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Kevin O’Leary on his recent investment, 2020 election, stimulus

Kevin O’Leary of O’Leary Ventures joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss why he is backing a company that helps to check people’s social media reputation. T.J. Colaiezzi, founder of the company LifeBrand, also joins to discuss what it means to receive this sort of backing. O'Leary also weighs in on stimulus and the upcoming 2020 election.

Video Transcript

BRIAN SOZZI: Global pandemic can't stop the American entrepreneurial spirit. Business mogul and "Shark Tank's" very own Kevin O'Leary is backing a company that helps check people's social media reputation. Let's bring in Mr. Wonderful himself, Kevin O'Leary of O'Leary ventures, and TJ Colaiezzi, the founder of LifeBrand, good to see you this morning. Kevin, you are a tough grader. Why did you pick this business?

KEVIN O'LEARY: I just thought it was so on trend for what is on the mind of both men and large-sized companies now, and I haven't seen a solution like this before, and I see a lot of deals. This one, you know, when you see something unique and that fits, you know, a solution immediately, and many of my companies have the same problem he's trying to address. I just thought that stood out above everything else, and that's the nature of a contest like that. I mean, StartEngine is a remarkable platform to bring companies like this forward, but I just love this deal. I thought it was ingenious.

ALEXIS CHRISTOFOROUS: TJ, let's talk a little bit about what your company does. A lot of folks have posted things on social media they wish they didn't. You're helping them to sort of erase the past? And are you doing this, I'm curious, with proprietary technology? Is this something that could be or is protected under patent?

TJ COLAIEZZI: Yes, we are doing this with our own proprietary information. We're trying to help both protect individuals and companies. Most people when they're younger postings on social media that would not reflect well on them as the CEO of a company or as a TV personality. You know, they weren't necessarily horribly offensive things, but just immature thoughts that everybody wants gone for the benefit of the individual personal brand but also the brand that they represent and work for. So we help individuals go back and locate and remove those posts.

But let's face it, most companies nowadays are doing some type of social media snooping during the hiring process. They're not doing it in a way that's compliant. They're not following Fair Credit Reporting compliance guidelines, and you know, social media is too important to ignore anymore. And you know, what we're trying to do is tell companies, stop doing it under the table. Stop doing it behind the scenes. Let's bring everything above board. Let's be compliant. Let's do this in a way that's compliant in every single state, and help them protect the reputations of the people that work for them, but also that the brands that they represent and the companies that they own.

BRIAN SOZZI: Kevin, is a part of this bet also that social media companies, Facebook, Snapchat, you name it, they're losing control of their sites. You go on these sites, Twitter, and post whatever you want. And as these platforms get even bigger, that's going to become an even bigger problem.

KEVIN O'LEARY: Yeah, that's correct. But you know, I want to echo something about compliance that I've begun to realize is so important. When you think about a company as it starts to grow past its first million on its way to $5 million, when any private or public company is not compliant with regulations or the employees feel that what the company's practices are aren't the norm, that's very expensive in ways that you really have a hard time measuring. If employees feel uncomfortable about what you're doing to hire or what you're doing to manage your HR, they tend to not want to be there, and that's what I thought was so important about this model.

I have to be honest with you, many of the companies I invest in, and this is why this deal really hit me when I saw it, use all kinds of non-compliant practices to do background checks on potential employees. And I mean going as far as the dark web to really dig into their backgrounds, because the theory is you hire slowly, you fire quickly. Now, we have a compliant platform that lets you do this in a way that nobody goes offside on, even a potential employee understands what this is. So I think it solves a problem that's been sort of bubbling in the background that many HR managers are very uncomfortable about, but they are asked by their CEOs and CFO and COOs, go check this person out, and you know what I mean, when I say check them out. And so that is where this solution is so perfect for that problem.

ALEXIS CHRISTOFOROUS: Kevin, how hard is it for startups to raise capital right now during this pandemic, during the uncertainty with the election? You know, so much of investing in a company is getting to meet a person face to face, getting a feel for their capabilities. How do you know as an investor, you know, who to invest in during this time?

KEVIN O'LEARY: That one's for me?

ALEXIS CHRISTOFOROUS: That one's for you, Kevin.

[LAUGHTER]

KEVIN O'LEARY: It is a very difficult time, because this is not a normal-- normally when I'm going to make a major investment, let's say I'm going to buy control or I'm going to provide debt financing to a company, I would send my team to go due diligence. I would go to their offices, talk to their suppliers, talk to their employees, take out the head of sales. That was common practice for decades. I can't do that anymore.

I mean, so now, there's two solutions to the problem. One is we've taken a much more diversified portfolio approach. Instead of making concentrated bets in any one company, I now have 56 bets out there. And so the law of averages tells me that probably 40% of those are going to work out, because I can't due diligence the way I used to. I can't, you know, fly to Chicago, take the whole team out for dinner. It's just, you can't do that.

Yeah, you can do lots of, you know, calls like this, but it's not the same as pouring a great, you know, bottle of Cabernet with the head of sales, maybe a second bottle, and really find out what's going on. That's what I was so good at. That was gave me my huge advantage. I don't have that anymore, so now I make lots and lots and lots of different investments not knowing which ones are going to work, but using the portfolio approach. And I have lots of capital put to work, so I'm looking for deals.

ALEXIS CHRISTOFOROUS: Well, you're still Mr. Wonderful, even though you can't you can't go out and wine and dine. But since we have you, if you had a few moments alone with the next president, what would you tell him?

KEVIN O'LEARY: The next president?

ALEXIS CHRISTOFOROUS: Yeah.

KEVIN O'LEARY: I would say this, and I want to avoid getting involved in politics one side or the other, I'm policy wonk. I care about what the rules and regulations are for the economy. And you know, in the last four years, and this is not an endorsement for Trump, OK? It's just an endorsement for the policies.

I have never seen an economy like this prior to the pandemic. We were growing in some cases at 30% a quarter, because we deregulated the municipal, state and federal laws in terms of small business, which was so powerful, it wasn't just tax reform, it was deregulating stupid laws that were on the books. And I hope whoever takes over the White House understands the engine of America is small business. 68% of job creation, 70% almost of the economy are those small businesses in Amarillo, Texas, in Des Moines and Fargo and all of the people that make that happen, and we took away that regulatory environment from them. I just hope that stays in place.

The rest is chaos, and I'll say something else that I've learned the hard way. I bought polling data in the Brexit election, the Swiss election, the French election, the Canadian election, because I have investments globally, trying to determine the direction of the currency. 100% of those pollsters were wrong, so I don't put any money into polling anymore. They are the snake oil salesmen of today's economy. They have no idea what's going on. So if you think you know who's going to win this election, you're wrong. I have no idea who's going to win.

BRIAN SOZZI: Well, Kevin, just hearing that, you know, many would argue that a change in the White House, Joe Biden would bring more regulations that would impact many businesses, perhaps some of the ones in your portfolio. Also him raising taxes, does that worry you?

KEVIN O'LEARY: I have a different view of Biden. Here's what's going to happen. When Biden wins, let's say he does, he'll inherit 8.5 to 9.5% unemployment, because we're going through a second wave of the pandemic right now, and you're starting to see the layoffs pick up again. His number one mandate will be to get people back to work and get unemployment below 5%. That will be paramount. He'll also try and propose a $2 trillion stimulus package, so you can't pour $2 trillion from the top down on the economy and tax it before it gets into the economy, so you can't raise taxes for the first 24 months.

The midterm elections, if there is a blue sweep, will probably normalize things. And because of his age, he is not going to get a second term in my opinion. He will be a very, very benign president. All of these promises of the Green Deal and all that stuff will never happen. The Green Deal will cost 2.8 million jobs in the intersection alone. You can't do that when you're an 8.5% unemployment.

So I think if Biden wins, nothing happen. His hands will be tied. And by the time he finishes the first 24 months, he'll be halfway through his mandate, and I don't think he'll get to second one, so it'll be jump ball after that. And I don't dislike him. I don't care. I'm just trying to figure out as an investor what the likely outcomes are.

BRIAN SOZZI: Kevin, real quick before I let you go, about 30 seconds left, stimulus, we're coming down to a deadline. Is a stimulus a magic elixir for the US economy?

KEVIN O'LEARY: Not necessarily. We're not going to get stimulus before the election. I understand why it's a political issue. One thing I did learn from this pandemic is the majority of my employees, and I've got 10,000 plus of them in my supply chain, have not saved any money. Zero. I found that out during the PPP. They have two weeks of salary sitting in the bank, so I'm just doing a plug for my financial literacy momentum.

I've created an app called Beanstox. I'm trying to get all my employees to download it and start putting aside $100 a week and investing it in the market long term. I was freaked out to find out, nobody in America saves any money. Everybody, you got to get on the program. We could get COVID-20, 21 down the road. You've got to put some money away.