SPEAKER_02 0:02

Hello. I'm super excited today to welcome Paul Anthony Claxton. He's a former United States Marine turned entrepreneur and a venture capitalist, now a managing partner of the Gerati Investments, a$60 million AI focused seat and Series A fund based in Southern California. He's driven on four combat tours in Iraq and over two decades of business experience. He brings a rare combination of discipline, risk management, and operator empathy to early stage investing. Before becoming a full-time investor, Paul built and scaled multiple companies which shape his philosophy that founders must be both technologists and capital allocators, not just storytellers. And Dijerati, he he follows back what he calls technologically founded elite. So welcome, Paul. I'm super excited to have you here with us today and uh learn more about what you're doing, how you're doing it, and why you decided to do it that way. So, for context, um tell me, like, I'm just super curious. What made you go in the Marine in the first place? Like, what was the driver for you?

SPEAKER_00 1:21

Uh well, it's an interesting question. My father was a Vietnam Marine, okay. And um, you know, the household that I grew up in was very uh militant. Um, you know, my my dad was what you call a Marine Corps drill instructor. If you've ever seen the movie Full Metal Jacket with Lee Army, my dad, yeah, my dad was that guy. Um so uh, you know, I think military was kind of ingrained in me. Um after playing sports in high school and um realizing that you know my academic future um wasn't the brightest future, you know. I thought anything physical could be a much brighter future for me based on you know how I performed in high school and where my where where my efforts were. Uh so I thought the Marine Corps could be that, you know, and I didn't join the Marine Corps to to um you know, I think everyone has their own reasons, um, but but for me, you know, I I you know I I I just wanted the um the challenge of um you know doing what it took to to become a marine. And I thought that challenge was entirely physical, and um uh you know I I had a rude awakening that it's actually more like mental than anything. So um I think you know ultimately that's what led me to the Marines is just wanting that that challenge and uh wanting to be a part of something great and um looking in comparison um you know to different branches of the military. Um, you know, each each one has uh you know their a specific function and heritage in the in their own right. Um, but the marine corps is widely known for being a testy, you know, a very testy uh branch, uh a very um, you know, intense uh you know way to to serve in the military. And um, so their training is very, very difficult, and that's what I wanted. I I didn't want it easy. And uh the Marine Corps um certainly gave me all that it had to offer within that respect.

SPEAKER_02 3:47

But but you said that uh that the Marine wasn't as I mean, obviously, this like it's one of probably the toughest physical endurance challenge that one can pose on impose on themselves, but you said that a lot of it it was mental. So kind of like what are some of the mental lessons that you took away and how are you paralleling those into what you do now?

SPEAKER_00 4:10

Uh, you know, the the mental lessons are um you know, just it's it's really it's really the um the brick layers philosophy, right? Like, how do you build a wall? Do you you know do you do you build a wall section by section or brick by brick, right? And so every and and it's all about just laying that brick perfectly, perfectly, right? And so the marine corps is very much the same. It's like every little thing that we do, we we used uh our drone instructors used to make us yell, and everything that we do, speed and intensity, sir, speed and intensity, like repetitively, like it was uh like it was a you know some kind of uh you know Spartan chant or something. Um but you know speed and intensity in everything that you do, um, to the like your utmost effort, even if it's the smallest thing, you know, speed and intensity with everything you do, and then you know, the other thing is is you know it's it's never as bad as you think it is. Um, because at the end of the day, uh you know, the only thing that that really matters um is you know emergence and then essentially, you know, like our emergence into life, right? And then the the next the next evolution, right? So the emergence into life, and then when that uh uh essentially um uh dissipates, you know, and when when we dissipate and form and you know return to you know uh to to uh the earth, um, you know, to to the the organisms of the earth, or if we go on to another parallel universe or something, you know, at the end of the day, that little blip on the radar screen while we're here, you know, yes that from that beginning uh to that dissipation is really the only thing that matters. So basically, basically life and death is the only thing that matters, and everything else in between does not, right? And so at the at the end of the day, um what you think matters doesn't really matter, right? And so um what that really what that really means is when when when you're doing something, you know, you think about what is everyone, what does anyone think about this, or what if I fail? It doesn't matter, but yet at the same time, everything matters, right? Because the smallest little mistake can uh derail you from your objectives, right? So does that does that make sense? So it's it's kind of like a uh a psychological up and a reverse and and a and a psychological uh down or a reverse psychology. It's like forward psychology, reverse psychology. So the marine corps teaches you that, and if you I I think you know, by adopting that mentality, you know, I I'm able to mentally, you know, uh deal with things that you know before the marine corps I would have never been able to deal with, but it's this repetitive uh uh uh uh psych psychological adoption that allows us, you know, that has allowed me to deal with things on on a mental level that are um really, really difficult, right? Yeah, so and and that's that I hope that answers your uh your question.

SPEAKER_02 7:46

No, it does. Uh I mean the one thing that that we find common, uh it's almost like what you're describing is like speed, intensity, grid, psychological strength, those are all like the things that every investor looks for in a foundry. And and when we're when we're pitching story, we try to highlight if somebody has been in the military, if somebody has been a farm kid, particularly in Canada. If you're a farm kid, you you you have had to be outer resourceful to get stuff done. Uh, if you've been a Spartan racer, like it just it's it's that mental agility and that mental perseverance to be able to overcome challenges because you've started companies, you've scaled company, you know, like it's not oh uh fluffy clouds and and and and and pink pink sky. It's like there's a lot of ups, and there's a lot of downs, and sometimes the the uh you may have ups and downs in the exact same day, so it's kind of unique. Um I mean based on what you're describing, uh the marine sounds like phenomenal training and foundation for entrepreneurs and founders. How many people like follow in your footsteps?

SPEAKER_00 9:02

Uh, like how how many people have followed in my footsteps and joined the marines or or like become an entrepreneur?

SPEAKER_02 9:08

How many people from the marines have actually followed in your footsteps and became entrepreneurs or became founders or became investors?

SPEAKER_00 9:16

Um so so I'll I'll start with um something that I'll answer that question by starting with something that my mentor always told me, and uh one of my mentors, um and he's also now a dear friend of mine, but um uh he he always told me, you know, you're you're never on top, you're never on bottom, but like you're always somewhere in between, right? So what that means is like there the there are people that are are pulling you up, right? Like so, you know, they're um uh subsidizing you essentially, right? They're supporting you right from the top, right? With you know, maybe they have a greater capacity, maybe they have more money or more relationships, but they're giving that to you to pull you up, right? To help you meet you know your objectives, to help you be successful, right? But at the same time, there's people underneath you that are pushing you up the same, you know, there's people underneath you that are um you know doing work on your behalf or um and so forth, right? Like um, there's there's people underneath you um that are advocating for you as a leader, right? And um, you know, that you know, that does that does a lot for you know someone's own like kind of self-esteem and so forth, and um, you know, so there's people you know um beneath you or not even necessarily beneath you, maybe they have less experience, but it's kind of like the old saying standing on the shoulders of giants. Does that make sense? So when you make those people successful, when you when you make them successful, you know, you're successful, right? Um and and you know, success can mean a whole lot of different things, it depends on what you define it as, right? But you know, ultimately what we want to do is we want to, you know, build um other leaders that you know can um do you know much can can 10x you know us, right? Um you know, they they can 10x um you know our leadership, right? So we want to 10x our leadership. So when you talk about like people like following my footsteps, um I I wouldn't necessarily say that you know uh people have lived vicariously through me or necessarily vice versa, but uh what I would say is that I've had a lot of people that I've mentored, you know, young young veterans, and how'd you transition from the Marine Corps and this and that? Um and yeah, actually some of those people have gone on into venture capital, believe it or not. Um, and I'm I'm proud to see them there, and you know, and I'm excited to see what they they do here in the future.

SPEAKER_02 12:07

That's amazing. I mean, I I couldn't agree more with everything you're saying. Um like one thing that they've adopted from Scott Galloway is that greatness is in the agency of artists, but in terms of leadership, like I had um a mentor at one of my uh in one of my previous roles, and he's like, Maxim, do you know when you're succeeding? I'm like, I I mean there could be so many different answers. I said, I'm not sure uh kind of like what the right answer is here. He's like, if you're not there and the team is high-fiving each other, then you know that you're succeeding because you don't you said the vision and they're executing. You yes, you're important, but you're not that important. It's kind of like uh they know what's what's necessary.

SPEAKER_00 12:52

Yeah, absolutely, absolutely, and you know, just to capitalize on what you said, um it you know, it gets um it's not scalable to uh to not build other leaders, it's not scalable, you know.

SPEAKER_02 13:08

And so um, you know, because everything bottlenecks with you if if you don't build them. Sorry, if if you don't build other leaders, if you don't build the people around you, everything bottlenecks with you if they appears. Uh you just you the the way that you describe it, you have people that they're pulling you up, and you have people that you're pushing you up. So you have to do the same for them.

SPEAKER_00 13:31

Absolutely, absolutely. And you know, um in the Marine Corps we have uh uh uh leadership philosophy, you know, leaders eat last. You know, so you know what what does that mean? So I was in the invasion of Iraq, and uh at times we were rationed to one meal a day because uh you know um we're invading a country and uh you know their supply chain and logistics have to get through, you know, the um they they have to get through, you know, the um the MSRs or the the main supply routes, right? And um, you know, and sometimes depending on where fighting is happening and how intense the fighting is, those supply chains can't get through, right? Yeah, so you know, um when food is low, you know, lead that's why leaders always eat less. And uh it's it's it starts with that, you know, um uh concept, but it it can be used in other situations, right? And so like, you know, um from the the private seat first because you know it's it's really about um the people that are making the that are that are doing the work, right? And so um, you know, from the top down, like the the colonel has to ensure that you know his Marines have everything that they need to do their jobs, that's the point of it, you know. But but it's also about caring for people that are under your charge, you know, and making sure that you know that that they they have their um Maslow's hierarchy of needs taken care of, at least you know, as best as you can in a wartime environment. Um, so and that applies to everything. So, you know, leaders eat less, leaders lead from the front, and so leaders lead from the front, meaning that um I will protect my people, right? And so this is like the top-down thing, right? I'll protect my people, but leaders also lead from behind in that you know, I will not take the spotlight for their work, right? Like, so I don't need to be seen, you know. I want them to have the credit, so you know, those are just some things that I was taught from the Marine Corps about leadership and and many other things as well, such as self-improvement, always seeking self-improvement and being enthusiastic and taking initiative and all that kind of stuff.

SPEAKER_02 16:03

Paul, when did you when did you decide to go into venture capital? Was this something that you had contemplated while you were in the Marines and you were working on the idea? Um, like what uh what was the pivotal moment and what was the catalyst that that moved you into that direction?

SPEAKER_00 16:22

Uh so pretty pretty much it's it's just like people telling me no, you know, being being deprived actually led me here, believe it or not. And so like when when I left the Marine Corps, all I really wanted was a job to just you know work at, and um, but I wanted to do the best that I could in that job. Well, you know, through a series of like continuously getting laid off, um, and then you know, just not being fulfilled on the job, being just you know, corporate um politics, I guess if you want to call it that. Yeah, after six years of doing that, and then got laid off, you know. I like so I I would work myself up, um you know, and I get a really nice paying job, and then like for some reason it wouldn't work out, and I keep finding myself in these positions and like I'm used to like, you know, when I left the Marine Corps, I was I was 28 bringing in like 4,000 a month after taxes, like you know, I was doing pretty good for a bachelor, right? And so you know, I'm used, I I have a comfortable lifestyle, yeah, you know, and then I went to corporate and it's like whoa, it's like whoa. Um, so just because I have a bachelor's degree and I have all this experience, I really gotta fight to you know to to earn you know money in the real world. And I was I was my first job was like a hundred percent commission, and you know, I've just always had to hustle, right? And but a lot of my positions, it it was like trying to figure out the corporate world, you know, it's very different from the Marine Corps and like so trying to figure out the corporate world and then barely getting a job that was like less than half of what I was used to making, and and it was just insane, and then getting laid off, and so I would go through these phases where you know I would get back to my lifestyle, and you know, I have my my bachelor pet, my condo downtown, and then I have to like I get laid off, and I'm like, okay, so I don't know, I don't know where my money is coming now, like so I'm gonna have to move out. I have to move in with roommates now, you know, and so I went through that kind of cycle, and then and but but I was always like working my way up, right? So I went from like a hundred percent commission, making like you know, making like 40,000 a year and 50,000 a year in commission or whatever, yeah, um, to like making 120,000 a year uh within six years, but I got laid off again, and I'm like, I cannot keep going through these cycles. So I'm like, you know, I don't think it's a good fit. So I think I'm just gonna, I'm I'm gonna go on my own and I'm gonna work it out, you know. And you know, if if if I have to die by the sword or I'll live by the sword, die by the sword on my own terms, and so um, you know, I became this entrepreneur. I started my company, and I within a few months I was doing like 20k a month and revenue bootstrap and this and that, and so um so how did we get there?

SPEAKER_02 19:32

I read about it like that you went from zero to 20k in monthly recruiting revenue within three months. Kind of like what was your what was your path? Yeah, huh? What what was your path? How do you how do you scale so fast from zero to 20?

SPEAKER_00 19:46

Freaking just sell and build relationships and sell, and like yeah, you know, at the at the end of the day, um look, I was never a venture that company I started, like I I will never see that oh, this is a venture capital institute, this company can be a VC company. It was never that, and I never wanted it to be that, you know. But what I wanted was the freedom to to to to have uh some I wanted the freedom to have control, you know, and so that's what entrepreneurship allowed me. And as I began to kind of you know build relationships and make more of a presence and the work that I was doing, I got introduced to a VC firm, right? And so then I started thinking, I'm like, man, I could like not just build one company, but I could build multiple companies, and so it's like that it's like that Marine Corps thing, right? Like leveling up, right? And like always trying to do better and always trying to challenge challenge yourself and not staying uh not staying uh stagnant and into I the I made it mentality, right? Because you didn't you you you never really make it, and and so I don't and that goes along with like self-improvement, right? Like I don't really think that I've made it just because I'm a venture capitalist or I've raised this fund or whatever. Like I I haven't made it until like freaking you know I've I've got like until like I've built like so many other leaders and and whatnot, like I I haven't really made it, and even then I don't think I've made it because how can you how can you uh envision yourself as having made it when there's always something to learn, the world is always changing.

SPEAKER_02 21:27

Agreed, and so when we'll come back to the investment thesis for Djirati, but like when when you decide to invest in a company, are you like wearing your kind of like marine hat and you're like I'm gonna help this founder or founders or leadership team scale to new heights, and I'm I'm there to like build them up. Kind of like what's your modus operandus when when when you invest in a company?

SPEAKER_00 21:54

Uh you know, my my modus operandus is um well it's a lot of things, and and I call these the most important things when you're evaluating a deal. I call it the most important, the three most important Ds of venture capital data rooms, diligence, and disclosure. I mean you would and and you would be surprised. Oh you're in venture. So you you're maybe you wouldn't be surprised but like a lot of people would be surprised that of how screwed up each one of those are like the data rooms messy uh no controls over permissions no naming conventions uh you know their their documents aren't up to date you know uh doesn't matter in the in the financial model or the the financial model doesn't tie to the pitch stack and 100% so you know data rooms uh diligence um you know I look at who's on the cap table like who's you know who's doing the diligence right like and then you you'll get like people on the cap table that rely on other people's diligence and then they do the diligence one time and they think oh well we don't need to do it again right and then you know and then disclosure um you know I've had to dig information out of founders and I'm like you know I really shouldn't have to dig information out because the thing is is like if if someone puts money into your company and then like you know whether you meant yeah whether you accidentally withheld the information or the information was accidentally incorrect like you really need to make sure it's correct and and that's where that's where audits come into place and a lot of founders like oh I don't want to pay for an audit to to do the round well you know it's you you probably should because like you know if if you do multiple rounds and then you know people find out that something was missed and you know things go awry then you know it's your excuse me it's your ass on the line you know so you know those those things are are um kind of like my modus operandi but but the biggest thing is max is like who's the person that I'm working with right like yeah a hundred percent you know what's what's the quality of this person you know do they have integrity do they execute do they exude those true you know leadership hallmark qualities makes sense I mean I we're seeing this firsthand all the time um and and it I'm I'm a CPA so some of the things that you're saying I'm like trust and surprise I mean um time and surprises kill all deals like you should never find about anything so and and you're talking about some of the trust signals that you want to see there you want you want to see something that's organized you want to you know you want proactive disclosure you want transparency like just like if you tell me gonna these are the milestones hit those milestones like build that trust and credibility with me so like I believe in your story otherwise it just gonna fall apart yep 100% and so what there are is I mean you you talked about trust you talked about integrity like what other credibility signals or trust signals can a founder enshrine in what they're doing or build in order for an investor like yourself to say oh I've they've cleared the first hurdle I'm now interested in like the like the the the picture on them is complete now I can move on to the picture on the company yeah um you know we talk about the soft skills but then you know let's let's move over to the hard skills right like you know do do they understand the the room that they're in right and so um unfortunately uh the industry has um the industry has created a belief system that that today you know in the 21st in the almost the mid-21st century now um you know that you know venture is the standard right and like so they've kind of created this belief system and you know um because there's a lot of um popularity there's a lot of like there's a like a lot of like kind of you know um Hollywood you know um there there's a lot of Hollywood in and venture kind of you know so what do I mean uh I mean the in early 2000s you know you had the dot com bubble yes and then you know you had the the set the sale of PayPal and then you had started having the social media you know phase right and and a lot of companies just you know they started you know kind of raising venture out of this silicon valley and then the safe note was created to make it easier and less expensive for founders right and so what's happened over the years is um you know you've seen a proliferation and expansion of money across the board because because of that dot com bubble right and and it it's it's all kind of like converged it it converged in silicon valley but it you know as people began expanding and they had the financial freedom to be able to you know take you know money from you know if they were a part of the PayPal mafia if they were an employee of the PayPal mafia or whatever right like they still gotta exit right like there it's amazing like how many millionaires that dot-com bubble made right and so these people went off and they started like other silicone valleys whether it's Austin or Boston or whatever right and so you you've seen these other cities kind of start to emerge as like miniature silicone valleys and over time this has created a culture right in some of the more progressive cities in America and now globally and um that culture is is a way of thinking right and then you have the safe note right and so you know fast forward to what 2026 now um now you you have uh uh uh you know children that have grown up in this culture right they may have been born they may have been born in the dot-com bubble now these people are like 25 26 and they're starting companies and they've been taught these things right and they're like but they don't look deeper right and so everyone kind of thinks that oh I should just form a company polish up a pitch deck and the first thing I need to do is go raise venture and so really you know what what's important is is the hard skills and understanding how this industry works and the first thing you should do is understand how the industry works not create a pitch deck and go raise venture capital when you you know I I mean I get founders pitching me all the time that I'm I'm like it it is it is very clear you do not understand the industry or how how it works or what you're getting involved in um and so understanding you know the institutional aspects of the industry understanding what is the point of venture capital um what other kinds of capital are out there right do I really need venture capital because you don't necessarily need venture capital to get investment anybody can invest right it doesn't have to be venture um there's there's venture debt you know there's traditional debt there's lines of credit there's arr financing which is really blown up in the last 10 15 years and and I'll close out with saying the history of venture capital started it you know I'm sure there were forms of barter and trade and and investment in and and you know thousands of years ago but as far as modern venture capital it was founded in 1946 the industry was by American Research and Development Corporation they were technically the first venture capital company and the difference between 20th century venture capital and 21st century venture capital is that 20th century venture capital was really about how do we how do we uh fund innovation into the con into the to to better the economy to better our lives 21st century venture capital is like oh if it looks like it can be a billion dollar company let's just throw money at it it doesn't matter you know if it really improves people's lives and so yeah I'll I'll pause there.

SPEAKER_02 30:53

No that's I completely echo your thoughts and comments um so it it I mean we publish a ton of content on futureventures.ca and the primary reason is to to drive some of this clarity because a lot of people assume that they have a venture backable company and in and and so what we're trying to essentially drive clarity is like you may have a great company you you may be like highly profitable you you you may have all of these ingredients but the the idea is like are you building a company that has the ability to scale to like extreme heights something that could be a global and so that's what they need to understand was like well I'm I'm making 40 million dollars in uh in in in revenue I'm like that's fantastic can you scale it to be 400 million dollars like so no i i i echo your comments now you talked a little bit about the safe i i have a couple of questions for you on on kind of like the mechanics um you developed the proprietary uh financial instrument the reloadable note um so i want to get your thoughts on safe how how do you view them um and two what prompted you down the path to to actually build a reloadable note and and tell me more a little bit kind of like the what are the mechanics behind the reloadable note yeah so um I think I'll I'll start with the safe yeah and how I feel about it okay um you know I'm I'm not gonna say that uh the safe doesn't have it have its place like I mean it it would be illegitimate of me to like completely uh denounce the safe i'm i'm i'm not saying like don't use it or that it's it's not you know a good instrument in certain situations right but the thing is every situation you know and um you know the so venture capital is dynamic right and so you need to have a capital strategy that's my biggest problem with the safe is it's it's the dumbest instrument like if like I mean it's the most like simple instrument i mean that's literally what i call it right a simple agreement like you know what i mean like it's the most like dumbest instrument that you could use like not dumb like in a negative way but like it's not sophisticated at all and you know um venture capital is like it's it's it's very sophisticated with regards to like strategy and different types of capital and you know how to keep your company from getting diluted freaking through below sea level and stuff so like that's the biggest thing is just like it's not it's very ambiguous and I'm like oh well early stage investors uh you know um so a lot of it is like you know early stage investors um early so in my opinion early stage investors are taking risk right they're taking the first risk um they shouldn't be launched into like a sea of ambiguity um so that the the next round of investors can simply uh decide what to price the round at and so like if you're an early stage investor and you're taking risk um like why would you for why would you let some other downstream investors like why would you subject your investment to downstream investors and what they might or might not price the round at like I to me that it just doesn't make sense um you know and then the founder like I know that you can you know you can set like this um you know the the valuation trigger and the discount and all of that um but it they but there's no so so there's no um minimum value like what if you're what how do you keep your company from getting devalued you know what I mean so like okay you can set like a valuation cap but what about a valuation floor floor yeah you know yeah because quite honestly like if you don't have a valuation floor that tells me one thing you don't believe in what you're building and you don't have conviction to say like hey we're never gonna be less than this um like every company has like uh every company has like a a a um a biological value like what's your biological value right and so um to me like why would I invest in something that that I know doesn't like it could like you know if the founder doesn't have enough balls to say like hey I I know we won't go below this value and let's set the floor there then I don't want to put my money in it you know um and I think that's the way um you know it that's the way mature investing works like you know I mean if if you look at um you know if you look at trading like traders um you know or look at the Dow or something like that like you just look at the way that mechanics work on stock exchanges you know they they usually set like trading floors right and so I don't I mean that's a little bit out of my realm I'm a venture guy but I'm pretty sure that like you know stock traders and you know sophisticated traders um they don't put their money into things unless there's like a floor right and so that's where the reloadable note comes in and in terms of why I came up with the reloadable note quite honestly I was selected out of a couple thousand people to go through VC lab with a deo research um I don't know if you know who a deal research so a deo ressy came out with the um what is it the um uh convertible equity note or something I forget what he called it but um why the guys at why combinator said hey you know we'll popularize it and then they they called it something else which is what we have as a safe note today and so um actually have the screenshot somewhere but um a deo it posted back in September of last year 2025 I think the safe note is overused and I think we need something new said say no more so I I was like okay what so I've been a founder and an investor what are the um the quagmires what are the complaints on each side when deals happen and I'm like well uh as a VC um okay so we're talking about future we're we're talking about futures a lot of times like future metrics but what about what do LPs really care about?

SPEAKER_00 38:09

What's the present value of the portfolio?

SPEAKER_02 38:12

And I'm like well dpi is really the most important and and and for those of you that are listening uh distributions paid in okay so that's really the most important metric in my in my opinion that's the real present value right and so why why do we need to wait you know seven ten years to to realize the value until we get an exit right and then at the same time founders are getting diluted way too early right so I want to have to provide some flexibility there which is where the reloadable note comes in and if you like I can explain the mechanics of that I would love that because I I I think that I I share your thoughts on on the safe um and and so any instrument so so as a result of some of these constraints we're seeing like emergence of secondary funds and you've seen the emergence of different so obviously the whole the the goal that every founder has is to keep as much of the equity as as possible um of course they need to give up some of it in order to to to get the funds to scale but it's kind of striking that balance between the illusion or giving up equity and uh grabbing as much momentum or scale.

SPEAKER_00 39:28

And so any instrument that would provide for that for this healthy balance is in my in my opinion something that should take off yeah no I appreciate that um really the the reloadable note is an early stage instrument um and and so what it's meant to do is number one keep founders from getting diluted uh number two provide real-time option optionality uh to investors for for um liquidity right earlier on liquidity um but also uh also providing some uh you know some incentive to reinvest into the company so the way the note is essentially designed is uh you have participation uh proceeds you know anytime there's a defined liquidation event or trigger right and so let's say I have a million dollars right and I want to invest it in um John's donuts right and um so you know I'll I'll put uh you know a a million let's say I I put the million in right and um 500 goes in as equity right and then the the remaining 500 we're gonna reserve uh for the next liquidation or trigger uh event right and so what that does is it allows the the founder to get the money but it also keeps the cap table clean right or it keeps the cap table lighter should I say um and then from there when the next liquidation or uh specific trigger event happens um at that point um and and it can be the liquidation and trigger event can be whatever you want to define it as right like it it can be you know if you hit a certain revenue milestone yeah um it can be uh you know if um you know a future investor puts money into the company for example because because they're they're gonna have to to buy into the company anyways right like so they're gonna have to so if an investor is putting money in into the um um like a future investor is putting money in in into the the company um then that so essentially like if if they're gonna put let's just say five million in right um then that's gonna dilute the previous investor right if if the previous investor put the the whole million in yeah right but instead instead of diluting the founder more and the previous investor right instead of doing that we just take the 500 and we can define that as a liquidation event and then what we have there is a buyout an early buyout or early exit okay but but that earlier on investor still has the option if they want to take that um uh buyout you know it they they can reinvest or reload that um that 500k at the original at the original valuation right okay okay and they they can reload it at the original value we're anchoring to the original valuation right so they can reload at the original valuation yeah because they took the earlier risk and so they should be able to reload at the at the uh at a lower price right because they took the risk to do it right so that's kind of that's kind of how it works okay so that's different from setting aside following capital what would the new investor coming in object to this because essentially somebody is is is having a preferential rights in terms of like they have the ability to put new capital at previous valuation where the new investor has to put new capital at the new valuation um so they they may I I mean they I they may object to it um but again this so the the the the ethic the the um uh the um the substance and and and really the um The heartbeat of of what the point of the note is is to keep the founders from getting diluted, but then to provide the uh investors earlier on liquidity, right?

SPEAKER_02 44:10

Yeah. Um so how do you how do you how does that how does the note determine who the 500,000 in terms of buyout goes in terms of like so I'm assuming that the 500 does not buy out the the the founder shares, uh it goes towards the early stage investors in terms of you know, as you said, you want to keep the cap table light, yeah. So it's buying out some of the early investors that won't want to hit the off ramp.

SPEAKER_00 44:38

Um, so like with the earlier with investor number one, um, the first investor, um you know, the second investor can can buy out that that earlier investor, and so there's liquidity there, right? Um they don't have to like they don't have to sell the the first investor doesn't have to sell off you know the entire 500,000. Let's say they you know uh um they want to you know buy out 250,000 and that keeps the cap table clean because that's not going in as equity. Does that make sense?

SPEAKER_02 45:13

Yes, yes, it is.

SPEAKER_00 45:14

That's not going in is is equity, and so then that that payout goes to the earlier uh investor, but it's not going in is equity, which means that the second investor's money is gonna actually go further, right? But in terms of um, in in terms of like the second investor not uh being appreciative of you know the first investor taking on the earlier risk and being able to reinvest at the original valuation, um, I would have to fight back on that because the million was put in uh originally at the um the the original valuation, right? So they should be able to take that um that capital and yeah and and actually I'm sorry, I'm I'm telling you, yeah. Yeah, I'm telling you wrong. That reinvesting that would actually, I'm not looking at the note right now, but I'm sorry, reinvesting or reloading um that capital would go with the the new valuation. I'm oh I see okay. Yeah, I did tell you wrong on that. Um but but with the the million that that would be anchored toward towards the original valuation. Does that make sense? So any any liquidity that comes out would come in at the new valuation that the that the new and the second investor sets. Makes sense.

SPEAKER_02 46:34

That that makes it would you would you have would you have a reloadable note that we can put in the show notes? Is is a template.

SPEAKER_00 46:42

Yeah, it's it's actually um there is a faq, a white paper, and the investments. No, I don't do anything like that with DigiRati. I so I have another company um that handles all of our administration syndications, SPVs, and due diligence. Um, here's the uh the page for the note. So um the note sits under reciprocity. Um, but again, just you know, you can read through the terms and and the mechanics and everything, but uh again, I I want to reinforce the key is uh non-dilution incentive uh to reinvest and double down on the company, right? So again, if we take that 500, we can reinvest that at the new valuation, right? But the first the first million goes in at the anchor valuation, okay. And then um we we have freedom to just design uh what is classified as a is a uh liquidation or a trigger event.

SPEAKER_02 47:47

Got it, got it. Um I really like some of the features of of the reloadable node.

SPEAKER_01 47:53

Um I appreciate that.

SPEAKER_02 47:55

With Dijerati, you invest in AI, early stage AI companies. Um, what's your take on on the current AI market?

SPEAKER_00 48:07

Oh, that's a great question. Yeah, that's a that's a great question, man. Um, so so I served in the military uh during ground combat missions, but my last two tours in Iraq, um, I ran a command intelligence center, and um that's when you know the military was just getting into the hardware side of uh AI, right? Like so drones, you know, detection systems, etc. Um, you know, I think with where on on the commercial side, I think, you know, on the private sector, I think with where AI is at today. Um I I think reality has hit the market. And this this is the thing, is like in anytime anytime you you have a lot of hype in a market, you know, or in any environment, and there's a lot of hype in this area and this and that, just just give it time to calm down, right? Like it's it's like a boiling pot of water, yeah. You know, it's like just let let it let it get let it uh go to a semmer and then a cooling state, and then we we and then the water's not distorted, and we can actually see through the water, right? And so like the market's like that, right? Like, so um anytime there's a lot of hype, just give it time for the water to settle, and then we'll we'll see what the reality is. And the reality is is that we've seen a lot of companies uh building, you know, AI um uh AI um paper, I would say paper paper shack products. Um, but you know, they're not they're flimsy, um, you know, they don't they're they're not gonna be around in a few years. You know, we've seen companies like that. Uh they don't really make a difference. And and and and you can actually um when it comes to SaaS products, you can actually tell who the good companies are. Like, I like there's there's products that I use like that have saved me so much time, and like they've actually given me a lot of knowledge, they've made me better. And so like you can tell which companies are building AI correctly, which ones are doing it right, and which ones are not, and the ones that are not doing it right, I don't even use those products, I don't even remember those products. So, um, you know, the other thing is is that companies today uh that are building like AI today, um the right way, uh, that are you know, um whatever term you want to call it, unicorn generational outlier, you know, um any company is changing the way that we live and work, and you know, um any company, yeah. Any yeah, these these companies are gonna be around, you know, these are gonna be the next Googles and and uh OpenAIs and Amazons, and you know, they're gonna be the next the next company. So those are the the companies that are like that that are being built today, um, are the companies that are gonna be around. Um, anything else that um isn't changing the way that we live and work and and things like that, um is it it doesn't even matter, like they're not gonna be around. And so you can look at it like again, the dot-com bubble, you can look at um Google, um, you can look at uh Facebook, um you know, any of those companies. Um and you can look at uh payment infrastructure, PayPal, and look at those companies and how everything has been built off of those because those were the foundational companies of social media and um the internet and this and that, and AI is gonna be the same, and so you know whatever the foundational companies are between I think now and 2030 uh 2030 um are going to be the foundational companies, and then in 2030s, we're gonna see the layers build on, right? And then I think you know, is as we get into the 2030s and the mid-2030s, you know, at that point, I think we'll start to maybe get into the next levels of artificial intelligence, such as you know, deeper levels of general intelligence, deeper levels of quantum computing and and maybe even sentience.

SPEAKER_02 52:42

Yeah, are you more excited about a physical AI or digital like the physical world that we're kind of like when it when it comes to AI?

SPEAKER_00 52:51

Well, um, like what's really the point of AI is like not to sit here with a uh uh a device, you know, that's that's not the point of AI. So like the the point of a the future of AI is is like total immersion, literally. Like, so um, you know, I think to answer your question, I used to be a venture partner, um, a firm called the Robotics Hub. Uh, they uh their flagship uh portfolio company is actually agility robotics, right? And so um, you know, I think and for for the future, robotics is where it's at, and I I mean you can look at what other countries are doing, you can look at um the conflict in the middle east right now. Someone asked me the other day, are are we putting boots on the ground? I'm like, look, I I don't think I don't think it's gonna be another Iraq or Vietnam. Um, this is very different. This you know, the future of war has changed. Uh things have changed. Uh we we are at a turning point. Um, there will you know be some boots on the ground. I I there's probably already boots on the ground in Iran. It's just not being said, right? It's covert operations. Um, but you know, we're not sending uh uh the airborne and um uh the the marine uh expeditionary units there for a desert oasis vacation, like you know, we're sending you know we're sending them there because it means something, and and you know, so there will be boots on the ground, but nothing like Iraq. I mean America. So when I ran the command operations center in Iraq, we were we were the the trailblazer for drones, like nobody talks about that because drone drone warfare really hasn't happened until the Ukraine, yeah, right. Yeah, but but we were the first military to put to put drones in combat, right? And so you know, I think uh so the US has plans to purchase over a million drones within the next couple years. A million drones, yeah. I mean, that's insane. That is insane, yeah. And so when you have a million drones, why the hell do you need like a bunch of boots on the ground? When you have a million drones that can spy and drop bombs and shoot, like I mean, that that changes the dynamic, like in so many ways. So I you know, I I think um, you know, where we're at with AI now to go back to your question is twofold, right? I I mentioned I talked about the commercial side and foundational companies, yeah. Um, but then I talked about the the more of the the um uh the the government side or you know uh in terms of like defense and you know um so I I think that's kind of kind of you know um where we're at. And then I also believe that you know AI is gonna be um so we've largely been looking at how how do we uh regulate AI at the organizational at the government level, it doesn't work, does it? Um, because you know, when cars first started getting manufactured is an example, like you can only regulate cars so much, you know, but like somebody's gonna control like the drivers, right? And so we got all these rules of the road, you know, you can take a Ferrari out or a Dodge Charger, but you're not gonna drive it 200 miles an hour down the road because of the rules, right? And so AI is kind of the same. I think we're gonna have more laws and and rules around um you know everyday consumer use.

SPEAKER_02 56:39

Yeah, I know I hear you, I hear you, and and I think in many ways that's that's needed because AI is facing well at least in the the public perception is more negative than positive about AI, it despite the fact that it's just going to become ubiquitous technology that we use in everyday life in every aspect of life.

SPEAKER_00 57:00

And we you know, I I think like if if you're not if if you if you're not um implementing AI into your business, and then like again, if you're not using AI to as an extension of yourself, I think you're already behind. And you know, um you know, like with VC firms, every VC has a different thesis, right? And invests differently. Yeah, um, I I think the VC firms that don't have their own proprietary AI product that matches their thesis, I think they're behind. Um, I I use I use AI for for everything that I do, you know, but you know, I don't cross the line of AI dependency, right?

SPEAKER_02 57:42

Like, so so it's not a substitute for human intelligence, you still use it because it speeds up everything, but yeah, yeah.

SPEAKER_00 57:51

Like I I don't say uh ask AI a question, like, or if I have an idea, it gives me an answer. I'm like, oh, that must be right. No, like I think deeper, you know, I think deeper. So AI is meant to be an aid. Um, and if you're using it correctly, I think you know, like if I were to look at my work five years ago, um, you know, my life has changed forever, and so open AI is one of those foundational companies, right? Like, if I were to look at my work five years ago, I'm like, geez, man, my work has improved so much because of AI.

SPEAKER_02 58:27

Yep. Well, it it it allows you to find the answers of questions that that you are posing before you might have forgotten go going and getting the answers because you would have with you know you would have had to scroll through a series of pages on Google or and now like you the answers are your fingertips, so it gives you that speed, velocity, but it gives you the precision. My biggest comparison around AI is that AI enables everything to go from one to many or from macro to micro, everything becomes one-to-one. We work with a number of like AI companies that they're in the life science department, everything is becoming personalized. Yeah, you no longer need the broadcast mode, you just everything is one-to-one uni channel.

SPEAKER_00 59:08

100%. Absolutely. Yeah, it's it's really exciting. I mean, uh, geez, I I just uh there's so much that you can do with AI. I I think it's it's pretty amazing what what humans have created.

SPEAKER_02 59:23

What are your top three favorite tools that you use in in your work or personal life?

SPEAKER_00 59:28

Well, being in the space that I'm in, right? So I'm I'm doing a lot of um you know writing, you know, yeah. Um, like there's platforms I write for in a innovation platform called Idea Scale. I write for the AI Institute. Um, I've just been accepted in the Forbes Finance Council, so I'll probably be writing bylines for them and so forth. Um and on and on. But um, so writing, um and then you know, a lot a lot of um um what I'm doing is you know, I I'm I might be creating materials or yeah, you know, so so you know, decks and presentations. Yes, even as a VC, you still have to create decks and presentations. You have raising too. Yeah, absolutely. Yeah, yeah. So um, you know, so I'm doing things like that, and um the thing is, is like like out like I could never outsource deck creation because I'm like, no, no one what I do is so specialized, like I have to do it. I I can't pay anyone to do it. So you know, I'm doing things like that. Um and then um just in general, just every day, like um, you know, I'm I'm a for example, I'm I'm athlete, right? Like, you know, I've I've been in athletics for like you know over 30 years, and and um so I'm like, geez, how how can I improve my VL2 max, you know, um things like that, or or like um like how can I improve my my resting heart rate, you know, like if if my like my resting heart rate is at like you know, it's my resting heart rate is in the mid mid to upper 40s. Okay, wow. So I'm like, I'm like, what what can I do to kind of like keep it there and and things like you know, so self-improvement and things like that. Um and and you know, chat GPT, uh gamma has been really amazing. Um what's uh read ai is amazing. Um you know, because I'm able to like take okay, so if I have like 50 meetings a week or whatever, I can like take all my notes and I can find like I can I can take all my notes and I can be like, okay, what is in what is the the pattern, what is the con consistent pattern uh or the the constant versus the variable, right? Like what's the constant between all these meetings, and then how do I leverage that, right? Like so it's not it's not what it's how like yeah, it's how you're using AI, yeah. Um, and you don't need you know every tool, like I you know, I've named my um I've named my chat GPT Zeus, but like I I I I named it and and I and I recommend I recommend that um that more people name their AIs, yeah. Um that may sound weird, like some people's no no it's an inanimate, it's it's an it. It's I'm like no no you need to personalize it, you know why? Because we need to hold AI accountable and we don't we don't hold inanimate objects accountable, we hold people accountable, right? So if we start personalizing it, then we'll start we'll start acting um in ways that hold AI accountable, right? But if we if we look at it as like a non uh a non-human form, then you know we're we're not humanizing it. So we do need to humanize it because AI is becoming more and more human, right? And so um I think I think those things are important. Um and again, you know, think about like you know, think about like um uh kind of like you know how you need to think like AI, right? Like so don't think like how you how you always think, but look at how AI processes things and and think like an AI system, you know, for sure. And so you know those are the the things that that I would look at and just you know how I've how I've kind of you know uh built AI into my life.

SPEAKER_02 1:03:49

Amazing, amazing. Paul, you've been extremely generous with your time. Love the conversation. If somebody wants to follow you, follow your work, uh what's the best place to do so?

SPEAKER_00 1:04:01

Uh best place to do so is to just look me up on LinkedIn. I'm the only Paul Anthony Claxton. You can also find my uh website, it's Paul Claxton.io. Um or you know, let's just hop on a zoom and uh see see where we align and and uh land and a line and see what we have in common and might be able to work on together.

SPEAKER_02 1:04:26

Amazing, amazing. Thank you, Paul.