Fundraising Lessons From Two Exits & a Unicorn with Waseem Daher, Pilot

I think the problem with fundraising, again, I like this lens of like, it's a necessary evil. If you raise too much money, you'll spend it. And if you spend it, you're going to create problems for yourself down the road. If the team gets super, super big in a way that is out of whack with the metrics you've actually achieved, you're cranking up your burn rate, you're creating this very strong dependence on this additional capital. And whatever really ends up happening is you've built a machine that wants to spend $5 million a month or whatever it is, and then you're going to eventually spend that money down. You'll find that you need to raise money, you'll go to your investors and they'll say, listen, the business is just not in a state where we should give you more money at these terms. And so you're setting yourself up for some real pain down the road. I need some traction. You need some traction. Let's get some traction.

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It's important to have the right prep in place to make all the difference. Right. You want to optimize for the best partner at the best valuation at the right time. And couldn't be more excited than to bring Waseem Here, CEO at Pilot is the top modern finance team on the planet, giving you the best bookkeeping, tax and CFO services for your growing business. Pilot recently raised. I think we've raised over what, 100 million plus.

Yes, definitely. Yeah. Total funding to date is like 160 million.

160 million from awesome investors like Jeff Bezos Venture Fund, Bezos Expeditions, along with Whalerock Capital and then Index Ventures and Stripe in Sequoia. Yeah, some of the best investors that anyone would envy and die for. And at a 1.2 billion valuation. And this is not your first journey. You've been a serial entrepreneur. Ksplice acquired by Oracle. Zulip acquired by Dropbox. So you're going to share the KPIs and questions investors want to look at and how to get there, how to get there faster. Before we jump into all the questions, tell us how you got started. Give us your backstory.

Sure. What's interesting is that the backstory for this company is so tied into the backstory between our previous companies, my co founders, really everything, it's all very tied in. Which is to say, if you think about my founding team, Jeff and Jessica and I, we all met at MIT a zillion years ago. We all said computer science. We were in the computer club together. The whole thing was extremely nerdy. And right out of school we started a company based on my co founder's master's thesis, this company called ksplace, as you mentioned, which Oracle acquired. And that was really dipping our toes into the world of startups. We were all like 21, 22, starting to think out of school. We bootstrapped it, actually. We didn't raise any external funding. The way we grew the business is we sold our customers a service and then we reinvested that money in the business. And I think that really led to a sort of sense of rigor or discipline about how we operated the business. So we ran that company for about three years, grew at seven figures in revenue. Oracle acquired it. We were at Oracle for a year and a day to transition over the tech and then kind of get out of there. Started another company together called Zulip. As you mentioned, it was a group chat tool for businesses. Dropbox acquired it. We were at Dropbox for about two years helping run product and engineering left. And I started this company basically early, late 2016, early 2017. And to your question, like why how did we decide to start Pilot? Well, we started Pilot because this was pain that we very viscerally had in our previous companies, meaning when we were running Case west, when we were running Zulip, I wanted to focus all my time on building the product, hiring the right people, thinking about the marketing strategy, et cetera, et cetera, working on sales. And yet what we found is so much of our time was spent managing tedious back office stuff and in particular on the kind of finance and accounting. And so we said listen, we want to build the service we wish existed at the time. And when you hire a pilot, you're paired with your dedicated account manager, full time employee of ours, sits in our offices, does your bookkeeping, tax prep, budgeting, forecasting, all that good stuff so that you, the startup founder, can be laser focused on actually making the business succeed. So that's a little bit about how we got here.

What were some of the fundraising things you learned? I guess not to do from ksplice and zeolip.

Sure. Look, I think the things to remember are that, and I've written about this a little bit on my blog, I have a substack out with seen.substack.com and one of the things that I really encourage folks to internalize is that to remember that fundraising is not success. I think a lot of people think about fundraising is the end rather than the means to do something. Your view honestly is it should be a necessary evil to cause the business to be successful. Which is, look, you need capital. One of the ways in which you might get capital because you might raise it from venture capitalists, but you're raising the capital because there's something you want to do. So the goal is not VC funding. The goal is I'm trying to grow my business. One of the ways in which I might grow my business is by raising some VC funding. And I think the corollary to that is whenever you raise a round, you have to be thinking not about the round you're raising, you have to be thinking about the next round. Meaning when you take in capital from a venture capitalist, one of two things has to be true, which is you're going to use that capital and you're going to do a bunch of stuff. And at the end of that time, when you've used all that money, you either have to be profitable so you don't need to raise more money or the business's milestones need to be at a point where you can raise the next round. So when folks are thinking about how much should I raise for my seed round, or how much should I raise for my Series A or whatever, I think the question you have to ask is, what would my metrics need to be to raise a Series B? How long is that going to take? How much cash is that going to consume? And what does that imply about how much I should raise? So I think frequently people are not that sophisticated about thinking exactly how much they should actually be raising.

You started Pilot, you started in a very capital, efficient way. And you talk about this a lot. Did you raise money out of the gate or at what point did you decide to go and raise funds?

Yeah, so with Pilot, we raised our seed round. We raised a $3.3 million seed round basically immediately upon starting the company. And why did we do that? We did that for a couple of reasons. One is, well, because we could. And I think the reason that we could is because we had such a track record from our previous companies. Like, the way that round came together is basically, if you look at our investors, they're all folks that we had known for 10, 15 years in some cases, who had followed along with the previous ventures. And so the email was basically, hey, Jeff, Jessica and I are doing a new company. Are you interested in investing? And the answer is basically, yes. Send me wire instructions. Okay, cool, let's do it. And then structurally, the reason we did that is because we wanted the optionality. We wanted the flexibility to be able to hire great people that were in our network. We wanted to have the ability to spend marketing dollars if we needed to. And we thought that the benefits of having that dry powder, having that optionality, outweighed the costs of the time and the dilution, et cetera, et cetera. And look, I want to say very explicitly that it's not. This is not an option that everyone has. We happen to have that option. And for us, we thought it made sense in the sense that we knew that we were really swinging for the fences with this company, that we were trying to build something big and massive and enduring and that to best set us up for success, we wanted the ability to make these sort of long term investments out of the gate as.

You were starting, because you had the track record, you raised the money. Not everyone has that. But what were the metrics you had to show? Or maybe it was nothing. I have a great idea. We're betting on you. But between that first pre seed round or seed round that you raised to the next, what were the things you needed to show?

Yeah, it's a great question and it's very stage dependent. And so in the pre seed or the seed round, I think the questions that your investors are typically asking, generally you don't have much to show and so you can't say, oh, I'm going to look at how much revenue they have and I'm going to do some discounted cash flow analysis and blah blah, blah. If you have that stuff, great, even better, like you're ahead of the game. But for the average venture backed early stage, pre seed or seed stage company, there's not a lot of meat on the bone there. There's not a lot to show. What you really have is you say, look, we have a team and we have an idea and then maybe I have some initial traction. In the pre seed stage you may not even have initial traction. And the lens that your investor is going to apply is to say, okay, let's look at both of those things. Let's look at the idea, how big could this thing be if it is successful? Again, most startups are going to fail. Let's assume that this works. If it does work, if the entrepreneur is wildly successful, how big is that going to be? And is the size of the market large enough to be interesting? That's probably criteria number one that I think early stage investors look at. Criteria number two is the team. Who are these folks? Have they worked together in the past? What is the track record that they've achieved together? Is this a backable team? What do they have to show for themselves from a team dynamics perspective? Founder drama and team risk kill many early stage companies. And then the third question is actually about the combination of these two, which is their bounder idea fit. Why is this team well suited to solve this problem? And in fact some people, I think the folks at Parameters talk about like minimum viable team. Is this the right team to tackle this problem? What is the story for? Why should these folks solve this problem? Like why will this team and idea together win? And I think at the early stages like that is what you have to show for yourself. And that's actually why they're super. Early stage fundraising is really hard because it's incredibly subjective. It's this team good. Is this idea good? That's very hard to evaluate in later stages like now let's talk about seed or maybe series A, depending now it's okay, well look, did they Build MVP is there that initial traction is their product market fit. And if there's product market fit, cool, let's go. Let's invest more deeply. I think in the subsequent round. It's not now is a product market fit, is it working and is it scalable? And we'd start to look at things like cost of customer acquisition, lifetime value. How are the cohorts doing? If we pour more gas on this thing, are we going to be able to grow at the rates we'd like to grow? I think those are the questions at those various stages.

How did you guys evaluate? This has legs right now because you had the idea, at what point you felt like, okay, this has got product market fit right now and let's just pour gas on the fire.

So the interesting thing about our business, and this is very specific to Pilot's business. And so I don't know that this is a universally applicable or universally true rule. If you think about what we do again, we do bookkeeping, tax prep, budgeting, forecasting for companies, mostly technology startups. Actually, that's really our bread and butter. Tech startups, from two people in a garage to full time finance team, a couple hundred employees for every business. The question I have is what risks exist for the business? Is there like technical risks? Are we not sure that it is possible to build this thing and we need to kind of like de risk that is there market risk? Do we not know if people really want this? Is there team risk? There are a variety of sources of risk. And one of the things you're trying to do in the early days of the business is de risk, those sources of risk. And for us, if you look at the stuff we do, everyone has to buy accounting. Like you have to do it at some point. And maybe you come to Pilot or maybe you go to your accountant down the street or maybe you DIY or whatever. But the market was very clearly a large existing market. I didn't have to convince you that hey, you should pay your taxes, like you already know that you need to do that. And so then the question is, fine, is Pilot going to be capable of winning in this space? Can we build an offering that people love, that they want to use, they tell their friends about, et cetera, et cetera. And so structurally, I think our business, someone is going to win in this space and the winner in the space is going to be huge. The size of the opportunity is staggeringly large. And so the question I think for us and for our investors is, well, okay, is Pilot likely to be that and if we can demonstrate that, yes, we think we can be, then it makes sense to raise that funding.

Now do you think it's a winner take all market given how big it is globally? Accounting is probably one of the largest markets globally. And then you got the big four and then you got the next level and then you got the mom and pops and then now you got a massive tech enabled player like Pilot.

Look, I think nothing is truly winner take all in the sense that even if you look at like AWS or at Salesforce, like Salesforce, can you even think of another CRM company besides Salesforce? Like fine, I actually can, I can think of a few. But still Salesforce have 20% market share and it's by far the biggest provider in the space or AWS, I think the stats on AWS adoption is like 30%. It's something like that. So even the most dominant incumbent players, you're never going to get 100%. And so that's especially true I think in accounting where there's a super long tail of individual hyper specialized regional providers. However, I think one of the things that's very powerful is that there really is no one with a national or global brand. Yes, there's the big four, but with the exception of the big four, the market is dominated by a long tail of kind of boutique regional providers. And so I think we have a unique opportunity if we can really do high core quality work as we scale. I think we have a unique opportunity to really build an iconic enduring brand in a way where the conversation actually starts to tip it tips from oh, who should I use to do my corporate taxes? Or who should I use to do my corporate bookkeeping? It becomes and says I've heard of Pilot, I know they're good. My default is that I should use them unless someone convinces me that I should use something else. So I think there is, there's a real brand Flywheel. It takes a lot of work to get that flywheel spinning, but once it is spinning, it is actually I think a very powerful force for customer adoption.

Now in your sort of fundraise process, right, you said that you took two term sheets offered at 2x the 40 million you raised in your series B, but you chose not to raise so much capital.

Why? Look, I think the problem with fundraising, again, I like this lens isn't necessary evil. If you raise too much money, you'll spend it and if you spend it, you're going to create problems for yourself down the road. If the team gets super, super big in a way that is out of whack with the metrics you've actually achieved. And you're cranking up your burn rate, you're creating this very strong dependence on this additional capital. And whatever really ends up happening is you've built a machine that wants to spend $5 million a month or whatever it is, and then you're going to eventually spend that money down. You'll find that you need to raise more money. You'll go to your investors and they'll say, listen, the business is just not in a state where we should give you more money at these terms. And so you're setting yourself up for some real pain down the road. So again, if you've got the cookie jar, and my experience is if you have the jar of cookies, you're going to eat all the cookies. It is rare that you like cookie jar. And you're like, no, I'm going to be really disciplined. I'm only going to eat one cookie a week. Probably not. You're probably just going to eat all the cookies. And I think the same thing is true from a capital perspective, which is if you've got the cash in your bank and it's not like you're trying to be wasteful, but you've got a great candidate and if you'd only offered them like 10% more, you could land them, or if they had a signing bonus, or if we got the nicer office rather than a less nice office, and each of those things individually, you don't feel like, oh, it's fine, we have a bunch of money, we can spend a little bit more here. But you do that over and over again. And all of a sudden now your burn is a lot higher than you expected it to be, that you modeled it to be. And also that's appropriate for your stage. So I think it is healthy not to over capitalize the business.

But then a few months later, or maybe between that time, maybe six months later or so, you went and raised more money and got to a $1.2 billion valuation. What drove that decision making?

Sure, the place where we really exercised restraint was on the Series B was around in which we raised about 40 million from index, from Stripe, and there was an opportunity at the time to raise much more capital than that. Our feeling at the time was, listen, the business is working and it's working super well, but there's still a bunch of stuff that we need to figure out and that we need to get dialed in. And of course that is still the case today. But as we Were doing our series C. The company is in a quite significantly different state than we were at the time of our series B. And the question we sort of asked the team is, listen, if we have this capital, can we use it productively? Can we use it effectively? Can we use it in a way that is going to add significant value to the business? And I think in asking ourselves that question in early 2021, the answer is, yes, we can. So we should rate it. It doesn't make sense to raise it and then just sit on it. You should raise it because you want to spend it, and you should want to spend it. If you have a way to spend it that will create more value, not spending it.

Now, could we dive into maybe each state? You did a great job walking through each earlier, but I want to dive in a little deeper. Like, when do you think is the right time to raise? Like, timelines, key considerations, planning, prep, and then what do you think are the metrics investors are actually looking for each of those stages? Say, like, seed A, B, and then C?

Yeah. So listen, this is a little bit tough in the sense that there's a weird and kind of perverse thing that happens here. Which is the easiest time to raise money, unfortunately, is when you don't need the money because you have leverage. So the fact that you don't need to raise it in some ways makes it more accessible to you because your investor is not. Does not want to throw good money after bad. And so actually, the fact that you have cash in the bank or that you have Runway or that you have whatever in some way that actually makes it possible for you to raise money. Like not needing money makes it possible for you to raise money. So from a timing perspective, I think you want to start the process as early as you can, because if you're about to run out of money, that's a very dangerous position to be in, both from a negotiating perspective, because your investors will know that you're almost out of money and therefore you're desperate. But also for you yourself internalizing and believing this notion that, hey, I can walk away if I don't like the shape of this deal. And so we say, in general, you want at least six months of Runway before you're starting the process. And if you're starting the process with less than six months, Runway, look, you need to do what you need to do. But it is a more fraught process. So the more Runway you have at the time you're trying to raise money, the better. I think pulling together the materials like could take a month, could take two months potentially depending on what you're trying to do. The process itself can take anywhere from weeks to months and then once you have a signed term sheet, actually closing could take 30 to 60 days. I think that would not be uncommon. So the whole process moves a lot more slowly than people think. And so that's worth keeping in mind as you, as you think about your own timeline, which is the reason I said you should have at least six months is because it is a multi month process. Definitely at least.

How long did it take you at the A stage and B stage or like from what you see your clients raising typically that process, and what I heard that was really awesome from you is I had these relationships and then the deal just came along at the early stages and then probably even now. And life in business is a marathon, is not a sprint. And relationships transcend companies. I see often if you optimize for the transaction the first or second time, things are shaky, then you're either out of there as a founder or they're out of there as an investor. And I've seen that you've done a great job optimizing for that relationship. But relationship or not, there's still a process. How did that process or the average company you look at you angel invest in, what does that process look like?

There are a number of options and I think people do it different ways. And again, it depends a lot on your existing network, what connections you have with investors, et cetera. For us in our seed round, one of the decisions we very intentionally made is we took a little bit of institutional money from three different investors and three VC firms. And we did that because we wanted to audition them basically for the Series A. We wanted them to be following along closely and we wanted to get a sense of what the experience was, working with them so that when the time came to raise additional capital, we had some pre warmed up folks where they knew us, they knew the business, understood the trajectory of the business, et cetera, et cetera. And so that conversation was a much easier one because they already had context about what we're up to. I think the challenge is if you're building the relationship for the first time, like when you're trying to raise capital, it can be challenging because you don't know them, they don't know you, they don't know the business. It's a low trust environment. As much as possible you would ideally have had a track record of. I met this person before, I told them what we're about before, I was trying to fundraise and look, I'm not spending a ton of time nagging them, but they're aware of what we're up to and what we said we were going to do. And then we come back to them, we say, hey, remember how we said we were going to do thing X? We did it. And here are the next things we're going to do. And we think to unlock that, we'd like to raise XYZ amount of capital. So I do think you have to run a process, but I think ideally, if you have the luxury of this, ideally, it is not a process where you're knocking on 100 doors. Ideally there are a small number of providers or people that you've been keeping warm but keeping up to date. Now, sometimes you do have to run the process, sometimes you literally do have to knock on 100 doors because you don't have the network. And most people say no. And there is a real slog to it. And sometimes you have to do that and that's fine, that's life. That's not bad. It's harder. But that doesn't mean that it can't be done.

Now, there's a key theme I drew from there along the lines of relationships and building relationships was you said earlier on you should always raise, always be raising in the sense when you don't need it. The best time to raise is when you don't need the money. So even if you don't need the money, reaching out, even cold, or proactively saying, hey, I'd love to pick your brains or get your advice on the product when your expertise in the space and just build a relationship and keep them updated and hopefully things turn into something else. Like basically constantly building that relationship relationship. A lot of my relationships started from cold emails and now they've become like lifelong relationships. What do you think are the top factors driving valuation in this market?

It's hard to know. It's hard to know. Yes, it definitely feels like there's a glut of capital. And look, the thing I think that the audience should hear when we talk about this is it is easy for people for whom it has always been easy to raise money. It's still easy for those folks. In fact, it is easier for those folks. Now for the folks who've had difficulty raising money, I'm not actually convinced that it is easier for those folks to raise money money. And so in some ways, one of my biggest gripes about the venture capital ecosystem is that it is quite non Uniformly distributed. And I think the presence of more additional capital here hasn't actually smoothed that out or made more capital accessible to new folks. I think it probably has meant that the people who are going to be winners earlier are now winning faster, even faster, even bigger in terms of the amount of capital they're able to raise. And the reason I say that is, Listen, I think the narrative of, oh, it's so easy to raise money now, just go do it, is one, I think is false. And two is, like, very demoralizing because actually, this stuff is still very much, like, entrenched in these, like, old networks. And the classic VC thing that they say is, find a warm intro to me, find a founder, like, who will vouch for you, and then I'll take the meeting. And yeah, of course, that's best. And if you have available to you, awesome. Congratulations. Like, you're very fortunate. But there are lots of good businesses out there that honestly should be funded that don't have that access.

And so I think constantly putting yourself out there and out there, building relationships. What have you seen that's worked well in terms of building these relationships before you even need the money?

Yeah, it's hard because I think you need to find a way to do it authentically, which is that no one wants to get spammed. And there is a. I think there's a dangerous and fine line between, like, listen, I'm being persistent because persistence is important in, like, having your business succeed and just, like, being annoying. And I think it's common, actually, for folks to be on the wrong side of that line where they're just wasting a lot of time bugging people who will never give them the time of day. And so, fine, how do you actually. How do you actually build these relationships authentically? I think it has to feel not transactional. I think you have to really believe, hey, the reason I'm trying to build this relationship with this person is because there's something I can do to help them, not because I want to put them in my Rolodex so that they later give me money.

I remember the days when in person events used to happen at TechCrunch. There'd be people along the stairs, founders just trying to see if your name tag is a vc and then, like, rope you into a deck and there's just, get out of my way. I've seen that happen, too. On the extreme end of things, Gaurav asked here, how much Runway do you need to keep and what is the average time to raise between, like, Runway, it used to be 18 months. Now it seems like everyone's raising it three months. So people are probably getting skewed.

I think you need to have at least six months of Runway if you can. That's probably the minimum that I would, that I would target in terms of how long it actually takes to raise the money, start to finish. It's definitely months. Closing alone. Between signed term sheet and wire transfer in the bank, it could be 30 days, it could be 60 days, 60 would be slow. 30 is probably average. I've seen faster, but it's not common. And then to get there, it's, you need to meet with the right people and then you need to get the partner excited and then you need to go to the partnering meeting and then the partnership needs to decide. That is definitely a multi week process.

At your stage and given the clout you have and the expertise from multiple exits before, did you have to do that at like the B or a C?

It goes faster, but you still have to do all the work to find the champion and to have the champion convince the partnership. So there are no, I don't think there are any. Real short. Now. The thing that's nice is again, if you've built a relationship, that process can go faster because you have already de risked and addressed some of this stuff. And the second thing too is there, unfortunately, and it shouldn't be this way, but it is. There is real momentum and velocity to these things where I think again, even though it probably should not work this way, there, there really is. Oh, wow. These folks have been trying to raise for a while and can. There must be something wrong about this business and I just haven't figured it out yet. Or conversely, oh, there's a lot of excitement here. There's a lot of interest here. There must be something interesting here. I might not see it yet, but I should spend time with these folks. So unfortunately, there really is this little bit of FOMO to the process as well.

There's the fomo. FOMO is always there and especially people get heated up when you don't need them. Everyone wants to be with somebody who doesn't need them.

Unfortunately. Yes.

Yeah. In terms of content for those early conversations, decks and whatnot, people get very carried away with the pitch deck and the colors and the branding and the design. But really, what are the most crucial items in that sort of, let's call it your deck, your data room. What are the most crucial things? How do you structure that?

I think it's always about storytelling, actually, which is and the deck matters, the visual presentation of the deck, all that stuff does matter. But it matters in service of telling a good story, meaning if the story story is not good, it doesn't matter how pretty the deck is. And so this is really a narrative about look again, what is the size? Why are we doing this company? What problem are we solving? Why now? Why is this the team to do it? What does the world look like when we've succeeded? What is the size of the market you're really telling a story about? Look, the world is currently this way and here's why that's bad. We exist, here's what we do. The world is going to look this way and how amazing and how much better will it be when that's the case. And look at how much value is being created here or spend is being spent here, etc. And here's why we're the team to do it. Broadly, people love stories and you're really telling a story about how the world will be different because you exist now.

When you look at that, part of that is also the data then to back it up. And you guys look at the guts and books of thousands of companies. You said a lot of them are tech companies. How do you advise them to take care of their data and the financial cleanliness as a part of this process? Like, what do they need to have in place?

Look, I think the later stage it gets, the more critical it is. On the early stages, some investors will demand it and some investors won't. And we have a whole practice area at Pilot called CFO Services where we can help you with budgeting and forecasting. And even we have a fundraising support option as well where we can really help you tell the story. But pre seed or seed round, the foundational metrics people are going to ask about is like, how big is the total addressable market? What is the initial customer traction? Are there contracts in the pipeline? What does that look like? How much of the total address market have you served? What does your customer growth look like? What are your revenue drivers? That's probably more seed stage. I think the Series A, probably what folks are going to be asking about is what are gross margins? What does the cohort analysis look like for customers that have been a customer? What does net expansion or net retention look like at the next stage? I think it's really about sales efficiency, it's about LTV to cac, it's about how much organic growth there is. And in the later stages, it really is free cash flow that comes and.

Then in terms of your CF service and the fundraising service that you have particularly, can people just engage with Pilot to start with that fundraising support or how does it work?

Yeah, and I think inevitably what you'll find is that part of telling the story is making sure the financials are clean and you can engage us to do that stuff. But yes, that is available as a standalone option.

And folks, we're going to drop the link to pilot here, pilot.com and just refer to boast AI and they'll treat you really well. So that's the best domain. How did you get that domain?

Whole process. Okay, a lot of money for it. But you also have to work backwards, meaning the way to do this is not to fall in love with the name and then try to buy the dot com. It's actually to say, what dot com do we like? Let's make a list. For us, it was like English word that was spelled well, pronounceable, not too long, has a good connotation. And we made a list of 20 or 100 or 500 or whatever. And then we like went into them down which ones are not obviously in use. If there's some real company that's using it, actually using it as their website, you're never going to get it. So you winnow it down to say, fine, this is the set of names we could potentially get. We try to get prices for each of them. We actually worked with a domain broker to help us do this. And then we said, okay, fine, we can buy Pilot for this price, let's buy it. And then we're going to name the company Pilot. So it really is. You're working backwards from the dot com you can get as opposed to falling in love with a particular name.

We tried to fall in love with Boost. We couldn't buy the domain. Then we went boast. But I think we should have followed your strategy back then. Now, Salman asks here, what are the top three reasons why investors decide to invest in a company?

That's a good question. I think it depends on stage. It's probably total addressable market, like how big the opportunity is, team and traction. I think it's probably those three things like market size, team traction, off the cuff would be my guess as to the element. And really all three elements are present. Those are probably, in my view, the critical ingredients.

Now there's a lot of every VC sort of seems like they're becoming more than a vc. They're becoming a broker of resources. And there's this concept of smart money advantage and all this extra exposures that VC claim that they're going to give you, does that really help you give, get you more customers and market cloud or is it just distraction sort of thing? Does that come into play?

It depends. It depends on the VC and it depends on your business. And it also specifically depends on who at the VC firm you're working with and how much work they are willing to do on your behalf. Like, one of our seed investors made tons of customer intros for us. And so in that way it actually was very value add. And one of our recent, actually Sequoia referred some great exec candidates for us, one of whom we recently hired. So in those cases, like I think there is real value add that comes in addition to the capital.

Value add is always two ways, right? If you have this popular VC and you don't leverage it as a founder, then that's a little bit on you also, right?

That's true, but it's also, I think it's part of your diligence process, which is this person at this VC firm really going to do the work for me? If I come to them with a request, are they actually going to hustle hard and help me out or do they already have a track record as an amazing investor and have they gotten kind of lazy and do they actually just want to spend all their time in Tahoe or whatever as opposed to helping their company? It's like saying you shouldn't raise money from those folks, but you should know what you're getting and then you should be comfortable with what you're getting.

If you focus on the relationship, things will go far because then they like you, they love you, they love your space, they're excited about your vision. It's better, I guess it's better to date, to marry somebody that loves you more than you love them.

Look, you want them to have a strong commitment and conviction and the team and the opportunity and in a willingness to do the work. Because look this, and you all know this is a hard and lonely job and you need as much help as you can get. And so if you are looking for partners to bring on board on that journey, why would you not optimize for someone who's actually going to be able.

To help out for seed capital raise? If you're getting monthly revenue in the few thousand dollars and growing like 10, 20% month over month, does this suffice to show seed investment traction?

It's not that simple, unfortunately, in the sense that there is no right answer to your question. For some investors Answer will be yes. For some investors, the answer will be no. Like off the cuff. The questions I would ask are like, again, how big is the market? If your company is phenomenally successful, how big could it be? Where are you currently playing? What is the character of this revenue? Is it actually like real software revenue or is it services revenue? How happy are those customers? What does expansion look like with those customers? What is the growth rate? And those are all questions that investors may ask. They may also not. So unfortunately, there is no, there is no one answer for yes. This is definitely a VC fundable company. That's why the story matters so much. There's all of these ingredients have to be present or in some cases we may be so excited about the size of the market and the team that we don't care at all about traction because we know that it will follow. In some cases, the traction may be hitting you in the face. But there's something I don't like about this total addressable market or the market dynamics or whatever that will prevent it from being successful. And fortunately, this stuff is more of an art than a science and different investors behave differently.

Now Saeed asks her, does the market see you in binary terms as VC funded or bootstrap? VC funded meaning IPO or exit, or like your bootstrap capital efficient, you're a lifestyle business. Or is that like, how do you view that?

What is the market here? Do we mean other investors? Yeah, pretty much, actually, probably, yes. And I think there is a way to bridge that gap. I should ask you this question, which is I think there is a way to change the narrative from, okay, we bootstrapped for a long time and now we're going to raise some venture money. But I think it is not common. I don't know, what are your thoughts on that question?

Yeah, because we bootstrapped for a while, but the previous company I was at was funded by Bessemer and Salesforce and we raised 6 million out of the gate. It was incubated by Bessemer. They actually put the founding team together and it failed. And it was in this AI for sale space. The issue there was that experience freaked me out and I'm like, we got a bootstrap. I think we stretched the bootstrap too long. Maybe we should have raised a year or so ago, who knows, you never know. But I think the narrative there always was, it's a large market, large tam, we have the expertise to execute on that. And then look at all this great traction we're getting bang on there if you have that narrative, whether you're bootstrapped or you're funded, it doesn't matter. That narrative is key. And when people started seeing your bootstrapped, but like you're growing more than 2, you're doing 2x year over year at incredible gross margins and it's a massive 10 let's do it sort of thing. And again, we also raised from relationships. They're friends of ours, we knew them from the traction community. We didn't go out and shop the deal. It just happened in the flow of the relationship because we weren't considering raising at all. Now the next round will be more deliberate, which ties to this next question from Salman. Here is what is an ideal dilution at each stage? How should founders think about dilution?

Okay, first of all, let's talk about this a little bit. I think folks worry about this too much in the sense that if you are really building gigantic IPO scale business, it probably makes sense to just do the things that are going to cause your company to be most successful as opposed to hyper optimizing for dilution. Now the way that this generally happens is your investor probably has an ownership target that they're looking at. And in series A this is usually like 20 to 25%. In series B it's probably at least 10% series B and beyond it's probably at least 10%. So I think you actually don't have that much control over dilution. Exactly in the sense that your investors probably have some ownership targets they're trying to hit. Now you don't have to take their money. That is the way in which you have control. But I think if you're raising from a VC firm and you're raising a series A, I would be surprised if you can get away with not selling 20, 25% at the seed, what is it?

10%, 5%, 10% seed stage depends on.

Who the investor is. I think the more professional investors may have opinions on this topic, your angels probably don't really care. So it's going to depend a lot on who the buyer is.

And then at the B typically is that another 10, 20% or range?

I think that's generally what we've seen. Yeah.

And so tied to that is like founders don't think about this. Lots of people are very interested in raising, but not every company is venture backable. And you got to realize what the motivations of the VCs are. Like is VC right for you or is it growth equity or is it an angel or is it like a debt provider. Because VCs, the ones that I know in Silicon Valley and you and I know probably most of them are like, hey, we want this deal to return our fund. Is that still the mindset that you're seeing out there?

Definitely, definitely, yes. And listen, I think that most businesses, 95, 99% of businesses, are not right for venture capital. And I think as an industry and as a community, we do ourselves a bit of a disservice in talking about how amazing venture capital is and oh, how great is it that? And so raised money from this. You see, look, if you're trying to build, if you're really dead set on building the iconic, enduring, multibillion dollar public company, you probably can't do it without venture capital. And so you probably do need to go down that road. But that's not the only path that will lead honestly, to your being happy or to your being financially quite successful. There are lots of companies that are smaller, just as lucrative. Meaning it is a lot easier to own 100% of a company that's worth $10 million than it is to build a billion dollar company and own 1% of it. And yet both of those actually translate out to the same dollar value ownership for the person in question. And listen, I'm not saying that it's all about the money exactly, but I think there is a strong tendency to say, oh, we want to raise a bunch of VC and how great is it going to be? And the question I would encourage you to ask is, again, fundraising is a necessary evil. If you need the capital, fine. Let's talk about what the possible sources of capital are. And venture capital may be one source that may or may not be available to you, and we should evaluate that. But we should also look at other stuff. We should look at non dilutive funding, we should look at et cetera. I think there's no wrong way to fund your company. Obviously don't do anything unethical or illegal. But I think barring that, I don't think there's any magic to those venture dollars specifically.

And TechCrunch and VentureBeat and all the great fantastic media which we all love, have created power imbalance towards VCs and created this mindset where if you're building a tech technology company, you should go and raise money. I know tons of SaaS founders, or just technology founders in general. It may be like a email copy, like a mailchimp copy and they have customers and they're making millions of dollars. I think ultimately you have to ask is like how long do you want to run the company? Is there a version of the company you don't want to work for and how much money do you want in your bank account? Unfortunately, I'd only been a part of venture back failures before. Like Speakeasy was a failure. I did Automat, which was like intercom in 2013, 14 built on top of Zendesk. I didn't even know Intercom existed, but that failed. And so I looked around my family and I'm like, I'm not getting any younger. My family is literally turning collateral damage to my entrepreneurial venture. So I better make some money here. And sometimes those things also end up being consideration. Unfortunately, age catches up to you sometimes and you start being real with yourself that hey, am I constantly going to be relying on my spouse for money or venture dollars? So not all companies are fundable now you've raise this money who are the first? You mentioned that Sequoia is very beneficial in putting key folks in front of you, helping you with recruit customers, other investors, clients and whatnot. How do you look at building the exact team from say your series A through series C? Now you guys, you have two other founders who are amazing, like Jessica, your CTO and Jeff, your CEO. But not everyone starts there. So how do you think of building that exec team? Who are the key people you bring on from C from series A to C?

It's hard because I think what you're really looking for in any exec hire ideally is someone who's seen the movie before because what it means is that you're getting a lot for free. They've seen that stage, they've scaled from point A to point B. I would encourage you to basically be very clear about what your objectives are for success. Like I'm trying to. Let's say for example, that we're trying to hire a VP of sales. The question I would ask is, okay, what are the objectives for the VP of sales? If we triple revenue in 2021 and we triple revenue again in 2022 or whatever it is, that will be success. So fine, we want someone who has grown a business from X million to Y million, where the sales motion is probably similar to our sales motion. You want to figure out what the parameters are, what the spec is, what you need done, what is the job you're trying to solve for, and then as much as possible, you want to bring on board someone who you think is well positioned to do that, either because they've done it before or they've been the number Two at a place where that thing was done instead of had a chance to see it. I think your best executive hires are ones that allow you to, it's not that you're not going to think about those things, but allow you to really kind of focus your mind share in other places of the business because you know that these particular pieces are being capably stewarded by someone really seasoned.

And in your case now you're nearing 200 people or more than 200 people, fairly distributed team, right? San Francisco and then in Nashville. Yeah, yeah, Nashville, Tennessee. And how do you make sure everyone is aligned on your vision and values when you're not in the room?

It's super hard. It's super hard. And I don't know that we do this particularly well, but I think it requires you to over communicate. I think you, the CEO or the founder are telling the story every single day. And so you're very familiar with the story, but your employees probably aren't. And so it's to remember actually you spend a lot of time thinking about this, but they don't. So being very intentional about explicitly articulating, look, this is what we're about as a company, this is what we're trying to do. These are the objectives and just reinforcing, reinforcing this point.

And then you would you consider yourself an introvert or an extrovert kind of rockstar CEO because we both are engineers and I had to learn that muscle function of speaking a lot. But would you consider yourself like hey, the bouncing off the walls rockstar CEO or more introvert. And I had to learn this kind of thing.

I think when we started our first company I probably did feel like that kind of very inward looking inwardly. I think the thing that sort of really helped me build the muscles actually was doing sales at the company, which is in all three of our companies. I was very heavily involved in the sales process and the sales is about, first of all, it's about listening and it's about really making sure you understand the person's problem and then talking about how your thing can actually get them what they need, can actually solve their problem. And so I think just so many reps at basically talking to strangers really helped me unlock that capability for myself.

And everything is selling and you're selling to investors, convincing employees, partners, even the press. So I think one of the best advice I heard here is sell. Learn to sell.

As a founder, definitely, yes.

Sell your vision, sell your dream. I asked Jeff Lawson this question. One of the most inspiring CEOs I've met and when I first met him in 2014, he was not or 2013, he wasn't as he is today, but today he's one of the best speakers. And he just said the same thing. Sell and be out there and practice. Keep doing this like town halls will get bigger. And then he recommended a book he said read Made to Stick so that you're not rambling on as an engineer. Last question here. Last couple of questions here. Now you have a Rockstar team. As a CEO, you've got the execs, you've got the ICs. What does the founder CEO focus on when you have a team like that in place? What do you do at crc?

Yeah, there's a great blog post actually written by some of the folks at YC about this called the second job of the Startup CEO. If you think about the early days of the company, your job is build the thing. It's make the thing work. And your second job now is not continue to build the thing. It's actually you're building the machine capable of building the thing, which is your job now is like the care and maintenance of the company, hiring the right people, making sure that they're set up to be successful, unblocking things. If folks are not performing in the ways you'd like them to debug why and fix it or manage them out there's your job is really tending to the company and making it possible for the company to do the work you'd like to do. If I'm writing a line of code right now, or that's probably indicative that we haven't been doing something right, I should be like, if I'm on the critical path of anything happening that's a bad thing, it means we're not going to move as fast as we want to move. It means we're not going to make decisions as intelligently as we could be making them. My job is get the right folks here and set them up to be successful and then get out of their way a little bit.

So that being said, it just seems like you're editing now or you're saying, okay, move left, left two, two inches, move forward one inch. That sort of thing versus your writing. And if you're writing for any department, that means that there's something terribly wrong and what are then your biggest worries and your biggest KPIs as a CEO or companies that then get past the Series A stage to Series C. Yeah.

For us. Let's talk about the first the second question first. The KPIs that we think about are revenue, gross margin, net expansion, NPS and cash burn. And those really sum up the health of the business, which is, are we growing? Are we growing at the rates we'd like to grow? Are we growing in the right way? Meaning, are we like Pilot's core thesis is, again, we have this team. When you work with us, you're paired with your dedicated account managers, a full time employee of ours. And then we have a team of engineers whose job is to build software that our team uses to do the work more accurately, more reliably, more consistently with higher quality. How does that manifest? Actually, if the computer is doing more of the things the computer should be doing, that is manifested in margin. So I care about revenue, I care about margin, I care about net expansion. Because net expansion is just about the customers like what we're doing and are they voting with their dollars. If they like what they're doing and they grow with us, that means we're building something that's useful and good for them. If they don't, that's bad. And that will be reflected in that NPS for the same reason. Are customers enthusiastic promoters of what we've built. If they are, it's a huge tailwind for the company. And if they're not, we got to fix it right away. It's an existential risk to the company and the cash burn. Again, your two jobs as the CEO are like, don't let the company run out of money and attract and retain the best talent and set them up for success. And the cash needs to be a thing you look at because it is the thing that governs whether your business will continue to exist.

And then your worries as a CEO are probably all tied to that.

Or basically, yeah, it's like, how are we tracking on each of these and why? In other words, the why matters because it is possible that you're behind on a given thing and you're like, fine, I understand why it's okay, it's not a concern, or you may even be ahead on a thing, but you know that it's going to catch up with you in some way.

You look at those metrics like on a weekly or daily or how do you look at it for your business?

I'm probably particularly close on the sales and marketing side of things. So I'm looking at our revenue all the time. Jessica is much closer on the margin side of things and Jessica's looking at margin all the time. Though I might look at margin at least once a month for Example, No.

And then outside of that, what else worries you as a CEO and how do you prep for it?

Honestly, I don't know that I worry about that much. Besides those things in the sense that I genuinely, I'm not selling here, I genuinely believe this, which is we're targeting a huge problem that every business owner in the world has. We're doing a thing that no one else does in a way that no one else does it. And if we can actually get this out into the world, it like will be incredibly successful and transformative.

And you've got partners who believe in that.

We have all the raw ingredients, we have the capital, we have the team, we have like for us. I really think of it as it's ours to lose. And so actually the things I worry about are execution risk things, which is are we actually doing the right things to succeed in the ways we'd like to succeed?

So as you look back on this great journey, you've had lots of learnings, successes, failures, tears, blood and money. What do you wish you did more of and what do you wish you did less of? Could be personal, professional getting to here.

Yeah. And again, I'm going to plug my own little substack here. I do write about some of this stuff on every other week basis. I wish I had worried less about our competitors in the previous companies. We spent so much time worrying about what everyone else in the market was doing and it doesn't really matter. What matters is what you are doing and what your customers think of it. And if you're laser focused on who is my customer and am I serving them well and are they telling their friends like that is the North Star you need to be focused on. And so it's very easy I think for the startup founder, especially the first time startup founder, to worry about a bunch of stuff that is on the periphery of that which just does not actually matter. What matters is like do your customers love what you do? Are they evangelists for you? So I wish I had worried less about that stuff and more actually like you can never spend too much time customers. The other thing too, and this sounds trite, but it is true, which is that it is a marathon, not a sprint. And so I think especially in our early companies, I wish I'd taken more time for me to sleep more, spend time with my friends and family, do the things I needed to do to recharge, to allow me to actually do a good job while I'm actually working.

And you did take a month pat leave or so this time. And that was.

It was eight weeks, it was two months.

That was amazing. And you told me that you were fully or mostly disconnected during that time. Not a lot of founders do that. I had the bad experience of almost dying due to Covid in January after a raise and I sat in the hospital and thought of only one thing. If I could go back in time, I would spend more time with family. Because that time I come back.

That's so true. And look, it's not as binary as that sounds. Meaning if you do that, if you spend time with your family and friends and like on self care, you'll actually do a better job at work too because you'll bring more energy to it.

The biggest outcomes are of part Founder led from Dropbox to Airbnb to Shopify. So it's important founders take care of themselves so they can perform well in the business. Folks subscribe to Waseem substack waseem.substack.com we dropped the link here. Also, check out pilot.com and let them know that you were referred by Boast. Waseem, thanks so much. Thanks for being a friend. Great partner. Thank you for listening and we hope.

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