Clinching Your Series A with Mar Hershenson, Pear VC

I like this word. Default. Alive means that if you stop spending money in marketing and sales, will you still survive as a company or not? Because if you do, that means that your current customers are not leaving you or they're spending more money. But if you stop sales and marketing and you die, it means that your current customers are eventually going to leave.

I need some traction. You need some traction. Let's get some traction.

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Com super stoked today for this session with Mar from ParaVC, one of the top early stage VCs in the Bay Area with a portfolio like DoorDash, Gusto, Branch 2i IPOs, over 80 billion in valuations and more than 5 billion in funding raise and Mar's a genius actually, because she has a PhD in electrical engineering from Stanford and before that she spent 13 years co founding three companies in mobile, commerce and enterprise software in the semiconductor industries. And you have 14 patents. You've been recognized in the MIT Technology Review as a top innovator under 35, named as a champion of innovation by Fast Company, and in the EE Times listing of the top 10 women in microelectronics and whatnot. You're one of the anchor VCs of Silicon Valley early stage, especially companies coming out of Stanford and then also the ties to early investment in Dropbox and whatnot. Welcome to the show and thank you for joining us.

Marc, thank you so much. Oye, that was a great intro. Thank you. I appreciate it.

And I appreciate your support over the years of us and Bose and many of my good friends are portfolio companies of yours that I met through your intros. Like recently, I was just catching up with Anand from Aspire IQ and we've struck up a very great friendship with Mara from Branch and I'm thankful to you for those relationships. How did you get into all of this? Give us your backstory.

Getting into venture, I had started three companies and my current partner Pejman was an investor in one of them and he had been an angel for many years on his own. In 2009, he reached out to me and said, martin, I'm going to start a fund. You want to do it with me? And I said, what are you talking about? I have never done any investing. I'm totally the wrong person. But he never gave up. He spent four years trying to get me to join him and eventually he changed tactics. He said, why don't you just come and meet some angel, do some angel investment with me. We meet at Coupa with founders. So I started going to Coupa Cafe on Ramona in Palo Alto. I would show up an hour a day and four months later I was there from 9am to 5pm Meeting companies. So I told Peshman, finally, okay, you win, let's go raise the fund together. And that's how we got started back in 2013. As Lloyd said, I'm a partner at Pear VC and basically we build companies what we call from zero to one. So every company has a zero day when they get started, and one for us is it's ready to scale. So we're ready to hand off these companies to Series A. I think Lloyd told you about some of our portfolio companies. We are really fortunate to partner with founders that work really hard to make this happen. My hat off to all the founders that are part of our network and outside of our network as well. Okay, so I am going to spend most of the talk telling you basically what milestones you need to hit at different stages of the financing and before I do that. I want to give you a sense of how things have changed since I got started in the business. There is a lot more money around. First of all, there's a lot of seed funds. In the year 2003, the word seed fund did not exist. It was not in the vocabulary. In 2010, there were about 33 funds that were considered seed funds. They were called micro VCs at the time. And today there is over 1000 firms. If you look at this growth rate, any startup would be happy to have this curve. So there's a lot more of us in the seed investing. And it's not only that there's a lot many more funds. The funds are also bigger. So this is a example seed fund that I got and they started early and initially the seed funds were small. They were 10, 10 million, 30 million. And today a seed fund could be several hundred million. So there are more funds and we have more money. And I think not only that, today is easier than ever to be a vc. Everybody can have a fund. Angellist Ray rolled out this new concept called the rolling fund, where you don't even need to have a lot of money to be a vc. And they from launch to now, which has been a year, there's about 40 new funds created. And there's also the concept of the solo venture capitalist. You don't need a team, you can just be on your own. That's good news for I hope most of the people in this call. Unless you're a venture capitalist, this is good news. There's a lot of early stage money. And now the question is, where do I have to do to get this money? You're a founder. How do I get a piece of this money? Can I give you the secrets? I'll start with that a startup journey has not changed throughout the year. It's always the same. You start at zero and then there's what I call the drunken walk. You iterate between different ideas or different ways to reach a customer. You're what they call pivoting. Sometimes they're small, sometimes they're big. But it's definitely a very trying time where the founders are trying to figure out. At some point you find that you found a product that actually somebody wants. And then you're focused on trying to figure out how to sell it to more people. And once you figure that out, you go into what we call hyper growth. So if you map this into what we call zero to one, zero is at the very beginning, one is just ready to scale. And we called 0.5, for lack of a better term. When you're there and at the point where you have a product that you know you can sell, okay, you haven't figured out how to get it to a lot of people, but you know, you have a good product and somebody's using it and somebody really likes it. So for different places in this journey, there's different rounds of financing. In 2005, when there were no seed people, your Series A happened at zero. So you could go raise a Series A from Sam Hill Road. Everybody was in Sand Hill Road, nobody was in San Francisco. And those routes were a few million dollars. And that's how it went in 2010. There was clearly a differentiation seed to Series A. And the seed folks were purely doing companies that started at zero and would get them to 0.5. And in 2019, or maybe a little earlier, this concept of, hey, we have a pretty precede round, there's a seed round and then there's a Series A round. And I expect that the terminology will continue to change. What I will do now is try to explain each of these three and what you have to hit, at least in theory, to get to each of them first. I also, I want to give you guys some data. Not this is not just Mark talking, but it's actual truth. The round terminology has changed. So if you think a seed round in 2019 is $4 million, roughly $11 million in valuation, and that's equivalent to raising a series A in 2011. So you see that things have shifted and raising a Series A today was like raising a series B in 2010. Okay, so the names have changed, but the companies have not changed. Okay, if you are going to raise a Series A today, what it means for you is that you really need to be at much farther along, like a BL 10 years ago. I'll put some numbers here, but the size of the total money people raised before a Series A on average is now close to $6 million versus $1.3 million ten years ago. The sizes of the Series A instead of being 5 million, now they are close to 15 million. And the companies that had revenue when they were raising a Series A, barely any were raising had revenue in 2010. And today a lot of them have revenue. Right? So they. The typical Series A company today is a company that has some revenue and that has raised around 5 to 6 million dollars prior to get to that level of revenue. And I'm going to spend into a lot more detail into the target metrics in the next few slides. And it can also be a three and a half year journey. Sometimes can be two years, sometimes it can be four years. But just so you know, because there's so many more rounds, you're actually spending more time out there raising money, meeting people, et cetera. Before you get to the Series A, it's very common for a company to raise a Pre seed of $1 million, then go raise a seat of $4 million and then finally raise a series A. Even you can raise a seat plus or second seeds. There is all forms of seed terminology. Okay, so the question that maybe in your mind is the rounds have changed, how have the valuations changed? Or what are the valuations right now? If I'm a founder at every stage, the truth is that it depends. Okay, so graph, this is a graph from Jason Calacanis and it shows in the Y axis valuation and in the X axis how far along you are with your company. So in a rational world, you are an average startup, there would be some sort of correlation. So the more, the farther along you are, the larger the valuation. Right. What happens though is that is not true. If you are a famous founder or maybe you're in Silicon Valley, you fall into the upper quadrant where you get a higher valuation. So this part here at the top that I highlight in green is what I called if you are an elite company. Right. If you're an elite company, irrational things may start to happen with your fundraising. The same way if you happen to, I don't know, not be good at pitching or not be in the valley or whatever, you may be on the lower quadrant and then it's harder to raise money. So the question is maybe for you guys, what it is, what is an elite startup? And an elite startup, this is my definition, it has, you can be elite by in several ways. One is your founder background. So sometimes life is not very fair. But people look at the founder background, hey, you've great, you went to a great startup, you're or a great university, you're a second time founder and you're automatically at a higher level in terms of perception. Many times it means you're not guaranteed success, but that's how people perceive it. You may be in a hot market, maybe you're working on remote work or telemedicine right now or something that was hot, that is hot. And then you're all the way in that green triangle. Or there's hype. Sometimes some big angel is investing or you went to IC or something, there's some hype around you. And finally location I think obviously with COVID this matters less and less all the time, but it still matters. So if you are an elite status company, what happens is that instead of raising pre seed and seed and Series A, you raise what I call a supersede. This is my new term, which means that even if you have nothing, absolutely nothing, you have no traction, you have no product, you may be able to raise $4 million and a good, healthy valuation. So I put in this graph, the orange kind of what is the valuation of an elite startup? And on green, what is the valuation of a typical startup. The good news if you are not an elite startup is that eventually none of that matters. What matters is that you actually have a real business. Eventually those two curves converge and just become one, because investors are pretty rational at that point and they're going to be looking at your financials, et cetera. So it only matters, sadly, at the very beginning, there's just a lot of storytelling and perception that goes in into the sea rounds. So for the rest of the talk, I am going to assume you're just an average startup. You're not elite. So if you're elite, you probably want to leave this meeting. You are also in a space that is not a bio or deep tech or something that would require a lot of investment ahead of time, et cetera. And I'm going to assume you're here for now, although, again, it doesn't really matter. So you're just an average company. All right? And the question is, what matters most when you go fundraising and at the precede, what matters the most is your team, because at pre seed, there's absolutely nothing. So there's no product. There might have been some mvp, but rarely. So the question is, do you have somebody on your founding team that has the vision to tell a story in a convincing way? Because you're selling this vision and this story at the seed stage. So when you're ready to raise that 2 to 4 million, the team is still really important. But most investors are going to look for some proof of success, some proof that somebody really likes your product. When you get to Series A, the thing that matters the most is market. It's possibly the only thing that matters on 90 to 10, not even 80 to 20, because the series A folks really want to build these massive companies, and that's the way they're trained at evaluating companies. And angel and even some seed funds are not trained that way. And they let's light the market. You could be a very successful seed company with a lot of traction. That cannot raise a series A because the market you're in is too small. Okay. And finally, when you go public, traction is the most important. People are looking at how you did the last quarter. That has a huge impact in your stock price and your potential. And finally team. So everything is different. And if you are a series A investor investing in a pre seed company, you still are wearing the goggles of a series A investor. And what they care the most is market. So if you are pre seed and trying to raise from a series A investor, you probably want to emphasize your market. Okay, now let's go one by one. I'm going to start at zero. So you're assuming you're like a total zero. There is two of you or one or three, whatever and you have an idea, maybe space really well and you want to go and and raise money for your company. Okay, the first round, we're going to call this pre seed. What is a typical precede round? It ranges anywhere from 100k to $1,000,000. And it could be precede fund, it could be angels, friends, family and fools, I like to say because there's so much risk. But it's typically not a big institutional fund that's involved. Okay, now if you wanted to raise from a pre seed fund, what would you have to do? And we do a lot at Pear, we do a lot of preced. The first thing, like I was saying is team. It's very important that you are able to sell yourself because you can't sell a lot of the company doesn't exist yet. So you want to emphasize any achievements of your own that you have been able to do throughout your life. You can show that you can execute, that you're getting things done even though you have no money and that you have been able to attract really good co founders. Really good people attract good co founders before there's any money on the table, there's any investors, et cetera, because they're able to sell their vision. So I think that's really important. Second, in terms of traction, you should at least have some form of an mvp. It doesn't, to be honest, there's been a complete revolution in the last five years. Today there are so many. No code tools. Even myself, I have some idea in my head and I use their table to build a little app and my husband was really impressed. I didn't really build it, I did a little spreadsheet. But even that it's worth a lot when you're going and talking to a pre seed firm and then this company's changed so much that you might come see me in January. By February, you're a completely different company. Or you've iterated so much or you've made so much progress, I think keeping even if somebody says no to you, if you keep them update updated, you have a higher chance of them calling you back and say, oh, wow, I'm interested now, for example. And finally, market, if you are a fund like Pear, we are always looking at market. If you are your family or an angel, they will not necessarily be looking at it. But I want to back people that have the ambition to build something big and can tell that story. Okay, all right, so this is the easiest. You raise your million dollar round. Now let's go to raise a seed round. And a seed round is typically anywhere from 2 to 4 million. They're getting a little bigger now, but that's a typical range. They're mostly done by seed funds. We do a lot of seed rounds and lead them, but you can also get it from a pre seed fund. Also some angels will put big rounds together. And today there's a lot of series A funds involved in this stage. Okay, where do I have to be to raise seed? Number one, traction. So this is perhaps the most critical. A lot of people confuse traction with growth or with numbers of customers. And at this stage, the only thing we look at is the people that are currently using your product. How much do they love your product? Are they addicted to their product? Do they keep coming back? Do they used you all the time? Is your usage going up? We're trying to figure out whether somebody is really a fan, not just the user. And it's very subtle the difference. But we found out that by doing that, you have a higher chance of success. Predicting that company is going to be successful in terms of team at the seed round, you really want to have what I call the minimum viable team. So it's okay if you don't have your full team at pre seed. I'm going to go put it together. But by the time you're raising your $4 million round, if you don't have an engineer, for example, it's much harder. Or if you are, I don't know, doing something in healthcare and nobody in your team knows anything about healthcare, it's a harder sell. Okay. And finally, I think market is the same thing. We want somebody with a big story. All right, so when this is a test I have for my companies. When have you reached 0.5? Okay, so at the beginning, and I'm sure You guys will identify, especially if you're, let's assume you're B2B. You have a little pitch, sales pitch. You go to a customer, you tell them your sales pitch, they tell you they don't really want that, they want something else. So you go back to the company and you iterate and create a new sales pitch and you go do this over and over the day. You're basically not changing that sales pitch to close an account. That's when you're ready to go to 0.5. Same with your end consumer. If you have an app and you put it out in the app store, you have a hundred people downloading the app but nobody is around. A couple of weeks you did something wrong. So you go back, look at the data, you fix the app, you launch it again, and so on many cycles. By the way, when you know already when I release my app, I'm going to keep X percent of the people in a week or in two weeks. And that's a high enough number. That's when you've reached 0.5 because that means you have a product that somebody likes, somebody likes that product and they're willing to use it. Okay, so what is the specifics on traction in terms of revenue? You could be at zero. Okay, yes, you can be at zero or you could be at a few hundred K in ARR. I think having 10K in MRR is a bar that many venture folks have in their head. But it's not a golden rule or anything seem like that the product has to have this fanatic customers. Growth has to be organic or viral. I think it's very hard to raise seed if your only form of growth is paid because then there is no sense for us to know whether people are really fanatic about your product. And you're getting there by word of mouth and you're missing that component. And finally you need to come in and be able to say to somebody like me, I'm raising this much money because I'm hitting this big milestone in 18 months and I know how to do it. So you have to have some clear path to reach that. Okay, how does, what is the data that we actually measure? If we're going to measure things like DA use, weekly active users, monthly active users, frequency of use, 30 day, 90 day retention, length of sessions, anything that is related to engagement, that's what we're going to use. And this applies both to a B2C product and a B2B product. I want to know if somebody starts their day by using Your tool. And if somebody, if some company started with one user and now they have three users using it. So that's really important. And then I want this customer love. So is the growth organic? So am I saying to somebody else, you have to use this product? I think that's really important. We have reference accounts. So reference accounts means I have a B2B customer and I'm able to publish a story about it, some blog posts or something that makes other companies jealous and they want this product. Or you have super fans. Superhuman has this article about how to find product market fit and they talk about this obsessive fans that they would be very upset if you take your product away. And then there is qualitative signs of love like quotes, posts, emails, et cetera. But these two things are the only thing that matter at seed. It's not about growth, it's not about total revenue. It's about do you have the inklings of something that could be successful? Okay, okay, I have the thing from Rahul here. But this is the test that you can run to show whether you are at 0.5 or not. You ask your users, would you be a very disappointed, not disappointed or I don't use this product if I take my product away. And he comes up with this benchmark of 40%. He wants 40% of his users to be extremely disappointed if they take Superhuman away. And he calls that okay, you made it. It's not like a scientific thing. It could be 35, it could be 45, it doesn't matter. But the idea is that a significant percentage of your users is really addicted to that product. This is another way of looking at it which I really like. This is retention. 90 day retention curves for Android apps. And you can see that the red curve is the top 10 apps in the Android app store have about 60% retention after 90 days. And if you're like at the bottom, your retention is terrible. So somebody once told me, oh, so I just need to hit 60% retention and I'll be the top 10 app. That doesn't quite work that way. But at least that is a necessary condition to be a top 10 app. That you have to hit that level of retention. And again it's the same thing. Do people like your product? This has nothing to do with how many users you have. Is the people you have like your product. If you have. If you are running a company, I extremely recommend that you run this cohort analysis. You can look at it every week. It's really important. The way you read this is Every month you can put how many subscribers you have or how many users or whatever Y axis and the X axis is months or it could be weeks. And then you measure how many of the users are still around. And this is a great graph because it allows you, you can color code it and it allows you to see if you're getting better over time. So you can look at column one for example, which show that this company is actually doing better. Their product is getting better because they had a 33% one month retention in January, but now they have 51%. So I know they're doing good or they're doing better. And I may have to wait a little longer because I want to see if month nine still holds up. But that's the idea. It takes time to build this chart, but I think it's totally worth it. It's like driving a boat. You don't have a guide. This allows you to have kind of how to guide your company. Okay, so what's my advice for this stage where you are really, You've raised your pre seed and now you want to go and raise a seed. You have to have this kind of experiment mentality, have a hypothesis test and measure new hypotheses. And I tell users that you measure, I measure their success by how quickly they can test things and how quickly they can iterate. It's not about building the ultimate product. It's building enough product to test that something is working or that somebody wants it. You have to be very scrappy. If you raise a pre seed, you don't have a lot of money so you can't spend it. The worst thing is to raise a million dollars and start hiring people like crazy or, I don't know, buying a lot of office perks, although there's no offices now. But that's. That sort of thing doesn't work. And finally, there's a lot of fake growth, fake signs of success. The amount of money you raise, the number of employees you have. If you go to speaking engagements. When I see a founder that's doing a lot of speaking events, I'm like, oh, they're not working. It's not necessarily a good thing. I think the focus has to be on the first one. How much, how many hypotheses can I test and cross? Okay, let me just look at the time really quick. Okay, I still have time. This is one of my companies Lloyd mentioned, Branch. This company went through this 0 to 0.5 journey with only $50,000. They went through three iterations of their product they had a photo app first, then they had printing SDK and finally they became a deep linking app. But there were four co founders, no employees, so they weren't paying each other. But they worked really hard and thoughtfully at moving from iteration to iteration until they found something where finally people were coming to them, people were using it, they couldn't live without it, et cetera. Okay, so now let's go to Series A. So let's assume you actually raised that 4 million seat round and you want to get to Series A. What do I have to show investors to get to Series A? Okay, a Series A is wide range. That could be 8 million to $20 million. There's a wide range. They're typically led by Series a funds, typically 90% of the time. But sometimes other folks get involved like the seed funds or Series B or even corporate funds. And I want to explain to you exactly what the, with an example that I like about what's the difference between C going from zero to seed, then from C to A? So what I was talking about before, let's assume you are building. You want to, you have an idea for Coca Cola. You realize there's a new soft drink that has to come in the market. You just know it. If before you got your seed, you were in your kitchen or in your lab iterating to find the perfect formula for Coke, and you were there messing around until you found the best formula, which is equivalent of finding customer love. Now you have your seed round, you're the person that has the formula for Coke. What does that person have to do? They actually have to figure out how to sell it to a lot of people. So in seed, what we're working on is to build the growth engine or build this scale engine. And we're not putting gas on the engine. The Series A is the gas. The seed to Series A is the engine. So am I getting users through a content strategy, through partnerships, through. Through some combination of paid in this channel? That's what you're trying to figure out? Not so much like how fast can I grow? You're trying to figure out how can I grow? Which is not the same as finding customer love. Okay, all right. So first of all, I will say that there's a lot of myths out there on the street about raising Series A. Possibly the most common myth is that if you hit a million in ARR, you will raise Series A. And that is absolutely not true, has nothing to do with it. You could have no revenue and raise Series A and you can have 4 million in revenue and not raise Series A. So the question is then what is it? Is it growth? Growth is not enough either. This is an old chart, but in 2015, but at the time a lot of the smart founders would trick venture investors because they would get their apps in their app store for a couple of weeks to be number one really fast and it was all paid or fake users or whatnot and then they would die. Just having growth doesn't mean anything. It means can you keep the people. As I was saying, so growth is also not enough today and revenue is not enough. This is a chart for SaaS companies that Tomas at Redpoint put together a while back. And you can see what the MRR is for a series A company versus their post money valuation. And the red line, which is very thin, you may not see it, it's almost flat. That's a trend line. So that means when it's flat and the trend line is flat, it means there's no correlation. And in fact there isn't. You could be 20 million in size to be ARR. 20 thousands 20k mrr and be at 80 million posts. You could be at 100k. So it just really makes no sense. So the question is, what is it? What are they looking at? Okay, this is what they're looking at. If you're a B2B company, you want to walk into somebody and say hey, if I hire one more account executive, I'm going to be able to close 400k in ARR in 6 months. You need to know what it takes to scale that B2B business. And sometimes this is a very simplistic way of saying it, you probably need customer success and you probably lead gen and so on. But the idea is that you know exactly what it takes to for you to triple or 10x your revenue in the next 18 months. Or if you're a consumer company, you can say hey, if I spend 10k now, I'm going to get 10k new users, for example. Or maybe you don't have need for ad spend. And there's another way that you're going to get those 10k new users. And where do you have to be to raise a Series A? First you need this huge market. It's actually really important. I cannot iterate. It used to be that series a folks wanted 1 billion plus. Sad news is today they want 10 billion plus companies. So because their funds are so big. So you need this massive company or at least understand how you get there. You need some team and obviously you need to demonstrate Attraction with numbers, that's actually really important. These are the metrics. Roughly anywhere from 0.5 to 4 million in ARR. That's what I see in terms of raising series A's, but 200k MRR, sometimes more. Now I think the number is going up, could be 300k. You need retention of your users as the same as you need it in your seed. And then you need an efficient growth engine. Efficient meaning that you don't have to spend a lot of money to raise to get more users. I like this word. Default alive. Default alive means that if you stop spending money in marketing and sales, will you still survive as a company or not? Because if you do, that means that your current customers are not leaving you or they're spending more money. But if you stop sales and marketing and you die, it means that your current customers are eventually going to leave. And then you want to have a plan that shows that you grow 3 to 5x in the next 12 to 18 months. I think at this stage you at least want to show that you're capable of 3x growth. Okay. And I will briefly have a couple of more double tap slides on this. Not all growth is equal. This is from Social Capital, long time ago. Still a really good post about metrics for series A. And this shows different companies. Green is new revenue that the company got every month and red is lost revenue every month. So the idea is you could have the same total growth in different ways. And obviously which company do you want to invest? You probably wanted to invest in the one that has very little red because that means that compounds over time. You're keeping these customers for a long time. You don't want to invest in a company that has a lot of green but also a lot of red. So they have a formula or some that they use how much do you add divided by how much do you lose? And you want that to be very big. And again, it's not the total. We're not talking about what is your absolute mri. We're talking about how good is that growth. This is from Bessemer and is the same thing. This is for SaaS companies as well. And they have it for consumer and for other stuff. But they have, hey, what do we look for? And if you look at this, they look for how fast are you growing? What's your payback? So, meaning if I spend $10 in buying a user, when do I get those $10 back? What's the churn? So that means how many people are leaving and your cash flow efficiency Meaning, hey, if I spend $100, is that customer eventually going to give me more than $100? So if you see this again, there is no mention in this chart about how much revenue do you need to have. It's the quality of the revenue that really matters. So the best companies are growing at least 2x. You're getting your CAC back within 12 months. You're not losing customers. In fact, your customers are spending more, and you're not spending more than a customer gives you. I think this is important for you. This is similar for consumer companies. Lots of numbers here, but they have nothing to do with how much revenue you have. They have to do with how good are your customers. And I will briefly say that find there's this metric, which may be a little tricky, this percent of customers who stick from Q1 to Q2. So if you're a consumer app, you put your app out, and at the beginning there's a big drop. But you really want to measure from the three to six months how many people stick around. And you want it to be as flat as possible because that means you lost all the people that really didn't have any business doing downloading your app at the very beginning, and then you keep the rest of them and so on. There's a lot of them. But the idea is the same. At the end of the day, is my growth because my people, my customers, like the product, love my product, or is it because I'm buying growth with venture money? So it's subtle, but it matters. So what's my advice? Focus on the engine, not on the growth. Focus on the quality of the growth. Okay. You have to measure everything at the series, at the seed round, because when you go to Series A, you want to show a lot of numbers. So it's really important that you measure the performance of your growth engine. So measuring sales and marketing is really important. And again, avoid fake growth. This is a company that has raised $4 million and wants to get to Series A. So it's actually really easy to spend money because you have it. And most founders spend it in a way such that it's not a real company. And Laureate knows this. He has a bootstrap company. Bootstrap companies do not have fake growth because they don't have venture dollars to hide it. So that's something to keep in mind. I'm also an investor in Doordash, and these guys went from 0.5 to 1 in 10 months. At the time, they were just. They were optimizing how they weren't in a ton of places. They were just in the Po Alto Mello park area. And they spent those 10 months really optimizing the metrics there. LTV, CAC, et cetera. And just before the A, they went to San Jose. So, by the way, the Uber story is the same. There were two years in sf, so you really nail down one space, you do really good, and then you spend your A dollars kind of growing that engine in other regions. Okay, so in summary, this kind of difference, just to put it highlighted, from C to A for C, when you raise your seed, when you raise your pre seed, you focus on customer love. When you raise your seed, you focus on your engine. And these are the milestones roughly that get you to each of them. Okay, finally, I'm an engineer. I really believe that if you set yourself some goals, you have to measure how well you're doing for them to get done. This is a quote by this astronomer. I like astronomer quotes, by the way. I don't know why, but small guy and he said, what gets measured gets done. And it's true. If you measure things and you show them to your team, you read them yourself, you're focusing on them. So the best piece of advice that I can give you is when you get your round, make a plan. Think, hey, I want to. Let's assume you're a seed company. You just got your $2 million and you're like, okay, I'm going to get to $1 million in Q in four quarters, and by the end of that time, I'm going to be left with six months. This is. You do an exercise which says, what do I have to do to get to that point? And you walk backwards. Maybe if you want a million in ARR, you probably need to have at least 100k in you to. You need to hire a salesperson. You maybe need to ship a product. If you need to ship a product, you're going to need to have engineers. If you need sales, you're going to need to have some form of demand, gen, et cetera. So when you do this, most of my companies say, oh, shoot, I realize I'm actually short on cash, right? So that's why it's really important to do this. And then you use this table to measure your success over time. Did I hit this goal or did I not hit this goal? And you can adjust based on where you are. So my advice for everybody is, no, I think you have to know your North Star where you're going. And the focus is really not on Fundraising on growth. It's really to build a business large. If you're raising venture that makes money, it's not about losing money, even if you have venture money in your pockets. And with that, I think I'll, I think I'm right on time for the Q and A. I think we have 15 minutes for Q and A and I'll be happy to take any questions.

It's probably one of the most analytic and thought out processes I've ever seen. Going from like early stage to Series A. How long does the drunken walk typically last?

It can last a few weeks and it can last a few years. The length is determined by the strength, the character strength of the founder. Every time you go up and down, for those of you that have gone through it, it's just a huge drain of energy and you feel like you can't get anything done. And if you have a team of a few people, it's even harder. But the most important for you, if you're running a company and you're in a drunken walk, is to tell yourself and the rest of your team to expect those bumps and to be okay if there's bumps, because that's the hardest thing in that stage.

How much on average, investors take ownership at each stage. And what do you advise to founders?

The Series A folks are very ownership driven. I think the average is 20%. I've seen as low as 15% and as high as 25%. But that's almost like an unmovable constant. They will, you're a series A fund, they will not move. So you should count 20% in the seed is a little bit more over the place. It might be anywhere from 10 to 20%. Most likely 10 to 15%. That's what those rounds are like. However, you may be doing multiple seeds. I think that's where you have to be a lot more careful with your dilution.

Should bootstrap founders approach a series A differently, what do you advise that if they bootstrap their growth and haven't raised any money, what's the best way to reach a Series A? Because sometimes I feel like my drunken walk was four year at Boast in the sense that really like I did Boast, but then we also did two other companies in parallel. One was in an accelerator, one was funded, they failed. And then like we pushed forward. But like when you're bootstrapped, sometimes a lot of things, you have less things you can afford to de risk.

You're an example of a great bootstrap company. There is, there are many Seed A funds Accel does a lot of bootstrap companies, for example, that raise their first round is a series A. And that series A could be over $100 million in valuation. Those companies are working, right? They are. They have revenue, they know how to sell, they know where to put the dollars. They're working, they check all the boxes. Now what happens is these poor founders may have spent eight years getting there instead of shorter time. I personally think they are super strong companies and have a really a high chance of success because they're built on strong DNA. In fact, having too much money early makes and results in poor companies because you don't go through the suffering part of building a company, you hide it. Everything can be hidden with money, but.

More people die of indigestion than starvation.

Yes. So I think you're okay if you have a bootstrap company, you're going to raise money, so don't worry and you can set your own terms. So I think you just need to have the patience. Then you need to as a bootstrap founder, maybe don't read TechCrunch or Twitter because you'll hear about all these people raising money and you'll feel like an idiot. So don't do that.

Raising money is not a measurement of success. So having been a part of a few venture backed companies, my early career the fortune to work for two venture backed companies, I consider them failures. So just because you're, just because you got acquired doesn't mean you're a success. If only the VCs got to pull their money out and the founders and then the execs in money make money, it's not a success. We did automatically which was a chatbot. In 201314 me and my co founder Alex at Boston that went through got into Alchemist accelerator. We didn't go through that, we shut it down. And then I had the operator opportunity to work closely with Byron Dieter at Bessemer in a company they incubated called Speakeasy. And that was like an example of you raised 6 million seed from the best investors and you spend the money, build a product team and build a sales team and do everything. And in two years we went from 6 million to shuttering down because you think you have money so you feel forced to spend it, but the fundamentals you shared. And by the way, Rahul's a fantastic entrepreneur. I had him a few months ago and he did a talk on this whole product market fit thing. I shared the link. But they took six, seven years. They're now in the buzz. But Rahul after Rapportive, which I was an early user of he started Auto. He started superhuman in 2014.

Yes.

Buzzes in 2019 he said I think.

Being a founder is a really tough job. I'm sure you all I was a founder, you're a founder. It's the worst. It's just so like your whole life is your company and your identity. So I think patience and grit is the most important thing. I do believe in the power of humans and perseverance and I invest in founders. So that's what I do. I have to believe in that and I really think that we are all capable of success. I think you just have to keep calm.

What are your recommendations for contacting investors?

Even in the era of post Covid you are yourself doing this webinar. There are definitely online networks as well. Listen, there's two ways. Obviously you can find a contact into an investor. So I think you have to start connecting with other founders to begin with. And founders are such nice people. If I ask Lori, please introduce me to somebody else Rarely I get a founder. It's like no way I'm not going to introduce you. It's very rare. So build your network of founders, use tools like LinkedIn and say hey, which is our research. What are good investors? There's a thousand firms and I believe the 8020 rule applies to us. Not all of us are the same quality. So figure out who do you want to talk to, who you want to raise money. Who has a How can I get an introduction to that person through who in my network knows this person and that's the best way to get an intro. However, firms like me, like ours and several other firms will look at every deck that comes in and what do you have to do Then it has to be very. The email has to be bullet points. We are not going to. You don't want to. I don't want to read a big thing or don't send a 40 deck slide deck. It's just we don't have a lot of time. So many. I get so many emails every day so somebody's going to filter it for me. Put the bullet points why should I talk to you and you'll get some feedback. Not everybody will give you feedback but some people will give you feedback.

I send a lot of deal flow to different investors. I've sent to you Mar. You've taken a lot of meetings. I sent a very concise email even for the companies I'm advising. I said this is the company this is the problem and value proposal. These are the metrics, these are the logos. What is the ideal company for you guys?

I am looking to partner with founders that know more than I do and that I recognize that I know about fundraising and building companies but there are so many areas to work on in the world and I'm not an expert but I want to go on a ride that somebody that has a vision and makes me challenges me and takes me to the next level. So. So that's the person I'm looking to back as a fund. I need to return the fund to my investors. So I want companies that eventually can.

Become large companies and you gotta make those bets. And how big is you guys fund if you're open to sharing that?

Yeah, my current, our current fund is $160 million. We do. We have an accelerator that we run in the summer. It's very small compared to YC. I think for many folks it's either YC or Pearl and it's 15 companies. I work with each company directly. I love that stage. We have very good financing terms and all the companies I think not. I think all of the companies last round except one raised an institutional seed round right after coming out of the accelerator. So we know how to make those companies with the founders. We do pre seeds and we also write, we also lead seeds. So about a lot of what I do is write checks that are the other $2 million and rounds that are 3 to 4 million.

And you. And the reason I asked the previous question is you're not really married to Stanford because initially not at all.

We actually started the fund started. I'm from Stanford and I teach there and anyways I have a lot of ties and it's not bad. It's not bad. So I started investing in companies from Stanford. But no, we've expanded a lot. The firm was two people. Now we are 13 people. We have a team. Team investing all across the U.S. yeah, I'm excited. I think we've done Canadian company. We'd like to do more Canadian companies. They're great founders.

Having been a part of Companies in the U.S. in Silicon Valley particularly and building a team here at Speakeasy and then doing what we did at Boast now, especially living in a distributed world. You should find the best unit economics for yourself here. Total cost of a fully burdened Engineer is over 200,000 USD. For over 200,000 USD I can get three engineers in Canada. And with all the grants and the time zone difference, significantly better. You guys don't lead Series A. But you probably have the I lead.

Series A. I am very focused at getting companies to Series A. My metric, I have a metric for me which is percentage of companies that make it Series A and the time it takes.

And you guys probably have the best network. I guarantee you guys if like Pageman or Mark calls any fund in the Bay Area and that's the reputation they have and it's the relationship and the karma and the social credit they've built. If they call any fund in the Bay Area saying invest in this company, like they're taking the meeting and nine out of 10 times they're investing in it. What a fantastic person. Amar, you are and great honor.

Thank you so much. I really appreciate the opportunity.

You need some traction.

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