KISSmetrics' Hiten Shah Simply Tells It Like It Is 'In the Studio'

We're in the TechCrunch studio today with Heathen Shaw, co founder and CEO of KissMetrics. Heaton, welcome to the studio.

Thanks for having me.

So you have been around the Valley for a long time. You've built a couple of businesses. Some have been bootstrapped, some have been venture backed and built up a great.

Credibility with entrepreneurs and so helpful in the community. And I. It was interesting that you wanted to accept an invitation to come in and talk about the fundraising environment today because you've seen a lot not being an investor yourself and coaching and helping a lot of entrepreneurs through the fundraising process or with their business. And just maybe share with us briefly what your path has been and the companies you've started and whether you've gone bootstrapped or venture.

Sure, absolutely. So, first of all, thanks for having me and I'm always happy to talk about anything entrepreneurship. At the end of the day, what I've done is my first two companies are bootstrapped. One was a consulting company and another was a software company called Crazy Egg that still exists, that was bootstrapped as well, 100%. And my latest company is KissMetrics, which is Venture funded.

Okay, and so what are your takeaways from doing a software company that was bootstrapped? Crazy Egg to one that's venture backed, KissMetrics, what were the key differences in your experience?

Yeah, I mean, I think I'll start with the commonalities. The commonalities are both businesses because their B2B exists to make money and make money as soon as possible. So we're not necessarily measured on our growth rate or anything like that, beyond how much revenue we're making and how we're serving customer needs. So those are the commonalities. From there, I'd say a lot of things are way different. The primary thing being.

The amount of the market you're always trying to hit when you're venture backed has to be larger. That's inherently what the stakes kind of at the table are when you're venture backed. While with Crazy Egg, we were able to grow much slower and didn't have any kind of outside pressure or anything like that, putting any kind of emphasis on us growing faster or building the business faster or figuring out ways to grow it by spending more money or anything like that.

So how did you and your co founder make the decision on kissmetrics to go, hey, we need, we need VC backing for this, having already done the bootstrap model and succeeded at that?

Yeah, absolutely. So for us, the difference was that we're entrepreneurs that want to learn about everything. So we knew very well about bootstrapping, whether it's a consulting business or a software business. And we wanted to learn what venture capital felt like as an entrepreneur. And that's the main core reason we did it. Beyond that, I think it's always that allure of having money and thinking it's going to do something wonderful for you. So I can't say that it wasn't part of that.

Where fundraising becomes part of the goal.

Exactly. That is a piece of the puzzle.

Okay, so now with that background and.

All the advice and counseling you've given to scores of entrepreneurs in the Valley, what are you seeing as trends around fundraising today? Let's say for early stage, where people are maybe thinking about bootstrapping or sort of going after venture capital with the business plan still, what do you see in the market today?

Sure, yeah. I mean, there's obviously different maturity levels of entrepreneurs, but overall, I think as a whole, people are much more bullish on their ability to raise money, regardless of what stage they're at or where they're at in their business. And I think that that's a little bit of a misconception that they have in their head.

Where does the bullishness come from?

Yeah, I've always had this theory where it actually starts with the social network, the movie, and how that made entrepreneurship look a lot more sexy and made it very related to raising money versus just building a business. I think a lot of the emphasis was on how sexy it is or how awesome it is to raise money. The people you'll meet, the things you'll do as a result of that, versus.

In a lot of ways, it's just as fun, just as interesting, if you bootstrapped and just tried to build a business.

So what are some common mistakes or sort of misconceptions you're seeing when, let's say a first time or second time founder reaches out to you and you just kind of in the back of your head go, ooh, that's not the right way.

Yeah, it's funny, this happens with second time founders as well, because they might have raised money on a napkin or a business plan or a couple screenshots or something like that. But the reality is when you go into fundraising, the, the, when you're fundraising in terms of the environment matters just as much as who you are, what you've done, and even what you have. And the reason for that is you're measured against everything else these investors are seeing. And these days you can. The cliche, which is true actually in a lot of ways is you can get much faster with a lot less. And so these people are, some of them are coming with not very much, barely screenshots and things like that, and expecting people to get super excited when today it's so easy to validate whether that idea is right or not, or whether people actually want to use it or buy it.

I see. And so what would you say to those entrepreneurs? I mean, how would let's say you were an investor today, you just turn into heathen ventures.

Sure.

What would be your model for looking at enterprise and consumer software products?

Yeah, I mean it's very simple. Right. With consumer, it's like all you're really trying to answer is is this team and this market and this product, does it have the ability to reach millions of users? And now it's tens of millions of users. And so that's the proxy for a consumer startup. Now if you know that, then what your goal should be as an entrepreneur pre funding is show whatever you can that helps de risk that. And I think that the key on consumer would be can you build something, a product that's engaging where the market for it is pretty obvious in terms of the size of it and then you can sort of figure out how to grow it.

Now what about companies that. Let's say there are a lot of seed funding companies today, which I think is an understatement, that are looking for product market fit. Right. Most of them are just not going to get there and some of the ones that do get there aren't going to find that the fit is huge. So how does your advice change from seed to looking at A?

Sure. So that was B to C. Let me just talk about B2B real quick. I'm happy to address that. So with B2B it's like, is this something people want to buy? So I think B2C, you're just trying to figure out whether it's something people want to use. And with B2B it's really is this something people want to buy? If they don't buy, you don't have a business, period. So between those two, it's all about de risking that along the way. So if you're at A, and again these are hard, fast rules. So whatever it may be, let's say you need 10+ million users with 20 to 50% of them active on a regular basis for you, that would be B2C what I'd be looking for if I were an investor and then series A, B2B. I'd be looking for somebody who has enough traction where they can pinpoint or we can pinpoint where they can put money in to make it make more money. Usually it's going to be marketing, sales and sometimes product development, depending on how much more you need to add. And these are all. This is how I would look at it and say that this is an ideal scenario for both those types of businesses.

And so what do you think as a sort of leading into the final question.

And let's just focus on B2C on the consumer side.

Sure.

What do you think are the main hangups or what's fueling these misconceptions? I mean, you mentioned the movie. That was a while ago. Is it still too easy to raise money? Is it. People are. People have. They shouldn't be raising money for software until they hit product market fit. How do you view the world that way?

See, I think it's hard to raise money for photos, apps, for example. Right. Or just because Instagram sold for a billion dollars doesn't mean someone else is going to. So I think what happens is in B2C especially, you see categories of product and you see them get funded and then eventually that category fizzles out and then a new category emerges. So now it might be easier if you're a video app, for example, because all those are popular. And again, these cycles seem to get faster and faster. And with B2C it seems like people glob on to different categories. People meaning investors as well as entrepreneurs. So there's three categories right now that people have been excited about, let's say for the last 12 months. Photos, videos and messaging. Those are the three. And all specifically mobile.

Yes.

And so I see a lot of that happening. You saw it happen with social with different categories, starting with the poke apps, then a little more gifting or something like that, and then it moved on to the gaming that we see today. You're not seeing that many gaming companies get funded today. What happened? Well, it's like what happens is the category gets established really fast, money pours in, winners end up emerging and then it's done. You just don't see too much funding in that area. So I think that's a very classic pattern that you could see. And really as an investor, if I were B2C, I'd be thinking about what is the next category that's interesting and can I find it earlier than anyone else? And can I help find entrepreneurs that are working on those problems? Great.

Well, Heaton thanks for coming in and sharing your thoughts.

Yeah, my pleasure. Thank you.