$3B Cash Flow Strategy for Venture Capital - Robert Cote - Cote Captial

Hey Founders and Venture Capital Investors.  Have you ever wondered how the new era of Venture Capital is done? Well, in this week's episode of Making Billions, I bring on my dear Friend Robert Cote of Cote Capital. This guy turned the traditional Venture Capital Model on its head and in doing so, has generated $3B in cashflow from his innovative methods. Creating new business models while innovating on how business is done are all skills we need in our pursuit of Making Billions.

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[THE GUEST]: Robert Cote is one of the world’s leading IP lawyers and investors, bringing 25 years of experience in identifying, valuing, and investing in the breakthrough IP assets of technology companies that built new industries in America that are responsible for its prosperity. He has experienced firsthand the challenges technology companies face in funding the growth of their businesses as they enter commercial markets. He developed the IP capital model as a better way of investing in and scaling a new generation of these companies.

The model is designed to enable many more companies with breakthrough IP to succeed in having an impact in the world and in bringing long term-growth in jobs and wages to people and their communities, while delivering big returns to investors because of the infinite potential of breakthrough IP to bring transformative economic benefits to a company when broadly adopted.

[THE HOST]: Ryan is a Venture Capital & Angel investor in technology and energy. He achieved industry-beating placement growth in his first 5 years

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Transcript

Ryan Miller  
My name is Ryan Miller and for the past 15 years have helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers so that you too can enjoy your pursuit of making billions. Let's get into it. 

Hey, founders and venture capital investors. Have you ever wondered how the new era of venture capital is done? Well, in this week's episode of making billions, I bring on my dear friend Robert Cote of Cote capital, this guy turned the traditional venture capital model on its head, and doing so has generated over $3 billion in cash flow from those innovative methods. Creating new business models while innovating on how businesses are done, are all skills we need in our pursuit of making billions. Here we go. 

Hey, welcome to another episode of making billions. I'm your host, Ryan Miller. And today I have my dear friend, Robert Cote. Robert is the founder and CEO of Cote capital. It's a unique venture capital firm that has gone on to generate over 3 billion in cash flow and 112% IRR for his investors. So what this means is Robert is going to teach us his secret sauce and how to negotiate terms with companies so that you too, can make those eye popping returns and venture capital and private equity. So Robert, welcome to the show, man.

Robert Cote  
It's great to be here. I'm a big fan of what you do. And I'm happy to be on here and kind of talk about IP investing and what I've been doing for many, many years and what I'm doing now,

Ryan Miller  
yeah, this is phenomenal. So you have such a unique and wonderful investment thesis. And I can't wait to get into it. But before we do, I mean, I can learn about that. And we could read that online. And many of our fans in 100 countries will do that. But before we get into that, there's a lot of people starting out just like you did at one point, just like I did at one point. So I'm sure a lot of our fans around the world would say, how did it start for Robert?

Robert Cote  
Well I would say about 25 years ago, in the 90s, I became an IP lawyer, something that I aspired to from being a young young man. And I quickly became an IP investor. And that started with technology most of us know is PCR today, won the Nobel Prize in Chemistry. We know it is the test we need to take to travel for a couple of years, that technology allows you to amplify DNA in the body actually see it and be able to detect diseases, viruses, and develop treatments to save lives. So that's where I got my start, I spent 10 years, kind of in the beginnings of becoming an IP investor. What I do today very much comes from that beginning 10 years licensing this technology around the world. Basically, we generated a couple of billion dollars in revenue share, my model is a revenue share, not an equity model, as we'll learn about in a little bit. And so that began to begin beginnings of looking at companies as IP properties and looking at the engine in the car, not just the team driving the car, is what makes the difference between a good investment and a bad investment. And so I moved from that into a number of other technologies that founded industries in America built industries, probably the most notable that people are familiar with is wireless, the air interface, the technology allows you to take your books, your movies, your emails, FaceTime, all of that takes the physical turns it into digital into energy, sensitive to speed of light, across the world, literally and into your pocket. And so that technology, actually I helped scale around the world for a company, actually a Canadian company that developed it. And that technology is kind of a miracle in action. That was another example of a company that wanted to build corporate stores, they wanted to build their own equipment wanted to do their own thing, but they're big they became they became they quickly became licensees, or licenseors and realize they couldn't do as much as they wanted to do in the world. They realized they couldn't have the impact they wanted to have in the world, same for the PCR folks. And they realized that if they franchised and licensed what they were doing and looked at that engine in the car is something that could create value around the world, they could build a bigger business faster, relying on more teams to create value for the business for the technology. And they would share in the revenues from that. And so again, that's another kind of an example of venture capital investing where you're focused on the IP, and you're focused more than on the team than on the corporate stories. They'll build your thinking about how do I scale it to have an impact and build a business better, faster and at lower risk? So that's kind of how I got started in this business. Any questions?

Ryan Miller  
Yeah, no, I'm sure I've got a lot of questions. So this is phenomenal experience. So PCR tests, like pretty sure most of planet Earth had a little bit of an experience with that whether they wanted to or not, so You know, the the ventures of that, and then WiFi and 4g, 5g, I mean, all these things you've been tied into, these are monster technologies. And we'll get into some of the lessons we've learned.

Robert Cote  
And actually you know, just to throw in some returns, you know, what I found from doing what I did was that you could get outsized returns, if you had the skill set to actually understand what it was that you were getting involved in, we often gloss over the technology, it sounds good on the surface, but looking under the hood, like I like to say the engine in the car, and really understanding how it works, understanding how it has value. And we saw it in PCR, a couple of billion dollars in the wireless and other opportunities in the most recent 10 years, was another billion dollars in the way we structured those was 112% IRR. And so I became a big believer that instead of being a venture capitalist, I should graduate to being an IP capitalist, I could do it better all day long. And so I'd love to share some of how that all works with your audio.

Ryan Miller  
Yeah! I love that and I can't wait till we do and you're wanting to tune in to the end where I'm really I'm gonna ask pretty pleased, and we'll see how much Robert opens up on a secret sauce, but definitely wanna listen to the end where we can kind of crack that open. But now net. So you started as an IP lawyer, you've done all these wonderful things, you made some investments, and some blockbuster investments, 112% IRR, 3 billion in cash flows generated, I mean, you are on fire. So now speaking of that, maybe you can walk us through a little bit about Cote capital and IP investing. And you know, just give us the overview of of what you're up to today,

Unknown Speaker  
when you're a venture capitalist. Today, you're largely focused on software, companies, you play a little bit in the life science, biotech healthcare arena, but mostly of software. And that focus has come to plague venture capitalists, because the innovations tend to be incremental. The ability to replicate what's happening tends to be incremental. And it doesn't have the impact that breakthrough innovations over in the physical side of the house hardware, I like to call it companies building new things based on breakthrough innovations that change how we make products change how we use products, and create much more benefit than we have today. So instead of having, you know, the next iPhone version, we're going to create the iPhone for the first time, right. And that became a very, very powerful innovation above the cell phone, many of us scratched our heads and wondered how in the world or what in the world would I do to pay $300 for a computer, in my phone, versus $100. But of course, we now know, 10 years, 15 years later, it's a wonderful miracle that we have in our hands with many, many productivity tools in the form of app. So software. And venture capital has value. But the problem they faced is the incremental innovations that are behind it make it easy for a lot of me too. So they've struggled to exit their companies, the returns aren't there. And I learned for many years that the American Empire or venture capital itself, all is built on building real products, physical products, breakthrough innovations, the semi industry, the computer industry, the automobile industry, right and the airplane industry. And so I'm giving big names in big ideas, but there are many, many smaller ones that are equally impactful in the world. And so that physical side of the house, that hardware company, is where I want to take the world, the country back over here, because venture capitals left them behind. As we shipped our manufacturing offshore. And we moved to software, the capital started to fall away from these companies. So I lived it for 2025 years, with the folks that developed PCR I lived with the folks who develop the wireless in your phone, Wi Fi in your house, all of it was the same innovation. And so I heard that there, I listened to their their problems, I felt their pain. And I developed a model that basically would put capital to work, it takes a lot more capital. And in a way that made sense for them. One of the things they would complain about to me was equity was just very, very diluted, when you have to take in 50 $100 million to build manufacturing out to actually be able to get that customer to sign that contract. They struggle with that that catch 22 So my model intends to take you to break even you don't live you know, round around I like to say you know, hand to mouth, you know, paycheck to paycheck, you have enough capital to get to break even where you can choose whether you want to exit whether you want to continue as a business are you choose your future, I don't demand it. And I'm going to share in revenues instead of inequity. So you're going to own your business as well. So that's become a really, really exciting thing to entrepreneurs that I invest with. The second thing was if I'm going to really have an impact, and really drive a mission that moves us from salt For back over to hardware, you need to bring capital in you, you know, I don't have all the capital in the world to do the things I'd like to do. So I need partners, right? I need investors. And so whether it's humanitarian funds who have an appetite for what I'm doing, or it's accredited investors that aren't fit, aren't wrapped in a box, venture capital, pretty much is locked into what they do private equity. And so when they've left hardware companies behind, they're starving for capital. So I've aligned myself with the people who can get the greatest benefit. And that's the people in this country and in the world, to come in as accredited investors. And so I had to change the risk profile. So when you think about what we do today, stead of holding a lottery ticket, which is much of what venture capital is all about, that often doesn't pay out, by sharing in revenues. In a company who's got something nobody else has. Real IP real technology is breakthrough, where customers are willing to buy it to demonstrate they see that value, you have durability and revenues, and you have something even more important, it's very hard to replicate that innovation, it takes 510 years. So I've got high barriers to entry, I'm not worried about being replaced my company being replaced. So here I am, with a model that allows these entrepreneurs to own their business and exit when they want to what a game changer. And then here I am aligning with the people I think, are most aligned with what I want to do that can get the most impact. And I knew that I had to change the risk profiles. So I've moved to a model that shares in revenue. So investors are actually paid to wait to get their principal back along the way, whether the exit happens or not, right. And in my case, because it's breakthrough, the exit will happen. And I'm counting on that, and I wouldn't make the investment if it weren't so so it's really more about making sure we can scale this company to get them to an exit if they choose. But we hold that revenue share in perpetuity, it's a it's a high yield investment we can drill down on. And so again, I've changed the game for for the entrepreneur, he owns his business exit when he wants, and I've changed the game for accredited investors, they can come in and actually get paid to wait. And they still hold a piece of the outcome to buy out that royalty stream. If in fact, the company exits if they don't, I brought a new dimension that allows me and my investors to sell that stream often exit on our own. And so I've really kind of changed the game in a lot of ways that really disrupt venture capital, and hopefully will inspire them to move over to my side of the aisle once again, because that's where they they originate. That's where they came from. So hopefully not too much. But I want to really kind of get the inspiration behind what I do out on the table.

Ryan Miller  
All right, yeah. So you're seasoning the steak to make it sizzle a little bit more. So with all that delicious seasoning that you said, just to synthesize it is you're saying I prefer that me and my investors get paid off a percentage of revenue. So kind of further up the p&l or the income statement. And then you also have those transfer rights that are available to say, well, if I want to invest, I can sell that rights to participate in that revenue stream or whatever percentage that is. And you can exit that way. So that's how you get your investors who get paid to wait. So now, that being said, I'm just curious now with all of your wisdom and your knowledge and your years of experience, and making all these investments and doing these wonderful things. We live in quite an interesting world right now. So you and I were talking a little bit about this. So I'd love to get your opinion on a couple of things, starting with, you know, with manufacturing, and you mentioned things overseas, and there's a lot of stuff going on globalism or non globalism. I mean, who knows? Right? Everybody's got an opinion these days. Don't get me yeah, we'll get you started a little bit. So that being said, like, you know, you mentioned to me before, but do you believe in your opinion? Do you believe that America is losing ground in the innovation race to China? And you know, what's your perspective on that?

Unknown Speaker  
They are and it's kind of a big question. You know, whenever you're kind of doing something game changing, it's usually because there's a major problem you're trying to solve in the world. And so the story I gave before obviously is multi pronged and you know, I it has richness to it. And it's it's compelling in its in its simplicity and how it works, revenue sharing, there's much more to it. But the problem is solving is equally complex and equally challenging and something that if we want to move the world forward, we need to solve that problem. And that is that America that is the light on the world. It was created to free the people from tyranny around the world. It was a light that has shined on the world for a couple of couple of centuries now. Like all empires, when you become prosperous, you start to think more and more about how do I protect what I have Today, how do I hold it in my pocket and not lose it? And so that courage that inspired you to come to this country, as an immigrant two 300 years ago, starts to lose its charm. And it's more about how do I protect what I've created? Now, once you get in that game and that kind of mindset, you lose the immigrant mindset, that long term, I'm going to change the, the world or I'm going to change this life for my children, to a mindset that focuses on me, and how am I going to maximize what I have today, we start to break down as a culture and one of the one of the kind of the, the key effects of that change in our culture in our mindset, is that we stopped innovating, we stopped innovating in a way that was breakthrough. And we became very, very focused on the next rev of whatever it is, we're selling, because I know I can sell it to you put a few more bells and whistles on it, I can put a premium on that. And then if I'm a CEO of a company, measured by short term performance, right, not long term growth, I keep my job the stock price keeps going up. And at least I know, I can count on those revenues, because I'm only selling the next rev of what I already know people are willing to buy like the iPhone, when you have to make long term investments. It doesn't mean it's to the exclusion of being being mindful of, you know, your secure price and your earnings today. But it means that when those earnings come in, you invest a good chunk of them in the future, we've stopped doing that we spent a decade or more in the United States focused on our share buyback programs where we would use our earnings to buy back your shares, which means earnings over fewer shares, higher earnings per share higher stock price. So our big companies have really stopped innovating in the breakthrough sense. For more than you know, a couple of decades, they've moved their manufacturing offshore a second phenomenon. And by doing that we've actually created ATMs around the world that didn't exist before that are competing for talent. So we have to be worried because it's happening are good people are being drawn overseas, there where they can be paid more, they can get the capital build our business. So the ATMs around the world are now competing for talent. So not only are we not innovating, but the people who are innovating in these young companies aren't getting the capital they need. And so we're at, you know, high risk that more and more of our new kind of forest that's growing, that can create the next Industrial phenomenon, the fourth industrial revolution, like they call it in the press today are more and more going to move overseas where they can find partners that have the manufacturing capability to help them that have the capital that want them or inspire them to come on overseas. And so if you're an entrepreneur is very, very attractive when you're building something physical, a hardware company, and you're struggling to get venture capital and move from software companies back over to hardware companies. And when they show up at the door, because you need so much capital to actually build that business. They're taking away most of the ownership. So it's a big cry, right? Not only a cry for the entrepreneur, but a cry for the country. So I created Cote capital, and was inspired to do it from 25 years of listening to these entrepreneurs, with the inspiration and I just personally had experienced great abundance from investing in hardware companies with breakthrough innovations, breakthrough IP, I saw the power of it. And if I could move venture capital back over great, but I also realized it takes a long time to move a guy or a gal who lives in a box who's paid to live in that box that mandate on what I invest in, because my track record is bet betting on it is based on it. And so I created IP capital to inspire that movement over but to also bring the people in to get that movement going, because it's going to take time for the guys who live in the box to move over to my side. So that's kind of a kind of a storyline around again, why I was inspired to create Cote. It's really to solve this problem that we aren't innovating in our big companies like we once did, and in our little companies where it's happening, where it's really going to matter on the physical side of the house, the hardware company, a capital just isn't there. And I want to stop the exodus from happening because that's our only real hope today. It's going to be really hard to stop those CEOs from being focused on short term returns their paycheck depends upon it, their business depends upon it. So it Anyway, any questions on that?

Ryan Miller  
Yeah, no, that's phenomenal. So as you're speaking, it just reminds me of a saying that there's a difference between playing to win and playing not to lose. And so it sounds like in your opinion, that Americans gone from playing to win to just playing not to lose when you mentioned, hey, how do we hold on to what we've got? You're just playing not to lose? How do we operate, so we don't lose what we've got? Okay, well, that's one way to do it. But don't expect the high upside if you're just playing not to lose. And so that that's such a phenomenal, interesting experience of how the current couple of centuries and especially lately, how a lot of that that oversees a lot of things moving overseas. And as a result, we've created a teams overseas and then the with the cheap labor and new companies that are popping up as a benefit of a few decades of doing that. Now, there are some potential rivals who are playing to win on the other side of the pond, so to speak.

Robert Cote  
And, and we have to look at it that way, because I know we vilify, you know, it's common practice, when you grow up, I was a lacrosse player, I'm sure you're a sports player, you know, you, you learn that it's, there's a competitive environment. And you have to be sober about the fact that that competition needs to put food on the table over on the other side of the pond. So when you build this business, you need to kind of think about how you're going to protect what you have. And that's another element of kind of how do I start to fund these companies, make sure these hardware companies stay here are rooted here. And then how do I not limit them and limit their potential by keeping them here, but actually get them to share and scale that innovation around the world like the guys who develop the wireless technology we talked about earlier that I invested in, or the PCR technology I also invested in how do you get them to share. And so in a world, that's very fear, and we see it in our in our publications every day, right? It creates fear in us to have the courage because we hear about our IP being stolen. But I can tell you from my own experience, you've heard the dollars, you've heard the returns the IRR is That's all from scaling globally. So if you can think smart, about how to protect what you have, you can venture out in the world, there's a billion people in the world that you can create value for. And the paradox of, of all of this is that you actually protect what you have in this world today. By sharing it in a controlled way, it's the best way to protect it, and you increase the potential that you will maximize your opportunity. Because the more value you create for people in the world, you're actually creating more value for yourself, it's often not thought of that way, we think we have to hold that shiny diamond in our pocket, and keep it close to the vest and build those corporate stores. But the hack was sharing it around the world with other teams that could build their own cars with my engine. And I'm going to say that's actually a fool's move. And I always like to give this example that Warren Buffett is an IP investor, just to drive this home for folks. So Warren Buffett goes into Coca Cola, and Coke Cola is not a high tech company, but they are an IP company, that recipe is secret. And they've been able to take that secret, despite what we hear around the world about our IP being stolen. Just to give you an example, if you do it right, you can protect it. And you can maximize the value. So Warren Buffett comes into Coca Cola, and he decides we're going to take that recipe around the world and we're going to adapt it and create secrets, many secrets, I'll call him in every country around the world, because the food you eat in your country will affect the taste of that recipe. So you need to locally adapted. So he actually expanded Coca Cola internationally, really an IP company and IP property, the property was the recipe and he created many meters that were adapted. And that's one of the ways in which he was able to create great returns from Coca Cola, take a simple product that has a lot of value that people are willing to pay for and scale it. The opposite of what we learned from the press, which is we better hold that diamond in our pocket. We better keep that engine close to the vest. We better build our own cars with our own team and not share it and I would say again, that's a fool's move. And I have a I kind of, I have a line in life I live by. It doesn't. It doesn't mean the rules don't apply. But I always say that the rules often can be for fools because they create boxes around things that are new and different that unless you break the rules, you're actually holding yourself back and breaking the rules doesn't mean you do that to break the law. It just means you don't live chained in you break free of the chains because if you Don't do it, the world can't benefit from what you've created anywhere near the way they could benefit if you share it, and you scale it. And so I wanted to get that out on the table as well for the audience. So they could appreciate that really IP investing. Unlike venture capital investing is all about betting on the team to build its own cars, its own stores, but scaling is so many other teams can create value for your business.

Ryan Miller  
Yeah, absolutely phenomenal. So essentially, investing in these IP are these defensible assets with and then your compensation is tied to revenue, absolutely love that. So kind of rounded out some of those. So as, as we round third base, I'm just looking, you know, looking back, you have this vast experience, you got investment thesis, you got Cote Capital, billions of dollar. I want to know, this is the part I said I would I would ask pretty pleased for our on is, what are some of those those in your secret sauce, your view on the world, your investment thesis, all these things, maybe you can round out a couple of things for us where that you find helpful and maybe we can pass it along to some of our fans around the world. So what are maybe one or two things that you've you would find quite helpful for people looking to do what you're doing.

Robert Cote  
So I think, you know, a lot of what I'm explaining, you know, is is multi layered, so I'll hit the high points, and then maybe we'll drill down and explain kind of why those things are important to think about. So the, I like to say the new green, the new gold is Green, or Green is the new gold. And I say that because most of the hardware companies, these companies making new physical products are actually being driven by demand around the world to turn every company into something that's more sustainable, that's more circular reuses its waste pollutes the environment last, there's an enormous sucking sound pulling sound for any company that can help any industry transform how they produce their products. So a lot of the breakthrough innovation is around helping the rest of the mature company world meet their sustainable development goals. And that actually, believe it or not, creates a high growth high profit business, we can drill down into some examples, if you'd like to really kind of have people appreciate that. The first point is moved from software over to hardware without context. Hardware is where your unicorns will be coming from. That's where the demand is today. digitizing the world was software post, the internet boom was hot, it was hot for 25 years. We've done a lot of that it's run its course, it's very incremental today, lots of competition, hard to make money, even though it may sound sexy, up front. If you look at the returns, just do a little Googling, you're gonna find that software is very, very difficult to make money in today VCs are struggling, move over to hardware as point number one, that's where the demand is. And you always want to be where the growth is where the demand is, and just Google search, do your own homework on sustainable development goals. And you will find that most of the world developed and developing is being pushed to go sustainable, and they need these breakthrough innovations. So you always want to be on a rising tide. And hardware is where the rising tide sits today, and will continue for the next several decades.

Ryan Miller  
Yeah, 100% agree. I think the tangible stuff is the next Rise of the Titans. 

Robert Cote  
And that's that's point number one. The second is don't hold a lottery ticket. When you invest in a company look for companies that are willing to share in revenues, not inequity, let the company own its business. It's one of the biggest complaints I hear from entrepreneurs, that they're left in the end through many rounds, they never anticipated what actually happen because they lived hand to hand to mouth paycheck to paycheck and every 12 months are out raising the next round. Next thing they know all the equities Garner most of it and so leave them with ownership of their business are going to work harder for you or they're going to drive that business forward because they can see a pot of gold at the end of the rainbow that history over and venture capital and is so as taught them. If you talk to entrepreneurs that more often than not there isn't that pot of gold at the end much of the equity is taken away. So a second thing is when you move over to hardware really focused on companies willing to share in revenues not inequity. Get paid to wait there's no reason you cannot. It's just living in the box. In the history of owning equity for 10 years hoping for that lottery ticket to pay out. And reinvesting profits, it's just habit of this is how the model works, that has caused people to operate that way. But with these hardware companies, it really can't afford the dilution, you want them to own that business. So the second tip is look for companies, and there'll be more and more of these companies, I'll be driving it, it will be driven in the press, it will be driven more and more. In fact, Intel is building eight new fabrication facilities in the United States, just to give a really good example, in Columbus, Ohio. And they are financing that with an investor in a revenue sharing model, not an equity model, just to put one big kind of name out there. And so the movement is from software back to hardware, and from holding a lottery ticket and an equity over to revenue sharing. And you want to look for those two key indicators in an investment because that's where the future lies, for sure. I love

Ryan Miller  
that. And so what would be a fair percentage of revenue that you like to see when you're let's go even deeper? Man? So maybe you can teach us on this section is what have you found to be fair on both sides that are, you know, worth your time, but also worth the companies you're investing in? How do you calculate what what that is?

Robert Cote  
So the way I like to do it is, remember, I'm trying to change the risk profile. So I'm not really trying to make a graph, right, would be bad for my reputation, it would be bad for what my my intentions are, which are noble here to really bring, bring the world forward from software back over to hardware. So what you're really trying to do is get your money back over a reasonable period of time. And what experience shows you is you need these companies, you got to give these companies a good five years to really ramp up. And so you design a share of revenues based on that five year revenue forecast. Typically, though, you don't rely on the forecast to give the venture capitalist because he's trying to get a higher, higher valuation on the business there, you know, it's a real problem, it's more of a pie in the sky kind of number. So you really have to look at that revenue forecast. And usually, in my case, it's heavily discounted around what's real, you know, who are your customers? What's your pipeline look like? Because I care about the durability of those revenues. I'm not thinking what's the equity going to be worth in 10 years, I'm thinking, How do I over five years get my money back for me and my investors. So 100% of your principle, I call it a 1x. Back over five years, you look at that forecast, and you put a revenue, royalty or a percentage on it, and just run it through the five years of that revenue forecast. And when you get to a percentage that gets you 100% of your money back. That's your number.

Ryan Miller  
Wow, so that's perfect. So just seek to recover capital after that. Now, what would maybe interesting, keep me honest, here is what happens after you get your principal back, I'm assuming that percentage will say it's 20%. I'm assuming that 20% is pure profit from your six until as long as you hold it, is that right?

Robert Cote  
It is. And that's one way to look at it, the way we look at it is we'd like to hit doubles and triples. So that that that's the first single is that five year kind of return on your principal. That second signal is single, or double, is really something that is, is if the company exits, we get a 1x off the top. So my investors were looking to get a double over five years, it's kind of the way we think, and I'm going to trade that double. For the kind of equity ownership a VC would want that might be modeling a 10x or more, because I want my people to know that instead of swinging for the fences, and usually striking out in venture capital, when you move over to Cote capital in IP investing or IP capital investing, as we call it. Same kind of thing. We're betting on companies, just our focus is hardware. And we're going to share in those revenues, you you know, you want to make sure that you're getting your money back along the way, you're getting another turn or double in the exit when it happens. If the exit doesn't happen, we we actually stepped down our royalty our share of revenue so that we're always kind of getting that 1x return every five years waiting for the company to exit and when they exit, we actually design our model to get us a minimum of another 1x. So whenever that exit happens, we get a triple if the exit doesn't happen, remodeling a triple through both through 1x along the first five years, and the continuing royalty thereafter. So again, it's all focused around doubles and triples, doubles and triples.

Ryan Miller  
I love that so so my impression You know, this would be your hit rate tends to be a lot higher. So in venture capital, if you get, you know, you do 10 deals, you get to maybe three of those deals to be homeruns, where the lottery ticket as you like to call it, but then with yours with this revenue share model, and then you get a little bit of a kickback on an exit, we're assuming that your hit rate as far as investors can perceive is a lot higher. i This is just my perception. Yeah, so 

Robert Cote  
Correct. And yeah, and the other thing we didn't talk about, there are a few different things to drill down on. Yeah. Um, the way we do it is we actually hold the IP assets, which is basically the new designs for that car, that engine in the car and the car that you've built, that's new and different. We value that to make sure that our capital is protected. So we hold that asset is security, kind of like real property investing. Again, we design a share of revenues over five years to get our money back. We do anticipate and hypothetical exit in year five. Again, it takes about five years for these guys really get humming in kind of the breakthrough world of physical products. And we again, get a 1x out of that exit, and then we model another turn a third turn in the way that we get a percentage of the exit, we can hold that percentage of the exit as a straight kind of percentage out of whatever the value of the business looks like at the end of year five on that forecast. Or we can hold it instead of in a contractual percentage, we can hold it in equity. So one way or another, you're you know, over five years, you're you know, you're you're looking to get a double 1x along the way, 1x off the top of the exit, and then at the balance of the exit, get another 1x. And I'll trade that all day long for holding enough equity to get me a 10x. Because as you said, this is kind of a ground game, I'd rather get doubles and triples all day long. Because my model is designed both in the way that it's structured to return cash flows to you and the way we hold the assets as security to ensure that the failure rate is zero, or near zero. So low low loss rates, unlike venture capital, which obviously as anybody who reads the press will learn the rates are no longer, you know, a five out of 10 losses, it's more like 10 plus losses, you know, you're very, very far and few between and getting those home runs, mostly strikeouts. Most venture capital funds fail to return their capital, very few funds get you that double 85. You know, there's a famous report from the Kauffman Foundation on their 100 funds, venture funds, and they'll tell you 50% didn't return their capital 85% Only a got them less than a double over 10 years on modeling five, and then only 15% of those funds actually did what they want, it actually got them a double or more. So when you change the way you think about that investment and move from equity over to revenue sharing, you can really start to change the risk profile. And if you want to bring the people into what I'm doing, that don't live in the box, right aren't bound by a venture capital model aren't bound by a private equity model. You really have to change the risk profile those people aren't in, in this game for holding a lottery ticket anymore. People have you know, they've seen that story and they become discouraged with it.

Ryan Miller  
Wow. So that it is good stuff. For you fans around the world listening to this, like he's literally describing how the new fund model for venture capital is designed. And you know what, you can roll that out in different areas, different asset classes as well, why not give it a try? I mean, talk to your attorney, make sure that that works out for you. But one of the things I'm curious about, Robert, one of the things I want to know is you talked about, you know, you see that the next frontier, is I guess the old frontier is now going to be the new frontier, which is hardware is probably the better place to go than software, which I personally agree. But that being said, I'm curious. With that, let's take that a little bit deeper. So when you find a hardware or you know, manufacturing company or something that produces something tangible, what are some of those key investment criteria that you like to see when making an investment in a more hardware based, tangible based type of company?

Robert Cote  
So I think the the factors are pretty simple. But very important. And so when you move from software over to hardware and incremental innovation over to breakthrough innovation, you start with that as a baseline and then you need to look under the hood and pay attention to you know, what is it about that innovation? And is it truly brave? through, and you want to look at whether or not that breakthrough innovation has high barriers to entry. You don't want to be like a VC or a venture capitalist and a software company worried that somebody will pop up, you know, McDonald's will have a Burger King in a Wendy's to us kind of a silly example very quickly, you want to make sure like with a new drug that you've got five or 10 years of kind of monopoly power in that business and moat around that business. As a warren buffett would say, I want to have my business have a moat, and I want to look for different ways in which it has a moat around his business. The first is long development time. So what you'll find in these hardware companies that have done something truly breakthrough, and if they and if this is not true, they haven't done something truly breakthrough. And what I'm about to say is, is that somebody who has done something truly breakthrough, you'll find those companies have been in business for five or 10 years actually raising capital from angel investors, typically, boutique VCs, you know, not the, you know, the story VCs we read about in strategics companies that may be in the business, so they're kind of bootstrapping their way to market. And those companies typically will see five or 10 years of deep science and engineering that's required not only to come up with the breakthrough innovation, but then to implement it, because typically, you got to build machinery to make the widget to make the product right and in there, you've got to innovate as well. So you'll find a, a breakthrough idea. And then a rich portfolio of IP, meaning, you know, additional innovation. So breakthrough innovations, create cascades of innovation that take many years to develop. So that tells you you have hot, you have high barriers to entry, long development time. So you want that high barrier to entry. That's one factor. Second thing is you want to invest in a company that is actually sophisticated at protecting what they have, you don't want to be a victim of what you read about in the press that China will steal my IP, or India will steal my IP because they have a team's over there. And, you know, if you, you know, reveal it fully you are at risk. There's no question about it. But you want to think about how do I keep secret the things that I can keep secret? How I patent the things that no matter what I do, I won't be able to keep it secret. So I need to have another way to legally protect what I have. And when you do that, you're not thinking about how do I stop somebody, you're thinking about how do I slow somebody down, because it's often challenging to stop somebody completely from doing what you're doing. So what is long development times to give you a high barrier, second, high barriers, sophisticated thinking around how I protect. And the third one, which I think I alluded to at the outset, which is kind of a paradox. For most people, it's the opposite of what you would think. If you really want to protect it, you share it. And the reason you share it is that most of these guys around the world don't want to spend the money or the time. But if you don't share it, not only are you limiting your market opportunity dramatically, right and increasing the risk for yourself and your investors that you may fail. But you're actually incentivizing the AI teams on the other side of the pond to actually spend the money in the time to come up with some other solution might be even better than yours. So put aside whether they're going to steal it, they may come up with something that steps in front of you. And they have the skills today. We spent 25 years offshoring our manufacturing and our IP, and we put everybody in school and we trained them how to play our game. So we've got eight teams around the world. So again, long development times sophisticated thinking around how to protect, that doesn't look to stop, but is sober about the fact that I've got to do things that will slow people down long enough, so I can go share it and get them hooked on what it is that I do, because that's the sure thing to stop them from either stealing and or trying to come up with something that actually may be better than what you're doing. And so those are kind of three principles high around high barriers to entry. The second most critical thing that I look at that I think is worth drilling down on as well. Durable revenue. So when you move from software and a lottery ticket of holding equity over hardware, ensuring your revenue as well. People say to me, Well, how do you know the revenues are gonna show up? And I say, well, good question, right? You got to have revenue, otherwise the whole model falls apart, right? So when you go into these companies, I'm not investing and you shouldn't be investing before they've kind of reached market. And you need to look at the customers who are actually willing to buy today. Whether it's mo use that are binding, whether it's sales contracts, and it will vary from company to company, what kind of risk you're willing to take. But you're really underwriting the contract based both what exists and the pipeline, because you want to be sure of two things. One, that everything you've been told that you think is true, is really true, because the only test of that is somebody's willing to pay for that value you say you're creating. And once you can see that, and you can talk to customers and get a good feel for the pipeline's ability to convert, what you'll learn is that most of those guys want to convert, the value is there. And if you can put enough capital behind these companies, unlike in venture capital, where you live kind of paycheck to paycheck round around, you can get that capital in, because these contracts will start to fall into place. So I'm underwriting the value by looking at the contracts. I'm underwriting the pipeline. And then I'm thinking about how do I right size, the capital and get it in smartly as the contracts start to get signed, because they won't be signed, if the customer doesn't know that you have the financial wherewithal to deliver. It's a big kind of catch 22 problem for these companies. So just to sum up, high barriers to entry, I'll give you a three different ways to think about that. And then durable revenues, because the model doesn't make sense otherwise. And to think about how do you underwrite that durability? It really starts with common sense, the contracts. So yeah, that's those are the things I think are pretty important for people to appreciate, who want to move from software and equity investment back over to hardware investing, and think about that as IP investing, or revenue venture revenue sharing, and not traditional venture capital.

Ryan Miller  
Yeah, nice. I love that. So high barriers to entry long lead times, and then durability of the business and revenue that's brilliantly set. So you know, in this final section of of the interview, I typically call it, scale it and nail it. So you've told us how you've scaled it. Now I'm curious on on the final note and parting words, who in your opinion, is nailing it in the areas that's just so impressive to you, and, and please, you know, whoever that might be, just let us know, if you or anyone, you know, immediately have any interest in it. So we're compliant. So

Robert Cote  
So there's a lot of great choices. Before name a company. I give a little bit of context for this company, which is the gold standard in IP investing. And I think people will know the name and appreciate the story, and it will really resonate. I want to step back and have folks realize that it used to be that you had to go build everything yourself. Right? It used to be that you had to invest in building the stores yourself, as I've talked about a great length. What what you found is a lot of the infrastructure, the manufacturing, the services that you need to build a business today exist in somebody else's hands. And you should leverage that, right. And so what we see in the world today is a lot of companies that are IP companies that don't actually make something, or if they make it, they make it and then they share it with the rest of the world. They're truly IP companies truly IP investors in how they grow their business. And that's where the world is headed. So when I moved from software, over to hardware, many of those hardware companies are IP companies that recognize that they can't be everything to everyone. And they'd be a fool not to leverage the infrastructure, the equipment, the manufacturing, the teams that exist around the world that can help them supercharge the growth of that business. So with that said, the gold standard in an IP company goes back about 30 years. We all know that it's it's called Qualcomm. And Qualcomm is a very inspirational story. Here's a here's a couple of guys Butterbean Jacobs, and they've got what's called CDMA. It's the most reliable voice via wireless, one of the most reliable voice technology out there. We know it anybody owns a Verizon phone versus an AT and T will experience that benefit. But they basically were unable to build a business in the US they had to go overseas. To go back to my my point earlier, we have to be very, very careful careful that we fund our companies in this new way look at them as IP properties and fundamental revenue sharing way otherwise they're gonna leave so Qualcomm had to go to Korea to actually build a business, the Koreans were willing to build their business for them. The good news is they came back home Okay, once they demonstrated the world of CDMA was much more reliable than what AT and T had, which was called GSM, much more reliable voice technology, not dropping calls, etc. So Qualcomm basically had to make a choice of how they build their business do I build my own phones with my own wireless chip in it that does CDMA my own engine in the car, in a way I go out and try to compete with all the companies around the world and build phones, do I rebuild all that infrastructure and sell my own phones, or my own phones, too much manpower, too many years to build that business and too expensive. And certainly, investors would, especially back then it was still that old venture model, we, you know, we live round around, we build a store to time slow and steady wins the race. And so it's a long road, and it would take years decades before you'd enter the rest of the world. So they made a choice to get out of the phone business, there used to be Qualcomm phones and just sell the engine in the car and become the best team in the world is selling that engine and stay out ahead of everybody else by investing more money, and investing in better people to always have a better CDMA chip than anyone else in the world. So that's point number one, they were an IP company now, they decided to become an IP company, not a traditional venture backed company. And they made this choice because they realized that the rest of the world could create much more value for that business than they could ever do themselves. And so to finish the story, the way the chip market worked at the time, when you sold the chip, you got $10 for that chip. And it went in $100 phone, a cell phone, and they realized that that chip would get a $10 sale price, and the filmmaker would only want to give them 50% profit margin because that's how the box works. That's how we build that kind of business when you're a chip guy. And so they realized that they needed to sell the chips and make the margin and license anybody in the world. Okay, who wanted to buy their chip to also use it in a phone. So they collected a 5% share of revenues on every phone. So here you are McDonald's like business, McDonald's is an IP company actually, Starbucks is an IP company more simple in the IP is more about process and branding IP. But now here we go big tech, high tech, Qualcomm, the engine in the car, and they're sharing their car around the world. Well, today Qualcomm makes north of $25 billion a year in annual sales. Two thirds of that is from selling chips, let's call it 15 billion for simple math. 10 billion of that is from allowing other people to sell phones with their engine in the car that they could never achieve on their own. So they supercharge the growth of their business. And they're the gold standard in everything I'm talking about today. How do I look at this new growth of hardware companies as IP companies? How do I realize that I can do a lot more? How do I get them sobered up to realize that they can do a lot more for themselves in looking at what they've got as a chip or an engine in a car? And how do they get comfortable sharing it. So that's the gold standard. And that's why I'm really, really super excited about the market. To me, it's a no brainer. To move from software back to hardware, of course, I experienced extraordinary returns from doing it, myself for 20 years. And now I've opened Cote capital up to professionally do it in bringing the accredited investor world in humanitarian funds around the world in to participate with me, because they don't live in boxes. And they can see that this is where the future lies. And if we don't fund it, we're holding back our country. I'm from I'm an American, we're holding back the light that shines on the world from continuing to be prosperous, and we're holding back the rest of the world. And I always like to tell people, our empire was built. Unlike any other empire in the world, every empire in the world was built on stealing the land and resources of others. This empire was inspired by bringing the people from around the world to this country with an immigrant mindset that think centuries generations long term, not short term, and inspired to share their innovations around the world to create value for the world and sharing that value. And so America is the quintessential example. Actually, the more I think about it, if you ask me about a company I gave you Qualcomm if you ask me about a country I say America, actually, it's how it built his empire. Hopefully that's, you know, interesting to your audience and you find it compelling.

Ryan Miller  
Yeah. I love that. And do you have any holdings of Qualcomm yourself? I do not. I do not. Okay. Perfect. So if you're gonna bet, bet on some companies that are able to scale and all those things. So as we wrap things up any last minute things you want people to know, anyway, people you want people to reach out to any any final comments,

Robert Cote  
I think I'd like to give a couple of examples. So people really appreciate what I'm talking about a hardware company has an engine and a car has something unique that they can share around the world.

Ryan Miller  
You bet, closing remarks. 

Robert Cote  
And how sustainable development goals in the world to driving those companies success. And so probably a really good example is one of my companies is helping transition the textile industry. You'd say textiles, that sounds boring and very low profit. And you'd be right, right, we've most Americans moved its textile industry overseas. So when I'm investing in will bring manufacturing back to America and rebuild the textile industry, but it will also create value around the world. And here's why this company has come up with a way to meet the goals of the h&m 's of the world, all the major brands who are under pressure from the public, and governments to change the way they manufacture. I don't know if people know this, but it takes 10,000 litres of water to make one pair of jeans, you can go Google it. I know it sounds absurd. sounds hard to believe. But it's true. Most of that wastewater goes in our water streams and pollutes our water. And the carbon emissions from producing that pair of jeans are enormous. It's the second largest polluter of the atmosphere behind the oil and gas industry. So here comes an industry. And here comes a really cool, breakthrough innovation. So this woman who developed this technology, into a line of equipment can take the waste, whether it's off your back when it goes in a recycling bin, or whether it's off the factory floor. After they cut and sew the garment there's a lot of waste, billions of kilograms of cut. And so ways she can actually take that waste, put it through her line of equipment, proprietary equipment breakthrough in and of itself in its hardware. And then to the process recipes, kind of a Coca Cola kind of notion, right? She can take different or types of fibers from all kinds of clothing and turn that waste fiber, that clipping into a brand new fiber or Virgin quality fiber out the other end. And she can take all that waste, turn it back into something, you're turned into a yarn into a fabric and now h&m Or Zara, anybody in this kind of fast, fast fashion world can now make the same garment and they all have goals to go 30% recycled and all their clothing by 2025 100% recycled material in their clothing by 23rd 30. And you can look up and you can look for those goals. And so I would say to the audience, go look at the industry has looked what sustainable goals are, are, are being put out there by these companies. And look at the young companies that are trying to drive the industry towards those goals. Those are the companies that you want to be investing in, because they're changing the game. And to put a cherry on top of this for the audience. That waste you can buy for pennies on the dollar. But you can sell it for the same three to $4 that that virgin fiber would cost. So what a business right high margin high growth, you can see it in the numbers I just put out there. And that's the value of sustainable development related technologies that take waste, turn it into brand new, or reduce kind of the impact that a company has on the environment, which usually is efficiency. Usually Sustainable Development Goals result in a company being able to use fewer things, right at lower cost to make the same garments, so their profits go up. So I wanted to kind of get that out on the table. I know it's kind of a long winded discussion, but I want the audience to really appreciate this green is the new gold. This is not made up. You can go and look in any industry and everything that I've said you will find to be the case. And to leave them with a third tip if we want to have a third tip. That's the surest way to find the companies that you want to bet on the young companies you want to bet on the ones driving those goals forward in those industries for the big companies.

Ryan Miller  
I love that. So you know just as we wrap things up to synthesize everything, seek to get returns from revenues more than equity. The other thing that Robert told us is you want you really want to look for companies with high barriers to entry. And then finally, you want to look for companies that prioritizes product excellence in r&d, like your Qualcomm example. You do these things, and you too, can be well on your way in your pursuit of making billions. 

What a show. I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better. And make sure to come back for our next episode where we dive even deeper into the people the process and the perspectives of both investors and founders. Until then, my friends stay hungry, focus on your goals and keep grinding towards your dream of making billions