acquired in 2016, which, again, was another big year for Create and Cultivate. I stayed on board with that company for a year after selling it and did both full time, which I highly do not recommend. Very brutal. Yes. And so I did that. And then I went full time at Create and Cultivate after that.
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Chapter 2: Why did Jaclyn Johnson build Create & Cultivate to sell it?
I think circumstance really. I had moved to Los Angeles from New York. I'd always worked in corporate. So it was like a corporate girly and essentially got to LA and got laid off and didn't know anyone.
I can't even picture you being a corporate girl.
crazy. So I worked for Interactive Corporation. I see. I worked at CitySearch. I don't know if you remember CitySearch. But yeah, so I worked for them and then basically was laid off after three months. And it was really challenging for me for a number of reasons. One, I just moved to a city where I knew no one. Two, LA at the time, this is 2009, was entertainment and entertainment really only.
It was like pre-tech. Totally.
There was really no industries and I obviously had no experience in entertainment coming from New York.
and three was like my identity was really wrapped up in being a successful career woman so getting laid off was not part of the narrative i was trying to build and so after that i essentially was applying for jobs not getting anywhere and started freelancing for clients and so built up that roster enough to bring on another employee ended up getting office space ended up launching an agency by happenstance just as an aside you mentioned you got laid off which can be so painful have you ever been on the other side of that have you ever had to do a layoff
Yes, we had to do a small amount of layoffs during COVID, which was awful. I actually was very proud about how many people we kept on being that we were in events business. But yeah, it was awful. But I haven't had to do that in any other kind of circumstance. And I think COVID was a special one for sure. Not ideal, though, obviously for anyone.
No, but it's a reality. It's like a reality, especially for venture backed companies.
Oh, yeah. So we were bootstrapped. So it was obviously everything is felt 10 times more, I think, when you're bootstrapped.
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Chapter 3: How did Jaclyn navigate the challenges of selling her company?
no so i put in initially fifty thousand dollars my partner put in two hundred and fifty thousand dollars as like a loan to the company we paid ourselves back actually within a year based on the profits and things like that that's the only capital that was ever put into the business
I hear founders ask a lot, struggle with how much to pay themselves. So founder or anyone who starts a business, even if it's a small business, how did you figure out what to pay yourself?
So I'm actually the worst person to ask about this because I paid myself the same salary for truly like 10 years. had the notion and what's widely known is like the founder never pays themselves a lot. Like the high paid founder is usually a red flag, depending on what your revenue is, obviously.
But for me, I basically, I think I went in at like $100,000 and I stayed at $100,000 for truly like 10 years. And so I was really just putting everything back into the business. I will say until I brought a CFO COO on probably in 2018 and she was like, you're grossly underpaid. And she was like, we need to change this. You need to make more money. And so that's when things shifted.
You had already made some money prior to that, right? So were you able to afford to live the lifestyle you wanted even while you were making $100,000 a year? Yeah.
So I had a nice windfall from the first exit. So I used that money to actually buy my first house. So I had equity in the housing market, which was really great. And then I also had a really big windfall from an angel investment I made. So those two things were actually what really propelled me through the next few years. And then we did take distributions occasionally from the company as well.
Okay. So you were profitable, you're making money and every now and then you'd be like, we're going to hand out some of this money to ourselves, the people who run the company. Okay. And so what do you advise for young women starting businesses who maybe haven't had a prior windfall? How do you recommend that they navigate what to pay themselves versus put back in?
Yeah, no, it's such a good question. And now I say, I always tell people, I'm like, you really have to prioritize your own personal wealth when building a company. Do you do that year one? Probably not. But like year four, year five, you really need to start thinking through your own personal exit strategy. What is the financial success look like for you?
Because I think we often put ourselves on the backbone. burner. So I would say it's typically a ratio of revenue, right? So there's a lot of things online you can read about this, et cetera, but like the revenue you're making should be reflective of your salary.
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Chapter 4: What lessons did Jaclyn learn from her entrepreneurial journey?
And again, that doesn't have to necessarily be a guaranteed salary, you can bonus yourself, you can create goals for yourself, you can do distributions, there's ways you can get creative when you own the company. Obviously, if you have investors, it's a little different. But I think it's about getting creative in that way.
Totally. Okay, I want to go back to you said that you sold your first business and you made some money and then you had an angel investment that also worked out well. How old were you when those things happened?
So great question. I would say I was 26 probably when I sold the company and the angel investment, I was probably 29.
So that's huge. You were like a very young woman who was creating real wealth. Yeah. That's very unique, right? That doesn't happen all the time.
No, it was new to me too. I didn't know anything about it. I didn't know about like what kind of checking or investing or anything like that as well. So it was like a whole new world for me. I will say I've been very lucky in the housing market and I've been really strategic with real estate, which has also paid off longer term.
You built, create and cultivate to sell it. then you sold it. Tell us about what happened when you sold it and what's happened since you sold it.
We actually had two sell opportunities. So in 2018, we had a few strategic buyers come to the table, which was early for us, I thought. I think we were $8 million in revenue, a team of eight people. I had no executive team. It was pretty scrappy and small, but growing fast. And so we went through a process in 2018. We had, I think, like four LOIs that came through.
For people listening at home, that's a lot of LOIs.
Yes, and they were big money.
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Chapter 5: How did Jaclyn manage her salary while building her business?
It essentially means nothing. And that's important for this conversation. It literally means nothing. It's not binding. Because I was like, woo, buy me the yacht. We're buyers. Let's go. Yeah, it was exciting. It was a very exciting time. We went through...
painful diligence with a public company that was interested in buying us and it ended up falling apart in the nth hour which had nothing to do with us but was very brutal and I say that to say because I think a lot of people think selling a company is like very easy and it's like you find the person you do the thing it is So challenging. There are so many ups and downs.
Majority of deals, I would say, fall through. I don't know if you agree with that.
Vast majority of deals fall through. In my business, we went through three separate sales processes. Each time we had what they call inbound, we had a buyer who came to us. And then it's incumbent upon you to go out and go to all the other buyers and say, hey, are you also interested? See if we can get higher bids. And we did that three times. The third time it culminated in a sale.
But the first two times I was sleeping under my coffee table.
Truly. The stress.
and i wish i had known that most deals fall through because i think i was so emotionally connected to this deal it like crushed me when it fell apart like i just was because especially when we had done nothing wrong i was like no it's like the markets had shifted and so that was devastating for me and really challenging i'd like literally picked out my office space had told employees it was bad bad but again it was a very hard and expensive lesson
And then so cut to, I basically was like back to the drawing board, like we need to focus on building out the C-suite and really growing. Had a banner year 2019, top of 2020, absolutely crushed at Q1. And then we all know COVID hit. And luckily, like we actually had a good story coming out of COVID, despite being bootstrapped and being an events business.
It's kind of mind blowing.
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Chapter 6: What is the importance of personal wealth for founders?
We pivoted to digital. We luckily had a membership in place that we were able to monetize quickly. We retained 90% of our sponsors in minimal layoffs. Yeah, we were very lucky. And we were able to pivot very quickly and took a revenue hit, but actually maintained EBITDA, which was really exciting for us. So it was a good story for potential buyers.
Now, what had happened was all the strategic buyers that were interested obviously had struggled during COVID or had lost a lot of money and were not in acquisition mode. But private equity was booming during that time. They were sitting on a ton of cash and were interested in buying companies that had done well during COVID. So we ended up doing a deal with private equity.
Okay. For people who don't know what private equity is, can you sum it up in a nutshell?
So private equity, essentially the goal of private equity is to find companies that are highly profitable, high revenue and have a lot of potential to grow to then do a secondary sale. So essentially the goal of private equity is to come in, provide infrastructure and expertise as well as cash to basically pour fuel on the fire of an already existing company that's doing well.
to then sell it for a higher price in two to five years. That's essentially the goal.
And so when private equity works, it's amazing. You get all these smart new partners. They take a majority interest in your business. They help you grow it. And then you as the founder, you get some money, you keep some stock. And then in a few years, you guys sell it together again to another buyer. And you make even more money. And that's the good story of private equity.
The bad story of private equity and the reputation that private equity gets when it doesn't work among founders is that a bunch of guys in suits come in and they start squeezing the margins of your business and taking the heart and soul out of it. And instead of making it more valuable, they make it less valuable because they don't understand the founder mindset and growth mindset.
And you can end up then with an asset that's less valuable because And so you do see in some circles of founders, an eye roll happen when you talk about private equity. And when you see that, it's because people have had that experience.
Yeah. And really similar to venture in a way is they're basically going to invest in 20 companies and hope one succeeds. Like that's their model. When they go into it, failure is not even failure for them. It's just like another write-off or write-down. Whereas you, the founder, is like, this is my company, this is my baby. Like, it's just a different mentality.
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Chapter 7: How did Jaclyn's angel investments contribute to her wealth?
Okay, I'll check that out. Because venture is, they know nine out of 10 businesses are going to fail.
Exactly.
They're gambling hard. Yes. Private equity is gambling a little less hard, but still hard, right? They can have... Agreed.
And also, venture is not as involved in your business, depending, obviously, but usually they're pretty hands-off or maybe a little bit involved on the board, whereas private equity is very much in your business.
Okay, so you sold to private equity?
Yes, sold to private equity. It was a really interesting time. It was end of 2020, 2021. Obviously, the world was recovering, trying to figure things out. At the time, obviously, we were making a hard push into digital and into membership. And so at the time, I was like, I'm not the right CEO to run a digital media business. I'm an experiential person. I obviously love community.
That's where I really thrive. I also had run the business for 10 plus years. I was exhausted. I was tired. And so it was well known amongst the private equity firm and the team that I was going to step down as CEO when we found a replacement. So we found a replacement. It was amazing. She came in. She had that exact experience in the digital media world.
And I took a step back for probably two years and was on the board, obviously retained a little bit of equity, but really was not involved in the company, which is, as you know, it can be very bizarro. What did you do? It was really odd. It's so weird to do something for so long and then to wake up one day and not do it. It's the strangest feeling in the world.
But I basically I bought a house in Napa. I started gardening. I started cooking. I started getting my sommelier accreditation. I started just doing hobbies. I think what normal people do, working out, just enjoying life for a little bit. And then I got a little antsy, as you do. And so I ended up going to run a $20 million fund for a family office.
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Chapter 8: What are the differences between selling to private equity and venture capital?
heart that they wanted to get into it? Or do they have a theory that like female led companies were going to outperform?
So I think it was a combo of both. I think they typically had been in less sexy industries, insurance industry, blah, blah, blah, blah, and technology done extremely well. But they wanted to tap into the consumer space a little bit more.
learn more about it and so for them this was perfect for me and so i was able to bring a lot of deal flow and also being on the venture side was really interesting i learned a ton about diligence because they obviously had a best-in-class team that was doing all their diligence for all their other projects got to work with really incredible analysts and really understand what it takes to diligence a deal and what to look for and all those things that was really fun so i did that for a little bit and then ended up launching the blueprint which is a mastermind with ali webb and marina middleton
after much convincing from Marina, because I was like, I don't know if I want to get back into coaching and events and things like that. And she basically convinced me to do it. And so that was what I was doing when things took a turn and changed. Yes. So end of last year, I'm doing the blueprint and Essentially, it comes to light that there's interest in selling, creating, cultivate again.
So this was way quicker than we had ever imagined. And it was a surprise, I think, to everyone on the team, on the board, et cetera. And so initially, my reaction was, OK, like, who can we sell this to? That makes sense. That's going to give it a good home that like, you know, obviously, I know a lot of amazing female media centric media companies have a lot of relationships there.
And also there was a lot of people interested in buying us. So that's where my brain went immediately. And then essentially, as things were happening, I went back to Marina, who was my partner on the Blueprint, who is very young, very hungry, did an amazing job with the Blueprint year one. We were able to do seven figures year one. It was amazing.
And I called her and I was like, this is what's happening. I want to throw this out to you and I this is this might be crazy, but what if we bought Create and Cultivate? She was like in a minute, like immediately. Yes. And I was like, no, no, no. I need you to think about this because I don't want to go back and be the CEO.
But I know there's so much value there and I think we could put our own spin on it. Looking at what we've done with the blueprint, I feel like there's like major opportunity for smaller, more intimate events. And she was like, no, 100% I'm in. At that point, I send this email out. Essentially, that's like I'm interested in buying it back.
which sparks like a lot of different emotions amongst the private equity firm. And then of course our lender and then the existing CEO. And so honestly, over two months of just like negotiations back and forth at falling through it, coming back at like all the things that happen when you're in the midst of an M&A kind of transaction.
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