Entrepreneurial Appetite

Forging a Path: Herbert L. Drayton III on Venture Capital, Diversity, and Entrepreneurial Success

• Herber L. Drayton • Season 6 • Episode 12

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Herbert L. Drayton III, a distinguished veteran of both the Marine Corps and Air Force, joins us to share his remarkable journey from a paperboy to the managing director of Highmark Capital. He discusses the critical lessons learned along the way, including the pivotal decision to leave corporate life for entrepreneurship and the importance of wealth creation in business ownership. Herbert offers a candid view on why treating a business as a side hustle might be less beneficial than many think, and he gives us an inside look into the founding of Highmark Capital—a venture capital firm with a mission to support Black-owned businesses in South Carolina.

Launching Highmark Capital wasn't without its challenges. Herbert opens up about the barriers new venture capitalists face, particularly Black individuals in the industry striving to make a difference. He dives into the complexities surrounding corporate commitments to diversity and the essential role of social, moral, intellectual, and reputational capital in the entrepreneurial ecosystem. Through Highmark Capital, Herbert aims to provide both financial and knowledge capital, helping businesses grow and succeed. The discussion also touches on fostering local networks and the impact that significant financial milestones can have on relationships with banks and access to exclusive opportunities.

Herbert's vision goes beyond just investing; it's about creating an inclusive venture capital landscape. Aspiring to establish at least 10 minority-owned VC firms in South Carolina within the next decade, he underscores the power of representation and mentorship in nurturing future entrepreneurs, especially military veterans who bring unique skills to the table. Herbert also challenges traditional wealth-building ideas, such as homeownership, and proposes alternative paths to financial success. Join us for an episode packed with insightful strategies for aspiring entrepreneurs, seasoned investors, and anyone passionate about the intersection of business, diversity, and community impact.

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Langston Clark:

Hey everyone, thank you again for your support of Entrepreneurial Appetite. Beginning this season, we are inviting our listeners to support the show through our Patreon website. The founding 55 patrons will get live access to our monthly discussions for only $5 a month. Your support will help us hire an intern or freelancer to help with the production of the show. Of course, you can also support us by giving us five stars, leaving a positive comment or sharing the show with a few friends. Thank you for your continued support. What's up everybody. Continued support. What's up everybody.

Langston Clark:

Once again, this is Langston Clark, the founder and organizer of Entrepreneur on Appetite, a series of events dedicated to building community, promoting intellectualism and supporting Black businesses. And today we have Herbert L Drayton III, a Marine Corps and Air Force veteran who is also the managing director of Himark Capital, located in Charleston, South Carolina. And Herbert, first one, I want to thank you for joining me on a reach out from LinkedIn to be able to share your story, because, for me personally, I'm really interested in the lives of Black folks, businessmen, businesswomen who have positioned themselves to invest in others, and so I was wondering if you could share a little bit about your story and how you got to where you are to be someone who invests in others.

Herbert L. Drayton III:

Sure and happy to be here. I appreciate the outreach on LinkedIn and I think it's important to let everyone know that I believe that every entrepreneur that has an inquiring mind if they want to talk to me, they deserve 15 minutes, so I will put that out there for the world to know. I think my first entry into entrepreneurialism was as a paper boy. I had a paper route. My uncle reached out to me and asked me to take over his paper route for him and at the time I didn't know it. But in looking back I realized that that was a crucial starter because he took me under his wings, coached me. Because he took me under his wings, coached me, mentored me, taught me about customer satisfaction, taught me about collections making sure that people pay for that paper that was being delivered to them. Taught me about customer acquisition and these things at age 13,. You don't realize how I say they're going to impact your life down the road, but in looking back those things were sort of grounded in me With respect to my entrepreneurialism, like so many other folks out there. There's an event that happens while you're in corporate life that makes you say I can do this better than this company I'm working with or if I go to another company, I would experience the same things that I'm experiencing here, and a lot of those things have to do with how you want to grow, how fast you want to grow and how much autonomy that you want to have With me.

Herbert L. Drayton III:

I was working with a major healthcare system here as a director of IT services. My workout partner, who was a physician, asked me to come over and help him with his business. I got there he's seen about 900,000 a year. Asked me to come over and help him with his business. I got there he's saying about 900,000 a year grew that business to 6 million and then realized that maybe I can do the same thing with other companies that I did with him, renovated the business and created a solid income for me, for the two of us. That led to consulting across the state of South Carolina, which went very well, and then from there we used the you know the profits from the medical business to launch other companies and to acquire other companies as well.

Langston Clark:

So I think that's interesting. You talk about acquiring other companies and I didn't know that you started in one business and then built that up and were able to expand and do all those things. Can you talk a little bit about the benefits and why people might be thinking about buying other businesses before we talk a little bit more about Himark Capital?

Herbert L. Drayton III:

I think it's important to understand why you want to own a business. If you want to, I mean, you could have a side hustle without any investment at all. Right, whatever that skill is that you're great at, you just want to pick up an extra $500, $600 a month or something like that. That's good, that's a side hustle. But if you want to buy business, I'm going to ask folks to ask themselves convince themselves that they want to create wealth for themselves and their family. They don't need another job, if you will. They need to bolt onto something that's going to create wealth, and what I mean by wealth is you got excess resources at the end of the month that you're either going to invest or you're going to save. But you don't need.

Herbert L. Drayton III:

If you want a side hustle, get a true side hustle, because when you buy a company, you are negotiating the value the current value of a business that the owner wants you to pay them cash for, whatever that is. So why buy a company? Why spend, let's say, $50,000, $100,000 on a company and you won't get that money back for seven or eight years? That just doesn't make any sense and that's a lot of time. What happens? I would encourage folks that if they're looking at. If you want to be your own boss and you find an owner-operator business that let's say it's doing $120,000 a year and you, through your networks or because of your technical acumen, you can squeeze out another 25% in that company, that's great. I'd say you lean into that. But don't tell yourself you're going to keep your job and then buy another company and make it a side hustle, because it'll compromise you individually. It'll compromise you and your family as well.

Langston Clark:

Let's talk a little bit about Himark Capital. So what's the story behind Himark Capital? Tell us what it is and what your as well. Let's talk a little bit about Himark Capital. So what's the story behind Himark Capital? Tell us what it is and what your mission is. Well, you know.

Herbert L. Drayton III:

Himark is a result of the social unrest around George Floyd's death. At the time I still had my partners. We had Vertical Holdings, which is a holding company that made acquisitions, and I decided, with the momentum around George Floyd's death all these institutions wanted to commit resources to Black-owned businesses and Black fund managers that okay, now would be a good time to decouple from my partners. So we sold the last two assets that we had. I launched Himark Capital with the goal initially of investing in Black-owned businesses in South Carolina and you know, I didn't know anything about venture capital. I, you know, once I got into it, I read five books, you know, to try and understand it. But you really have to be in it to the ins and outs of it, right? A lot of the stuff in the book, it's just going to be theoretical. A lot of the stuff in the book, it's just going to be theoretical. But the practical application of fundraising, the practical application of due diligence, the practical application of understanding how to create a pipeline and how to pull in advisors, it's not math. So you really have to lean in and do these things and I will tell you that momentum around all the narratives from these corporates and financial institutions saying that they wanted to invest in Black-owned businesses really was all a smokescreen. I think only 1% of that money has really been deployed into. I said it was, you know, smoke and mirrors. If you will right, they want to invest in Black-owned businesses, but their definition of Black-owned businesses was nonprofits, or also with fund managers of color who had already been in the space. And I'll tell you a little bit more about what I mean. You can't create wealth. Philanthropy will not create wealth for other people. Philanthropy will not create wealth for other people. Philanthropy is a result of wealthy people wanting to give back. I'd say the majority wants it to do good, but most of it they get tax advantages from that right. So you can't ever say I don't know an instance where philanthropy has created multiple millionaires. And then the other piece with the corporates wanting to give all this money to black fund managers. Well, what they don't tell you is that I'm considered an emerging fund manager, right, but they would give all this money to the existing fund managers. And when you try to cross their firewall, the conversation then is well, you have to have $250 million under management to be even put on our platform for consideration for an investment from us. So a new fund manager with a $50 million fund, they're not going to get, you know, some of the big pension funds to invest in them. They're going to go to those seasoned folks and that's just how the game is played.

Herbert L. Drayton III:

One final note and then I'll yield the floor back to you. When I started looking at deal flow and this is something I mentioned a moment ago most Black-owned businesses are Main Street businesses. Yes, so they're not designed to accept VC money because, quite frankly, it would seem predatory to say I'm going to give you the $20,000 that you need, but I need 60 back or 80. That's just the math with VC, right. And what I've tried to talk to folks about is now there've been folks who've gone to banks for business loans and the interest rate was like 10, 15% and they would balk at that. Right.

Herbert L. Drayton III:

I'm saying the interest rate is too high. Well, technically it isn't, because they're looking at a business loan through the same lens as they would a consumer loan. You're not buying an R that's going to depreciate. Let's say you get $100,000 and you have to pay 20% on that, so you have to pay back $120,000, right. But if that $100,000, the result of that $100,000 is going to create a business for you that pays you. Let's say, $200,000 a year for 10 years, that $120,000 you just invested. Now you got $2 million over the life of that money. That's how folks should be looking at it and that's a whole education process that has to happen across the entire demographic.

Langston Clark:

It's interesting that you would mention that. Would you say that that's one of the things that you learned as a VC? You didn't know that coming in Give some key teachable moments for you your process of becoming managing director of Himark Capital.

Herbert L. Drayton III:

Yeah, a couple of days. I mentioned the Main Street businesses, right, you know, as an example, there's probably 100 companies that are VC ready in the community and those are folks who you could write a six figure check and know that you write $100,000, you can be reasonably assured, you know, there's persuasive evidence that you're going to get. You can get $600,000, $800,000 back over the course of the fund 10 years right. So there's 100 companies like that. But then there's like 1,000 companies, Main Street businesses that need less than $50,000 to help that bit velocity, right.

Herbert L. Drayton III:

So there's the conundrum. Right, I could give $20,000 to 10 companies and nurture them to the point where I get 60 or 80 back. But I've had one guy call me. He outright called me a loan shark. I said, well, that's just how VC works and it's been around. And the other thing that I would say is that a lot of Main Street business owners they're not as seasoned with their business acumen and financial acumen and those are things that compromise their ability to get loans through, like CDFIs or banks, and that that's sort of just that that restricts their ability to get the capital that they need to grow, ability to get the capital that they need to grow.

Langston Clark:

So it's interesting in your role I'm assuming that you function both, as you provide multiple types of capital, so it could be the financial capital, but there's also some coaching involved. Talk about your role as both the monetary capitalist, but also like the learning capital, the knowledge capital that you provide.

Herbert L. Drayton III:

Yeah, I'll tell you this, and I actually just did a seminar this morning with some leaders here maybe about 150 folks in the room and I shared with them that you have five forms of capital your social capital, your moral capital, intellectual capital, reputational capital and your financial capital.

Herbert L. Drayton III:

The financial piece is last. I mean, that's just how it works out, right? Yeah? But your social capital who are you willing to speak with and who are you willing to connect folks with? All right? Your moral capital what are you willing to do? That's counter-cultural and for me, that's what I said earlier.

Herbert L. Drayton III:

Every entrepreneur deserves a 15 minute call. It means having a conversation. If someone's got an idea, I'd rather keep them from stumping their toe than to let them stump their toe and then lose their whole damn foot right. So I don't mind doing that. Intellectual capital I have an abundance mentality. If you ask me a question and I've got some knowledge of it, I'm going to share that with you gracefully and you're going to get an abundance of it right. Your reputational capital who am I willing? Well, what are people saying about me when I'm not in the room? And the biggest compliment you can get is when someone says call Herb Drayton, I'll connect you with Herb Drayton. That tells me that they're trusting me to advance the ball with. Whatever the situation is.

Herbert L. Drayton III:

Mostly it's with people, right, and the financial capital piece. Yes, there's investments, but also there are some folks where I could point them. If they're a nonprofit, I would say, hey, you don't need an investment, you need a grant. And I would point them to folks in the community. In that space there are some folks who they may just need a bank loan and their credit's fine. Then I will do the hard referral to like a Huntington Bank or Huntington Bank is my current favorite right now because they seem to get it but I'll write up the referral forms and do a hard introduction and to that point, I will never tell folks here's Langston's number, call them and tell them, I told you to call them. Or I will never give them Langston's email and say email Langston and just tell them I gave you this information. I will reach out to Langston and say, hey, here's this guy or this lady, here's what they're doing. I think you can help them. Do you mind if I make the introduction? That's how you do introductions and then I will make that connection In terms of the coaching and mentoring. You know all day long I do not have a problem doing that and for the folks who are willing to receive that information, I will share it all day long.

Herbert L. Drayton III:

But there are a lot of folks out there who want to do things their way and you know and you said you're in academia it's hard to take someone in academia and make them an entrepreneur or make them a manager, because that's the environment they're in, especially if they're tenured and Langston. There's so many folks out there in that space who they've done something really well in academia and now this has commercial legs, but they want to hold on to it right, or they want control. And the moment I said, well, we need to bring in a fractional CEO, we need to bring in a fractional finance person, they balk at it. And then I said, well, if you bring in the right fractional CEO, you're going to have to give us some equity and you know, then're going to come back with 5%. No, wait a minute. I said a professional CEO. Let's talk 45%, let's talk 35%. You know you got to give people the reason to put their muscle into what you've made, I think, for us in academia.

Langston Clark:

And I'll tell you this when you're on tenure track, you don't have a boss, people don't have a boss. You know I answer to authority. Don't get it twisted. I have to politic I got when I was on tenure track. I had to. You had to be cool with the tenure professors especially.

Langston Clark:

I can see that if you actually built the product or whatever it is, you know, if you're a scientist or whatever and you don't want to give that up because you're not used to having to give up some of your autonomy, your power, in that way. So I can see how it can be challenging for us to make that transition. You had talked about the inspiration for Himark Capital being the summer where George Floyd died, racial reckonings, all of that stuff and some of the challenges that a lot of folks face, that you may have faced as far as getting more investment into your funds. And now we're in this era that's anti-DEI, we'll talk about that in a moment. But despite all the challenges, have you seen some key milestones, some key things, some highlights that you would say in your journey so far, that you would say that keep you motivated to keep going?

Herbert L. Drayton III:

Yeah, well, you know, my first limited partner was Bank of America. You know they were the anchors, so they actually, you know they walked the talk, if you will right. And then I would say, another key moment was, you know, doing the first close and you call some capital so that you can begin to deploy it. And then I'd say, another key moment you know, this past year, you know, I invested in three AI startups here in the area, and one is led by an African-American woman. The other one is led by, I think she's an Amerasian woman and two African-American males, and the third one is led by two African-American women and a white woman. Now, those investments not only to your point earlier, they're not just financial, they're not just dollars and cents, as I share with all of them. I'm going to be walking alongside you, sometimes in front of you, and at times pushing you from the rear to get the same going within 12 to 18 months. So it pulls me off the trail, if you will. But I get these three right and I've got two others that I'm looking at, two others I'm looking at. I get these right.

Herbert L. Drayton III:

Then the talk of the struggles with getting capital, getting folks to invest in your fund. I think all that goes away because everybody is they're playing off the same sheet of music. What's your thesis? How much are you raising? You know what's your track record? If you can answer those three questions definitively and send information, then you'll be fine and I think all of those questions that bundle together they will be answered definitively here and that's the next six to 12 months. But you know, I had a boutique management buyout firm where I turned around companies all the time. But you go into the VC world, you don't get credit for that. You know it's kind of like, you know, going to a technical college and getting an associate's degree and then going to a big university and this is, oh, no, no, no, you got to start all over again. Yeah, we, we're not coming any of that.

Langston Clark:

Yeah, nevertheless, you persist. Yeah, I'm wondering and this may be related to that point of the technical college versus the big university, because, you know, technical colleges are more accessible, whereas the larger universities have a reputation of not being so accessible, even though they're larger, which is crazy. Anyways, talk about how you've been able to persist in this era. That's anti DEI. It's almost like the opposite of what was going on during the George Floyd era, even though people didn't live up to what they said they were going to do. I'm wondering do you see any difference? Is it making any difference in how you do business? You know where we're pulling away from the narrative, at least the narrative of DEI.

Herbert L. Drayton III:

Lexi, it makes a difference in what I'm communicating to the entrepreneur, which I've been doing all along. Right, and what I share with entrepreneurs is you need to position yourself to get on this continuum. You go from being an entrepreneur to an employer, to a philanthropist, to an investor, and the last few are interchangeable right, but you've got to give back and pull forward your community. And you know I had this conversation with a couple of founders. Look, you're a startup, it's a SaaS company. You see, we do $3 million in ARR in month 18 and month 24, right. And you know multiples on SaaS right now is the low end is $5, high end maybe $16, $18, right. So you're at $3 million and you know you're going this way in your business, right. And you get a call from someone that says they'd like to have a discussion with you about a transaction.

Herbert L. Drayton III:

The first time I got that call I didn't know what the hell they were talking about, right. But then that's code, for we want to buy you on a transaction and that multiple is at five. Now here's somebody telling you hey, this $3 million business you have, we want to offer you $15 million, score. And I asked a simple question would you accept it and all the entrepreneurs said yes and I was glad to hear that. Yeah, you know, yeah, you can. You know that you're only 18, 12 months into this thing and you know that you're at 3 million. Next year you can be at 6 million. Technically now you can get six, 30 million for that business Right, if you look at it that way. But if you've never had a bank account with more than a million dollars in it, right, yeah, yeah, that's, that's just. It just changes your perspective on life and it opens up. You have a different relationship with your banker. When you have a sustained six, seven figure bank deposits with them, the relationship changes completely. I've watched it happen.

Langston Clark:

So I'm nowhere near having a million dollars in a bank, nowhere near. How does that relationship change? Because you know, we hear so much about especially black folks and there are relationships with banks not being able to get loans and all of that stuff. What's the change? How does the bank treat you different?

Herbert L. Drayton III:

The bank their products and services that they will introduce you to. You know, with the bank, you know if you have to do a wire and you know most times it's minimal, right. $15, $20 charge, right, that charge goes away, right. You know any fees on transfers that you have to make, that kind of stuff goes away. And you know any special programs that they may have that may offer you special interest rates. If you diversify the money that you do have with them, you get access to those type things. And then I'd say, more importantly, because we don't, we're not into the, we don't understand the feel of the fabric at that level, right, and what I mean by that is now, you get tickets to the symphony, you get tickets to the tennis events at the clubs here. You get.

Herbert L. Drayton III:

You know, when there's a special speaker coming to town and it's thought-provoking, you get asked hey, we got a couple of seats, would you like to go to this? You get asked to sit on panels to determine how they distribute their nonprofit dollars. I mean, and you're in the room with the presidents, the regional presidents of these banks, right, so now you're building relationships with these folks and with the other folks in their circle. I mean you could be in a room with someone that's got $100 million in the bank with them and you're sitting there with you know 1.5, but you know what. You're in the room, right, you're in the room.

Langston Clark:

That was a blessing right there because I never even thought about it. That way 1.5 million can get you in a room with somebody who's got 100 million. I would never even thought about that, to be honest.

Herbert L. Drayton III:

Yeah, and because we're brown folks right, I would say corporate community has a hunger for folks with solid reputational social capital that they could bring into spaces because it shows a different level of diversity. I'm not of the mindset that we got a lot of racist people running around out here. It's just that people are careful with who they pull into their networks.

Langston Clark:

Right. I think that's interesting. I have somewhat of a parallel story to share, that it's a philanthropy, so I didn't tell you this, but the podcast is part of a philanthropic effort that I have. Sorry, I do a lot of A&T for undergrad and so with two friends of mine who are on their either on their doctoral journeys or have already finished their doctorate so shout out to Terrell Morton, who's actually, I think, will be getting tenure he should be tenured when this comes out, or at least know that he'll be tenured and my other home girl, brittany Patrick, who should be defending her dissertation this semester, if not next, collaborated together and we said we're going to start an endowment called the From A&T to PhD Endowed Scholarship.

Langston Clark:

So we started at A&T and of course we're, all you know, someone on our PhD journeys, and so every year now I get invited back to the endowment dinners or lunches at the end of the semester. And so what's crazy is our endowment is not huge, it's, you know, $25,000. And until it gets to the point where it matures and we can start giving out, we haven't reached 25 yet, so we got five years, but nevertheless I'm still. I'm at the table with somebody who's given millions of dollars to A&T and so I think you know, even that little bit amount of capital that I had, that give back that I have, has leveled me up in ways in terms of network that I wouldn't otherwise have if I hadn't made that type of investment. You know.

Herbert L. Drayton III:

And here's what I'll say. That's the signaling that people look for, because all the individuals in that room they didn't inherit their money, they had to work for it they recognize the signaling and what you guys are doing, because they may have started at $25,000. They may have started at $5,000, but the signaling is that you started and so they're going to be open to coaching and helping. When you get to the point where you have resources that you could grant out, you may pull in some of these folks just to sit on your ranch review committee. Don't keep it so closeted Just these folks that you're having conversations with you reach out to them and say, hey, we're doing our first round of grants, we'd love to have you at the table to coach and mentor us. That's how you pull those folks in and they see what you're doing and then they lock on to you as well.

Langston Clark:

I want to ask you this question because I live in San Antonio and a few years ago San Antonio started a week. I think the guy's name is Steve Case. I think Steve Case the guy in AOL, yeah yeah.

Langston Clark:

He wrote that book called the Rise of the Rest. The Rise of the Rest, yeah, yes, yes. Actually, I actually really enjoy reading that book. But for the listeners who aren't familiar, in that book and for the listeners who aren't familiar, in a book he breaks down that there's I don't know three or four cities in the United States that basically get the vast majority of the VC funds. You got Silicon Valley, I think, austin's only Boston, new York, something like that, whatever. But you've, you know, put your footprint in Charleston, south Carolina, and so talk about what it means to be someone who is deeply rooted where you are locally, leveraging the social capital, the boards that you've been on. You know your relationship with chambers of commerce, local banks, things like that. Talk about why that's a good strategy for someone who is starting to invest in other companies that's benefited you, not to say that maybe you haven't looked nationally, but just the importance of valuing where you are, even though Charleston is not a big New York City type of town or anything like that, you know.

Herbert L. Drayton III:

So first thing I'll say is I actually was a judge at one of Steve Case's pitch contests here in Charleston. Ok, many, many years ago he visited Charleston and I sat in on it. So for Charleston, as you know, I grew up here in Charleston and only time I left was when the Marine Corps or the Air Force sent me somewhere. You know, I watched the gentrification in the neighborhoods where I lived and played, but something in me said yes, you're displacing people, but I understood the economic impact of the things that were happening and I understood the consequences that was happening to those folks who were being displaced. And I've shared this with folks you know throughout. And because I've owned companies and hired hundreds of people, been in a position to change lives, to see these and especially, I would say, men, not men, women and people of color Because in healthcare, the majority of people that we employed, they were women and because I've had companies and the word got out that I was a pretty good operator, good strategic thinking and solid with financials. I got invites to be on boards, you know, the Community Foundation and some of these other charitable organizations, and what I discovered at Langston was that the need is real, but also, the desire to improve is significant as well. So we have the people here that can move things forward. What they don't have is the capacity building skills to get them there. And we're, you know, we're not. We're not a low IQ society or group of people here, right, we're. Just we're a low access of folks here.

Herbert L. Drayton III:

And when I decided to go into venture capital and I said I'm going to find a black VC in South Carolina that's a majority-owned black firm, there wasn't one. So I had to face that reality. Okay, now you're doing something that only 1% of folks, only 1% of VC folks, are black. But then there's none here in the state. And I resolved at that point to help identify folks who want to get into VC and then partner with them to help them get their fun started. And I've had a couple of fits and starts. I got some folks who are promising, but my commitment is this is that if, after 10 years, into a problem saying but my commitment is this is that if after 10 years, there's not at least 10 minority VCs in the state, I've failed, because the opportunity is there, what we need in this community. You know I could bolt and go someplace, but I'm not going anywhere, right, and people do that. They go off to New York, california, whatever.

Herbert L. Drayton III:

But we need, I would say, at least a half dozen folks that look like me, writing six-figure checks, investing in people that look like us. That's the only way you're going to change it. We've got to be there with capital and with technical assistance, capacity building type stuff to help these souls get to the next level. They need to do so in a safe space, and that doesn't mean patting people on the back saying, oh, it's okay, it's telling people, no, don't do that. You know that's dumb. That kind of candor is necessary. And it starts with six. You know the folks I was telling you about that. I've seven of those folks, all seven of those folks. We execute well, that will be seven new millionaires in the state of South Carolina within 24 months.

Langston Clark:

Yeah, you know it's interesting. You say safe space and I think about you as an investor, but you're also a coach, a mentor and a teacher. I think about my academic journey, no-transcript. I remember there was a woman I was writing an essay for a scholarship at the last second and she said don't ever turn any shit like that in again. She said it just like that. And you know what? And this I'll never forget it. She's one of my most beloved mentors.

Langston Clark:

Yeah yeah, you know what, langston, we're going to give you this scholarship. We're not going to give you the full thing because we like you, but don't ever turn in an all over the place stream of consciousness like this ever again. Don't ever embarrass yourself like this. Don't ever embarrass me like this ever again, because she had to take it to the next people. You see what I'm saying. Even though I didn't put my best, I waited until the last second to do the thing. If somebody else talked to me that way, oh, I would have been offended. The safe space ain't always you gotta be super nice.

Herbert L. Drayton III:

It's just a relationship you gotta be able to mentally punch people in the throat, you know, sometimes, right, yeah and Lason, I tell my my white colleagues this too right. I was just having a conversation with a guy yesterday. They've got tons of resources to deploy across the state. My white colleagues is too right. You know, I was just having a conversation with a guy yesterday. They've got tons of resources to deploy across the state, and when I was talking to him about the entrepreneurs that I've invested in and he said well, you know, we're not doing so well in that space, so we would appreciate your guidance. So that's how I got into that. That's how I'm going to get locked in there.

Herbert L. Drayton III:

Right, they want deal flow and what I shared with them. I said the deals are there, but you may have to do it in an unconventional way. You're not going to recruit the folks in this community the same way that you do the white class. They're coming out of institutions and even the minority ones that are in the institutions they're skeptical of the white folks trying to take stuff. So if you got them, introduce me to them. Let me have a conversation with them and talk to them about it. You're going to have a better chance of getting them to engage than if a bunch of white folks just continue to talk to them, you know.

Langston Clark:

Yeah, I want to ask this question. You talked about looking around and trying to find Black VCs diverse VCs in South Carolina and not being able to find them. Can you talk about how can someone become an investor who is not already an investor? Do you already need to have sold a company, do you? I don't know the first thing about investing in other businesses, so I mean you can give me advice on a small scale. Large scale, what are the first steps for doing that?

Herbert L. Drayton III:

You know, here are a couple of things. I would recommend One. If you've got a friend or family member and they've got a little side hustle, you don't have to, you know, because they've got this definition called the accredited investor and there are some steps in there. You have to, I think, over $200,000 for the past three years, something like that, and your net worth has to be, I think, more than $750 million, excluding your home. And I thought that was like BS, because they tout home ownership and they say, oh, but you can't use that in the calculation if you want to be an accredited investor, which is just stupid. So I actually worked with the SEC to change some of that. If you've got a friend or family that's you know they want to start something, you got $500,000 you can give them, you know you give that to them and have conversations with them, check in with them, because that's going to give you a sense of what you would want to do if you're a VC or angel investor, and then, as your net worth increases or your income increases, then you can work with an angel group, because with angel groups they pool the resources to gather, to make investments and you can get into that space for as little as $2,500, $5,000, right. So yes, I want to be a part of this. You get to sit in on the pitches, the investor calls and everything, and then, when you get to the point where you've got significant resources, hey, I want to put $50,000 into this. Now that money will be locked up, so you just can't call and say, hey, I want my money. That doesn't work. But I would say, start small and do it that way.

Herbert L. Drayton III:

And the first guy that invested in something with me, it was $15,000. And it was for a medical imaging system. The system was actually called the spinal decompression unit. The unit was 120 grand. He committed 15,000, told me you know, this is a five-year investment, three-year investment.

Herbert L. Drayton III:

This guy came to me in like maybe two and a half years later and and he just says well, you know, I talked to my wife and we want our money back. And I was like, well, it doesn't work that way. So he really understand that that he could lose that $15,000. Yeah, yeah, but that's why the SEC has regulations around taking money. He was clearly, he understood stocks, he understood the stock market. But there's so many people out there you know, you got a little bit of money. He says I'll give you $5,000 to do what you're doing and then, when it doesn't go well, they come back and say they want their money back. It doesn't work that way. It's risk capital. It's called risk capital for a reason, because you could risk it all. I would say tiptoe into the space. But when you write that check, just watch the process, if you will, because that's the process that you will want to learn and understand, whether you're an investor, whether you're just a small investor, or you're an angel, or you're a VC?

Langston Clark:

Let me ask this question because I just finished recording, last season, a whole series on Black folks that had been in the military and made the transition into entrepreneurship. Could you talk a little bit about your military experience and how that has led you to entrepreneurship? If it did, what sort of skills or insights or social capital or other types of capital did you take from that experience to help shape your journey as an entrepreneur and as an investor and other entrepreneurs? And what is some advice that you would give to folks who are in the military or transition out of the military to become investors? And let me put it this way Listen, I live in San Antonio, texas, okay, and San Antonio we're like I think we're like between like five and 7% of the population, and it's an interesting place to be in because it's a very Brown city.

Langston Clark:

When I say Brown, I mean in terms of like Latinos and things like that. And then so we're there, the majority white folks are next, and then we're third, and then you have everybody else, but we're used to being in a black, white binary in terms of like the diversity, inclusion, and then everybody else is a smaller piece. So it's just an interesting environment to be in. Nevertheless, there's a lot of black military veterans who live here who are financially secure and stable, and I think, locally in this community, if there was going to be any group of Black folks who would become the group of people who are going to be the angel investors, the VCs who invest in other Black folks, that it would be them. But that's not an attitude, it's not a disposition that they have, and I don't say that as a critique, because it's about exposure. They don't know about it. Yeah, they don't know, but they don't think about it, right. And so that perspective like what advice or insights would you give?

Herbert L. Drayton III:

I'll tell you a little bit of my journey. When I went in the Air Force my job was called Precision Measurement Equipment Lab Specialist, pmel, and we did component level repair on complex electronic systems. So I was in the middle of the Atlantic Ocean. We didn't. You know, if you think of electronic cabinets, most places will pull out a board, swap the board, send the board back to the factory. We had to pull out the board, trace where the signals were lost or flawed and replace the component on the board and get it back because we couldn't ship it back. That's where I fine-tuned my analytical skills and I did that right out of about four years. And you know, I got out of the military, out of the Air Force. I got a job at a hospital, working in an electronic space. But I wanted to do like I was telling you earlier don't just have a side hustle, you know and I thought I wanted to start a business and I went to the traditional things, right, law and care. You know I got my personal trainer certification doing that type stuff and you know you try to do these things but I stumbled over them, right, because I didn't really know what it meant to have a business. So what I would tell veterans is when you're coming out, there's a lot of veteran support organizations that could help you with transition and if you want to start a business, I would encourage all of them to either find an accelerator or find a small business workshop where they could teach you the things that you would need to start a business. Don't just think you can throw your shingle up and do it, because I ask a lot of small business owners. There's one question I get no most of the times. Do you have QuickBooks? And they'll say no. It's like 30 bucks a month to have a financial system. So if the bank asks you for your financials, you just go to hit a button and it prints everything out. So the fact that they don't have that tells me that they're not as serious or they're just unaware. So they would do that.

Herbert L. Drayton III:

And to your point earlier, I think that population has a lot of intellectual capital and reputational capital that they could lean on to possibly start a business or, you know, they could actually, you know, become angel investors and become, you know, help these folks form an advisory board to help guide them with their business. I've only had one real mentor in my life. And this guy, james Ferguson. He was the president and CEO of General Foods International. I don't even know if you know what that is, but he was the brand manager for Jell-O pudding when it first came out. Have you seen any old commercials with Bill Cosby? Yeah, that was him, and that skyrocketed his career.

Herbert L. Drayton III:

So a lot of these folks coming out of the military, even folks in the community, who want to start a business, you got to find a mentor. And it is not your buddy, it's not some friend, it's somebody who understands business and they can have hard conversations with you, understands career progression and they can have hard conversations with you. If I'm a general manager at Target and I come to you and say, well, now I want to be a general manager at Big Box know, big box or whatever, whatever store is right A mentor will say, well, it's the same position. You know how much more money are you getting? Well, you know I'm making $30, $30 an hour and they're going to pay me $30.50 an hour. No, that's not something you hear. You won't hear that. So you need people to coach you and I think that those folks in the military could be very helpful in that regard. And the last thing I'll say and I'll yield back to you.

Herbert L. Drayton III:

We've bought into the path to wealth as home ownership. Everybody wants to own a home, or everybody wants to own a bunch of land. And you know, eventually, if you have kids, kids aren't interested in staying in San Antonio. Wherever you are, what are you going to do with the land? It's going to be a burden to them while they're living in South Carolina, right? And who's to say everybody wants to own a home. I actually struggled with not owning a home because I was concerned about what people would say, because they'd see me and expect that I'm a homeowner and I said no, I don't want to cut grass, I don't want to repair a washing machine. I don't want to repair a washing machine, I don't want to replace a roof, I don't want to clean gutters. You know. So I tell people I'm on a home ownership sabbatical and they accept that much better, right?

Langston Clark:

I know that's right. I got to clean my gutters Like it's the hardest part of adulting. Let me ask this question because this is going to be interesting how much more bandwidth do you have to focus on business because you don't have to manage your house in the same way, because somebody else does all that stuff?

Herbert L. Drayton III:

You know what man In the apartment I live in. If anything breaks, I just go online and submit it, and it's so bad I always have to check this box. It's OK to come into the apartment when I'm not here, and I called down one day and said how do I set this to default? So I'm trying to squeeze out more efficiency in it, but my Saturday mornings of mine I'm not worried to worry about. Well, the washing machine is broken. I got to adjust my schedule around it so that I can break away when the service guy finally tells me within that four-hour window that he's five minutes away. Right, you can strike up so much more bandwidth and what it did for me is, every time I was about to take a risk, there was always this sort of albatross on my shoulder. You could lose your home, you know. So that's gone. Yeah, you know my lease 13 months. I signed it. I got that money there I'm free for 13 months man?

Langston Clark:

Yeah, that's interesting. I didn't think about that as the psychological constraint that homeownership could bring. That's going to be a no.

Herbert L. Drayton III:

I'll also tell you you could put I mean, if you spend $200,000 for a home, and let's say it appreciates, and now you've got something that's valued at you know, $400,000 or $600,000. All right. But even if you wanted to spend the equity you have in it, you have to pay the bank interest to spend the money, right. But if you invest in a company one of the conversations I have with folks is there's income tax and there's long-term capital gains tax you should always try to get to the point where you're paying long-term capital gains tax, because now you're not north of 30, nearing 40% in income taxes. You know, north of 30, nearing 40% in income taxes. Now, if you do well, you're down there at 15 to 20% range, right? So you're playing the spread there, right? That's a whole different ballgame, man.

Langston Clark:

Indeed. Thank you for sharing that key insight there. As you know, and as I mentioned at the beginning, the podcast has origins as a book club and so you know, with all the knowledge that you've accumulated, all the knowledge that you've shared, much of it experiential I'm sure. What books or books have you read that have inspired you on your journey as an entrepreneur?

Herbert L. Drayton III:

I'd say there's one that launched me and it's um, why should white guys have all the fun? By Reginald Lewis. Yeah, that I read that one many, many years ago and that that one really sort of put me on a rocket and along the way, you know, I, I liked most of what Cornell West writes because he, the brother's, is deep and I like his. I really have to pause and listen and listen to what I'm reading. That's good, but I got to tell you, man, it and people ask that all the time but it's that one book, cause I've read you name any of the bestseller business books or entrepreneurial books. I've read them. But it all goes back to that guy, because what he fundamentally says is you can complain all day about what the white guys are doing, but you know what, if you learn what they're doing, you understand what they're doing and do it better, you're going to be okay.

Langston Clark:

Yeah, you know what I feel bad because that's a book that I have somewhere, not on this show, on this show. But I listen, I'm academic, so I got books all over my house. Yeah, that book opened like five, so I literally just got I think it was the introduction and it was in my mind to finish it, but I have not finished it. So my statement to you is this is going to be, this is going to come out in 2025. But before this episode comes out, I will have read and finished that book.

Herbert L. Drayton III:

And I'll tell you something interesting about that book. When I was reading it, you know I had my mentor and you know I got like two thirds of the way through it and Reg Lou says he was looking for CEO candidates and who was one of the individuals he was considering? But Jim Ferguson and you know I saw Jim because we would do quarterly lunches. I catch on with his wife. I said you were mentioned in the book, reginald Lewis's book. Why Should White Guys have All the Fun? And man, these are Reg. He was so great, died of brain cancer. Basically, reg was so great, I mean, and they talked fondly about him. When I went over to their house they pulled out a picture that they had with them. So you know, the dots connected really well.

Langston Clark:

Yeah, yeah. Herbert L Drayton III, thank you for joining us on this episode of Entrepreneurial Appetite. I appreciate all the nuggets of knowledge and insights that you have shared, and I wish you much and continued success in the future.

Herbert L. Drayton III:

Thank you, langston, I enjoyed it.

Langston Clark:

Thank you for joining this edition of Entrepreneurial Appetite. If you liked the episode, you can support the show by becoming one of our founding 55 patrons, which gives you access to our live discussions and bonus materials, or you can subscribe to the show. Give us five stars and leave a comment.