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How to Raise a Seed Round – Sean Percival, 500 Startups

How to Raise a Seed Round – Sean Percival, 500 Startups

Robert: It’s a lot easier to fundraise if
you have something to show that you are being successful already. So if you are really early
then have a really good vision statement, you have a good story, a problem you solved.
This is…and explain why it is, but you have to start with that before you can start fundraising.
A lot of times people show up to the fundraising and they’ve got no story, they are not clear
on what their problem is and they’ve got no metrics. So it’s hard for me to figure out…I
don’t know how to invest in that. I don’t have a clear picture. So first have a clear picture of the problem
you are solving if you are very early. If you are little later, have good metrics to
show. Run rates, user acquisition, low turn rates at least a few testimonials. So my first
statement is that. Second thing…how long an answer do you want? Do you wanna keep going? Sean: Keep going. Robert: Keep going. Okay. So now let’s assume
you have a story to tell. The process, the next thing I’m gonna say is start building
a network. People invest in people they know. It may not be fair. It’s not the way the world
works. It just is. The fact is if they know you, they’re much more willing to invest in
you. And by network I mean don’t just show up and
throw your cards around. That isn’t that helpful. Build the network, talk to other entrepreneurs,
go to events, try to get people to know who you are. This is valuable. You do this throughout
your career. This isn’t just for fundraising. Almost everybody who’s invested in me, I knew
before I needed money. It’s much easier to talk to them that. Okay, so that’s just the first thing. As for
tools, let’s go into some very quick ones. Yes, you probably all know LinkedIn. There’s
also a bunch of things like forums especially for engineers, Stack Overflow, all these types
of things are all useful to connect with a bunch of people. Don’t be completely obvious
in your…I am not gonna connect to Sean and say, “Hey, I’m looking to raise funds,” because
he’s probably not gonna accept it, but if he has a reason to talk to me otherwise, it’s
lot easier. AngelList is useful. Gust, especially if you are in the mid-west is useful. LinkedIn,
certainly, useful. I actually do most of mine by working with
other entrepreneurs. I know this sounds a little odd. I build up…and for me, it’s
mostly talking to other entrepreneurs who know who I am and then they send the letter
of recommendation to a VC they’ve worked with. So it expands my network dramatically. So
I work with hundreds of entrepreneurs a year. At least a few of them like me, maybe a few.
The point is that they know…yeah. Sean: I think most. I did have one recently
“Yeah, I don’t like Robert.” We’ll talk about that later. But that is 1 out of probably
a 100. Robert: Yeah. Sean: It’s good. Good ratio. Robert: Yeah. So the point is that don’t just
try to go to the VCs. They are very difficult to get to. Think about your other people who
would recommend you to people and that oftentimes is very helpful. Sean: Let’s talk about that because the one
thing I hate is the cold intro, the wrong intro, the intro at the wrong stage, the intro
from someone I don’t know. You talked about network building. How do you get intros? How
does this work? What’s the best way to do this? Robert: Intros. So this is a good one. So
let’s assume for the moment you go out on AngelList. You make a list of about 200 investors.
Your first statement is, assuming you’ve got your story, you’ve got metrics, do they invest
in your field? Have they invested in similar companies in your area? Have they invested
the amount you’re looking for? I can’t tell you how many people I know partners
at Excel. These guys do $10 million. Approaching them asking for a 500k check, that’s the wrong
business. That’s not what they are doing. They should look. It’s public [inaudible 00:03:24]
CrunchBase, AngelList, CB Insights all these things show what they are doing. You should know that they have invested a
similar amount you’re looking for, should know they’ve invested in companies in your
field. You should look at their Twitter and see what the heck they are talking about.
I cannot tell you how many people, Manu Kumar who is from K9 says he has a page, a web page
that says this is why I invested and this is my philosophy and he has some basic statements.
I think one of them is founders must be technical. If you approach when you are not a technical
founder, you’re fucking wasting time, his and yours. Sean: Those are…I wish more of…I should
do that. I wish more VCs would do that. Homebrew, I think has a great page where it’s like,
this is exactly what I am looking for and it’s nice because the founder is like, “Yeah,
I wanna get money from them.” I’m like, “Yeah, but you are not even close.” Robert: Exactly. Sean: Here’s the link. But like yeah so…but
this is where founders struggle so much where they just don’t know how to get started, they
don’t understand relationship building. I agree, it’s a bit of a courting process and
like even with Dave, I think I knew Dave for three years before he wrote me a check. I
never even thought about asking money. But I built it up, we drank together [inaudible
00:04:24] Texas in Southville [SP]. We did all this stuff. It’s like courting. You don’t
get laid on your first date and if you do, usually it’s a bad partner. Robert: Yeah. I was about to say. Sean: You can but it’s like oh, usually it
doesn’t work out. Robert: If you get laid with your VC on the
first date, you’re definitely in a problem. Sean: Yeah and I don’t think a good VC would
write a check right away too, but even on their demo day… Robert: Well, maybe to get you to go away.
In my case. Sean: Maybe or no. On demo day, I think there’s
illusion…it happens in YC a little bit, not as much with us that you go to demo day
and then, hello, the money rains down and it’s like the stock market floor. Robert: I agree. That’s actually a really
good point. Sean: That’s not true. Robert: It’s about relationships building
up, but it’s also about them having confidence in you and that happens over a period of time.
Sometimes that’s drinking [SP], but sometimes it’s…and this is common for me, I meet with
a lot of entrepreneurs or VCs and I am talking about “So my company is doing well and here’s
my metrics.” I am not asking him for money. Six months later they’ve heard the metrics
for six months. They, “Oh, yeah I know about.” Now they’re familiar. It’s a lot easier for
them to deal with you. This is why I often recommend to entrepreneurs,
as you get these connections, do a monthly newsletter to these investors, “Hey, here’s
what we are doing. Here’s how the company is doing. Here’s what we are doing.” It’s
familiarity. Yes, we get hundreds of emails, but they still skim through them. They are
looking for deals. Remember, it’s their job to make an investment. Ultimately, they are
looking for you. So newsletters, monthly updates about how things are going. Don’t pitch them
constantly. Give them information. Here’s a very common one for me. I was approached
by…I built up a reputation for knowing certain things, let’s just freeze it. It’s actually
in security… Sean: Oh really? What’s that? Robert: It’s in the security space. Sean: Oh, yeah that’s right, the weird stuff. Robert: So I’m just gonna avoid the topic
too much. Let’s just say I am familiar with how to breach certain things in government
security protocols. So the point is that I got approached by a VC who said, “I was thinking
about investing in this company, can you do an eval for me?” I went in. I did an eval
and I gave him a nice eval. Well, if I had needed an investment, that’s an easy way for
me now to call him back and at least get a meeting. You have value to them. VCs do not have time to do many things that
you can add value to them. I recognize this by often times sending certain VC friends
of mine updates “Oh, I know you’ve invested in this company. Here’s an update for you
on that space by the way.” And it’s a very short article. They’re like, “Oh, that’s cool.
Thanks very much.” Be hopeful. I do this on a fair basis. I spend a small amount of time
every day helping my network which means I have favors to call in later. Sean: Yeah, I call that the Karma bank. I’m
not super religious, but it’s like I want my karma bank full at any time because I don’t
know when I need to cash in. Let’s roll back on that monthly idea though and that’s such
a simple basic idea. And I think like your flow. You meet a VC and it’s like, “Hey I
am working on XYZ. I would love to keep you up to date about that,” and that’s great.
There’s no commitment, there’s no rush, I don’t feel like you are being too aggressive.
You’re not turning me off. I’m like, “Okay cool, Great.” Very non-committal but allows
me to stay there and you stay top of mind with this investor. Every month they are getting
something from you and, as we talked about a lot, it’s all about selling momentum. So
this first few bullet points should be we added two new costumers. Let’s say you’re
SaaS, “We did 10k more in revenue. We did this.” Hit me with the numbers so I know something’s
happening here. Robert: I am just gonna add one more point
to it. Short, sweet, bullet points. Get to the point. Sean: Yeah, no novels. Yeah. Robert: No novels. Most of them they are reading
on their phones. I will be very honest with you if you send me an email that has more
than three paragraphs, it is extremely unlikely I will see your fourth paragraph. And if the
three paragraphs are more than a few lines long, I probably didn’t get past the first
one. Sean: Yeah. I’m the same way. I am a skimmer
and like yeah…but this is the challenge where it’s like U.S. founders entrepreneurs
like you are very passionate. You’re very bold. You have all this stuff to say. We cannot
consume that on 100 a day basis. It’s just too much for us, and we have short attention
spans. We’re thinking about going skiing and our vacations. It’s really, really tough being
a VC. So make it easy for us, really, really short and succinct. And I think the ideal
format is it’s three bullet points to start off with. And we talk about this in pitching
too like you don’t wanna get up there and do this long drawn out pitch where it’s your
life story times this and that. It’s like you get up there and it’s like, “Yeah, we
are the best solution to [inaudible 00:08:27]. We’re doing 100k a month.” You’re just hitting
me the things that are hooking me. Same deal with that email. Robert: Yeah. By being short and sweet, it
can probably get read. And I’ll also add one last tool segment to this. You can track emails.
This is very simple tool… Sean: I turned all these off because this
is very annoying to me where I had a founder…he was here actually…I think he is in galvanized
[SP] but he came out to me and he was like, “I saw you opened my email twice. Or I saw
you opened my email three times. Why didn’t you write back?” So I turned off all that
shit. That drives me crazy. But others don’t… Robert: Some people do. Sean: But others don’t. Robert: Yeah. So I was about to follow that
sentence with but be polite about the whole thing so… Sean: Use those, though? That’s okay. We can
have some point, counter point. That’s okay. Robert: Yeah. So don’t walk and say, “Hey,
I see you opened my email.” That statement is exactly why it’s bad. But it is important… Sean: Once again dating, “I’ve been standing
outside your window watching you. Do you wanna go on that first date now?” Robert: I am not stalking you, but you really
think that underwear went with your socks. I mean, seriously… Sean: Exactly. It’s too much. Robert: But my point is like often times,
I’ll send presentations and I wanna see if they’ve opened or reviewed them. Depends on
your point of your relationship, but tracking is useful for you. But don’t be overly aggressive
about it. And it just is but…I’ll phrase it differently. Most VCs, yeah, I’ll tell
you all of my systems are blocked. Good luck. I block out all the pixels all that. Sean: Me too. Robert: But a lot of people, it’s okay as
long as you are not super aggressive and it’s helpful to you. Sean: What about other tools? Because I think
the one challenge with founders is that you got so much going on. You live in a world
of shed, everything is crashing, building crashing. How do you keep track? Boomerangs,
stuff like this, what do you think are the real tools to use? Robert: Depends on the company. If your company
has a CRM in place already for your sales team, you can use that for fund-raising. How
many people have you contact, last time you contacted them, you can put them on drip campaigns… Sean: Yeah. Okay, looks like a Streak like
a Gmail plugin. Robert: Yeah. Streak, Pipedrive, well if you
have a lot of money RelateIQ, ToutApp, all these types of things can be integra…well
ToutApp isn’t a type of CRM, it’s a drip campaign. But you can use your sales tools to approach
them. Here’s my statement. For me, it’s a very systematic process. I make my initial
lists. I write down when I’ve contacted them. I say what I’ve done with them. I keep track
of it either in a spreadsheet or a CRM. It’s a process for me. It’s a daily process for
me. That’s how I do it. Some people prefer to do it in these blitzes, I don’t. I like
to do a little bit each day and just keep looking for interesting news to send them,
keep dripping along on this. But the most thing is I track it all. It is
a complete waste of your time if you are sending an email and you’re not tracking who you are
contacting and when. The worst is, here’s an interesting note for you, VCs have cycles.
They go through events or other things like that. If you know they’re going to an event,
that’s important. “Okay, I am gonna go to that event or not.” It changes how you do
things. Sean: Yeah, I’ve been stalked at events, too.
I think that’s why Dave doesn’t go to as many events anymore because he can’t get through
the door. It’s just like every few feet. But what’s the etiquette? Should they come up?
Should they hug me? Should they lick my cheek? Robert: Okay. Wow. Sean: Should they follow me? What should they
do? Robert: I followed you. That worked. So I
think, for me, cold is very low yielding. I don’t think I’ve ever sent a cold email
and gotten an investment. Most of mine, I think as I mentioned earlier, were for introductions.
I have a friend, he got invested by…I am making this up, this is not a truthful statement.
Fred Wilson invests in a friend of mine. He did very well. He had a successful exit. I
said, “Hey, would you do me an introduction to Fred.” If he does an introduction, it’s
much more likely that I get a conversation. So that’s how I do it, but this takes long
time. Not everyone can do it that way. Your statement about events, I actually don’t attend
major events. I actually attend things like startup-to-startup, Stanford Angels, and Entrepreneurs,
much smaller ones, but the big thing for me is I never pitch them in my company. I get
to know the person. I talk to them about…I don’t pitch them because as soon as I pitch,
their defense mechanism goes up. I just went, “Hey, you’re interested in this…” Sean: It’s not the right venue though because…well,
especially let’s say you give a talk, and that’s the toughest thing where you give a
talk and there’s a few people afterwards and then…but it’s not the pitch. It is “Once
again, love to tell you more about what I am doing? Can I get a card?” Robert: Yup. Sean: So you are doing legion, I guess. Robert: Yup. In the best I’ll phrase it, I’ll
go back to his statement on karma. If you can offer them something first, it’s much
more likely you can get something later. I know it sounds a little weird, but it is human
condition that if somebody gives you something even if it’s trivial, bottle of water or something,
whatever, you feel the need to return the favor. This is called reciprocity if anybody…I
manipulate this all the time. I cannot tell you… Sean: I’ll be aware of this now. Robert: …how many VCs I’ve walked to at
an event and handed them a bottle of water and I get three minutes of time. Sean: Yeah, that’s… Robert: I can tell you very rarely do people
notice it unless you are doing it very badly. Sean: Yeah, and if don’t just wanna talk,
you’re so focused on delivering and then all sounds a bit hectic. So, it’s probably like
oasis. You’re like, “Yes, water please.” Robert: Again, the bigger problem is if you
hand them a bottle of water and start pitching your company, it’s obvious. So, I’ll give
you an example, there was this speaker…I was at an event…I forgot…Jim from Maven.
Jim Scheinman [SP]. Anyway, I’ve known him for a little while. We’ve bumped into a few
times, and he was giving a talk and I noticed that it was running late. So, I actually found
him and I said, “By the way, it’s running 20 minutes late. I figured I’d save you the
time.” That’s it. I walked away. He didn’t know who I was. He didn’t care that much at
that time. After four or five interactions, after he got done talking, I tried it with
him again, didn’t pitch. A year later, we have a very in-depth conversation about financing.
At that point, he noticed who I am. Still, haven’t pitched him. After that he came up
to me and said, “What company are you doing?” Now, I talk to him about my company. It takes
time. Sean: That’s a good sign like if the investor
is pushing, they are showing some intents. It’s much easier. But we should also classify
too the worst thing you can ever do to investors, busy people, you never walk up and say, “I
want to pick your brain.” This is like the worse thing, so don’t put this in emails.
Don’t…investors, mentors, anyone too it’s like we have such little brain left, we’re
busy and it’s just a weird thing to say. And I guess the other challenge is, I get this
too. People, they take the romancing too much and like, “I wanna take you to your favorite
restaurant. I am gonna take to the best.” I am just like… Robert: Yeah, that creeps me out actually. Sean: Well, it’s like yeah, I’m trying to
work through a lot. I’d love to sit down with you for a half hour. I don’t know if I’m ready
for a two-hour dinner. Robert: So the last note on this is… Sean: It happens. Robert: Think of it a lot of this as you’re
selling to somebody who gets sold to 10 times a day. It’s really pretty overload. So, a
lot of times your techniques cannot reflect the standard method. Here’s the interesting,
and you’ll notice we’re saying this, this mean if you look at the overall of what we’re
talking about, it’s a long hard process. There is no shortcuts to this. They’re very rarely
is. Demo day is not going to work unless they’ve got some from…there’s a long process to
a lot of this. That means I cannot tell you how many meetings I’ve had to sit in that
were a complete waste of time, but I did it because I wanted the karma or I wanted something
from someone. It just works this way. I actually feel bad for people that have just graduated
from college. They’re trying to fundraise for a company because it’s brutal. Now, there
are a handful of companies like… Sean: Now you’re scaring them. Please stop. Robert: Yeah. Sean: Let’s move through that process. I do
agree, it’s long and painful and also it will always take two times to three times longer
than you’d expect. So if you’re like, “We’re gonna raise this in three months.” You’ll
be raising for six months, guaranteed. Time of year is important, too. I’ve screwed this
up before. It’s like, “We’ll done by September.” But, all of a sudden, November comes around
and we are not done, and then it’s like everyone’s really checking out and things are getting
pushed even further. So, I actually…let’s move through this like speaking of courting
or dating, let’s get beyond first base. You got the card, they know who you are, they
call you into the office. What is that meeting? What should I do as a founder? Robert: Okay. So let’s talk a little bit about
the process here. Before…remember I talked about you have to have your story. Here are
the three main commands, you should have a very brief elevator pitch ready, very short,
simple, easy to understand. You should have practiced this on a bunch of people. Here is the way to practice it. Go to your
mother, give your line to them, you’ve got 60 seconds and ask her what we do. If she
says, “I don’t know, dear.” It’s a bad pitch. People should get the idea pretty much what
you are and approximately where you are in first 60 seconds. Sixty seconds is actually really long. It
should be more like 30. That’s the short version. This isn’t so much for VCs, it’s for conversational.
You’ll need this. Second is a three-minute version, sort of a slightly longer version.
The next is your 30-minute version which is what you are gonna use for meetings. So before, the investors says, “Why don’t
you come by and talk to us?” You should have a…and there’s a 10 slide template. I send
this out, lots of investors send it out. It’s a slide template that you should use for these
meetings. It has 10 questions that need to get answered for the meeting, okay? You’ll
notice 10, not 60 slides, not all the…it’s a very short summary of their company in 10
slides. When you go to the meeting now…so this is my standard, I go to the meeting,
please do not open your laptop and start your presentation. I personally don’t like this.
It’s bad. Sean: I agree. You should give them the option.
But seriously like… Robert: Yeah. What would you like? The first
I usually do is I talk to them and I ask them a question, “Hey, you know this.” have a small
conversation with them. You might find some interesting information. Oftentimes, I say,
“What would you like to get from this meeting today?” And a lot of times the answers that
question will steer your along, I cannot tell you how many times I’ve been in a meeting
and somebody comes in, “Well, you know, I looked at the slide, but I just don’t understand
how you make money.” Okay. That’s a very important thing I need to answer in that meeting. If
you don’t ask questions, and you run blindly, it’s only a random chance that you answer
the key questions in their head. Sean: You can lose them too or it’s like they
start spacing out, they get on their phones because presentations are fairly boring and
yeah, especially for 500. It’s like, “No, let’s have a conversation. Just gonna have
back and forth and we’re gonna sort of suss this out and see what’s there.” Robert: Yup. So I’ll come into a conversation
with them and usually I’ve done enough background where I know they’re investing in Marin [SP].
I say, ” Hey, I see you are investing in this company. You are like this. We are similar
to this, only we make a little more money, our margins a little higher.” I’m just…now
he starts talking, he’s like, “Well, how’s your margin higher?” It’s a conversation.
We’re talking about my company, but it’s conversational. He’s gonna follow the important threads to
him. Before the end of the meeting, I wanna make
sure I’ve gotten through the main areas. You have that 10 slide, but realistically most
VCs will guide the conversation. They’ll say like, “We invested in this other marketplace
and they had this horrible problem.” “Oh, well here’s how we solve that problem.” You’re
answering their key concerns. By the end of the meeting, if you’ve done this well, they
don’t have their concerns anymore. There are no hidden concerns. Okay? Does that make sense? Sean: So that first meeting typically is of
one partner, right? Robert: Yeah, generally it’s gonna be…oftentimes
it’s an analyst. Depends upon where you are. Sean: Yeah, but let’s not talk 500 because
we do it a little bit weird. Let’s talk standard flow. What happens at the end? What should
they do next? Robert: So, there is a bunch of things that
are good for meetings. The first thing is, this is commonly I have a conversation with
them. Usually, somewhere in there I run through the presentation. Usually, it’s only about
10 minutes of presentation just to make sure they have it. Then I say to them, “Does this
look like it’s a fit for what you are looking for?” And sometimes you get some concerns
too small, too early, some things like that and you say, “Okay, well if it’s a little
too early what is it you’re looking for? What’s the stage you’re looking for?” Okay and if it really is bad, this is me personally,
I call the shot and I say, “Well, I certainly understand that. I’ll keep you updated when
we reach that milestone.” They may not invest now, but maybe in a year they do. Again, back
to the whole networking. You’re building this for the future. If it does look like an okay,
don’t press for an answer. They’re not gonna give you an answer in the meeting. What you
wanna say to them is, “It looks interesting.” You say, “Oh, would like any materials for
your partner meeting?” or something like that. You wanna get something called a call to action
in there, but remember, these guys get this every day, 10 times a day. So if you go, “Well,
can I call you tomorrow and see if you have an answer for me?” They’re gonna blow you
off, right? They’re not gonna do it. But you can say, “If this looks interesting, I’m happy
to send you some materials to make sure you can bring it to the partner meeting. What
would you like me to include?” It’s called…you’re giving it to them so it’s nice…it’s a nudge
along that you know they’re gonna have a partners meeting, you know you wanna follow up with
them. But it also gave me an excuse to send them
an email, a follow-on. You want to be able to initiate action. If you say, “Oh, you know,
thanks for having a meeting. Let me know if you are interested?” Now, you’ve got no action
to take. You’re waiting for them and honestly, they’ll probably forget. Even if you were
a great company, they’re probably gonna forget. But if I say, “Well, I’ll send you some follow-on
material.” I’m gonna remember. I’m gonna send the email. It gives me a reason to do an action. Sean: Well, let’s say that meeting goes really
well, in fact, I really hit off. Things are going well, and then I email them. I don’t
hear back. Email again, I don’t hear again. Robert: That’s about 80-90%, yeah. I mean
the fact is… Sean: What do you do? Robert: So, well I’m gonna actually mention
this is more personal than maybe general advice. So the first thing is, generally speaking,
being if you keep sending the same email “Hey, you didn’t respond.” This is a waste of time,
and it actually discredits you. You’re lowering beneath. You’re like, “I’m desperate or whatever.”
I put them on a trickle campaign and I send them something, “Oh, I see you invested in
this. Congratulations on this investment.” And this will go on sometimes for a while.
I tried to… Sean: So you’re looking for topical reasons
to re-engage? Robert: Topical reasons or something of interest
because I want to keep the conversation going. It reminds them enough where if they really
were interested in following me up…I will point out that some people disagree with me
on that. Some people actually go into more aggressive. It’s just not my style. I build
my network for the long-term. I have large numbers over large periods of time and that
makes it easier for me. If I received a personal introduction, I might
ask the person who did the introduction and I’d send them an email pre-written for them
to send along saying, “Hey, I heard you met with them. How did it go?” And maybe they’ll
respond to that other person. If I had no other introductions, a lot of times I look
for things that are topical. Also, by the way, things like Newzly, Nuzzle, and a few
others are really useful. I search basically every day on all these…everybody in my contact
list. It just tells me what they are up to, key things about them, and if I notice they’ve
done a key investment or key action, I’ll send them an email saying, “Hey, you know,
it was great meeting with you two months ago. I just noticed you did this investment. This
looks really cool. I’m glad you guys are still active in this field.” Not asking for anything,
but… Sean: I like those because I can delete it
and not have much guilt. Robert: Yeah. That’s the whole idea. Sean: It’s nice. Robert: But it reminds you of the company
and the person. Sean: Top of mind. Robert: You constantly bring yourself to top
of mind. Every now and then, and it is very small, you’ll get an answer back like, “Oh,
yeah, how are you guys doing?” Now he’s now invited you to give him an… Sean: Yeah, I’ve done that. What’s the latest?
And get some updates. Robert: Yeah, what’s the latest? I do this
all the time because I get overwhelmed. I can’t get to an investment. I use all the
time. I say, “What’s the update?” Succinct, short metrics that are there, especially,
here’s the really good if you’re good at this. If in the meeting they say, “We invest in
revenues of blah.” You could say, “We’re 80% towards your stated goal of revenues of blah.”
It showed you listened to him in your reply. Now, he knows you’re paying attention so your
emails are more worthwhile reading. Sean: I would never do this. What about the
VC? You are engaging with him and him and her is like, “Oh, have you tried this? Have
thought about selling cars?” Robert: Oh, yeah, the pot shotting. Sean: Yeah. Why don’t you do this, why don’t
you do five different things like… Robert: I never do that, but you know you
should hold the mic…fine. So pot shotting, I call it pot shotting. It’s advice giving,
whatever. It’s very common. Here’s the biggest mistake, you get into an argument. Most people
are smart enough not to get into an argument on it or disagree, but some people do it.
It can happen. Sean: Yeah, those meeting really get awkward
when…yeah. Robert: The meeting gets awkward fast, actually.
So here is the thing, I’ll offer you a piece of advice for it and here is mine. Take it
in stride so, “Oh, that’s interesting.” Here is mine. Eric? So Eric says, “You know Rob,
if you just double your revenue you’d be more successful.” Thanks, so insightful. So here
is my response, “Really, Eric? That’s great. How might you go about doing that?” It’s a
conversation. I wanna draw him into a conversation on this, partially to see what he’s poking
at, but also partially because it allows me to learn something about him. But I’m not gonna disagree with him, but let’s
use a different piece of advice. They say, “Well, have you thought about getting into
the North African market.” I say, “Oh, what is it about the North African market that
you think is so interesting for us?” You’re gonna learn a lot about them and why they
are investing. And so when you do that follow-on email the next day you say, “Thank you so
much for the North African. I noted you said it that it’s because it’s two million untapped
users. I did some quick research. It’s actually about 200,000 users based on this report,
but it was really a great idea, but we think you know…” Disagreeing? Maybe. Most of the time, I’ll just send the email
saying “Thank you for this. Here’s some stuff.” Be pleasant and nice. But every now and then,
I have actually gone back with information and, believe it or not, this is a little weird.
If you’re very good about the email, they’re actually thankful because if you give them
better like, “Oh, he says about two million. This is a research approach about 200,000.
It was a real good idea. Maybe the two million was referencing this other thing.” Give them
an out, let them feel smart. But you know the market better than them. You have to be
very polite about corrections. Sean: Yeah, that’s true and it’s funny there’s
a company in the next batch that there is an argument going on, and I’m just like, “Well,
you’ve lost it. You’re arguing so much and you’re coming off very negative and nasty,
and we’re really trying to be helpful and give feedback.” Doesn’t mean you have to do
this, but I know when I raise like yeah there is this one fund…I really wanted this fund
and he was like, “You should try this different,” it was E-commerce. It’s like “You should try
this different type of revenue stream.” And I actually did test it, and I went to him
and said, “We tested it. I spent $600 testing it, and got nothing out of it.” And actually
he was so impressed that I tested it. Robert: That’s the…that’s actually really
good. If you could test the advice… Sean: Yeah, to me I was like, okay, really
they were gonna write a big check. So I was like $600 I can deal with this test. And I
went back with them with the data and I was like “Compared to our other products, the
[inaudible 00:26:30] is much less. [inaudible 00:26:30] Robert: That’s actually an improvement on
my answer. I’m gonna take his answer over mine, but I was trying to get at the same
concept which is data is really useful. Trying not to be argumentative, but I’m gonna actually
take his answer back. If you can actually do a test and show him the results for your
company, that’s even better. Sean: Data all the way. There are two things
that don’t lie, hips, which you’ve learned from Shakira and data. Data doesn’t lie. Robert: By the way I do wanna make an interesting… Sean: That one took a little while to set
in, right, that one works. Robert: I do wanna make an interesting note
for some people. How many people think VCs make decisions in a very logical data driven
way? Raise your hand. Logical data-driven way. You’re investing on a logical data driven
way. Sean: Well, let’s talk early stage because
I think most folks are there. That’s like pre-series. Robert: Yeah, pretty much. It doesn’t happen.
It doesn’t really. Data justifies the decision they’ve already made in their head, but they
needed to convince everybody else in the room that they’re actually using data to make the
decision. That’s how data works, especially in early. Fact is, think about yourself, how
many times you’ve seen someone you make a very quick snap decision whether you like
it or you don’t, or you’re gonna do it or you’re not or are you gonna do parasailing
or not or whatever it is and then you look for facts to convince your wife, husband,
daughter, whatever that it’s the right decision? That’s exactly how VCs work. That’s how the
brain works. It’s not…nothing to do with VCs, it’s how the brain works. Data helps
them support their decisions to their other partners publicly. The fact is, they’ve made
their decision emotionally. Emotionally to get to that decision, especially early, they
have to be inspired by you. You have to have something great. This is a problem we have a lot at 500. We
get companies where we score them on a score from one to five for all these categories
and company is all threes. There is nothing inspiring, there’s nothing great. You have
to have something great, something they latch on to you. You say this is why this is awesome
and here is the data to prove they’re awesome. You’ve gotta have both the emotional hook
that makes you seem great whether it’s your team, whether it’s the market, whether it’s
your technology. Something has to be great and then you have
to show some data to prove. They use the data, but the fact is the emotional hook is why
they are going. Sean: Also if you have questions like interrupt
us, throw them out there anytime. Raise your hand. Robert: Good question. “Oh, we’re doing blah,
blah, blah, blah, blah, blah.” I don’t ask for money. I say, “We are doing blah, blah,
blah, blah, blah. Are you interested in that field?” I ask a question. People engage in
questions. Don’t be afraid to ask them. Don’t ask dumb ones. If you’re talking to Fred Wilson,
don’t ask if he’s a VC because if you don’t know that, you’re wasting his time. But say somebody asks you, “What you do? You
say, “Oh we do this.” This is…remember I said that short, less than 30 second, that
30 second, use that “Blah, blah, blah, blah is that something you’re interested in? Do
you invest in that? What do you do?” Ask them to engage you. Rule of thumb, 3 seconds buys
you 30 seconds, 30 seconds buys you 3 minutes. Rule three goes something like this. In the
first three seconds, they have to hear something interesting enough to justify 30 seconds of
attention. If they don’t hear it, they are thinking about
their email. If in the first 30 seconds the topic is interesting enough, you get the right
to talk for 3 minutes. This is why structurally wise, certain types of things work on demo
day. So in your opening thing, state clearly what you do and then say, “Is that something
interested in?” Because a lot of people say, “No, I’m not really in that field.” The other
2 minutes and 57 seconds you would’ve talked, he would have been completely bored. You’ve
saved everybody time, but you also saved your reputation because now if you say, “Oh, well
okay, you’re not interested in this field.” Now you can get off the topic. He hasn’t said
like, “This is just a rambler.” You haven’t lost anything. Does that make sense? Sean: I think be venue specific, too so like
events, dinner. You’re doing legion and building relationships. Demo days, in the meeting or
in a pitch prep thing, in their office, it’s full on. You’re in the war room. Robert: Yeah, if they’ve invited you come
to me, you come into the meeting, and you start chitchat, they are like, “What’s going
on here?” They are looking at their watch. Sean: And you start bullshitting, they are
looking their way to get out. Robert: I mean, once they have invited. Once
the thing, “Hey, I wanna hear about this”, that gives you some permission. Just the rule
of thumb is 3 seconds get you 30 seconds, 30 seconds gets you 3 minutes, 3 minutes gets
you 30 minutes. Basically, you have to qualify past those. So if you first meet someone and
give them a 30-minute pitch, it’s unlikely they are listening. Sean: Let’s talk about things they want to
hear. What are the data points that VCs want to hear? Let’s go through the acronyms. Robert: Oh, okay. Oh, wow. Sounds like we
are Bingo. Sean: Let’s stack rank them. What’s the most
important acronym? Robert: Okay, so here is, I’ll give you my
preferences, how’s that? So, if you are an E-commerce company or something like that.
Basically you know GMV, Margin, ARR, Churn, you know average revenue per client, things
like that. Sean: ARPU? Yeah Robert: ARPU, I’m sorry. Running into my acronym. Sean: I just like it because it sounds dirty. Robert: Yeah, I know, I know. Sean: But does everyone know what all those
are? Just to be super clear and LTV. Everyone? Okay, just to make sure. It’s okay if you
don’t. If you don’t raise your hand we’ll go through. Robert: Yeah, we’ll go through. If it’s a
B2B, there is slightly different ones. Actually, let me separate them very early and slightly
later. So very early B2Bs, I wanna see what’s the problem and what are you solving? There’s
not a lot of metrics if you haven’t actually shipped anything, but soon as you are, it’s
average sale price, time, how long it took you to deploy, how much customization, right,
churn rate, resale, things like that. It’s mostly around a lot of revenue once you get
going and then things like churn rate, things like that. For consumer products, I’ll leave
you to consumers because you probably do…I do mostly B2B. So, if people are pitching me B2B my first
statement, first thing I wanna know is what problem you are solving. Who is this? What
the customer looks like, and then from there a lot of it has to do with the structure of
the revenue. How you are getting paid? Are you getting paid? Is it booking, is it whatever?
And how it’s growing, churn rate, things like that. And who is buying it? That’s for B2B
stuff. Sean: What do you think, though, is the ideal
equation where you have one or two sentences and so it’s like, I don’t know. Like let’s
figure this out. I’m trying to think but it’s… Robert: So I think the big one for me, there
are two key one’s that’s gonna be your monthly, you MRR, your Monthly Recurring Revenue and
your growth rate. Those are the two. Sean: So yeah, we are doing 10k a month in
revenue. I’ll probably say you know we’re growing 25% month over month and yeah. Robert: Believe it or not, especially early
your growth rate is actually more important than the base. The base is like at 4k, it’s
not that big deal. What I care about is your growing 40% month over month. So growth…and
I actually do a presentation on this in 500. We actually have a ranking system. I actually
list in order of precedence things that are valuable, but basically revenue and the growth
rate of the revenue, user base and the growth rate of that and then you get to things like
downloads, which are not very valuable actually. Sean: Yeah, I would avoid the vanity stuff,
the engagement. Yeah, you never wanna go like “Oh…” Robert: Yeah, custom metrics. I hate custom
metrics, drives me bananas. People coming with these, “This is our GMCCR4.” Sean: Or, “We have 10,000 kudos a day on the
platform,” or something. Roberto: Yeah. I’m like, “What the heck is
this?” Sean: What’s a Kudo? Robert: If your mother doesn’t know it…I
mean it’s jokingly, but you should never do custom metrics. There’s like…actually Andreessen
[SP] published 16 Metrics. Sean: That was a good post. Robert: That was a good post. I recommend
it. It’s probably better said than I’m saying it. Those are a very good set of metrics. Sean: Because I think a lot of times these
investors are asking because they want to see is this person competent. I can tell you
the first time I fundraised, I blew it because a lot of questions were on Churn and it was
a subscription business, so I should have known really what it was, but it was early
on the business so I didn’t have a lot of data to work on. Completely blew the meeting…First
Round Capital which is a great fund. They were ready to invest, and I blew the final
meeting basically. Robert: So did I. I have many a story of me
blowing things. We only have a few hours, so I don’t have much time. Sean: This is a family event so let’s, please,
calm down. Robert: Yeah. Sean: But… Robert: I’m going back to this topic. Sean: Let’s get back on track. Churn rate… Robert: Definitely. Sean: Churn rate, I think, is critical and
people don’t always understand that. What do you think is healthy churn? What is healthy
to you? Robert: Okay. Sean: Like broadly. Robert: Depends a lot on the business. So
let’s go through a couple of it. The first thing is let’s assume someone calls me and
they say, “We’re going at 30% month over month, we’ve got a 10K MRR.” And then I say, “Okay,
is this a subscription business?” “Yeah.” “Yeah, it’s subscription. People subscribe
for a year.” I said, “Okay, great.” I said, “What’s your churn rate?” Somebody says to
me 20% a month. So, that means every month, you have to get 20% of those customers back
again. That’s almost non-viable. Sean: Yeah, it seems like double digits, you
are in trouble and… Robert: Yeah, very much. Sean: So think about it like what’s a great
a business with low turn like Netflix, they’re 1% to 2% churn. That is perfect. That’s the
ideal situation. So if you are 5% turn, you’re probably a little bit more viable. Robert: You’re struggling. Now the interesting
thing is I’ll to explain this to entrepreneurs, if you have high churn, that’s a sign that
maybe your products got a problem. You should be thinking about what’s wrong with the product
here. It’s good for you to know. If you don’t track these, forget pitching people, you should
know these because they help you run your business. When I get in a conversation and someone doesn’t
know their churn, or does not know their burn rate, that to me is a real red flag because
how are you running your business if you don’t know this stuff, right? It worries me that
it’s sort of randomish. So my statement on churn is single digits, definitely. If you’ve
got double digits, you should be looking to change the product, what’s the problem, wrong
target market, something’s wrong. But trying to fundraise with a double-digit churn is
very difficult. Sean: Let’s get some more questions. Yeah,
go on. It’s a lot of trust. I would say especially the early stage. When you go deeper and you’re
doing series A. They would wanna get deeper in the data. It probably depends a lot on
the investor, Accelerator we do a shocking lack of due diligence. Although we’re trying
to improve now. Robert: Wild, wild west! Sean: I mean, we even to the extent of doing
background checks, like yes, are you a criminal? We want to find out. Robert: FYI, We actually…you do know we
do all background checks, right? Sean: What’s that? Robert: We actually, yeah okay… Sean: Oh Yeah. But you know… Robert: All our investments are background
checked. Sean: But not seed investments, I don’t think,
though. Robert: I can’t answer for seed. I don’t do
those. Sean: Yeah. Out of all the money I raised,
Google ventures was the only one that did that and I was like, well they’re Google.
They’re more conservative. Their joke was “We can actually find out if someone stole
your credit and you don’t know.” I’m like, “Yeah, I think I know that.” That was their
excuse, but I think it was more liability. But early stage, not a lot of trust. Although
you can make me feel more trust if you wanna share analytics with me. So is probably a bad example just
because of what happened and it blew up. That dude was so [inaudible 00:37:15] that he had
RJ metrics which is a really great dashboard and he didn’t even send dax [SP] I think.
He wrote a post about this and he’s like if you are interested, he would just share the
dashboard with them, the numbers are there. You can see it all there, too. So I think
you can share, but I think you’ll find out like most it’s trust and if you violate that
trust, though…that’s the good thing about the valid [inaudible 00:37:36] are pushed
out and they’re done pretty quick. Robert: Once you get burned…you wanna see
a fast information flow….fast information flow…if you lie, that investor will make
sure that information gets out. It does spread. People do talk about it. Sean: We’ve certainly had founders that have
been like, “Yeah we’re doing 50k a month”, and then we realize that like 45k was because
of some weird consulting business or something like… Robert: Side business. Sean: Yes they fudge that a little bit. Robert: We especially start doing a lot more
in the interviewing process, a little bit tighter interview. We do background checks,
we don’t do a prove that you have 50k run rate. The bigger the check, the more the due
diligence that’s there. On an interesting side note, though, there is too much. Let
me give you an interesting example. I had investors that wanted my dash, they wanted
access to my dashboard. I didn’t really wanna do it, but I had to do it. I spent all my
time answering emails explaining what the numbers were on the dashboard for weeks. Like
probably 20 hours a week… Sean: This is true. You could expose a hole
or they could try to find a hole. Robert: Because they were like, why just go
down on Friday and I’m like, “Look, you’re not running my business. Please stay out of
my…” So I actually stopped the dashboard and what I did was I said, “I’ll send you
a weekly summary and a couple of bullet points” because they were trying to run my business
and that can be…so be aware. Most investors are too busy but every now and then you run
into one that wants to run your business. Sean: Yeah, I worry about those and those
are usually the smaller investors. Robert: Smaller ones, angels. Sean: And we talked a little bit. I don’t
know if you were here but we talked about the guy or girl that wants to give you five
grand and they want all this stuff and my joke was like, “No you can’t even email me.”
Like it’s just such as…I’m raising 5k. It’s such a small piece. So that’s what you wanna
worry about…it’s up to you. You sound like we are getting a disease. The disease is you.
No. Well, I think this is maybe Robert’s point about really knowing where check sizes are.
If you get into an in-person meeting, that’s okay to say, “What is your typical check size?”
And get the exact figure of what they’re looking for, but this is where you can screw up. You’re
raising your [inaudible 00:39:38] on seed round and you go to Sequoia who writes $10
million checks. But I think like Dave said, it’s out there. You can track it down or talk
to other founders. Robert: You should know their check size.
Between CrunchBase, AngelList, you look at…by the way I used to do this all the time. Find
out companies they’ve investing in and send an email to the CEO…if it’s a smaller company.
If it’s a really big company, probably not, but it’s a smaller one, I send the company,
“Hey, I’m looking at maybe having these guys as investors. I’d love to take you out to
coffee.” They’ll tell me all kinds of dirt. It’s amazing what the information I learned
from these guys are. But usually by the time I walk in, I know which partner will write
the check and I know how much he is gonna write it for. Sean: Hello, hello. Yes. So mobile will have
high churn. You may lose half of your users every single month, too. So a bit different…I
think that’s also to the point, though, if it is B2C, avoid the weird vanity stuff. Nobody
cares about the Facebook likes. But what would be great to know is viral coefficient. We’re a consumer app so actually our growth
is dependent on virality to some extent. And if you can sit there and say like, “For every
user we can bring in, they bring in another .3.” Yeah. Like you’re showing me that okay,
I’m getting less concerned because when I think about B2C maybe we have concerns about
scalability. How much money is it gonna take? Which is a big reason why investors get into
these unit economics and acquisition costs. We’re trying, in our mind, to figure out,
we’re like “Okay, can this business work on the capital they’re getting? Is it gonna be
a money pit? Is it not going to be able to keep growing sustainably?” I think you’re
pushing viral coefficient and other good attributes with avoiding some of the vanity type stuff
or internal stuff. Robert: That cost of acquisition is often
times a key one and he is more of an expert than me, but I wanted to mention that one.
I look at cost of acquisition and his statement about scaling is, if it costs you to bring
in a user say a dollar, I’m making this up, and the cost of maintaining users you lose
say a dollar per user per month. So I’m thinking to myself, “So if I wanna get to 50 million
users, that’s a really big expensive. I gotta put way more money than I could commit to
this.” See how that works. That’s what he’s talking about in the unit economics area and
that matters a lot to some of the big scaling consumers. Sean: Let’s talk user acquisition just as
well too, and really, really important when an investor he or she is like, “Hey, what
does it cost you to acquire a user?” Have a very precise answer. What concerns me is
when someone’s like, “Yeah, I don’t know. It’s $20 to $30 to get a user.” That’s a big
range. It’s telling me you’re not really metrics focused. So the answer you’d actually say
is, “It costs us $33.54.” or $54.5 whatever it is, really super precise. With all of this
stuff, do not be using ranges at all because it shows you’re bullshitting a bit. We like people who are very data driven and
you as a founder in the early days, you have to do all this. As time goes on, you build
your team, you have a head of marketing and he or she can do that and that’s off your
plate. Early days though, it’s all you, and you have to know this stuff. I was telling
about that meeting where I was like stumbling because it was like…I was trying to do math
in my head as I’m pitching the VC and just you’re already nervous, and you drank too
much coffee, and you gotta go to the bathroom. All this stuff’s going on, you will screw
up those numbers. But to me the great founders, they are just able to just like bam, bam,
bam hit really, really precise numbers. It’s okay if it’s based on small baselines or just
like, “Oh, we’ve only brought a 100 users.” It’s something. It’s a start to work with.
I want you to talk about this because you are really good on pitch. So it’s definitely not being shy and not like…a
good example is like you don’t have a meeting and then you trail off as you’re talking.
That’s what I see out there especially a lot too. So confidence is really important. There
definitely is…it’s weird that the valley has this weird forced modesty where it’s like
people are the most arrogant ego driven people in the world here, but they do put on a modest
face, but they’re not flashy. No, but it’s not even that. No, it’s like they wouldn’t
go buy a Ferrari. It was like the second I had a million bucks in the bank, buying a
Ferrari, but here it’s like, “No, I’m just gonna get the really nice Prius or a Tesla
or something, too.” So it’s different but that’s a whole another
story. I can rant on that. Confidence is important. So there is a great tweet about the three
jobs of a founder and it was set and execute vision, recruit and retain talent and don’t
run out of money. A lot of those take a lot of confidence to set vision and to keep people
and to acquire new people, too. So they’re gonna be looking at that thinking like, “Okay,
are you the person that has enough strength and ability to do this?” When I had trouble fundraising, it was because
I was at the tail end of fundraising and I was beat down. One honest VC, there’s few
of them out there, was like “I’m not investing because you’re completely beat down.” Hey,
what’s up buddy? So this is where you need to find this. So think you need to find this
happy medium in there where you are stepping up above your comfort zone. I joked about
drinking coffee like you should chug coffee or Coke before you go in there, the drink
Coke because it brings the energy up. It’s just like you should also record yourself
on video, and you’ll notice on video if you talk as you normally do. It’s boring, but
when you’re on stage and you’re presenting, you actually need to like…and I’m slouching…but
you need to step up a little bit and you’re like “I feel like I’m being annoying,” but
you’re actually getting a lot more engagement. Let’s talk about this. Confidence in meetings,
demo day pitch prep, you’re really good at this stuff. Robert: I’ll cover this a little bit because
I actually do a bunch of training classes on related topics. Why I don’t like mics.
You want this one, maybe a better one. All right, there we go. So I’m gonna take his
point about confidence. You have to be yourself. You’re not going to be…so I’m born and raised
in the New York area. I am aggressive. I’m an asshole. It’s just who I am. You are not gonna be someone who’s [inaudible
00:45:19] confidence and sure of yourself. That’s different than braggadocio. [inaudible
00:45:25] that technique. Finding the techniques that work for you is important because ultimately
they’re investing in you, not the idea of you. So you have to be truthful in how to
present yourself because otherwise they get this weird tingling feeling that something’s
wrong and they walk. They don’t know why, they just…so that’s why we would pitch completely
differently. Neither one is wrong or right, it’s simply
who we are. But the important point he made and I’m gonna stress it. You have to be both
confident and you have to be energetic. You have to be excited by what you’re doing. If
you’re not excited, sure as crap they’re not. Sean: Yossi Vardi. Is that his name? The ICQ
guy, the Israeli investor. He had this great quote where he’s like, “I only invest in exciting
people because I’m probably gonna lose my money. I just wanna have some fun along the
way.” It’s a funny quote, but I was like yeah that’s genius and I could do that little bit
too. So I think you’ll find it…as he mentioned it’s so critical that you do step it up a
little bit. The journey of being a founder is long and hard and fraught with all kinds
of stuff. That’s what they’re looking at in you. They’re like, “Okay, are they gonna be
able to go the distance and when things go really, really tough are they gonna be strong
enough to push through a little bit more. One to be successful and to make money to
generate my return.” Robert: One of things…I’m fortunate. I have
near infinite energy. I can do a 12-hour day and still be exciting in a meeting at the
end of the day and then go home and crash for a day and a half, but what’s important
is if you are excited by your topic and you love your company, let that come out. Don’t
try to be analytical or something. Don’t be who you’re not. They’re investing in you and
once you find yourself comfortable with yourself, you will find that amount of energy is natural.
It’s easy to do. You’re not gonna have it forever. After 20 hours of pitching, yes,
you’re going to tired. But it’s much easier to be excited about something you actually
are excited about and for that I’ll mention one note for you. Having a really tough meeting with an employee
that’s a problem and then going into a pitch is actually really difficult. So usually,
I try to leave a little bit space before I go to these meetings so I have at least some
recovery. I don’t drink coffee or Coke because that’s just not my thing, but at least I have
some mental… Sean: You have all this energy naturally? Robert: Yeah. It’s just natural, yeah. Sean: That’s scary. Must be all the government
work you did. Robert: Yeah, the government work I didn’t
do. The government work I didn’t do. Okay. And the last note is smile. I know this sounds
really weird but really just try. Smiling is very contagious, very infectious that people…when
people smile at you, it’s really hard not to smile back. Sean: I think we’ll do one more question and
then we’re gonna take a break. We have more investors coming up so we’ll do a lot more
questions if you have them. We’re gonna take a break. Now please look up Google Stock,
these folks that are coming in. Try and really think about good questions. I don’t wanna
be up here peppering with too much. I would love to get you guys to come out. As I mentioned,
I brought people who I felt are very honest and candid and, not wanting to scare you,
but most VCs are not. They’re very straight and also they don’t wanna be too honest sometimes.
They don’t wanna push you away in case they want you later on and they wanna bring you
back. Robert: One of the hard parts about a VC is
they really can’t give you honest feedback. It sounds a little [inaudible 00:48:53]. It’s
risky to them. Why? It doesn’t benefit them. They might wanna talk to you later, they don’t
wanna…they need the network as much as you do. For that reason, oftentimes you get things
like, “Well, you’re a little early,” but you know you’re not. There are a handful of people,
and I’m in this category, I’ll tell you flat out, “No, I think your idea sucks.” But that’s
also why some people don’t talk to me. Sean: That must have been that one founder
that was unhappy. Robert: One? I think that’s a slight understatement.
But that’s just because that is my way of doing it, and I know that that is not optimal,
but I believe that this is just who I am. Sean: All right. Thanks for hanging in there.
I know there’s been a lot of info. Thank you, Rob, for everything. That was great.

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