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Utah Business

How Scott Paul founded (and exited) three companies and became an angel investor.

How Scott Paul exited three companies and became an angel investor

I‘ve been doing startups for about 10 years now. 

I was always entrepreneurial―even when I was a teenager living in California I started a business selling food storage during the mania that was Y2K. I was going around in-person and online selling food, and I was making way more than my high school friends at the time. 

But I was young and didn’t stick with it. I spent the next 10 years working for other people and other startups―learning what I liked and didn’t like about their leadership style, their ideas, and the way they did things. One of the coolest companies I worked for during that time was a startup that put RC helicopters up in the air with cameras on them―this was before drones. I also opened climbing gyms―Momentum was a family business. 

As a teenager, I loved skiing at Snowbird so I moved to Utah and thought I would become a ski bum. Consequently, I wound up at selling ad space to hotels across Utah while I worked on my MBA at the University of Utah. It was there that I ended up creating my first business. 

My first exit was a complete accident

I should mention that my first business was not my first business. Over a period of five years, I probably tried five other things that failed. Even the RC helicopter business was a complete disaster, they’d crash every time we threw them up in the air and we’d lose $10,000. And Momentum? To this day, climbing gyms are a hard business. 

But while I was in grad school I finally had an idea I thought would work. The iPad had just come out and I wanted to put them in hotels to display information. I went around showing the software I had created to all these hotel owners, and for the most part they liked it, but what they really loved was the case on my iPad. 

A friend who made motorcycle parts made me a metal enclosure for the demo―it could lock the iPad down in the lobby of a hotel, and the hotels loved it. So I bought (now defunct), put a photo of the case on there, and they started selling. 

I didn’t even have to buy ads or anything. It was just the right time and the SEO worked. Of course, the whole company was poorly managed―I had never been the CEO of a company before―but we had enough sales to fumble through everything and because we were in the B2B space we had high enough margins to make it work. 

I spent my time at the U making the website and nailing down the supply chain for my company. Within a few years, I had 30 people working for me and we were shipping these iPad cases to almost every company in the world. It was accidental and it was luck―which is what most entrepreneurship is, by the way. 

In another bout of luck, I got a letter from a private equity firm asking if I might be interested in selling my company to one of their portfolio companies. I thought it was strange at first, like a scam, but it turned out to be legit. I met up with the CEO in Portland and within a few months we had an offer. 

It wasn’t a great offer, but I was 31 or 32 years old at the time and they offered me something like 20 or 30 times my entire net worth at the time. I wasn’t attached to the company in any way, I didn’t take on any investments or have any loans, I was selling hardware, not software. I knew I could walk away with that right then and be happy, so I took the deal. 

Mobile Technologies Inc. bought my company―by then called ArmorActive―three and a half years after I created it. It was my first exit and the whole thing got me really obsessed with the idea that you can build something and sell it. I hadn’t made any money while I was building the thing, but then when I sold it I made all my money. So I realized you have to plant, plant, plant for a few years, and then you can harvest. 

After that, I started doing the same thing for a few other projects, and I started investing in a few other people too. I realized that I can’t act on every idea I have but I can sure as heck work with people that have ideas and give them support. So I got together with my ArmorActive executive team and I told them I wanted to start something called HyperActive Capital. I thought we could put together half a million dollars and invest in startups as a micro venture capitalist. 

That was all nice and good in theory, but it ended up being a lot of work. And we were really bad at choosing deals. The very first angel deal I did was over $100,000 to a ski company called Discrete that makes beanies. I was working with an awesome entrepreneur and athlete named Julian Carr, and he now runs this great race series called the Cirque Series which may make me my money back someday, but it was not a good investment at the time and I’ve learned so much about investing since then. 

All the first companies I invested in were just total busts. They were clothing companies or companies with friends that used to work with me. I just didn’t have a good process of analyzing opportunities and I botched it big time. I wasted the first half-million dollars I spent and I’ll never see it again.

How Scott Paul founded (and exited) three companies and became an angel investor.

My second exit was also an accident

Around that time, I started a social media app and got millions of users, again by accident. While I was working at ArmorActive, Luxottica, the owners of Sunglass Hut, called us wanting to buy our iPad kiosk to put in their stores. They wanted their customers to have this sort of interactive mirror, where they could take pictures of themselves with different glasses on and send them out to their friends on Facebook. 

Because I really wanted to be in software, I ended up hiring a software company and making the app. I put almost all the money I had at the time into making that app and we called it Voto (like voting on photos). It was supposed to be a commercial app for the iPad that customers like Sunglass Hut could use, but we made an iPhone app too and it ended up becoming a social network. (There’s still an old video about it if you’re interested in that sort of thing). 

In 2012, my partner paid a girl on Instagram to post about the app. Influencer marketing was not a thing back then―she simply had a lot of followers so we paid her $20 through Paypal, she posted about our app, and it brought us thousands of users. When we asked her if she would do it again, she said yes and asked if her friends could promote our app too. We had millions of users within a few months. 

The app did well as far as growth and users―but ultimately it never made money. I wound up giving it to a guy at Adobe four years ago and saw that it went dark this year. (Apps are very expensive to keep alive and going―you either have to keep funding it and keep a team around it or it just expires, which is probably what happened with Voto.) But in the process of marketing the app, what we had actually done was stumble on influencer marketing. 

Instafluence became one of the first influencer marketing companies. (Again, right thing, right time). It was so crazy because Instagram hadn’t even started an ad product yet. So we became the way people grew on Instagram by taking advantage of our roster of influencer talent. It was 2013 when it really blew up.

As it turned out, Disney had really good YouTube expertise, but not much expertise in Snapchat, Instagram, and Vine. So, after shopping it around for a year or so, Disney bought the company in 2015―just a year and a half after I had sold my previous company. It wasn’t a huge amount of money but it happened right after my exit from ArmorActive, as well as my exit from, which I happened to be part of at the time. So it was back-to-back-to-back exits for me. 

By that point, I had a little more money and I dedicated about $2 million of it to angel investing. I’ve done that the last six years, and I got better and better at knowing what makes a good team, what makes a good founder, and what makes a good product. Now my portfolio is full of really good bets such as, Prenda school, Volley, Nomi Health, and Blip Billboards―deals with real founders behind them and with other venture groups backing them.

With time, I think you get a better thesis, a better gut for what you’re doing. Now it’s just my wife and I running it with a few analysts who source deals and analyze deals for us. But we’ve more or less closed that down. I’ve deployed all the free capital I want to put into venture until I have another exit, so I joined a company called Watertower Ventures out of LA that wants to put deals in Utah.

Then I started Wooly

After all those early successes, I remember thinking, “This is how business is! This is how it goes!” I thought I had some kind of Midas touch, but the reality is I just had a lot of hits. Over the next few years, I would wind up swinging and missing more often than not, trying to figure out how to find another company that would sell, or build one―and I’ve had no luck. So it was just a weird period of time that worked out well for me. 

After Disney purchased Instafluence, I moved my family out to Culver City in California, but pretty quickly I became bored with the inauthenticity of influencer marketing. We were just paying people to talk about stuff they didn’t really like or care about. At one point, Subaru paid us $2 million to ship Subarus to influencers and have them post about the cars. The whole idea was “hey, meet an owner.” But the people who were part of the campaign had only been owners for two hours at the time they published their content. 

Not even four months into the California move, I started to build Wooly―because I wanted to do it better. I wanted to help brands work with their customers in a more organic way. To use existing customers as the creators and the influencers, not paid mercenaries. We’re still doing a variation of that today but we’re calling it customer commerce. The customers support brands and sell for those brands with word of mouth.

Wooly is my full-time thing right now―and it has been for four years―but it’s very hard. I think I had a string of successes from 2013-2015 and I got this, “oh man I can make businesses and sell them,” thing. But Wooly has been a different story. I’m almost five years into it and it’s the longest I’ve lasted at any job (ArmorActive was second longest at 3.5-4 years). And it’s tough. 

I did do things differently this time around. For Wooly I actually went out to VCs and raised money but venture money isn’t money you get in your pocket. It’s money you have to go out and build the product with, so now I have the smallest salary I’ve had in years. I have equity and so that’s valuable, but we’re still looking for that product-market fit so we can go out and raise a Series A and start to become profitable, and we’re not there yet. We have a good team, a good product, and a solid client list, but we haven’t yet figured out a way to repeat success, and it has yet to be glamorous. 

Though this time has been one of my more challenging professionally, it has also been one of my most rewarding personally. 

When we left LA, my wife and I decided it would be fun to give the kids an experience. We have three girls ages 14, 12, and 5 and we put them all in homeschooling and we traveled all over the US and Europe for a year. During our travels, we realized that some of our favorite people in some of our favorite places lived on ranches in Idaho, and California, and Washington, and Nevada. So we said, “let’s do the ranch life! Let’s have a bit of a slowed-down experience!”

Now we have a ranch in Charleston, Utah. We have a big barn, an art room, a kids playroom, a pond, some animals, and five acres on the river. We take care of sheep, goats, chickens, cats, dogs, and fish. Life is very different from when we were living in Culver City on the third floor of an apartment building. It’s slowed down. Our home has become a refuge from the noise. A place where our family can enjoy each other’s company, go for walks around the ranch, and just take a breather. 

At the same time it’s no fairy tale. We thought the girls would get horses and be more responsible but we’re still fighting for them to feed the chickens and collect the eggs in cold temps and snow. Even for me, it’s a lot more work than I thought it would be, I have one or two tons (yes tons) of leaves to rake up.

But once I realized that I can save my money now and do the retirement thing and travel when I’m old, or live now and give my kids an experience right away, it was an easy decision. I’d rather lose everything while fully experiencing the world around me than enjoy my life when I’m old and decrepit. That’s the whole path, that’s where I’m at now. 

The Founder Series is a new, monthly column featuring long-format business stories written by entrepreneurs themselves about the journey that got them to where they are today. Stay tuned for the next edition, coming in February.

Scott Paul is currently the CEO of Wooly, a platform for word-of-mouth commerce. Prior to Wooly, Scott was VP of Product at Disney after his startup company was purchased by Maker Studios (Disney) in 2015. He was also an advisor to Scan that sold to Snapchat that same year. In 2014, Scott exited his first company called ArmorActive, which produced hardware for tablets such as the iPad. He is also an angel investor with deals in more than 40 Utah companies including Neighbor, Prenda, Freeplay, Volley, and Nomi Health.