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Insights on Legal Battles & Bouncing Back with Neal Harmon
4 Plays4 years ago
So here's an unexpected scenario. You've got your startup started up and you're busy and focused on building the best team and raising capital when you're blindsided by a legal battle with one of the world's most powerful companies. This doesn't happen all the time, but it does happen more than you might think. And today, we'll learn from someone who's faced it all: a major lawsuit, loss, and even bankruptcy–and what it took to bounce back even stronger. Join us as we talk to Neal Harmon, CEO and co-founder of Angel Studios, and investor Dalton Wright of Kickstart (a VC firm for startups in Utah, Colorado, and the Mountain West) as they bring us both sides of a Perfect Pitch. In this episode we'll talk about:
Angel Studio's legal battle with Disney
How Neal pulled the company out of bankruptcy
What Angel Studios and a Dr. Seuss character have in common (hint: it has to do with sticking it out!)
Why investors prioritize a focus on a startup's team and its leadership
Recommended
Transcript
Unexpected Legal Challenges in Startups
00:00:00
Speaker
So here's an unexpected scenario.
00:00:03
Speaker
You've got your startup started up and you're busy and focused on building the best team and raising capital when you're blindsided by a legal battle with one of the world's most powerful companies.
00:00:13
Speaker
This doesn't happen all the time, but it does happen more than you think.
00:00:16
Speaker
And today we'll learn from someone who's faced it all
00:00:19
Speaker
major lawsuit, loss, and even bankruptcy, and what it took to bounce back even stronger.
00:00:26
Speaker
Join us as we talk to Neil Harmon, CEO and founder of VidAngel, and investor Dalton Wright of Kickstart as they bring us both sides of A Perfect Pitch.
00:00:43
Speaker
What is Perfect Pitch?
00:00:44
Speaker
It's a podcast from Kickstart that reveals the minds of both investors and entrepreneurs throughout a startup's journey.
00:00:51
Speaker
So whether that's uncovering what everyone's really thinking during a startup pitch or learning how entrepreneurs like you have managed their first major roadblock, Perfect Pitch offers an honest, quick, and tactical guide to help you on your startup journey.
Neil Harmon's Entrepreneurial Journey
00:01:07
Speaker
I'm your host, Karen Zelnick.
00:01:08
Speaker
Neil and Dalton, thank you so much for being here today.
00:01:11
Speaker
Thank you, Karen.
00:01:13
Speaker
It's going to be a really good discussion.
00:01:15
Speaker
But before we jump in, I want to talk a little bit about you.
00:01:19
Speaker
Neil, you're the founder and CEO, as I mentioned, of VidAngel, which provides a way to skip or mute things that viewers don't want to see or hear in their movies and TV shows.
00:01:27
Speaker
Correct me if I'm wrong, but you're proficient in 10 computer programming languages.
00:01:30
Speaker
Is that correct?
00:01:32
Speaker
Something like that.
00:01:32
Speaker
Okay.
00:01:34
Speaker
Maybe more.
00:01:34
Speaker
That's amazing.
00:01:35
Speaker
And you founded and co-founded several companies.
00:01:38
Speaker
It sounds like that founder streak started when you were 11 years old and you purchased a cow to start a dairy business.
00:01:44
Speaker
You're bringing back memories.
00:01:45
Speaker
I need to hear about these cows.
00:01:47
Speaker
How did the dairy business go?
00:01:49
Speaker
I saved up money hoeing beets and I bought a cow.
00:01:52
Speaker
It was the only business I really knew or understood at that time because I was growing up in Idaho.
00:01:57
Speaker
I had this plan to grow it to a million dollar dairy.
00:02:01
Speaker
Needless to say, I only made it to nine cows and I moved on from the dairy business.
00:02:07
Speaker
Under greener pastures, as it were.
00:02:09
Speaker
Thank you.
00:02:10
Speaker
Well, so excited to dive into the conversation
VidAngel's Early Days & Challenges
00:02:12
Speaker
today.
00:02:12
Speaker
And Dalton, so glad to have you back on the podcast.
00:02:15
Speaker
For those who are listening, we have a link to his bio in our show notes.
00:02:18
Speaker
But before we move on, for return listeners, Dalton, what's something that they don't yet know about you?
00:02:24
Speaker
When I was a kid, my dad was in the Air Force.
00:02:26
Speaker
And so we lived overseas in Germany.
00:02:29
Speaker
And we came back to Utah when I was in elementary school.
00:02:33
Speaker
You know, we're trying to make new friends and fit in in the new community.
00:02:36
Speaker
And it was my mom's idea to have us wear lederhosen in church.
00:02:41
Speaker
And so, you know, I'm kind of an insecure kid here, just kind of so shy about my skinny, knobby legs walking around in lederhosen at church.
00:02:51
Speaker
My gosh, we need to find a photo of that and put it in the show notes because now everyone is like, I've got to see that.
00:02:57
Speaker
Dalton and Lederhosen.
00:02:59
Speaker
That's the best.
00:03:01
Speaker
You're really giving Kurt Erman for his money here with these amazing stories that you've got.
00:03:04
Speaker
So keep them coming.
00:03:06
Speaker
We love learning more about you.
00:03:08
Speaker
And again, so glad to have you back.
00:03:10
Speaker
And with that, we're just going to jump right in.
00:03:12
Speaker
Neil, I'd love to know, what's the story of it, Angel?
00:03:16
Speaker
How did you come up with a solution?
00:03:17
Speaker
And how did you grow the company?
Investment & Technical Setbacks
00:03:19
Speaker
So VidAngel started as an idea between brothers in 2012.
00:03:24
Speaker
We all have young children, and we wanted this product for ourselves.
00:03:31
Speaker
And in 2013, Google came out with a device called a Chromecast that had an SDK.
00:03:38
Speaker
And we said, wait a second, we can connect this idea with the Chromecast, and then we can skip a few things that we don't want our kids repeating at home.
00:03:46
Speaker
And so we thought, okay, let's see if anybody else likes this idea.
00:03:49
Speaker
We did some research, found out about half of American parents would use a product like this.
00:03:55
Speaker
And we launched a business in late 2013.
00:04:00
Speaker
The interesting thing was, and what was confusing to me when starting this business is why it hadn't been done.
00:04:06
Speaker
Because it wasn't a really difficult technical problem.
00:04:11
Speaker
It was more of a political...
00:04:14
Speaker
social problem than it was a technical problem, legal problem as well.
00:04:19
Speaker
And so we did everything that we could to cover our legal basis as a company.
00:04:25
Speaker
And that Chromecast that I said that we built the product off of, well, Kickstart invested in our company early in 2014 because we showed them this product worked really well with the Chromecast.
00:04:40
Speaker
They cut the check, put in the money,
00:04:42
Speaker
And within days, Google shut off the Chromecast capability that made it possible to filter.
00:04:51
Speaker
Dalton, what were you thinking at that point?
00:04:53
Speaker
Like within days of giving the check?
00:04:56
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And so on the one hand, I like to say, hey, this is just what the normal course of business for startups that they face setbacks.
00:05:04
Speaker
That was a pretty significant one, but I was confident we'd figure our way around that.
00:05:09
Speaker
So I was so excited by the team, really, I think is what it was, that we felt like...
00:05:15
Speaker
What we have here is a community and you have people who have identified a need that they have and are passionate and relentless trying to fulfill that need.
00:05:26
Speaker
And they're going to find a way to serve that audience.
00:05:30
Speaker
And so we didn't really know exactly what the solution would look like.
00:05:33
Speaker
We knew that
00:05:34
Speaker
This team, the Harmon brothers, if they can figure out the right product, there's going to be no question that they can acquire their audience.
00:05:42
Speaker
They are marketing geniuses.
00:05:45
Speaker
And the confidence in the team's ability to iterate quickly and move quickly just went up as we continue to face obstacles.
00:05:53
Speaker
And the flip side of that for me, VidAngel wouldn't exist today if Kickstart...
Legal Battles & Bankruptcy
00:05:59
Speaker
hadn't invested when they did.
00:06:01
Speaker
Because if we would have gone the path on our own, because we put in the very first cash, and then we got help from Kickstart in early 2014, when we hit all those roadblocks, I think because we're very adaptable, we would have chosen to just move on and do another business.
00:06:22
Speaker
But because we had asked money from people who trusted us and believed in us,
00:06:29
Speaker
Turning back wasn't an option at that point.
00:06:32
Speaker
So you're moving along, growing the company, and then all of a sudden you face a legal battle with Disney of all companies.
00:06:39
Speaker
Can you tell us about that?
00:06:41
Speaker
I remember it so well because it wasn't at this office here where we are today.
00:06:47
Speaker
It was at this hole in the wall place on University Avenue in Provo.
00:06:51
Speaker
This private investigator comes in, finds us, and he's like, where's Neil Harmon?
00:06:56
Speaker
And then he comes up to me with this stack of papers.
00:07:00
Speaker
And I was like, you kidding me?
00:07:02
Speaker
And then when I saw the name on the lawsuit, I was like, no way.
00:07:07
Speaker
Disney?
00:07:08
Speaker
Unbelievable.
00:07:10
Speaker
I'm like, Disney?
00:07:12
Speaker
No way.
00:07:13
Speaker
And we had two weeks before receiving that lawsuit, asked our customers if they wanted to invest in the company.
00:07:20
Speaker
They wanted to invest to the tune of $62 million.
00:07:24
Speaker
And then we have this lawsuit and I said, well, that just turned our world upside down.
00:07:29
Speaker
Disney sued us for the same reason that a dozen other companies got sued out of existence.
00:07:35
Speaker
It was for copyright infringement and the Digital Millennium and Copyright Act.
00:07:41
Speaker
They sue us in California.
00:07:43
Speaker
We didn't have the resources to fight over venue.
00:07:45
Speaker
So we had to stick out the lawsuit in California.
00:07:48
Speaker
We lost it.
00:07:50
Speaker
You remember I told you $62 million is what our customers wanted to put into the company and investors.
00:07:57
Speaker
The final judgment was $62.4 million.
Rebuilding & New Directions
00:08:03
Speaker
We had to file for Chapter 11 bankruptcy protection in Utah to give ourselves some time to rebuild the company.
00:08:12
Speaker
Fortunately, the judge gave us a year to redo the business.
00:08:18
Speaker
Because we had that year to rebuild our business, we launched our own original content studio.
00:08:23
Speaker
We announced Angel Studios in front of the press, in front of our whole company, when the whole entire world's bearing down on us saying, what are you guys doing?
00:08:33
Speaker
Dalton, what were you thinking?
00:08:34
Speaker
Disney, how did that change your perspective on it?
00:08:38
Speaker
When we got that news, I was also participating in conversations to provide additional funding for VidAngel.
00:08:46
Speaker
And so right before the Disney lawsuit dropped, I was promoting VidAngel to my investment committee, to Kickstart's investment committee.
00:08:55
Speaker
And so to have Disney then within a week or two of that conversation sue...
00:09:02
Speaker
I went from the extreme highs to, am I even a good investor?
00:09:07
Speaker
Am I even credible to my investors?
00:09:09
Speaker
But in my mind, I just anchored around, this is a long-term game.
00:09:13
Speaker
If you bet on people who are facing something that they want to spend their lives solving, you have to look past the lowest lows because any noble journey is going to have low lows.
00:09:24
Speaker
And if you can somehow find the presence of mind in those moments and have that context, then you can kind of breathe through it
00:09:31
Speaker
and say, let's just keep going.
00:09:33
Speaker
And I think VidAngel, its story's not yet written, but the chapter that we're on right now is really, really exciting.
00:09:40
Speaker
So I'm grateful to have been part of it so far.
00:09:44
Speaker
You actually reminded me of something, Dalton.
00:09:47
Speaker
One company meeting, we went over favorite memories for VidAngel.
00:09:52
Speaker
And one of the employees that kind of shook me up, she said her favorite memory was the Monday after that trial, or maybe it was Tuesday after that trial.
00:10:01
Speaker
We got out the book, Horton Hatches an Egg.
00:10:05
Speaker
I don't know if you know that Dr. Seuss book, but this bird leaves off to vacation.
00:10:10
Speaker
And then this elephant sits on this egg and takes care of it until this egg becomes the mixture between an elephant and a bird.
00:10:18
Speaker
Anyway, he just sticks it out and sticks it out.
00:10:20
Speaker
And he says, I said what I said.
00:10:22
Speaker
And I said what I meant.
00:10:23
Speaker
Elephant's faithful 100%.
00:10:24
Speaker
I know it sounds really stupid that we're reading a children's book after this.
00:10:30
Speaker
But when we read those words as a team, it brought us together.
00:10:36
Speaker
We started this because we meant it.
00:10:39
Speaker
We did this for a reason, and the reason still exists.
00:10:43
Speaker
And until we see it through, we're not giving up.
00:10:47
Speaker
I don't think that sounds silly at all.
00:10:49
Speaker
I think that sounds like such a poignant moment where you're able to capture in such simple words the way everyone on your team felt.
00:10:56
Speaker
And I could feel the emotion as you talked about that.
00:10:58
Speaker
I started getting emotional.
00:10:59
Speaker
I'm sure Dalton felt the emotion of that as well.
00:11:02
Speaker
But what a beautiful, beautiful moment and testament to the culture you did create.
00:11:08
Speaker
We did.
00:11:09
Speaker
That's the thing about VidAngel.
00:11:10
Speaker
It's not about Neil.
00:11:11
Speaker
It's not about Jeff.
00:11:13
Speaker
But though I could never have done this without Jeff,
00:11:15
Speaker
But I never could have done it without Dalton.
00:11:17
Speaker
It's the entire group that is not giving up that has brought us through this.
00:11:24
Speaker
Yeah.
00:11:24
Speaker
Dalton, any thoughts on that?
00:11:27
Speaker
Neil, as you were describing reading the book together, it's so powerful to me because you were beat down at that point.
00:11:34
Speaker
Each thing got worse and worse.
00:11:36
Speaker
The news got worse as we went.
00:11:37
Speaker
And we kept thinking, okay, that's a good sign.
00:11:39
Speaker
Okay.
00:11:39
Speaker
And this is where the trial will start to turn.
00:11:41
Speaker
It just kept going deeper, didn't it?
00:11:43
Speaker
One slap after the other.
00:11:45
Speaker
And finally, like, bam, bam, bam.
00:11:47
Speaker
And then $60 million, highest judgment and copyright judgment in history.
00:11:53
Speaker
Eat it, BitAngel.
00:11:54
Speaker
You're done.
00:11:55
Speaker
You lost.
00:11:56
Speaker
And you lost miserably.
00:11:58
Speaker
And I just imagine the scenario where that's what the outside world would expect you to be thinking inside.
00:12:05
Speaker
But inside, it was like this rediscovery of like how strong you are because you're not moving.
00:12:11
Speaker
You are so committed to what you're doing that no matter what is thrown at you, even the worst judgment that we could have ever forecast or imagined, even on the other side of that,
00:12:23
Speaker
The hills dig in a little bit more and the people who decide to stay are that much more unified and ready to face whatever else will come.
Investor Perspectives & Lessons
00:12:32
Speaker
You obviously have such a passion for VidAngel's tenacity.
00:12:35
Speaker
At one point, you mentioned that you questioned yourself as an investor and your judgment.
00:12:39
Speaker
Did seeing VidAngel's response to adversity change that for you?
00:12:43
Speaker
One thing that this experience and others has helped me really understand is that I'm learning to curb my over-excitement when things are going great.
00:12:52
Speaker
And that's the story of BitAngel in a lot of ways.
00:12:55
Speaker
It just felt like maybe a career-defining investment potentially that was so unexpected.
00:13:00
Speaker
And then it was like, I went to, well, you were just wrong and you made a bad investment.
00:13:06
Speaker
and you look silly now.
00:13:07
Speaker
That's kind of the negative narrative in my own head.
00:13:10
Speaker
To, wait a second, one, this isn't about me as an investor.
00:13:13
Speaker
This is about something that I'm participating in.
00:13:17
Speaker
And so it doesn't really matter, ultimately, whether or not people think I'm a good investor or not a good investor.
00:13:23
Speaker
I guess that's how I feel about it is that it's kind of like any news.
00:13:26
Speaker
It could be good, could be bad.
00:13:27
Speaker
I've said that a lot.
00:13:28
Speaker
I've tried to use that as a way of not getting too excited or too disappointed about the news that I get.
00:13:34
Speaker
And I think it's also like there are some things that are just worth fighting for that they're worth fighting for.
00:13:38
Speaker
That's why I love the entrepreneurs.
00:13:41
Speaker
That's why I love the founders.
00:13:43
Speaker
And in some ways, that's what defines them is the ability to continue to believe, to push through these things.
00:13:49
Speaker
And I'm trying to be more of that type of investors.
00:13:51
Speaker
If there's anything that Vinay has taught me, I want to be more of the high conviction investor.
00:13:55
Speaker
And if I allow myself to play this thing of like, what is the perception of me on this investment?
00:14:00
Speaker
I've automatically opted out of being a non-consensus, high conviction investor.
00:14:06
Speaker
And so it's more around like kind of getting this anchor of what types of companies I'm looking for.
00:14:10
Speaker
What do I want to do with my investments?
00:14:13
Speaker
And seeing them through to the end.
00:14:15
Speaker
I love the fact that we're here seven years later.
00:14:18
Speaker
And it's like, this might actually just be the beginning of what VidAngel is going to do in the world.
00:14:23
Speaker
Yeah.
00:14:23
Speaker
So it sounds like it actually was a career-defining investment, not so much for the immediate instant success of it, but because of the way it changed your perspective on who you are and how you invest.
00:14:33
Speaker
And I think that's an interesting insight.
00:14:36
Speaker
I was just going to add something to what Dalton said.
00:14:39
Speaker
It wasn't long after that judgment.
00:14:41
Speaker
that I was at the Kickstart CEO Summit and Dalton said to me, Neil, I'd invest in you again in a heartbeat.
00:14:54
Speaker
I didn't know the journey that Dalton had been through, but to me, that was one of the moments where even though I was struggling, as I looked at all these CEOs that were succeeding in their companies, for Dalton to say that, it really buoyed me up and made me say, wait a second,
00:15:12
Speaker
maybe our reputations can still survive this mess.
00:15:16
Speaker
Thank you, Neil.
00:15:18
Speaker
I feel grateful that I've been part of this company, grateful for the leadership that you provided, Neil, and also grateful that you've fought so hard for our investment and for the investment of the other people who've gone on this journey.
00:15:30
Speaker
When people ask me about how VidAngel is doing, when I say, yeah, we're out of bankruptcy, the assumption is, so you guys kind of got wiped out, that's hard.
00:15:37
Speaker
It's like, well, no, no.
00:15:39
Speaker
Because of the way that the Harman's
00:15:41
Speaker
managed to actually grow their business and uncover new revenue streams while they were in bankruptcy, while they were facing judgments, they actually produced more opportunity than they had beforehand.
00:15:54
Speaker
And the cap table stayed intact.
00:15:55
Speaker
Our ownership stayed intact.
00:15:57
Speaker
And we're going to raise an increase in valuation coming out of this.
00:16:00
Speaker
So it's remarkable that we're in this position.
00:16:03
Speaker
And it's remarkable that we're even able to look forward to
00:16:07
Speaker
to what is coming still, knowing that all of this, what we've done wasn't wasted energy.
00:16:11
Speaker
It wasn't wasted effort.
00:16:12
Speaker
It's been frustrating at times, but high expectations for our stake in this company is going to be a meaningful ownership stake for that fund for many years to come still.
Vision for Cultural Impact
00:16:23
Speaker
I think Dalton, that goes back to what you were saying at the beginning about you were just excited by the team and the fact that you knew that no matter what, they would find a way.
00:16:30
Speaker
And Neil, I'd actually love to talk about the way that you found.
00:16:33
Speaker
So you've settled with Disney, you've exited bankruptcy, and now you're creating original content.
00:16:39
Speaker
Tell us about what VidAngel is doing now.
00:16:41
Speaker
That's a great question.
00:16:43
Speaker
So we have never been so excited about the future.
00:16:47
Speaker
And I think by the end of first quarter, I don't think it, I'm very confident by the end of first quarter, the whole world is going to see what we've done in a totally different light.
00:16:57
Speaker
And they'll say, oh, that's what these guys have been up to.
00:17:00
Speaker
We see the gap in the market.
00:17:02
Speaker
The gap is wide open.
00:17:04
Speaker
And we're films like it's a wonderful life for our century.
00:17:10
Speaker
We, as a studio, intend to create a home that in 10 or 50 years, when people think of a place where they go to experience entertainment or stories that just amplify light in the world, they'll think of our brand.
Perseverance & Success
00:17:27
Speaker
That's where we will be.
00:17:29
Speaker
We just successfully launched after The Chosen.
00:17:31
Speaker
The Chosen was crowdfunded by 19,000 people.
00:17:35
Speaker
We just launched and funded by over 3,000 people, Tuttle Twins.
00:17:40
Speaker
and another 3,000 freelancers.
00:17:43
Speaker
And there's a lot of changes coming.
00:17:45
Speaker
Rather than trying to skip over stuff that we find objectionable and great stories, we respect and honor Hollywood for the amazing craft that they've done.
00:17:55
Speaker
But we've become a place, and we have the kind of scale and the opportunity to create stories that are as good and as well-made as Hollywood, but that reflect more the hearts of our movement.
00:18:11
Speaker
So Neil, I know that we're on Zoom and this is all virtual, but your passion is overflowing and so inspiring.
00:18:16
Speaker
And I just cannot wait to see everything that VidAngel does and the success that you're going to become.
00:18:21
Speaker
And I have just one final question for you.
00:18:24
Speaker
I'd love to know what's an effective practice you've implemented in your work or personal life that's had a great impact on your success.
00:18:32
Speaker
You've never failed until you quit.
00:18:36
Speaker
I've felt like I was a failure so many times throughout my career, but just because I...
00:18:42
Speaker
Kept stepping forward trudging through you eventually get through it.
00:18:46
Speaker
You will.
00:18:47
Speaker
It's the state of the world.
00:18:48
Speaker
It's the
Founders & Investors: A Mutual Journey
00:18:49
Speaker
way the world works.
00:18:49
Speaker
So you've never failed until you quit.
00:18:52
Speaker
Yeah.
00:18:53
Speaker
Dalton, any thoughts on that?
00:18:55
Speaker
We're pretty simple creatures sometimes as seed investors.
00:18:59
Speaker
And oftentimes it's enough just to know you have a really great founder.
00:19:03
Speaker
You don't have to know what the end story looks like.
00:19:05
Speaker
You just need to know that you're going on a journey with a really great person or a really great team.
00:19:10
Speaker
And I definitely knew that I had that with Neil and Jeff when we first invested.
00:19:14
Speaker
So it's been my privilege to basically be along for the ride and help where I can, but really kind of celebrate the leadership and the success of the team that really puts it all on the line.
00:19:25
Speaker
Another thing I'd just say, maybe in closing, that stands out about Neil in particular, I love this quality of ownership.
00:19:34
Speaker
There are some founders, they actually become stronger because they manage to pick up things that nobody else really could do.
00:19:42
Speaker
And that's the mindset of an owner.
Podcast Wrap-up
00:19:45
Speaker
So just one of the many things I value about Neil's personality, character, and leadership.
00:19:51
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I could talk to the two of you all day.
00:19:54
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And my biggest takeaway from the discussion, Dalton's point about that no snapshot is an accurate view of what's actually going to happen.
00:20:02
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So you don't judge something on a snapshot.
00:20:04
Speaker
So thank you for those insights.
00:20:06
Speaker
Thank you so much for joining us on the podcast today.
00:20:09
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Dalton, thank you as always for being here.
00:20:12
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Thank you.
00:20:13
Speaker
Thank you for the great interview, Karen.
00:20:15
Speaker
And of course, thank you for listening as we dive deep into what it takes to create the perfect pitch.
00:20:20
Speaker
If you want to learn more about our investor Dalton Wright from Kickstart and our founder Neil Harmon and his incredible team at VidAngel, we'll have a link to the company in a longer bio and our show notes at kickstartfund.com.
00:20:32
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You can listen to more episodes of Perfect Pitch wherever you listen to your podcast.
00:20:36
Speaker
And if you like what you're learning, leave us a reviewer rating.
00:20:39
Speaker
We'll be back next time with more insights from entrepreneurs and the investors who fund them.
00:20:43
Speaker
So be sure to subscribe so you don't miss a
00:20:45
Speaker
thing.